Houston Marine Insurance Seminar “Overview of Excess Casualty and Other Lines” September 23, 2002

-21.05% % % % -7.10% -7.66% NasdaqS&P 500Dow Jones Mos U. S. Equity Markets

P/C Insurer Financial Strength 2001 q 6 companies ratings were raised q 209 companies ratings were lowered q 24 companies became insolvent - all of which were rated below S&P “BBB” Source: Standards & Poor’s, March 27, 2002

Growth in U.S. P&C NPW ( All Lines) Source: A.M. Best, Insurance Information Institute *Estimate based on III 2002 Earlybird Survey 2000: 5.1% 2001 Estimate: 10.3%* 2002 Forecast: 15.1%*

Underwriting Gain (Loss) *2001 estimate based on first 9 months including assumptions for WTC losses. Source: A.M. Best, Insurance Information Institute 2001*

World’s costliest property catastrophe insurance losses, 1970 to 2001 Insured Loss ($millions) Date Event Country BN*11/9/01 Terrorist attack on WTC, Pentagon United States 2 20,185 23/8/92 Hurricane Andrew United States, Bahamas 3 16,72017/1/94 Northridge Earthquake United States 4 7,338 27/9/91 Typhoon Mireille Japan 5 6,22125/1/90 Winterstorm Daria France, GB, B 6 6,164 25/12/99 Winterstorm Lothar France, CH 7 5,990 15/9/89 Hurricane Hugo Puerto Rico, United States 8 4,674 15/10/87 Storms and floods Europe 9 4,32325/2/90 Winterstorm Vivian Western/Central Europe 10 4,293 22/9/99 Typhoon Bart Japan 11 3,833 20/9/98 Hurricane Georges United States, Caribbean 12 3,150 5/6/01 Tropical Storm Allison United States 13 2,994 6/7/88 Piper Alpha oil platform explosion Great Britain 14 2,872 17/1/95 Great Hanshin earthquake, Kobe Japan 15 2,551 27/12/99 Winterstorm Martin France, Spain, CH 16 2,508 10/9/99 Hurricane Floyd, flooding United States 17 2,440 1/10/95 Hurricane Opal United States, Mexico 18 2,144 10/3/93 Blizzard, tornadoes United States 19 2,019 11/9/92 Hurricane Iniki United States ‘02European Floods Source: Swiss Re, Sigma. At 2001 prices WTC property losses alone estimated at $19BN.

Energy Property Losses $110M $950M $440M $1.35BN $300M $0 $200M $400M $600M $800M $1BN $1.2BN $1.4BN '98'99'00'01'02* * 02 Loss Exceeding $50M include: Gas, plant fire, Kuwait $150M Refinery fire, Japan$ 75M Power station flood, Washington State$ 70M

Percent of Awards Greater Than $1 Million By Liability Type Products Liability Business Negligence Medical Malpractice Premises Liability Vehicular Liability* * Includes Personal Auto Source: Current Award Trends in Personal Injury 2001 Jury Verdict Research

Impact of Loss Cost Trends on Excess Casualty q Attachment points have not kept pace with loss cost trends q Frequency - More claims now penetrating excess layer q Severity Ù More severity losses Ù Excess layer receives the bulk of severity increases  Higher attachment points would offset, in part, the effect of new losses trending into the excess layer

Workers Compensation Post 9/11/01 “Employee concentration” issues long existed, but 9/11 made the potential real with catastrophic results. 9/11 brought new analytic, catastrophic modeling into common use: Ý Aggregation analysis: identifying substantial numbers of employees at a single location or in a single area Ý Geo-coding: quantifying high-risk geographic zones exposures across multiple lines of insurance Heightened emphasis on material risk information, including review of insured’s disaster and business continuity plans.

Vehicular Liability Jury Awards (including Personal Auto) %Change ? Top Award $20,625,000 $46,000,000 ?123% Mean Award $187,152 $268,648 ? 44% Underwriters are pricing risks today for possible events which will not be adjudicated until The U.S. Department of Transportation estimates the average costs of an auto fatality in the year 2000 was $977,000. The average cost of a critical injury was $1,100,000. U.S. Department of Transportation, National Highway Traffic Safety Administration (NHTSA), May 2002.

Asbestos, MTBE & Mold Asbestos Ý Unparalleled loss estimates Ý 300,000 court cases in U.S, and rising Ý Unveiling of “unimpaired cases” premise MTBE Ý Energy insurance sector liability concerns Mold Ý Unchartered territory Ý Congressional intervention

Average Settlement Values 0 5M 10M 15M 20M 25M All CasesAccounting CasesNon Accounting Cases '96-'

Restatements Filed

Energy Industry and Insurance Events in both industries have impacted the risk financing strategies of energy companies. Energy sector consolidation and downwards credit rating trends influencing risk assessment by insurers. P&C hard market dynamics adding pressure on enterprise risk spend.

Looking Ahead Collective responsibility to ensure marketplace viability. Reinforcement of long-term relationships. Adjust perception of opportunistic enticements. Importance of insurer credit-worthiness. Value of insurance companies track record. Listening and understanding what is important to each other - insurers, reinsurers, brokers and insureds.