1. Insurance Market Report 2002 The New Uncertainties Allen F. Hyman Managing Director Marsh Industry Practices

2. September 11, 2001

3. September 11, 2001: New Dimensions of Risk Targets of risk Financial size of risks Concentrations/Aggregations of risk Spread of risk

4. September 11, 2001: New Dimensions of Risk Target – Who is vulnerable? Size Concentrations/Aggregations Spread

5. September 11, 2001: New Dimensions of Risk Target Size – Probable maximum loss – Wide range of estimates Concentrations/Aggregations Spread

6. The Worst Terrorist Attacks: Insured Property Losses Amount EventCountry ($USB)Year WTC, Pentagon US20-35*2001 NatWest bombingUK.91993 Manchester, car bombingUK.71996 London, financial district bombingUK.71992 WTC bombingUS.51993 * Includes business interruption

7. September 11, 2001: New Dimensions of Risk Target Size Concentrations/Aggregations – Workers compensation – Other lines Spread

8. September 11, 2001: New Dimensions of Risk Target Size Concentrations/Aggregations Spread

9. September 11, 2002: Lines Affected Property – Physical damage, $10-15B – Business interruption, $10-$20B Third-party liability, $10-$20B Aviation, $10-15B Life / Disability, $5-10B Workers compensation, $5-$10B

10. September 11, 2001: Responses Insurance markets Insurance buyers and their brokers Governments

11. September 11, 2001: Responses Insurance marketplace – Exclusions – Stand-alone market Insureds Governments

12. September 11, 2001: Responses Insurance marketplace Insureds – Risk control Governments

13. September 11, 2001: Responses Insurance marketplace – Exclusions – Stand-alone market Insureds – Risk control Governments – Relief legislation – Pools – Catastrophe rate load

14. One Thing That Hasnt Changed: The Question of Insurability Is terrorism insurable by private sector? – Degree of uncertainty? Need to quantify exposures – Computer modeling – Account for new variables Northridge Blind-thrust faults 9-11 Concentrations/ Aggregations of risk

15. As if 9-11 Wasnt Bad Enough... Enron

16. Property/Casualty Insurance Industry Overview

17. Changes to Policyholders Surplus: Signaling a Hard Market Start of Hard Market Start of Hard Market Start of Hard Market 1969 19711973197519771979198119831985198719891991199319951997 1999 2001 (est.) Data Source: A.M. Best Company Start of Hard Market

18. A Historical Perspective The Pain Threshold

19. Market Symptoms 1976 – Affordability – Govt a relatively unknown as exposed – Civil Rights – Workers Compensation – Immunity – GL too broad

20. Market Symptoms 1983-85 – Availability – Affordability – Cash Flow Underwriting – Interest Rates - high – Combined ratios – high – Rejection of classes of business – Insurance became political

21. Market Symptoms 2001 – Years of soft market – Record Dow indicators – High combined ratios – Reinsurance shift – Coverage constriction – Retention increases – Limit reductions – 9/11

22. Premium Increases 720% 122% avg

23. Timeliness of Final Quote

24. Terms of Retention (Increase or Decrease) 91% avg

25. Change In Limits Increase -14.5% avg incl no change -32% for those who had a change

26. Did you have terrorism coverage before?

27. Was terrorism offered at renewal?

28. Did you buy terrorism?

29. Consolidated P/C Industry Net Income (US$B) Data Source: A.M. Best Company

30. Net Premium Growth Data Source: A.M. Best Company (% Change)

31. Consolidated P/C Industry Combined Ratio Data Source: A.M. Best Company

32. Insurer Financial Performance (US$B) Data Source: A.M. Best Company

33. Policyholders Surplus (US$B) Data Source: A.M. Best Company

34. Where Have All the Profits Gone? Volatile Variables Investment income – Low interest rates Catastrophe losses

35. P/C Insurers vs. Reinsurers Combined Ratio Data Source: A.M. Best Company

36. Impact of Catastrophe Losses on Combined Ratio Data Source: A.M. Best Company (est.)

37. The Worst Catastrophes (i ncluding liability awards) Amount Event Country ($USB)Year 1. Tobacco industry awardUS1451999 2. World Trade Center attacksUS40-702001 3. AsbestosUS30-601990s+ 4. Hurricane Andrew US18.61992 5. Northridge earthquakeUS13.81994 6. Alaska oil tanker spillUS9.01976 7. Silicone breast implantsUS5-71990s 8. Typhoon MireilleJapan 6.71991 9. Winter storms Lothar-Martin Europe6.01999 10. Hurricane Daria Europe 5.7 1999 (Continued)

38. The Worst Catastrophes (i ncluding liability awards) Amount Event Country ($USB)Year 11. Hurricane HugoPuerto Rico 5.51989 12. Auto fuel tank explosionUS 4.91999 13. Autumn stormEurope 4.31987 14. Hurricane VivianEurope 4.01990 15. Hurricane GeorgesUS/Caribbean3.51998 16. Intrauterine devicesUS3.0+1969-75 17. Tank car chemical leakageUS 3.01997 18. Piper Alpha oil rig explosionUK 2.81988 19. Leaking chemical pipeUS 2.71970s/1980s 20. Kobe earthquakeJapan 2.61995

39. Workers Compensation Insurers Combined Ratio (Calendar Year) Data Source: A.M. Best Company

40. Medical Inflation Annual change in average total health benefit cost, 1987-2001 NOTE: Results for 1987-1998 are based on cost for active and retired employees combined. The change in cost from 1998-2001 is based on cost for active employees only. (%)