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1st View1 April 2011

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tABLe OF CONteNtsRENEWALS – 1 April 2011

Introduction 3

Property

Territory and Comments 4

Rates 5

Pricing Trend Graphs 5

Casualty

Territory and Comments 6

Rates 6

Specialties

Line of Business and Comments 7

Rates 8

Capital Markets

Comments 8

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shaken and stirring

Any modest hopes the global reinsurance market may have held that the 1st Quarter 2011 would develop more favorably than the 1st

Quarter of 2010 were impacted by a continuation of the recent series of catastrophe losses. 2011 has started with floods and Cyclone

Yasi in Australia, a second major Earthquake in Christchurch, New Zealand and the devastating Tohoku Earthquake in Japan.

Of the total 2010/11 catastrophe losses – approximately U.S. $60 billion of insured losses to the global insurance industry in a 13

month period – it is currently estimated that between U.S. $35 to $42 billion has been passed from primary insurers to reinsurers.

Fortunately, this run of losses is occurring at a time when the global reinsurance industry’s financial position is strong. Excellent

underwriting results in 2009, together with strong investment performances for both 2009 and 2010, have left the industry with

a robust capital position. Against this background, the major rating agencies remain confident that the reinsurance industry as a

whole can absorb these losses, which are largely an earnings issue. Any rating downgrades are likely to be limited to a few outliers.

While reinsurers’ financial strength may be largely unimpaired, their financial flexibility – for some – has been impacted. This

is likely to manifest itself in a reduction of share buy backs and other excess capital management techniques. Similarly, mergers

and acquisition activity may decrease as the effect of the losses on individual company’s balance sheets and business franchises is

digested.

The immediate challenge for many reinsurers is that the losses suffered to date in 2011 have largely exhausted their annual

catastrophe loss budgets. Unlike 2010, where the catastrophe loss load in the 1st Quarter was more manageable, reinsurers this year

are acting more proactively to try to manage their underwriting results for the remainder of 2011. The impact of this is immediate;

rate increases are being applied in all areas of natural catastrophe loss activity and capacity is being managed more tightly both

in key catastrophe zones and secondary zones. This may affect the forthcoming U.S. mid-year renewals when catastrophe model

changes are anticipated to drive increased capacity demand from some buyers in specific cases.

For reinsurers who have purchased some retrocession capacity from collateralized providers, there are concerns that with their

existing capital now pledged to the recent losses, collateralized markets’ ability to provide additional retrocession capacity is

highly dependent on their ability to raise new collateral funds. This is likely to be a challenge for many, as capital markets are also

potentially facing some losses on two or three catastrophe bonds.

While this approach is leading to rate increases on natural catastrophe exposures, the Tohoku and Christchurch Earthquakes are

not by themselves sufficient to trigger market-wide rate increases for all classes, which still need an additional catalyst. As many

commentators have speculated, the trigger could come from more natural catastrophe losses, especially as the key North Atlantic

and European Winter Windstorm seasons lie ahead. It could, though, come just as easily from other pressure points, such as

inflation, the reversal of back-year reserve releases and wider financial issues impacting investment income and balance sheet

strength.

The timing of such events, as ever, remains uncertain, but at the time of writing, all we can say with certainty is that the 1st Quarter

2011 results have definitely accelerated the likelihood of a market-wide turn.

Peter C. Hearn

Chairman, Willis Re

� April �0��

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Property – territory and comments

InternationalSignificant level of 1st Quarter catastrophe loss activity

Regional / local pricing focus on Australasian and Japanese losses

Multiple price increases for loss hit programs, with disproportionately higher increases for low rate on line layers

Re-evaluation of capacity allocation, particularly for non-core geographical regions

Indian and Korean renewals saw less pricing impact, although withdrawal from market of key reinsurer participants has created

specific pricing issues

Capacity of a small number of reinsurers facilitated by additional retrocession capacity

IndiaCapacity affected by one major reinsurer’s change in participation on Indian treaties

Suspension of quotes after Tohoku Earthquake made renewal very late

JapanProperty pro rata treaties excluding earthquake renewed with unchanged commissions and ample capacity

Property risk excess of loss excluding earthquake renewed at flat rates with unchanged capacity

Japan – EarthquakeEarthquake pro rata treaties all renewed at 1st April with commission reductions of up to -3%, but with great emphasis on

revised primary underwriting and complete transparency with reinsurers going forward in 2011

Earthquake catastrophe excess of loss covers have split. Some buyers have renewed for 12 months at the 1st of April with rate

increases, and in some cases, loss escalator clauses. Other buyers have extended for up to 3 months to allow pricing negotiations

to be conducted when loss situation is clearer

Japan – Wind and FloodPrior to Tohoku Earthquake, buyers were targeting rate reductions of -2% to -3%

Following the earthquake loss, buyers have accepted rate increases of between +4% to +10%, despite all wind and flood

catastrophe excess of loss covers being loss-free into 2010

Korea Recent Tohoku Earthquake served to focus reinsurer pricing on Korean natural catastrophe business

Slip premium increased in line with exposure increases in nearly all cases. In previous renewals, exposure increases were not

always factored into final pricing

Capacity remains intact

Sanction Clauses applicable on most programs due to many companies covering Korean Interest Abroad (KIA) and non-KIA in

their domestic treaties

United States – NationwideTerms on quota share placements are under pressure as declining rates put pressure on attritional loss ratio picks

We anticipate an increase in demand for new catastrophe reinsurance layers as the full effects of the model change are realized

Reinsurers ever more aware of counterparty credit risk, and will offer better terms / capacity to the more strongly capitalized

and established companies

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Property catastrophe pricing trendsThe charts on this page display Estimated Year-to-Year Property catastrophe rate movement, using 1990 and 100 as a baseline.

U.S.A.

0

100

200

300

400

500

600

1990 91 92 93 94 95 96 97 98 99

2000 01 02 03 04 05 06 07 08 09

2010 11

United States – NationwideJapan – Wind and Flood– Wind and Flood

Japan

0

100

200

300

400

500

600

700

800

1990 91 92 93 94 95 96 97 98 99

2000 01 02 03 04 05 06 07 08 09

2010 11

Rates

Property rates

TERRITORYPro rata

commissionRisk loss free

% changeRisk loss hit %

change

Catastrophe loss free %

change

Catastrophe loss hit %

changeInternational 0% to -3% 0% variable +5% to +50% +20% to +100%

for natural cat

India 0% 0% to +5% NA 0% to +5% NA Korea 0% to -5% 0% to -2.5% 0% to +5% 0% to +7.5% 0% to +12.5%

Japan 0% 0% to +5% NA NA NA Japan – Earthquake 0% to -3% NA NA +20% to +50% variable

Japan – Wind and Flood NA NA NA +4% to +10% NA U.S. – Nationwide 0% 0% 0% 0% to -5% 0% to +8%

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Casualty – territory and comments

Japan Largely flat renewal on the basis of stable portfolios and loss-free reinsurance programsCapacity plentiful with reinsurers continuing to support

Korea Abundant capacity due to relatively small limits purchased Rate reductions more common when compared to property market

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Rates

Casualty rates

TERRITORY Pro rata commissionXL – No loss emergence

% changeXL – with loss emergence

% changeJapan NA 0% NAKorea 0% 0% to -10% NA

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specialties – line of business and comments

Aerospace – GlobalAviation excess of loss renewal pricing remaining at around -5% to -7.5%

Level of pricing reduction within Aviation generally slowing as a result of market loss events

Proportional market continuing to resist pressures from clients for increased deductions

Ongoing discussions as regards upward movement in General Aviation risk excess pricing

Aviation industry loss warranty pricing remaining at 0% to -5%

Engineering – GlobalNatural peril losses in Australia, New Zealand and Japan have had an impact on engineering and construction pricing levels

Market pressure on original terms and conditions easing with rating uplift

Regional hubs around the world are growing in influence for regional business placements

Growth in new business opportunities particularly for on-shore energy construction projects

Healthcare – United StatesSince January renewals, there has been little change in the frequency or severity of claims

There has been little change in the mutual / commercial rating environment

The biggest competition facing Commercial and Mutual Medical Professional Liability writers continues to be the migration of

their insureds into self-insured captives

This migration is exacerbated by the vertical and horizontal integration currently underway in the U.S. healthcare industry

These captives also have a tendency to presume a continuation of the current favorable claims climate – and price the business

accordingly

The more established and experienced writers, due to historical lessons, tend to price more cautiously

Marine – JapanThe Japanese Marine reinsurance renewals were delayed this year due to the Tohoku Earthquake

Clients are facing difficulties in producing accurate loss estimates at this early stage

Hull proportional treaties have been renewed on expected performance and loss developments will be watched during the year

Certain hull treaties have a percentage of coastal vessels ceded, while others are mainly blue water and the tsunami losses could

be minimal

Existing capacity has held up, but there is not much new capacity coming into the market

Excess of loss cover is dictated by the coverage given; rating levels on layers which exclude earthquake losses much less

impacted than those covering earthquake

Price has been a key driver in capacity at this renewal for both hull and cargo classes

Non-Marine – RetrocessionTraditional retrocession markets continue to support with unchanged capacity, but seeking rate increases

Position of collateralized markets variable with some markets seeking to raise fresh capital and other markets with existing

capital still to deploy moving towards primary business as rating levels increase

Pick up in industry loss warranty activity on the back of recent market losses

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Rates

Specialty rates

TERRITORYPro rata

commissionRisk loss free

% changeRisk loss hit

% change

Catastrophe loss free

% change

Catastrophe loss hit

% changeAerospace – Global 0% to +2% -5% to -7.5% 0% 0% to -5% N/A

Engineering – Global 0% +5% to +7.5% +10% to +15% +5% to +7.5% +10% to +15%Marine – Japan N/A +5% +25% +25% +35%

Non-Marine Retro NA NA variable 0% to +10% +10% to +20%

Capital Markets – comments

The mergers and acquisitions market continues to be highly active, both in Lloyd’s as well as in Europe more broadly

The 1st Quarter saw 4 catastrophe bonds transactions placed with a total capacity of just over $1 billion. All of these deals are

from repeat users of the catastrophe bond market and all are exposed to U.S. hurricane risk.

The largest catastrophe bond transaction was from Chubb who secured $475 million of multi-year, collateralized capacity

providing indemnity protection against natural catastrophe events in the Northeastern U.S.

The impact of the Tohoku earthquake on the catastrophe bond market remains unclear. �5 non-life catastrophe bond tranches

from 6 separate sponsors have exposure to Japanese earthquake risk. Loss determination remains ongoing

It is not yet clear how catastrophe bond rates will respond to the Japan event and the new U.S. windstorm RMS model update

If capacity for top-up retrocession cover for the balance of 2011 becomes insufficient to meet demand, there may be interest from

capital market investors in providing capacity, perhaps in partnership with reinsurers

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