The Commercial P/C Insurance Industry: Overview & Outlook

19th Annual NYSSA Insurance ConferenceNew York, NY

March 17, 2015

Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist

Insurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5540 Cell: 917.494.5945 stevenw@iii.org www.iii.org

2

Insurance Industry:Financial Update & Outlook

2014 Was a Reasonably Good Year

2013 Was the Industry’s Best Yearin the Post-Crisis Era

2

P/C Industry Net Income After Taxes1991–2014E 2005 ROE*= 9.6%

2006 ROE = 12.7%

2007 ROE = 10.9%

2008 ROE = 0.1%

2009 ROE = 5.0%

2010 ROE = 6.6%

2011 ROAS1 = 3.5%

2012 ROAS1 = 5.9%

2013 ROAS1 = 10.3%

2014 ROAS1 = 7.6%

•ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 7.7% ROAS through 2014:Q2, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009.

Sources: A.M. Best, ISO; Insurance Information Institute

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $

36

,81

9

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

5,2

04

$1

9,4

56 $

33

,52

2

$6

3,7

84

$5

0,2

03

$3

8,5

01

$2

0,5

59

$4

4,1

55

$6

5,7

77

-$6,970

$2

8,6

72

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14E

Net income rose strongly (+81.9%) in 2013 vs. 2012 on lower cats, capital gains

$ Millions

-5%

0%

5%

10%

15%

20%

25%

50

52

54

56

58

60

62

64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

14E

*Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude

mortgage and financial guaranty insurers. 2014 figure is through Q3.

Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

ROE

Back to ‘60s? P/C InsuranceIndustry Profitability, 1950 – 2014*

1950-70: ROEs were low due to low

interest rates, low inflation, and “Bureau” rate

regulation.

1970-90: Peak ROEs were much higher but troughs were

comparable. High interest rates, rapid inflation, economic

volatility all played roles. 1990-2010s: Excluding mega-CATs, this period

resembles the 1950-1970 period

5

P/C Insurance Industry Combined Ratio, 2001–2014:Q3*

* Excludes Mortgage & Financial Guaranty insurers 2008--2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014:9M = 97.7.

Sources: A.M. Best, ISO.

95.7

99.3100.8

106.3

102.4

96.797.9

101.0

92.6

100.8

98.4100.1

107.5

115.8

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned Premiums

Relatively Low CAT Losses, Reserve Releases

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Avg. CAT Losses,

More Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Cyclical Deterioration

Sandy Impacts

Lower CAT

Losses

Best Combined Ratio Since 1949 (87.6)

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2008 -2014 figures are return on average surplus and exclude mortgage and financial guaranty insurers. 2014:9M combined ratio including M&FG insurers is 97.7; 2013 = 96.1; 2012 =103.2, 2011 = 108.1, ROAS = 3.5%.

Source: Insurance Information Institute from A.M. Best and ISO Verisk Analytics data.

97.5

100.6 100.1 100.8

92.7

101.299.5

101.0

96.797.9

102.4

106.5

95.7

14.3%

15.9%

12.7%

10.9%

7.4%7.9%

4.7%

6.2%

7.4%

9.6%8.8%

4.3%

9.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014:Q3

0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generates an ROE of ~7.0% in 2012/13, ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

Lower CATs helped ROEs

in 2013

7

Return on Net Worth (RNW) All Lines: 2004-2013 Average

25

.6

18

.4

13

.4

13

.2

9.2

8.9

7.9

7.8

7.1

7.1

6.6

4.9

-1.0

-5

0

5

10

15

20

25

30

Fire

Inla

nd Mar

ine

All

Oth

er

Med

ical

Pro

f Lia

bility

Com

m A

uto T

ota

l

Com

mer

cial M

P

All

Lin

es

Oth

er L

iabili

ty

Work

ers

Com

p

PP A

uto T

otal

Hom

eowner

s M

P

Farmow

ners

MP

Alli

ed Lin

es

Source: NAIC; Insurance Information Institute.

Commercial lines have tended to be more

profitable than personal lines over the past decade

Personal lines

8

RNW All Lines by State, 2004-2013 Average:Highest 25 States

20

.5

18

.4

14

.6

14

.3

13

.4

13

.3

12

.3

12

.1

12

.0

12

.0

11

.7

11

.4

11

.1

11

.1

10

.9

10

.8

10

.7

10

.7

10

.5

10

.5

10

.3

9.9

9.8

9.8

9.6

9.5

0

2

4

6

8

10

12

14

16

18

20

22

24

HI AK VT ME WY ND VA ID NH UT WA SC MA NC OH DC CA OR RI WV CT IA NE SD MT MD

The most profitable states over the past decade are

widely distributed geographically, though none

are in the Gulf region

Source: NAIC; Insurance Information Institute.

Profitability Benchmark: All P/C

US: 7.9%

Percent

9

9.2

8.6

8.4

8.3

8.2

8.2

8.1

8.0

7.9

7.7

7.7

7.5

7.4

6.8

6.6

6.4

6.1

5.7

5.3

5.2

5.0

4.3

2.5

1.9

-6.9

-9.3

-14

-12-10

-8

-6

-4-2

0

2

46

8

10

NM FL TX WI KS MN CO PA US AR IL IN AZ MO KY TN NV NJ GA NY DE MI AL OK MS LA

RNW All Lines by State, 2004-2013 Average:

Lowest 25 States

Source: NAIC; Insurance Information Institute.

The least profitable states over the past decade were hit hard by catastrophes

Percent

10

U.S. Insured Catastrophe Loss Update

2013/14 Had Below-Average CAT Activity

Following Very High CAT Losses in

2011/12

10

11

$1

2.8

$1

1.1

$3

.8

$1

4.5

$1

1.7

$6

.2

$3

5.2

$7

.7

$1

6.5

$3

4.2

$7

4.5

$1

0.7

$7

.6

$2

9.6

$1

1.6

$1

4.6

$3

4.1

$3

5.5

$1

2.9

$1

5.3

$1

4.2

$4

.9

$8

.1

$3

8.3

$8

.9

$2

6.8

$0

$10

$20

$30

$40

$50

$60

$70

$80

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14E

U.S. Insured Catastrophe Losses

*Through 12/31/14.

Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.)

Sources: Property Claims Service/ISO; Insurance Information Institute.

2013 Was a Welcome Respite from 2012, the 3rd

Costliest Year for Insured Disaster Losses in US History. Longer-term Trend is for more—not

fewer—Costly Events

2012 was the 3rd most expensive year ever for

insured CAT losses

$15.3 billion in insured CAT

losses estimated for 2014

($ Billions, $ 2013)

11

12

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1994–20131

0.1%

1.4%

3.8%4.8%

6.4%

6.4%

36.0%

41.1%

1. Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2013 dollars.

2. Excludes snow.

3. Does not include NFIP flood losses

4. Includes wildland fires

5. Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.

Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $159.1

Fires (4), $5.5

Events Involving Tornadoes (2), $139.3

Winter Storms, $24.7

Terrorism, $24.8

Geological Events, $18.4

Wind/Hail/Flood (3), $14.6

Other (5), $0.2

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Insured cat losses from 1993-2012

totaled $386.7B, an average of $19.3B per year or $1.6B

per month

13

Top 16 Most Costly Disastersin U.S. History

(Insured Losses, 2013 Dollars, $ Billions)

$7.9 $8.8 $9.3 $11.2$13.6

$19.0$24.2 $24.9$25.9

$49.4

$7.6$7.2$6.8$5.7$5.6$4.5

$0

$10

$20

$30

$40

$50

$60

Irene (2011) Jeanne

(2004)

Frances

(2004)

Rita

(2005)

Tornadoes/

T-Storms

(2011)

Tornadoes/

T-Storms

(2011)

Hugo

(1989)

Ivan

(2004)

Charley

(2004)

Wilma

(2005)

Ike

(2008)

Sandy*

(2012)

Northridge

(1994)

9/11 Attack

(2001)

Andrew

(1992)

Katrina

(2005)

Superstorm Sandy in 2012 was the last

mega-CAT to hit the US

Includes Tuscaloosa, AL,

tornado

Includes Joplin, MO, tornado

12 of the 16 Most Expensive Events in US History Have

Occurred Over the Past Decade

Sources: PCS; Insurance Information Institute inflation adjustments to 2013 dollars using the CPI.

CYBER RISK:

A Rapidly Emerging Exposurefor Businesses Large and Small

in Every Industry

14

Rapidly Increasing Interest from Businesses, Media, & Public Policymakers

14

Data Breaches 2005-2014, by Number of Breaches and Records Exposed

# Data Breaches/Millions of Records Exposed

* 2014 figures as of Jan. 12, 2014 from the ITRC.Source: Identity Theft Resource Center.

157

321

446

656

498

419447

619

783

662

85.687.9

17.322.9

35.7

19.1

66.9

222.5

16.2

127.7

100

200

300

400

500

600

700

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

20

40

60

80

100

120

140

160

180

200

220

# Data Breaches # Records Exposed (Millions)

The Total Number of Data Breaches Rose 28% While the Number of Records Exposed Was Relatively Flat (-2.6%)

Millions

15

Worldwide Cybersecurity Spending, 2011- 2016F

($ Billions)

$55.0

$60.0

$65.9

$71.1

$76.9

$83.2

7.9%8.4%8.2%

8.2%

9.8%

$50

$55

$60

$65

$70

$75

$80

$85

2011 2012 2013 2014F 2015F 2016F

0%

2%

4%

6%

8%

10%

12%

Worldwide Cybersecurity Spending % Change from Previous Year

Cybersecurity Spending Is Rising Sharply, Up by About 8%+ Annually through 2016—a Projected Increase of $12.1 Billion from 2014 to 2016

Cybersecurity spending increased by an estimated $5.2B in 2014, $5.8B in 2015 and $6.3B in 2016

Source: Gartner Group; Insurance Information Institute; Adapted from Wall Street Journal: “Financial Firms Boost Cybersecurity Funds,” Nov. 17, 2014.

16

Data/Privacy Breach:Many Potential Costs Can Be Insured

Source: Zurich Insurance; Insurance Information Institute

Data Breach Event

Costs of notifying affecting

individuals Defense and settlement

costs

Lost customers and damaged

reputation

Cyber extortion payments

Business Income Loss

Regulatory fines at home & abroad

Costs of notifying

regulatory authorities

Forensic costs to discover

cause

17

Source: Insurance Information Institute research.

The Three Basic Elements of Cyber Coverage: Prevention, Transfer, Response

Loss Prevention

Post-Breach Response

(Insurable)

Loss Transfer

(Insurance)

Cyber risk management today involves

three essential components, each designed

to reduce, mitigate or avoid loss. An

increasing number of cyber risk products

offered by insurers today provide all three.

18

19

I.I.I. Released its Second Cyber Report in 2014: Cyber Risk: The Growing Threat

I.I.I.’s 2nd report on cyber risk released June 2014

Provides information on cyber threats and insurance market solutions

Global cyber risk overview

Quantification of threats by type and industry

Cyber security and cost of attacks

Cyber terrorism

Cyber liability

Insurance market for cyber risk

3rd Report in Q2 2015

INVESTMENTS:A Key Driver of Profitability

20

Depressed Yields Will Continueto Affect Underwriting & Pricing

20

Distribution of Invested Assets:P/C Insurance Industry, 2013

Stocks, 22%

Bonds, 62%

All Other, 10%

Cash, Cash Equiv. &

ST Investments, 6%

Source: Insurance Information Institute Fact Book 2015, A.M. Best.

Total Invested Assets = $1.5

Trillion

$ Billions

22

Distribution of Bond Maturities,P/C Insurance Industry, 2004-2013

15.4%

16.0%

16.0%

15.2%

15.7%

16.2%

16.3%

15.2%

16.5%

15.6%

29.2%

28.8%

29.5%

30.0%

32.4%

36.2%

39.5%

41.4%

40.4%

36.4%

32.5%

34.1%

34.1%

33.8%

31.2%

28.7%

26.7%

26.8%

27.6%

29.0%

15.4%

13.6%

13.1%

12.9%

12.7%

11.7%

11.1%

10.3%

9.8%

11.9%

7.6%

7.6%

7.4%

8.1%

8.1%

7.3%

6.4%

6.3%

5.7%

7.1%

0% 20% 40% 60% 80% 100%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Under 1 year

1-5 years

5-10 years

10-20 years

over 20 years

Sources: SNL Financial; Insurance Information Institute.

The main shift over these years has been from longer maturities to shorter maturities, but the 2013 data suggest a shift back has begun.

The 2013 distribution resembles that at year-end 2009.

Property/Casualty Insurance Industry Investment Income: 2000–20141

$38.9$37.1 $36.7

$38.7

$54.6

$51.2

$47.1 $47.6$49.2

$48.0 $47.4$45.7

$39.6

$49.5

$52.3

$30

$40

$50

$60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

Due to persistently low interest rates,investment income fell in 2012, 2013 and 2014.

1 Investment gains consist primarily of interest and stock dividends. *2014 figure is estimated based on annualized data through Q3.Sources: ISO; Insurance Information Institute.

($ Billions)Investment earnings are still below their 2007 pre-crisis peak

24

U.S. Treasury 2- and 10-Year Note Yields*: Monthly, 1990–2015

*Monthly, constant maturity, nominal rates, through January 2015.

Sources: Federal Reserve Bank at http://www.federalreserve.gov/releases/h15/data.htm. National Bureau of Economic Research (recession dates); Insurance Information Institutes.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Ju

n-9

0

Ju

n-9

1

Ju

n-9

2

Ju

n-9

3

Jun-9

4

Ju

n-9

5

Ju

n-9

6

Ju

n-9

7

Ju

n-9

8

Ju

n-9

9

Ju

n-0

0

Ju

n-0

1

Ju

n-0

2

Ju

n-0

3

Ju

n-0

4

Ju

n-0

5

Ju

n-0

6

Jun-0

7

Ju

n-0

8

Ju

n-0

9

Ju

n-1

0

Ju

n-1

1

Ju

n-1

2

Ju

n-1

3

Ju

n-1

4

Recession2-Yr Yield10-Yr Yield

Yields on 10-Year U.S. Treasury Notes have been essentially below 5% for over a decade.

Since roughly 80% of P/C bond/cash investments are in 10-year or shorter durations, most P/C insurer portfolios will have low-yielding bonds for years to come.

U.S. Treasury 10-year note

yields “spiked”

24

Book Yield on Property/Casualty Insurance Invested Assets, 2007–2016F

4.42

4.19

3.95

3.71

3.283.20

3.13

3.74

3.52

3.38

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

07 08 09 10 11 12 13 14E 15F 16F

The yield on invested assets continues to decline as returns on maturing bonds generally still exceed new money yields. Even

short term interest rate increases are unlikely until mid-to-late 2015

Sources: Conning.

(Percent)

Book yield in 2014 is down 114 BP from pre-crisis levels

26

Interest Rate Forecasts: 2015 – 2020

1.7%

2.9%

3.4%3.4%3.4%3.2%

2.8%

1.8%

2.4%2.6%2.7%

3.5%

4.2%4.4%4.4%4.5%

0.1%0.1%0.1%0.1%0.1%0.4%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

10

11

12

13

14

15

F

16

F

17

F

18

F

19

F

20

F

10

11

12

13

14

15

F

16

F

17

F

18

F

19

F

20

F

A Full Normalization of Interest Rates Is Unlikely Until 2018, More than a Decade After the Onset of the Financial Crisis

Yield (%)

Sources: Federal Reserve Board of Governors (historical); Blue Chip Economic Indicators (1/15 for 2015 and 2016; for 2017-2020 10/14 issue); Insurance Info. Institute.

3-Month Treasury 10-Year Treasury

The Fed is expected to

begin raising short-term rates in mid-2015, but

this timeline could easily slip to late 2015 or

even 2016 The end of the Fed’s QE program in 2014 and a stronger economy are

expected to push longer-term yields higher

27

-1.8

%

-1.8

%

-2.0

%

-3.6

%

-3.3

%

-3.3

%

-3.7

%

-4.3

%

-5.2

%

-5.7

%

-7.3%

-1.9

%

-2.1

%

-3.1

%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Per

sona

l Lin

es

Pvt P

ass

Aut

o

Per

s Pro

p

Com

mer

cial

Com

ml A

uto

Cre

dit

Com

m P

rop

Com

m C

as

Fidel

ity/S

uret

y

War

rant

y

Sur

plus

Lin

es

Med

Mal

WC

Rei

nsur

ance

**

Lower Investment Earnings Place a Greater Burden on Underwriting and Pricing Discipline

*Based on 2008 Invested Assets and Earned Premiums

**US domestic reinsurance only

Source: A.M. Best; Insurance Information Institute.

Reduction in Combined Ratio Necessary to Offset 1% Decline in Investment Yield to Maintain Constant ROE, by Line*

27

28

P/C Insurer Net Realized Capital Gains/Losses, 1990-2014:Q3

Sources: A.M. Best, ISO, Insurance Information Institute.

$2

.88

$4

.81

$9

.89

$9

.82

$1

0.8

1 $1

8.0

2

$1

3.0

2

$1

6.2

1

$6

.63

-$1

.21

$6

.61

$9

.13

$9

.70

$3

.52 $8

.92

-$7

.90

$5

.85

$7

.04

$6

.18 $1

1.4

3

$8

.76

-$1

9.8

1

$9

.24

$6

.00

$1

.66

-$25

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1314:Q3

Insurers Posted Net Realized Capital Gains in 2010 - 2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital

Losses Were a Primary Cause of 2008/2009’s Large Drop in Profits and ROE

($ Billions)Realized capital gains rose

sharply as equity markets rallied in 2013-14

Property/Casualty Insurance Industry Investment Gain: 1994–2014E1

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$64.0

$31.7

$39.2

$53.4$56.2

$54.2$58.8

$57.4

$58.0

$51.9

$56.9

$0

$10

$20

$30

$40

$50

$60

$70

94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14E

Total Investment Gains Were Flat in 2014 as Low Interest Rates Pressured Investment Income but Realized Capital Gains Remained Robust

1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B; Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2014 will rival the post-crisis

high reached in 2013

CAPITAL/CAPACITY

30

Capital Accumulation Has Multiple Impacts

30

31

Policyholder Surplus, 2006:Q4–2014:Q3

Sources: ISO, A.M .Best.

($ Billions)

$487.1

$496.6

$512.8

$521.8

$478.5

$455.6

$437.1 $463.0 $

490.8 $511.5 $

540.7

$530.5

$544.8

$559.2

$559.1

$538.6

$550.3

$567.8

$583.5

$586.9 $607.7

$614.0

$624.4 $

653.3

$671.6

$673.9

$662.0

$570.7

$566.5

$505.0

$515.6

$517.9

$400

$450

$500

$550

$600

$650

$700

06:Q

4

07:Q

1

07:Q

2

07:Q

3

07:Q

4

08:Q

1

08:Q

2

08:Q

3

08:Q

4

09:Q

1

09:Q

2

09:Q

3

09:Q

4

10:Q

1

10:Q

2

10:Q

3

10:Q

4

11:Q

1

11:Q

2

11:Q

3

11:Q

4

12:Q

1

12:Q

2

12:Q

3

12:Q

4

13:Q

1

13:Q

2

13:Q

3

13:Q

4

14:Q

1

14:Q

2

14:Q

3

2007:Q3Pre-Crisis Peak

Surplus as of 9/30/14 stood at a record high $673.9B

2010:Q1 data includes $22.5B of

paid-in capital from a holding

company parent for one insurer’s

investment in a non-insurance

business .

The industry now has $1 of surplus for every $0.73 of NPW,close to the strongest claims-paying status in its history.

Drop due to near-record 2011 CAT losses

The P/C insurance industry entered 2015in very strong financial condition.

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14*

Premium-to-Surplus Ratio:1985–2014*

* As of 9/30/14.

Source: A.M. Best, ISO, Insurance Information Institute.

The larger surplus is in relation to premiums—the lower the P:S ratio—the greater the industry’s capacity to

handle the risk it has accepted

(Ratio of NWP to PHS)

The Premium-to-Surplus Ratio Stood at $0.75:$1 as of9/30/14, a Record Low (at Least in Recent History)

Surplus as of 9/30/14 was $0.75:$1, a near-record low (at least in modern history)

9/11, Recession & Hard Market

US P/C Insurance Industry Excess Capital Position: 1994–2016E

Source: Barclays Research estimates.

Su

rplu

s R

ed

un

dan

cy (

Defi

cie

ncy)

The Industry’s Strong Capital Position Suggests Insurers Are in a Good Position to Increase Risk Appetite, Repurchase Shares and Pursue

Acqusitions

Pe

rce

nt

Re

du

nd

an

cy (

De

fic

ien

cy)

Barclay’s suggests that excess is about $200B

(~30%)

P/C Industry: Loss Reserve-to-Surplus Ratio, 1971-2014:Q3

Source: Calculations from A.M. Best data by Insurance Information Institute.

1.2

1.1

1.4

2.1

2.0

1.9

1.9

1.9

1.9

1.8 1

.91

.91

.92

.12

.02

.0 2.1

2.0

2.0 2

.11

.9 2.0

1.8

1.8

1.6

1.4

1.2

1.1

1.1

1.1 1

.21

.41

.21

.21

.21

.11

.11

.31

.11

.0 1.1

1.0

0.9

0.9

0%

50%

100%

150%

200%

250%

1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

RBC requirements took effect with 1994 Annual Statement.

The industry has become less

leveraged since 1994

The Property/Casualty Industry Adjusted Its Risk Portfolio in Response to Risk-Based Capital Requirements Implemented in 1994.

Inflation, Liability Crisis Increased Reserves, Plunging Stock Prices Depleted Surplus

35

Alternative Capital

35

New Investors are Changingthe Reinsurance Landscape

The First I.I.I. White Paper on This Issue Will Be Released Q1 2015

Global Reinsurance Capital (Traditional and Alternative), 2006 - 2014

2014 data is as of June 30, 2014.

Source: Aon Benfield Analytics; Insurance Information Institute.

Total reinsurance capital reached a record $570B in 2013, up 68% from

2008.

But alternative capacity has grown 210% since 2008, to $50B. It has more than doubled in the past three years.

Growth of Alternative Capital Structures, 2002 - 2014

2014 data is as of June 30, 2014.

Source: Aon Benfield Analytics; Insurance Information Institute.

Collateralized Re’s Growth Has Accelerated in the

Past Three Years.

Collateralized Reinsurance and Catastrophe Bonds Currently Dominate the Alternative Capital Market.

38

I.I.I. Will Release its First Report on Alternative Capital During Q1 2015

Issue of alternative capital in (re)insurance has received increased attention in recent years

Significant structural changes in property catastrophe reinsurance space

Questions addressed include:

Sources of new capital

Reasons/Drivers of growth

New structures

Impact of major triggering event(s)

Impacts of higher interest rates

Cat bond yield compression

Forthcoming: Q1 2015

39

Questions Arising from Influence of Alternative Capital

What Will Happen When Investors Face Large-Scale Losses?

What Happens When Interest Rates Rise?

Does ILS Have a Higher Propensity to Litigate?

How Much Lower Will Risk Premiums Shrink/ROLs Fall?

Will There Be Spillover Into Casualty Reinsurance?

Will Alternative Capital Drive Consolidation?

The Strength of the Economy Will Influence P/C Insurer

Growth Opportunities

40

Growth Will Expand Insurer Exposure

Base Across Most Lines

40

41

Real U.S. Quarterly GDP GrowthSince the “Great Recession

Data are quarterly changes at annualized rates. 2014:Q4 is revised estimate

Sources: US Department of Commerce, at http://www.bea.gov/national/index.htm#gdp ; Insurance Information Institute.

-1.5

%

2.9

%

0.8

%

4.6

%

2.3

%

1.6

%

2.5

%

0.1

% 1.8

%

4.5

%

3.5

%

-2.1

%

4.6

%

5.0

%

2.2

%

2.7

%

1.3

%

3.9

%

1.7

%

3.9

%

2.7

%

2.5

%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

09

:3Q

09

:4Q

10

:1Q

10

:2Q

10

:3Q

10

:4Q

11

:1Q

11

:2Q

11

:3Q

11

:4Q

12

:1Q

12

:2Q

12

:3Q

12

:4Q

13

:1Q

13

:2Q

13

:3Q

13

:4Q

14

:1Q

14

:2Q

14

:3Q

14

:4Q

Since the Great Recession ended, even 3% real growth (at an annual rate) in a quarter has been unusual. It happened only 7 times in 22 quarters,

but 4 of those 7 were in the most recent 6 quarters.

60

65

70

75

80

85

90

95

100

105

110

Recession

42

Index of Total Industrial Production:*A Near Peak as of December 2014

*Monthly, seasonally adjusted, through December 2014 (which is preliminary). Index based on year 2007 = 100

Sources: Federal Reserve Board at http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt . National Bureau of Economic Research (recession dates); Insurance Information Institute.

Peak at 100.82 in December 2007 (officially the 1st

month of the Great Recession)

Insurance exposures for industrial production will continue growing in 2015, and commercial insurance premium volume with them. Y-o-Y growth to December 2014

was 4.6%. Both production and premium volume growth for 2015 should exceed this.

42

December 2014 Index at 106.5

Many economists expect business

investment to rise in 2015

NFIB Small Business Optimism Index

January 1985 through January 2015

Source: National Federation of Independent Business at http://www.advisorperspectives.com/dshort/charts/indicators/Sentiment.html?NFIB-optimism-index.gif ; Insurance Information Institute. 43

44

Business Bankruptcy Filings: Still Falling(1994:Q1 – 2014:Q3)

13.9

13.6

12.9

12.0

13.1

12.2 12.6

12.9 13.4 14.0

13.2

12.9 1

3.8

14.0

13.5

12.7

12.4

11.6

10.3

9.9

9.2

10.4

9.0

9.0 9

.59.2

8.2 8.4

10.0

10.3

9.5 1

0.0

9.8

9.7

9.4 9.5

8.8 9

.3

8.3

10.6

8.2

7.6 7.8 8.18.7

9.5

12.8

4.1

4.9 5

.3 5.66.3 6

.7 7.2

8.0

8.7

9.7

11.5

12.9

14.3

16.0

14.2 1

5.0

14.6

14.5

14.0

13.0

12.4

12.3

11.7

11.1

11.0

10.4

9.2 9.3

8.5 8.9

8.1

7.6

7.0 7.3

6.4

8.4

0

2

4

6

8

10

12

14

16

18

94

:Q1

94

:Q3

95

:Q1

95

:Q3

96

:Q1

96

:Q3

97

:Q1

97

:Q3

98

:Q1

98

:Q3

99

:Q1

99

:Q3

00

:Q1

00

:Q3

01

:Q1

01

:Q3

02

:Q1

02

:Q3

03

:Q1

03

:Q3

04

:Q1

04

:Q3

05

:Q1

05

:Q3

06

:Q1

06

:Q3

07

:Q1

07

:Q3

08

:Q1

08

:Q3

09

:Q1

09

:Q3

10

:Q1

10

:Q3

11

:Q1

11

:Q3

12

:Q1

12

:Q3

13

:Q1

13

:Q3

14

:Q1

14

:Q3

Business bankruptcies in 2014 were below both the Great Recession levels and the 2003:Q3-2005:Q1 period (the best five-quarter stretch in the last 20 years).

Bankruptcies restrict exposure growth in all commercial lines.

Sources: U.S. Courts at http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/0913_f2q.pdf ; Insurance Information Institute

(Thousands) New Bankruptcy Law Takes

EffectRecessions in orange

Below pre-recession

level

www.iii.org

Thank you for your timeand your attention!

Insurance Information Institute Online:

45

66%

68%

70%

72%

74%

76%

78%

80%

82%

Mar

01

Jun 0

1

Sep

Dec

Mar

02

Jun 0

2

Sep

Dec

Mar

03

Jun 0

3

Sep

Dec

Mar

04

Jun 0

4

Sep

Dec

Mar

05

Jun 0

5

Sep

Dec

Mar

06

Jun 0

6

Sep

Dec

Mar

07

Jun 0

7

Sep

Dec

Mar

08

Jun 0

8

Sep

Dec

Mar

09

Jun 0

9

Sep

Dec

Mar

10

Jun 1

0

Sep

Dec

Mar

11

Jun 1

1

Sep

Dec

Mar

12

Jun 1

2

Sep

Dec

Mar

13

Jun 1

3

Sep

Dec

Mar

14

Jun 1

4

Sep

Dec

Recovery in Capacity Utilization is a Positive Sign for Commercial Exposures

Source: Federal Reserve Board statistical releases at http://www.federalreserve.gov/releases/g17/Current/default.htm. 46

Percent of Industrial Capacity

Hurricane Katrina

March 2001-November 2001

recession

“Full Capacity” The US operated at 79.7% of industrial capacity in Dec. 2014, well above the June

2009 low of 66.9% but is still below pre-recession levels.

March 2001 through Dec. 2014

46

December 2007-June 2009 Recession

The closer the economy is to operating at “full

capacity,” the greater the inflationary pressure

47

7.2%

3.0%

5.9% 5.7%6.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2012 2013 2014E 2015F 2016F

Business Fixed Investment is Forecast to Grow Steadily in 2015-16, Fueling Commercial Exposure Growth

Business investment will drive commercial property and liability insurance exposures and should drive employment and WC payroll

exposures as well (with a lag)

Sources: Wells Fargo Economic Group; Insurance Information Institute.

Growth

Rate

48

Labor Market Trends

Massive Job Losses Sapped the Economy and Commercial/Personal

Lines Exposure, But Trend Has Greatly Improved

48

49

Unemployment and Underemployment Rates: Still Too High, But Falling

2

4

6

8

10

12

14

16

18

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan-

15

"Headline" Unemployment Rate U-3

Unemployment + Underemployment RateU-6

“Headline” unemployment

was 5.5% in February 2015.

4% to 6% is “normal.”

Source: US Bureau of Labor Statistics; Insurance Information Institute.

U-6 was 11.0% in Feb. 2015.

January 2000 through February 2015, Seasonally Adjusted (%)

High unemployment and underemployment still constrain overall economic growth, but the job market is now clearly improving.

49

U-6 went from 8.0% in March

2007 to 17.5% in October 2009

For U-6, 8% to 10% is “normal.”

50

Nonfarm Payroll (Wages and Salaries):Quarterly, 2005–2014:Q3

Note: Recession indicated by gray shaded column. Data are seasonally adjusted annual rates.

Sources: http://research.stlouisfed.org/fred2/series/WASCUR; National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

$5,500

$5,750

$6,000

$6,250

$6,500

$6,750

$7,000

$7,250

$7,500

$7,7500

5:Q

1

05

:Q2

05

:Q3

05

:Q4

06

:Q1

06

:Q2

06

:Q3

06

:Q4

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

10

:Q1

10

:Q2

10

:Q3

10

:Q4

11

:Q1

11

:Q2

11

:Q3

11

:Q4

12

:Q1

12

:Q2

12

:Q3

12

:Q4

13

:Q1

13

:Q2

13

:Q3

13

:Q4

14

:Q1

14

:Q2

14

:Q3

Prior Peak was 2008:Q3 at $6.54 trillion

Recent trough (2009:Q1) was $6.23 trillion, down

5.3% from prior peak

Growth rates2011:Q3 over 2010:Q3: 4.1%2012:Q3 over 2011:Q3: 3.2%2013:Q3 over 2012:Q3: 3.6%2014:Q3 over 2013:Q3: 4.4%

50

Latest (2014:Q3) was $7.46 trillion, a new peak--$1.21 trillion above 2009 trough

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1314

E

$25

$30

$35

$40

$45

$50Wage & Salary DisbursementsWC NPW

51

Payroll Base* WC NWP

Payroll vs. Workers Comp Net Written Premiums, 1990-2014P

*Private employment; Shaded areas indicate recessions. WC premiums for 2014 are I.I.I. estimates..

Sources: NBER (recessions); Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR ; NCCI; I.I.I.

Continued Payroll Growth and Rate Gains Suggest WC NWP Will Grow Again in 2015

7/90-3/91 3/01-11/0112/07-6/09

$Billions $Billions

WC premium volume dropped two years before

the recession began

WC net premiums written were down $14B or 29.3% to

$33.8B in 2010 after peaking at $47.8B

in 2005

52

Construction Employment, Jan. 2003–December 2014

Note: Recession indicated by gray shaded column.

Sources: U.S. Bureau of Labor Statistics; Insurance Information Institute.

5,000

5,500

6,000

6,500

7,000

7,500

8,000

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

Jan-1

4

The “Great Recession” and housing bust destroyed 2.3 million constructions jobs

The Construction Sector Could Be a Growth Leader in 2015 as the Housing Market, Private Investment and Govt. Spending Recover.

Construction employment

troughed at 5.435 million in Jan. 2011, after a loss of 2.291 million jobs, a 29.7% plunge from the April

2006 peak

52

Construction employment

peaked at 7.726 million in April 2006

(Thousands)

Manufacturing Employment,January 2010—December 2014*

11,4

62

11,4

53

11,4

58

11,4

93

11,5

27

11,5

43

11,5

71

11,5

50

11,5

57

11,5

57

11,5

81

11,5

92

11,6

20

11,6

53

11,6

75

11,7

04

11,7

11

11,7

23

11,7

55

11,7

63

11,7

66

11,7

73

11,7

71

11,7

98

11,8

37

11,8

59

11,9

01

11,9

16

11,9

28

11,9

39

11,9

79

11,9

56

11,9

42

11,9

47

11,9

51

11,9

65

11,9

82

12,0

04

12,0

07

12,0

01

11,9

94

11,9

91

11,9

82

11,9

90

11,9

93

12,0

11

12,0

46

12,0

53

12,0

61

12,0

81

12,0

85

12,0

94

12,1

03

12,1

30

12,1

54

12,1

57

12,1

69

12,1

93

12,2

22

12,2

39

11,250

11,500

11,750

12,000

12,250

12,500Ja

n-1

0

Mar-

10

May-1

0

Jul-

10

Sep-1

0

Nov-1

0

Jan-1

1

Mar-

11

May-1

1

Jul-

11

Sep-1

1

Nov-1

1

Jan-1

2

Mar-

12

May-1

2

Jul-

12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-

13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-

14

Sep-1

4

Nov-1

4

53

Thousands In the past 5 years (from January 2010) manufacturing employment

is up (+877,000 or +7.7%)and still growing.

Manufacturing employment is a surprising source of strength in the economy. Employment in the sector is at a multi-year high.

*Seasonally adjusted; Dec and Nov 2013 are preliminary

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

54

Employment in Oil & Gas Extraction,Jan. 2010—Dec. 2014*

*Seasonally adjusted

Sources: US Bureau of Labor Statistics at http://data.bls.gov; Insurance Information Institute.

156.6

156.9

157.5

158.7

158.2

158.3

159.7

160.1

161.2

161.4

160.8

162.8

164.4

166.8

169.2

170.1

171.1

172.6

173.9

176.4

177.9

178.6

180.4

181.4

182.4

184.9

185.2

186.2

187.8

188.6

189.0

189.2

189.0

190.6

192.4

193.2

194.8

194.2

194.9

195.7

196.0

197.5

198.7

199.7

200.6

203.1

204.3

205.3

207.8

207.5

207.9

210.1

211.3

212.2

212.2

213.1

215.1

215.7

216.1

150

160

170

180

190

200

210

220

Fe

b-1

0

Ap

r-10

Ju

n-1

0

Aug-1

0

Oct-

10

Dec-1

0

Fe

b-1

1

Ap

r-11

Ju

n-1

1

Au

g-1

1

Oct-

11

Dec-1

1

Fe

b-1

2

Ap

r-12

Ju

n-1

2

Au

g-1

2

Oct-

12

Dec-1

2

Fe

b-1

3

Ap

r-13

Ju

n-1

3

Au

g-1

3

Oct-

13

Dec-1

3

Fe

b-1

4

Ap

r-14

Ju

n-1

4

Au

g-1

4

Oct-

14

Dec-1

4

Oil and gas extraction employment is up 37.7% since Jan. 2010 as the energy sector

booms. (Previous boom in 1979-81, employment peak at

267,000 in March 1982.)

(000)

Highest employment in this sector since July 1986.

State-by-State Leading Indicatorsthrough 2015:Q2

Sources: Federal Reserve Bank of Philadelphia at http://www.philadelphiafed.org/index.cfm ;Insurance Information Institute.55

The economic outlook for most of the US is generally

positive, though flat-to-negative for

2 states

Growth in the West is

finally beginning to pick up

56

Percent Change in Real GDP by State, 2013

Sources: US Bureau of Economic Analysis; Insurance Information Institute.

57

Performance by Segment and by State

57

58

-5%

0%

5%

10%

15%

20%

25%

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15F

14F

Net Premium Growth: Annual Change, 1971—2016F

(Percent)

1975-78 1984-87 2000-03

*Actual figure based on data through Q3 2014.Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Net Written Premiums Fell 0.7% in 2007 (First Decline

Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.

2015-16F: 4.0%

2014E: 3.9%*

2013: 4.6%

2012: +4.3%

10

9.4

11

0.2

11

8.8

10

9.5

11

2.5

11

0.2

10

7.6

10

4.1

10

9.7

11

0.2

10

2.5 1

05

.4

91

.1

93

.6

10

4.2

98

.9

10

2.4

10

7.9

10

3.4

98

.3 99

.9

98

.9

10

2.0

11

1.1

11

2.3

12

2.3

90

95

100

105

110

115

120

125

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

F

14

F

15

F

Co

mm

erc

ial L

ine

s C

om

bin

ed

Ra

tio

*2007-2012 figures exclude mortgage and financial guaranty segments.

Source: A.M. Best (1990-2014F); Conning (2015F) Insurance Information Institute.

Commercial Lines Combined Ratio, 1990-2015F*

Commercial lines underwriting

performance is expected to improve as

improvement in pricing environment persists

59

Commercial Auto Combined Ratio: 1993–2015F

11

2.1

11

2.0

11

3.0

11

5.9

10

2.7

95

.2

92

.9

92

.1

92

.4 94

.3 96

.8 99

.1

97

.8

10

3.4 10

6.8

10

4.1

10

2.6

99

.8

11

8.1

11

5.7

11

6.2

80

85

90

95

100

105

110

115

120

125

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F

Commercial Auto is Expected to Improve as Rate Gains Outpace Any Adverse Frequency and Severity Trends

60Sources: A.M. Best (1990-2014F);Conning (2015F); Insurance Information Institute.

Commercial Multi-Peril Combined Ratio: 1995–2015F

11

9.0

11

9.8

10

8.5

12

5.0

11

6.2

11

6.1

10

4.9

10

1.9

10

5.5

95

.4

97

.6

94

.2

96

.1

10

2.1

94

.0

10

0.7

11

6.8

11

3.6

11

5.3 1

22

.4

11

5.0

11

7.0

97

.3

89

.0

97

.7

93

.8

83

.8

89

.8

10

8.4

98

.7 10

2.5

12

0.1

11

2.0

10

1.0

99

.4

99

.0

11

3.1

11

5.0 1

21

.0

80

85

90

95

100

105

110

115

120

125

130

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F

CMP-Liability CMP-Non-Liability

Commercial Multi-Peril Underwriting Performance is Expected to Improve in 2013 Assuming Normal Catastrophe Loss Activity

*2013F-2012F figures are Conning figures for the combined liability and non-liability components..Sources: A.M. Best; Conning; Insurance Information Institute.

61

General Liability Combined Ratio: 2005–2015F

11

2.9

95

.1 99

.0

94

.2

10

4.1

10

1.4

10

3.0

10

3.910

7.1 11

0.8

99

.8

80

85

90

95

100

105

110

115

05 06 07 08 09 10 11 12 13F 14F 15F

Commercial General Liability Underwriting Performance Has Been Volatile in Recent Years

Source: Conning Research and Consulting.62

63

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013

91

.1

42

.1

41

.4

33

.7

26

.3

25

.8

23

.6

19

.1

15

.6

14

.0

11

.3

10

.0

9.8

6.8

6.7

6.5

4.1

3.2

3.1

3.0

2.7

2.2

2.0

1.7

1.3

0.6

0

10

20

30

40

50

60

70

80

90

100

ND

OK

SD

VT

NE IA

KS ID AK

TX

WY

MN IN AR

TN W

I

OH

MA

CT

NM LA

MS

NJ

NY

US

MO

Pe

ce

nt

ch

an

ge

(%

)

Sources: SNL Financial LLC.; Insurance Information Institute.

Top 25 States

Only 30 states showed any

commercial lines growth from 2007

through 2013

Growth Benchmarks: Commercial

US: 1.3%

64

Direct Premiums Written: Comm. LinesPercent Change by State, 2007-2013

0.5

0.4

0.2

0.1

-0.5

-0.8

-0.9

-1.0

-1.1

-1.1

-1.9

-2.0

-2.1

-2.7

-3.3

-3.7

-4.3

-4.9

-10

.7

-11

.4

-11

.7

-12

.6

-12

.7

-13

.6

-22

.4

-25

.1

-30

-25

-20

-15

-10

-5

0

5

MD

NH

PA

CO IL

WA

VA

KY

NC

ME RI

MI

SC AL

GA

CA

UT

DC

OR

MT HI

DE

FL

AZ

WV

NV

Pe

ce

nt

ch

an

ge

(%

)

Bottom 25 States

Sources: SNL Financial LLC.; Insurance Information Institute.

States with the poorest performing economies also produced the most negative

net change in premiums of the past 6 years

Nearly half the states have yet to see commercial lines premium

volume return to pre-crisis levels

65

Top Insurance Issues:What’s Hot, What’s Not

No Dominant Event in 2014, but Some Key Commercial Lines Issues Spiked

Terrorism, TRIA, & Cyber

65

66

TERRORISM

TRIA Reauthorization Wasa Major Industry Effort

Over the Past Few Years

Outline of New TRIA Structure

67

TRIA Program Trigger, from Inception (2003) through Extension (2020)

*First full year of program; TRIA was signed in to law on Nov. 26, 2002, with provisions identical to those in 2003.Source: Insurance Information Institute research.

$5 $5 $5

$50

$100 $100 $100 $100 $100 $100

$120

$140

$160

$180

$200

$100$100$100

$0

$50

$100

$150

$200

03* 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Reauthorization

The TRIA program trigger is the amount of claims insurers will incur before

any Federal participation starts

Program trigger will rise in steps beginning in

2016 from $100 million to $200 million by 2020

$ Millions

68

Industry Co-Pay Sharein Excess of Individual Retention

*First full year of program; TRIA was signed in to law on Nov. 26, 2002, with provisions identical to those in 2003.Source: Insurance Information Institute research.

10% 10% 10% 10%

15% 15% 15% 15% 15% 15%16%

17%18%

19%20%

15%15%15%

0%

5%

10%

15%

20%

25%

03* 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Reauthorization

The industry co-pay share will

have double by 2020 from

program inception

Insurer co-payments in excess of their individual

retentions will rise in steps beginning in 2016

from 15% to 20%

Percent

69

Industry Aggregate Retention Under TRIA, from Inception through Extension

*First full year of program; TRIA was signed in to law on Nov. 26, 2002, with provisions identical to those in 2003.Source: Insurance Information Institute research.

$10.0

$12.5

$15.0

$25.0

$27.5 $27.5 $27.5 $27.5 $27.5$29.5

$31.5$33.5

$35.5$37.5 $37.5

$27.5$27.5$27.5

$0

$5

$10

$15

$20

$25

$30

$35

$40

03* 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

ReauthorizationThe Industry Aggregate

Retention Will Have Nearly

Quadrupled from $10 Billion at

Inception to $37.5 Billion in 2019

Industry aggregate retentions will rise by

$2B per year from 2015 through 2019

$ Billions

70

Structure of Reauthorized TRIA Program (as of 2020)

Source: Congressional Budget Office: http://www.cbo.gov/publication/49866; Insurance Information Institute research.

Major Changes

• 6-Year

reauthorization

• Trigger rises in

steps from

$100MM to

$200MM

• Industry aggregate

retention rises in

steps from $27.5B

to $37.5B

• Industry co-share

above retained

losses rises in

steps from 15% to

20%

Insurers required to

assume materially more risk