Grace M. Osborne Director

n Interactive rating process n Overview of catastrophe models for - Primary insurance companies - Primary insurance companies - Professional catastrophe reinsurers - Professional catastrophe reinsurers Standard & Poor’s Standard & Poor’s Standard & Poor’s Approach To Evaluating Catastrophe Exposure Risk

Catastrophe Model for Primary Insurance Companies n Primary Model n Qualitative Approach n Quantitative Measures n Key Catastrophe Ratio Bench Marks Standard & Poor’s Standard & Poor’s

Proprietary Catastrophe Model Primary Companies n Utilize: - Industry & Company-Specific Data - Industry & Company-Specific Data - Historical Industry Data (Frequency & Severity Factors) - Historical Industry Data (Frequency & Severity Factors) n Company-Specific Data - Customized To Insurer - Customized To Insurer - By Line - By Line - By State - By State n Starting Point In Analyzing Catastrophe Risk Standard & Poor’s Standard & Poor’s

Catastrophe Model Quantitative Measures Recovery Ratio (x) Net Expected Catastrophe Exposure 3 Year Average Pre-Tax Income _____________________________________________________ Exposure Ratio (%) Net Expected Catastrophe Exposure Statutory Surplus _____________________________________________________ Liquidity Ratio (%) Net Expected Catastrophe Exposure Liquid Assets Standard & Poor’s Standard & Poor’s

Key Catastrophe Ratio Benchmarks BB BB Or Or Rating Level/ Ratio AAA AA A BBB Lower Cat Recover Ratio (x) 0<x< <x< <x<5.0 4<x<6 5<x & x<0 Cat Exposure Ratio 0<x<15% 10%<x<35% 15%<x<40% 30%<x<60% 55%<x Cat Liquidity Ratio 0<x<10% 7.5%<x<25% 20% <x<50% 40%<x<100% 95% <x Standard & Poor’s Standard & Poor’s

Qualitative Approach Catastrophe Methodology n Review Catastrophe & Property Reinsurance Programs n Review Other Sources Of Liquidity n Evaluate Access To Capital Markets n Assess Parent/Subsidiary Relationship n Evaluate Impact Of Various State Initiatives Standard & Poor’s Standard & Poor’s