1. Market & Cycle How Long Can We Stay Profitable? A Canadian Perspective Presented by: Kevin A. Lee FCAS, FCIA Executive Vice-President IAO Actuarial Consulting Services Inc.

2. Table of Contents P&C Industry ROE Market Composition Regional / Line of Business Results Auto Some More What is to Blame for the Cycle? Can the Cycle be avoided? What to Expect

3. IAO Actuarial Consulting Services Inc. P&C Industry - ROE

4. IAO Actuarial Consulting Services Inc. P&C Industry - ROE

5. IAO Actuarial Consulting Services Inc. P&C Industry - ROE

6. IAO Actuarial Consulting Services Inc. ROE Comments Cycle is evident Most recent is very short and severe – trough to peak in 3 years 9/11 what was the impact? Most drastic in history? Insurers better than reinsurers in latest peak Small had less extremes then largest Raises interesting questions – more later

7. IAO Actuarial Consulting Services Inc. Market Composition Insurers (2007)

8. IAO Actuarial Consulting Services Inc. Market Composition Top 5 Insurers (2007)

9. IAO Actuarial Consulting Services Inc. Market Composition Large Insurers (2007)

10. IAO Actuarial Consulting Services Inc. Market Composition Medium Insurers (2007)

11. IAO Actuarial Consulting Services Inc. Market Composition Small Insurers (2007)

12. IAO Actuarial Consulting Services Inc. Market Composition Auto by Region (2007) Source: IICC

13. IAO Actuarial Consulting Services Inc. Market Composition Comments Huge auto share As auto goes, so goes the industry More rate regulation in auto makes cycle more severe – a dam that bursts Large companies have larger share of auto – helps explain some of the earlier ROE slides

14. IAO Actuarial Consulting Services Inc. Automobile

15. IAO Actuarial Consulting Services Inc. Automobile Loss Ratio

16. IAO Actuarial Consulting Services Inc. Automobile ROE

17. IAO Actuarial Consulting Services Inc. Province2007OverallLoss RatioTrend Newfoundland63%6.0% Nova Scotia51%-0.5% New Brunswick51%-2.8% Prince Edward Island53%-0.9% Quebec 61% 5.4% Alberta63%8.6% Ontario78%9.0% Automobile Trends

18. IAO Actuarial Consulting Services Inc. Personal Property

19. IAO Actuarial Consulting Services Inc. Personal Property Loss Ratio

20. IAO Actuarial Consulting Services Inc. Personal Property ROE

21. IAO Actuarial Consulting Services Inc. Commercial Property

22. IAO Actuarial Consulting Services Inc. Commercial Property Loss Ratio

23. IAO Actuarial Consulting Services Inc. Commercial Property ROE

24. IAO Actuarial Consulting Services Inc. Commercial Liability

25. IAO Actuarial Consulting Services Inc. Commercial Liability Loss Ratio

26. IAO Actuarial Consulting Services Inc. Commercial Liability ROE

27. IAO Actuarial Consulting Services Inc. Regional / Line of Business Comments Wild ride in Atlantic Canada – always ignored Prepare for one in Alberta – auto minor injury regulation Property relatively stable Auto is the culprit

28. IAO Actuarial Consulting Services Inc. Auto Some More Joe Average hates auto insurance Auto insurance in Canada is highly politicized Rate regulators put constant downward pressure on rates Companies eventually respond Public outcry Changes to the auto product If changes are initially successful, calm ensues, But... the cycle eventually repeats

29. IAO Actuarial Consulting Services Inc. What is to Blame? Yes, yes... Economic cycles, catastrophic events, etc. But … The product itself Human nature in general –Company management –actuaries

30. IAO Actuarial Consulting Services Inc. Can Anything Be Done? Yes, but we will always have a cycle Do your rate indications – where are they? Do your rate indications – do them more often Stop being so passive – leadership is needed Better communication

31. IAO Actuarial Consulting Services Inc. What to Expect The cycle will repeat Relative rate adequacy has slipped especially Ontario Auto Industry ROE results are still okay Market likely to remain soft until industry ROE results deteriorate. Eventually markets will harden

32. IAO Actuarial Consulting Services Inc. END OF PRESENTATION