1. Property/Casualty Insurance
Jay Cohen
First Vice President
Merrill Lynch
Refer to important disclosures at the end of this report. Analyst Certification on page 23.
Investors should assume that Merrill Lynch is seeking or will seek investment banking or other business relationships with the companies in this report.

2. The Fundamental View Overview
Price Increases Continuing
Balance Sheet Strain Evident
Commercial Lines/Reinsurance Turning Faster than Personal Lines
Claims Inflation, Low Interest Rates, Reserve Issues Held Back Earnings
Expect Earnings to Reflect Improving Environment in 2003 and 2004
Still Challenges Ahead

3. Balance Sheet Strain September 11th Losses Loss reserve issues
Equity market declines
Credit losses
Rating Agency Pressures

4. Combined Ratio 1Q95-4Q02

5. Investment Income % of Premiums

6. Return on Surplus, 1Q95-4Q03

7. Management Changes St. Paul Horace Mann CNA (2x) Zurich SAFECO
IPC Re
Horace Mann
Zurich
Royal Sun
Commercial Union
Allianz
Argonaut
St. Paul
CNA (2x)
SAFECO
Ohio Casualty
Chubb
PartnerRe
Allmerica Financial

8. The Fundamental View Commercial Lines
Premium Rates Rising in Most Lines 10%+
Expect Rates to Rise for Another 1-2 Years
Margin pressure still evident
Supply Constrained
Reinsurance prices rising
Increases for Standard Risks Decelerating
Larger Risks/Specialty Seeing Bigger Increases
Look for Earnings Growth in
Reserves Will Be an Issue for Some Insurers

9. “Anecdotes from Agents”
The Fundamental View
Commercial Lines (Cont.)
“Anecdotes from Agents”
Carriers looking for more (clean) business
Underwriting standards have not changed
Risk appetite is still limited
No changes in terms/conditions
Kemper an issue for smaller brokers
Price increases staying ahead of claims
Buyers seem prepared for more increases

10. The Fundamental View Reinsurance Prices began rising in early 2001
Earnings Deteriorated in 2001 and 2002
Reserve Shortfall Still An Issue
Property Catastrophe Levelling Off
Casualty Still Needs Improvement
New Capacity Focused on Reinsurance
Flight To Quality

11. The Fundamental View Personal Lines Margins Peaked in 1999
Claims Expenses on the Rise (Auto and Home)
Prices Rising, and Now Exceeding Claims Inflation
Distribution Issues
Largely a Commodity

12. Challenges Loss Reserves The Alternative Market
Dominance of Mutuals in Certain Lines
Lower Investment Yields
Increased Credit Risk
Regulatory Constraints
Price Increases relative to starting point
Claims Inflation
Capital Availability

13. Challenges Industry Structure Mature Industry Capital Intensive
Little Control Over Distribution
Little Product Differentiation
Losses Slow to Emerge
Pricing Tends to Lag Loss Costs

14. Challenges
Capital Availability

15. What Moves the Stocks Fundamentals Interest Rates Pricing Earnings
Higher rates bad for stocks (all else being equal)

16. Valuation Price Earnings Price/Book (see later slide) Earnings growth
Earnings consistency
Earnings sustainability
Group discount to the market
lower quality earnings
Price/Book (see later slide)

17. Price/Book VS. 2004E ROE Sustainability of ROE Consistency of ROE
Quality of Book Value
Leverage
Investment Portfolio

18. Historic P/E Ratios

19. Historic Price/Book Ratios