2011 natural catastrophe year in review january 4, 2012 source: noaa

2011 NATURAL CATASTROPHE YEAR IN REVIEW

January 4, 2012

Source: NOAA

Questions and AnswersQuestions and Answers

Welcome/IntroductionTerese Rosenthal

Welcome/IntroductionTerese Rosenthal

U.S. Natural Catastrophe UpdateCarl Hedde

U.S. Natural Catastrophe UpdateCarl Hedde

Global Natural Catastrophe UpdateErnst Rauch

Global Natural Catastrophe UpdateErnst Rauch

Economic Implications of Natural Catastrophe LossesDr. Robert Hartwig

Economic Implications of Natural Catastrophe LossesDr. Robert Hartwig

Agenda

2

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Webinar Interactivity

3

@MunichRe_US @iiiorg @MunichRe_US @iiiorg

Questions and AnswersQuestions and Answers

Live TweetingLive Tweeting

#NATCAT2011#NATCAT2011

U.S. NATURAL CATASTROPHE UPDATE

Carl Hedde, SVP, Head of Risk AccumulationMunich Reinsurance America, Inc.

From 1980 until today all loss events; for USA and selected countries in Europe all loss events since 1970.

Retrospectively, all great disasters since 1950.

In addition, all major historical events starting from 79 AD – eruption of Mt. Vesuvio (3,000 historical data sets).

Currently more than 30,000 events

From 1980 until today all loss events; for USA and selected countries in Europe all loss events since 1970.

Retrospectively, all great disasters since 1950.

In addition, all major historical events starting from 79 AD – eruption of Mt. Vesuvio (3,000 historical data sets).

Currently more than 30,000 events

5

The Database TodayThe Database Today

MR NatCatSERVICEOne of the world‘s largest databases on natural catastrophes

© 2011 Munich Re

U.S. Natural Catastrophes 2011 Headlines

U.S. Natural Catastrophe Update

6© 2011 Munich Re

Most damaging wildfire in Texas history.Most damaging wildfire in Texas history.

Moderate earthquake in Virginia felt across eastern seaboard.Moderate earthquake in Virginia felt across eastern seaboard.

Severe spring flooding events in the Midwest and Great Plains.Severe spring flooding events in the Midwest and Great Plains.

Hurricane Irene and Tropical Storm Lee cause minor wind damage, major flooding in northeastern U.S. Hurricane Irene and Tropical Storm Lee cause minor wind damage, major flooding in northeastern U.S.

Very active thunderstorm (tornado-hail) season with insured losses exceeding $25 billion, more than double the previous record. It was also the deadliest thunderstorm season in over 75 years.

Very active thunderstorm (tornado-hail) season with insured losses exceeding $25 billion, more than double the previous record. It was also the deadliest thunderstorm season in over 75 years.

Insured losses in the United States in 2011 totaled $35.9 billion – above the 2000 to 2010 average loss of $23.8 billion (in 2011 Dollars).Insured losses in the United States in 2011 totaled $35.9 billion – above the 2000 to 2010 average loss of $23.8 billion (in 2011 Dollars).

Natural Disaster Losses in the United States 2011

7© 2011 Munich ReSource: MR NatCatSERVICE


Natural Disasters in the United States, 1980 – 2011 Number of Events, Annual Totals

Meteorological events(Storm)

Hydrological events(Flood, mass movement)

Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami, volcanic eruption)

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

2011 Total171 Events

5

92

14

60

© 2011 Munich ReSource: MR NatCatSERVICE


8

Insured losses due in the U.S. in 2011 were the 5th highest on record, exceeding $ 35billion.Insured losses due in the U.S. in 2011 were the 5th highest on record, exceeding $ 35billion.

Losses due to Natural Catastrophes in the United States,1980 – 2011

Sources: MR NatCatSERVICE, Property Claims Services


9© 2011 Munich Re

Overall losses (in 2011 values) Insured losses (in 2011 values)

Significant Natural Catastrophes, 2011$1 billion economic loss and/or 50 fatalities

Sources: (unmarked) - MR NatCatSERVICE, † - Property Claims Services (PCS)

10© 2011 Munich Re


2011 U.S. THUNDERSTORM SEASON

2011 U.S. Tornado Count

12© 2011 Munich ReSources: NOAA


Deadliest tornado year since 1925: 552 direct fatalities

Deadliest single tornado since 1947: Joplin, Missouri, 158 fatalities

Most observed tornadoes in a month: 748, April

Largest number of tornadoes in a day: 226, April 27

Most EF5 Tornados in a year: 6 (tied for first with 1974)

Aggregate Insured Thunderstorm Losses: $25.8 billion

Billion-dollar insured loss outbreaks: 6

Late April (Alabama) and May (Joplin) outbreaks each caused insured

losses in excess of $6 billion, and are among top 10 largest natural

catastrophe losses in U.S. history, based on original dollars.

Deadliest tornado year since 1925: 552 direct fatalities

Deadliest single tornado since 1947: Joplin, Missouri, 158 fatalities

Most observed tornadoes in a month: 748, April

Largest number of tornadoes in a day: 226, April 27

Most EF5 Tornados in a year: 6 (tied for first with 1974)

Aggregate Insured Thunderstorm Losses: $25.8 billion

Billion-dollar insured loss outbreaks: 6

Late April (Alabama) and May (Joplin) outbreaks each caused insured

losses in excess of $6 billion, and are among top 10 largest natural

catastrophe losses in U.S. history, based on original dollars.

2011: Year of the Tornado

13© 2011 Munich Re


Source: Property Claims ServiceMR NatCatSERVICE

U.S. Thunderstorm Loss TrendsAnnual Totals 1980 – 2011

Average thunderstorm losses have increased fivefold since 1980.Average thunderstorm losses have increased fivefold since 1980.

14© 2011 Munich Re

2011 Total $25.8 bn


U.S. TROPICAL CYCLONES 2011

Photo: NASA

Tropical Cyclone Impacting the United States in 2011

Source: NOAA

IreneDon

Lee

16© 2011 Munich Re


U.S. Hurricanes in 2011

Landfalls on August 27 over the NC Outer Banks as a Category 1 hurricane and on August 28 over Brigantine, NJ, and Coney Island, NY, as a tropical storm.

Minor to moderate wind damage in North Carolina and Virginia, heavy indirect wind damage due to tree fall further north.

Record flooding across northeast, particularly New Jersey, New York, and Vermont.

Economic Losses in U.S. of $10 billion, insured losses of $5 billion.

Landfalls on August 27 over the NC Outer Banks as a Category 1 hurricane and on August 28 over Brigantine, NJ, and Coney Island, NY, as a tropical storm.

Minor to moderate wind damage in North Carolina and Virginia, heavy indirect wind damage due to tree fall further north.

Record flooding across northeast, particularly New Jersey, New York, and Vermont.

Economic Losses in U.S. of $10 billion, insured losses of $5 billion.

Photo: FEMA

17© 2011 Munich Re

Hurricane IreneHurricane Irene


Other U.S. Tropical Cyclones in 2011

Landfall in Louisiana on September 4 with sustained winds of 45 mph

Minor wind damage and flooding in Louisiana; As a remnant low, Lee aggravated existing Irene flooding and triggered new flooding in northeastern U.S., particularly in Pennsylvania.

Estimated $510 million insured loss.

Landfall in Louisiana on September 4 with sustained winds of 45 mph

Minor wind damage and flooding in Louisiana; As a remnant low, Lee aggravated existing Irene flooding and triggered new flooding in northeastern U.S., particularly in Pennsylvania.

Estimated $510 million insured loss.

Tropical Storm DonTropical Storm Don

Landfall near Baffin Bay, Texas, on July 30

Sustained winds at landfall of 50 mph, no significant damage

Landfall near Baffin Bay, Texas, on July 30

Sustained winds at landfall of 50 mph, no significant damage

Tropical Storm LeeTropical Storm Lee

18© 2011 Munich Re


There has not been a major hurricane landfall in the U.S. since 2005.There has not been a major hurricane landfall in the U.S. since 2005.

Number of U.S. Landfalling Tropical Cyclones1900 - 2011

Source: NOAA 19© 2011 Munich Re


The current 5-year average (2007-2011) insured tropical cyclone loss is $4.1 billion per year.The current 5-year average (2007-2011) insured tropical cyclone loss is $4.1 billion per year.

Insured U.S. Tropical Cyclone Losses, 1980 - 2011

Sources: Property Claims Service, MR NatCatSERVICE, NFIP 20© 2011 Munich Re


2011 Total $5.5 bn

OTHER U.S. NATURAL CATASTROPHES IN 2011

Source: FEMASource: FEMA

Lower Mississippi Flood of 2011

Heavy snowmelt, saturated soils, and over 20 inches of rain in a month lead to the worst flooding of the lower Mississippi River since 1927.

Record river crests at Vicksburg and Natchez; Morganza Spillway opened in Louisiana to protect Baton Rouge and New Orleans from possible levee failures.

Extensive agricultural damage, property, and inland marine losses due to flood. Estimated economic losses of $2 billion and insured losses of $500 million.

Heavy snowmelt, saturated soils, and over 20 inches of rain in a month lead to the worst flooding of the lower Mississippi River since 1927.

Record river crests at Vicksburg and Natchez; Morganza Spillway opened in Louisiana to protect Baton Rouge and New Orleans from possible levee failures.

Extensive agricultural damage, property, and inland marine losses due to flood. Estimated economic losses of $2 billion and insured losses of $500 million.

Source: NASA 22© 2011 Munich Re


Number of Acres Burned in Wildfires, 1980 – 2011

Source: National Interagency Fire Center © 2011 Munich Re 23


2011 Total8.3 million acres

Notable Wildfires in 2011

Worst wildfire year on record in

Texas due to persistent drought.

Spring: Over 3 million acres

burned in west Texas from 12

major seats of fire. Over 200

homes and businesses

destroyed, $50 million insured

loss.

September: Bastrop County

Complex Fire near San Antonio

destroys over 1,600 homes,

insured loss of $530 million.

Worst wildfire year on record in

Texas due to persistent drought.

Spring: Over 3 million acres

burned in west Texas from 12

major seats of fire. Over 200

homes and businesses

destroyed, $50 million insured

loss.

September: Bastrop County

Complex Fire near San Antonio

destroys over 1,600 homes,

insured loss of $530 million.Source: FEMA

24© 2011 Munich Re


Average annual winter storm losses have almost doubled since the early 1980s.Average annual winter storm losses have almost doubled since the early 1980s.

Source: Property Claims ServiceMR NatCatSERVICE © 2011 Munich Re

U.S. Winter Storm Loss Trends Annual totals 1980 – 2011

2011 Total$2.0 billion


25

Central Virginia Earthquake

Magnitude 5.8 on August 23,

largest ever recorded in Virginia.

Felt as far away as Canada to the

north and Savannah, GA to the

South.

Minor structural and contents

damage near epicenter and to old

masonry buildings, including the

U.S. National Cathedral and the

Washington Monument in the

District of Columbia.

Only minor economic and insured

losses.

Magnitude 5.8 on August 23,

largest ever recorded in Virginia.

Felt as far away as Canada to the

north and Savannah, GA to the

South.

Minor structural and contents

damage near epicenter and to old

masonry buildings, including the

U.S. National Cathedral and the

Washington Monument in the

District of Columbia.

Only minor economic and insured

losses. Source: FEMA

Source: USGS © 2011 Munich Re 26


GLOBAL NATURAL CATASTROPHE UPDATE

Ernst RauchHead of Corporate Climate CenterMunich Re

Natural Catastrophes Worldwide 2011Headlines

Number of events: 820

The number is in line with the 10-year-average (2001-2010: 790).

Number of events: 820

The number is in line with the 10-year-average (2001-2010: 790).

Overall direct losses: US$ 380bn

2011 is the costliest year for overall losses due to natural catastrophes.

Overall direct losses: US$ 380bn

2011 is the costliest year for overall losses due to natural catastrophes.

Insured losses: US$ 105bn

The insured losses are the highest figures too, topped the 2005 losses in original values

(US$ 101bn).

Insured losses: US$ 105bn

The insured losses are the highest figures too, topped the 2005 losses in original values

(US$ 101bn).

Fatalities: 27,000

The number is quite low in comparison with previous years (2001-2010:106,000).

The figures do not include the drought fatalities in East Africa, esp. Somalia.

Fatalities: 27,000

The number is quite low in comparison with previous years (2001-2010:106,000).

The figures do not include the drought fatalities in East Africa, esp. Somalia.

Global Natural Catastrophe Update

© 2011 Munich Re 28

Natural Catastrophes Worldwide 2011Significant Events

Earthquake, tsunami Japan

New Zealand

Floods Australia and Thailand

Drought, famine Somalia



Natural Catastrophes Worldwide 2011Overview and comparison with previous years



Natural Catastrophes Worldwide 2011The five costliest natural catastrophes for the insurance industry

Source: MR NatCatSERVICE



Natural Catastrophes Worldwide 1980 – 2011Number of events

Number

Meteorological events(Storm)

Hydrological events(Flood, mass movement)

Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami, volcanic eruption)

200

400

600

800

1 000

1 200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: MR NatCatSERVICE

2011 Total820 Events

© 2011 Munich Re


36

Natural Catastrophes Worldwide 1980 – 2011Overall and insured losses

(bn US$)


50

100

150

200

250

300

350

400

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Overall losses totaled $380 billion; Insured losses totaled $105 billionOverall losses totaled $380 billion; Insured losses totaled $105 billion

© 2011 Munich Re 37Source: MR NatCatSERVICE


Geophysical events(earthquake, tsunami, volcanic activity)

Meteorological events (storm)

Hydrological events(flood, mass movement)

Selection of significant loss events (see table)

Natural catastrophes

Earthquake, tsunami Japan, 11 March

EarthquakeNew Zealand, 22 Feb.

Cyclone Yasi Australia, 2–7 Feb.

Landslides, flash floodsBrazil, 12/16 Jan.

Floods, flash floods Australia, Dec. 2010–Jan. 2011

Severe storms, tornadoesUSA, 22–28 April

Severe storms, tornadoesUSA, 20–27 May

WildfiresUSA, April/Sept.

EarthquakeNew Zealand, 13 June

FloodsUSA, April–May

Climatological events(extreme temperature, drought, wildfire)

Number of events: 820Number of events: 820

DroughtUSA, Oct. 2010– ongoing

Hurricane IreneUSA, Caribbean22 Aug.–2 Sept.

WildfiresCanada, 14–22 May

DroughtSomaliaOct. 2010–Sept. 2011

FloodsPakistanAug.–Sept.

FloodsThailandAug.–Nov.

Earthquake Turkey23 Oct.

Flash floods, floodsItaly, France, Spain4–9 Nov.

Floods, landslidesGuatemala, El Salvador11–19 Oct.

Tropical Storm WashiPhilippines, 16–18 Dec.

Winter Storm JoachimFrance, Switzerland, Germany, 15–17 Dec.



Natural Catastrophes 2011World map

Earthquake New Zealand February 2011

Source: MR NatCatSERVICE*Losses in original values

Region Overall losses Insured losses Fatalities

South Island, Canterbury, Christchurch, Lyttelton US$ 16bn* US$ 13bn* 181

Source: Munich ReSource: Munich Re



Floods ThailandAugust – November 2011

Region Overall losses Insured losses Fatalities

Phichit, Nakhon Sawan, Phra Nakhon Si Ayuttaya, Pathumthani, Nonthaburi, Bangkok

US$ 40bn* US$ 10bn* 813

Source: MR NatCatSERVICE*Losses in original values

Source: ReutersSource: Reuters



Natural Catastrophes Worldwide 2011Insured losses US$ 105bn - Percentage distribution per continent

Continent Insured losses US$ m

America (North and South America) 40,000

Europe 2,000

Africa Minor damages

Asia 45,000

Australia/Oceania 18,000

37%

2%

44%

17%

<1%



Natural Catastrophes Worldwide 1980 – 2011 Insured losses US$ 870bn - Percentage distribution per continent

Continent Insured losses US$ m

America (North and South America) 566,000

Europe 146,000

Africa 2,000

Asia 115,000

Australia/Oceania 41,000

66%

16%

<1%

13%

5%



20

40

60

80

100

120

140

160

180

200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Natural Catastrophes in Asia 1980 – 2011Overall and insured losses

(bn US$)


266bn266bn



Natural Catastrophes Worldwide 2011

SummarySummary

US$ 105bn insured losses - 47% of losses due to earthquakes (30-year-average = 10%)US$ 105bn insured losses - 47% of losses due to earthquakes (30-year-average = 10%)

Asia (44%) and North America (37%) are mainly impacted in terms of insured lossesAsia (44%) and North America (37%) are mainly impacted in terms of insured losses

Japan earthquake, tsunami – 15,840 fatalities – deadliest natural disaster in 2011Japan earthquake, tsunami – 15,840 fatalities – deadliest natural disaster in 2011

New Zealand earthquakes – high losses for the insurance market, minor fatalitiesNew Zealand earthquakes – high losses for the insurance market, minor fatalities

Thailand floods – costliest flood event for overall and insured losses Thailand floods – costliest flood event for overall and insured losses

Building codes are essential to save lives – however, insured losses are neverthelesssignificantBuilding codes are essential to save lives – however, insured losses are neverthelesssignificant



Q AND A

Market and Financial Impact of 2011 Catastrophe Losses

Insurance Information InstituteJanuary 4, 2012

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org

47

2011: Nowhere to Run, Nowhere to Hide

Most of the Country East of the Rockies Suffered Severe Weather in 2011, Impacting

Most Insurers

Location of Tornadoes in the US, January 1—December 27, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 48

1,894 tornadoes killed 552 people in 2011, including

at least 340 on April 26 mostly in the Tuscaloosa area, and 130 in

Joplin on May 22

http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html

Location of Large Hail Reports in the US, January 1—December 27, 2011


There were 9,417 “Large Hail”

reports in 2011, causing extensive damage to homes,

businesses and vehicles


Location of Wind Damage Reports in the US, January 1—December 27, 2011


There were 18,685 “Wind Damage” reports through Dec. 27, causing

extensive damage to homes and,

businesses


Severe Weather Reports,January 1—December 27, 2011

51Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

There have been 29,996

severe weather reports through

Dec. 5; including 1,894

tornadoes; 9,417 “Large Hail” reports

and 18,685 high wind events


Number of Federal Disaster Declarations, 1953-2011*

13 1

7 18

16

16

7 71

21

22

22

0 25

25

11

11

19

29

17

17

48

46

46

38

30

22 25

42

23

15

24

21

34

27 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

9

43

0

20

40

60

80

100

120

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

*

*Through December 31, 2011.Source: Federal Emergency Management Administration: http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

The Number of Federal Disaster Declarations Is Rising and Set a New Record in 2011

The number of federal disaster declarations set a

new record in 2011, with 99, shattering 2010’s record 81

declarations.

There have been 2,049 federal disaster

declarations since 1953. The average

number of declarations per year is 34 from

1953-2010, though that few haven’t been

recorded since 1995.

http://www.fema.gov/news/disaster_totals_annual.fema

53

Federal Disasters Declarations by State, 1953 – 2011: Highest 25 States*

86

78

70

65 63

58

55 55 53 53 51 50 50 48 48 47 47 47 46 45 45 44 42 40 39

0

10

20

30

40

50

60

70

80

90

100

TX CA OK NY FL LA AL KY AR MO IL MS TN IA MN KS NE PA WV OH VA WV ND NC IN

Dis

aste

r Dec

lara

tions

*Through Dec. 31, 2011.

Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Over the past nearly 60 years,

Texas has had the highest number of Federal Disaster

Declarations


54

Federal Disasters Declarations by State, 1953 – 2011: Lowest 25 States*

39 39

36 36 35

33 33

28 27 26 26 25 25 24 24 23 22

20

17 17 16 15 14

11

9 9 9

0

10

20

30

40

50

ME SD AK GA WI VT NJ NH OR MA PR HI MI AZ NM ID MD MT NV CT CO SC DE DC RI UT WY

Dis

aste

r Dec

lara

tions

*Through Dec. 31. Includes Puerto Rico and the District of Columbia.

Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.

Over the past nearly 60 years, Wyoming, Utah and Rhode Island had the fewest number of

Federal Disaster Declarations


55

Top 14 Most Costly Disastersin U.S. History

(Insured Losses, 2011 Dollars, $ Billions)

*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.Sources: PCS; Insurance Information Institute inflation adjustments.

$9.0$11.9 $13.1

$19.1$21.3

$24.0 $25.0

$47.6

$8.5$7.7$6.5$5.5$4.4$4.3

$0$5

$10$15$20$25$30$35$40$45$50

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Northridge(1994)

SpringTornadoes& Storms*

(2011)

9/11Attack(2001)

Andrew(1992)

Katrina(2005)

Taken as a single event, the Spring 2011 tornado and storm season are

is the 4th costliest event in US insurance history

56

P/C Insurance Industry Financial Overview

Profit Recovery Was Set Back in 2011 by High Catastrophe

Loss & Other Factors

P/C Net Income After Taxes1991–2011:Q3 ($ Millions)

$1

4,1

78

$5

,84

0

$1

9,3

16

$1

0,8

70

$2

0,5

98

$2

4,4

04 $

36

,81

9

$3

0,7

73

$2

1,8

65

$3

,04

6

$3

0,0

29

$6

2,4

96

$3

,04

3

$3

4,6

70

$7

,97

9

$2

8,6

72

-$6,970

$6

5,7

77

$4

4,1

55

$2

0,5

59

$3

8,5

01

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 5.6% 2011:Q3 ROAS1 = 1.9%

P-C Industry 2011:Q3 profits were down 71% to $8.0B vs. 2010:Q3,

due primarily to high catastrophe losses and as non-cat

underwriting results deteriorated

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 3.0% ROAS for 2011:Q3, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEs

Combined Ratio / ROE

* 2011 figure is return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurers. 2011:Q3 combined ratio including M&FG insurers is 109.9, ROAS = 1.9%. Source: Insurance Information Institute from A.M. Best and ISO data.

97.5

100.6 100.1 100.8

92.7

101.099.3

100.8

108.2

95.7

3.0%

5.6%5.0%

0.1%

9.6%

15.9%

14.3%

12.7% 10.9%

8.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008* 2009* 2010* 2011:Q3*0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generated ~5.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

-5%

0%

5%

10%

15%

20%

25%

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

*

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*

*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS through Q3 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers. For 2011:Q3 ROAS = 1.9% including M&FG.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2006:12.7%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

10 Years9 Years

2011:3.0%*

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

60

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

Soft Market Persisted in 2010 but Growth Returned: More in 2011?

(Percent)1975-78 1984-87 2000-03

*2011 figure is through first 9 months vs. same period in 2010 Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Net Written Premiums Fell 0.7% in 2007 (First Decline

Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.

NWP was up 0.9% in 2010

2011:Q3 growth

was +3.1%

61

P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter

Sources: ISO, Insurance Information Institute.

Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)

10.2

%15

.1%

16.8

%16

.7%

12.5

%10

.1%

9.7%

7.8%

7.2%

5.6%

2.9%

5.5%

-4.6

%-4

.1%

-5.8

%-1

.6%

10.3

%10

.2% 13

.4%

6.6%

-1.6

%2.

1%0.

0%-1

.9%

0.5%

-1.8

%-0

.7%

-4.4

%-3

.7%

-5.3

%-5

.2%

-1.4

%-1

.3%

1.3% 2.

3%1.

3%3.

5%1.

6%4.

1%

-10%

-5%

0%

5%

10%

15%

20%

2002

:Q1

2002

:Q2

2002

:Q3

2002

:Q4

2003

:Q1

2003

:Q2

2003

:Q3

2003

:Q4

2004

:Q1

2004

:Q2

2004

:Q3

2004

:Q4

2005

:Q1

2005

:Q2

2005

:Q3

2005

:Q4

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

2010

:Q4

2011

:Q1

2011

:Q2

2011

:Q3

Through 2011:Q3, growth in personal lines

predominating cos. (+3.1%) and commercial lines predominating cos.

(+3.9%), diversified (+2.3%)

62

Change in Commercial Rate Renewals, by Account Size: 1999:Q4 to 2011:Q3

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Percentage Change (%)

Peak = 2001:Q4 +28.5%

Pricing Turned Negative in Early

2004 and Has Been Negative

Ever Since

Pricing turned positive (+0.9%) in Q3:2011, the first increase in

nearly 7 years (Q4:2003)

KRW Effect: No Lasting Impact

Trough = 2007:Q3 -13.6%

63

Average Commercial Rate Change,All Lines, (1Q:2004–4Q:2011E*)

-3.2

%-5

.9%

-7.0

%-9

.4%

-9.7

% -8.2

%-4

.6% -2

.7%

-3.0

%-5

.3%

-9.6

%-1

1.3

%-1

1.8

%-1

3.3

%-1

2.0

%-1

3.5

%-1

2.9

% -11

.0%

-6.4

% -5.1

%-4

.9%

-5.8

%-5

.6%

-5.3

%-6

.4% -5.2

%-5

.4%

-2.9

%

1.7

%

-0.1

% 0.9

%

-0.1

%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

1Q

04

2Q

04

3Q

04

4Q

04

1Q

05

2Q

05

3Q

05

4Q

05

1Q

06

2Q

06

3Q

06

4Q

06

1Q

07

2Q

07

3Q

07

4Q

07

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

Source: Council of Insurance Agents & Brokers (1Q04-4Q11); Marsh (Q411E); Insurance Information Institute

KRW Effect

Pricing as of Q3:2011 is positive for the first time

since 2003. Slightly stronger gains in Q4.

(Percent)

Q2 2011 marked the 30th consecutive quarter of price

declines

64

Change in Commercial Rate Renewals, by Line: 2011:Q3

Source: Council of Insurance Agents and Brokers; Insurance Information Institute.

Major Commercial Lines Renewed Uniformly Upward in Q3:2011 for the First Time Since 2003; Property Lines &

Workers Comp Leading the Way

Percentage Change (%)

1.5%1.9%

3.0%

4.1%

0.2% 0.3%0.6%

0.8% 0.8%

1.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Ge

ne

ral

Lia

bili

ty

Su

rety

Co

mm

l Au

to

Co

nst

ruct

ion

D&

O

Um

bre

lla

EP

L

Bu

s.In

terr

up

tion

Co

mm

erc

ial

Pro

pe

rty

Wo

rke

rsC

om

p

Property lines are showing larger increases than

casualty lines, with the exception of workers

compensation

Source: Guy Carpenter, GC Capital Ideas.com, November 23, 2011.

Most excess reinsurance capacity was

removed from the market in 2011,

leaving uncertainty as to the direction of

2012 reinsurance renewals

Historical Capital Levels of Guy Carpenter Reinsurance Composite, 1998—2Q11

UNDERWRITING

66

Catastrophes Will Lead Insurers their Largest

Underwriting Loss in a Decade

67

P/C Insurance Industry Combined Ratio, 2001–2011:Q3*

* Excludes Mortgage & Financial Guaranty insurers 2008--2011. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=109.9 Sources: A.M. Best, ISO.

95.7

99.3100.8

108.2

101.0

92.6

100.898.4

100.1

107.5

115.8

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Best Combined

Ratio Since 1949 (87.6)

As Recently as 2001, Insurers Paid Out

Nearly $1.16 for Every $1 in Earned

Premiums

Relatively Low CAT Losses, Reserve Releases

Cyclical Deterioration

Heavy Use of Reinsurance Lowered Net

Losses

Relatively Low CAT Losses, Reserve Releases

Avg. CAT Losses,

More Reserve Releases

Higher CAT

Losses, Shrinking Reserve

Releases, Toll of Soft

Market

Homeowners Insurance Combined Ratio: 1990–2011P

11

3.0

11

7.7

15

8.4

11

3.6

10

1.0 10

9.4

10

8.2

11

1.4 1

21

.7

10

9.3

98

.2

94

.4 10

0.3

88

.9 95

.6

11

6.8

10

5.7

10

6.7 11

6.0

11

8.4

11

2.7 12

1.7

80

90

100

110

120

130

140

150

160

170

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11P

Homeowners Line Could Deteriorate in 2011 Due to Large Cat Losses. Extreme Regional Variation Can Be Expected Due to

Local Catastrophe Loss Activity

Sources: A.M. Best (1990-2010); Insurance Information Institute (2011P).

Underwriting Gain (Loss)1975–2011*

* Includes mortgage and financial guaranty insurers in all yearsSources: A.M. Best, ISO; Insurance Information Institute.

Large Underwriting Losses Are NOT Sustainable in Current Investment Environment

-$55

-$45

-$35

-$25

-$15

-$5

$5

$15

$25

$35

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 1011*

Cumulative underwriting deficit from 1975 through

2010 is $455B

($ Billions)Underwriting losses in

2011 at $34.9

through Q3 will be

largest since 2001

70

Combined Ratio Points Associated with Catastrophe Losses: 1960 – 2011E*

*Insurance Information Institute estimates for 2010 and 2011.Notes: Private carrier losses only. Excludes loss adjustment expenses and reinsurance reinstatement premiums. Figures are adjusted for losses ultimately paid by foreign insurers and reinsurers.Source: ISO; Insurance Information Institute.

0.4

1.2

0.4 0.

8 1.3

0.3 0.4 0.

71.

51.

00.

40.

4 0.7

1.8

1.1

0.6

1.4 2.

01.

3 2.0

0.5

0.5 0.7

3.0

1.2

2.1

8.8

2.3

5.9

3.3

2.8

1.0

3.6

2.9

1.6

5.4

1.6

3.3

3.3

8.1

2.7

1.6

5.0

2.6 3.

35.

0

3.6

0.9

0.1

1.1

1.1

0.8

0

1

2

3

4

5

6

7

8

9

10

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

E

The Catastrophe Loss Component of Private Insurer Losses Has Increased Sharply in Recent Decades

Avg. CAT Loss Component of the Combined Ratio

by Decade

1960s: 1.04 1970s: 0.85 1980s: 1.31 1990s: 3.39 2000s: 3.52 2010s: 4.15*

Combined Ratio Points

Financial Strength & Underwriting

71

Cyclical Pattern in P-C Impairment History is Directly Tied to

Underwriting, Reserving & Pricing

P/C Insurer Impairments, 1969–20108

15

12

71

19

34

91

31

21

99

16

14

13

36

49

31 3

45

04

85

56

05

84

12

91

61

23

11

8 19

49 50

47

35

18

14 15 16 18

11

5

0

10

20

30

40

50

60

70

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.

The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets

3 small insurers in Missouri did encounter

problems in 2011 following the May

tornado in Joplin. They were absorbed by a

larger insurer and all claims were paid.

73

Reasons for US P/C Insurer Impairments, 1969–2010

3.6%4.0%

8.6%

7.3%

7.8%

7.1%

7.8%13.6%

40.3%

Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.

Historically, Deficient Loss Reserves and Inadequate Pricing AreBy Far the Leading Cause of P-C Insurer Impairments.

Investment and Catastrophe Losses Play a Much Smaller Role

Deficient Loss Reserves/Inadequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems (Overstatement of Assets)

Misc.

Sig. Change in Business

SURPLUS/CAPITAL/CAPACITY

74

Have Large Global Losses Reduced Capacity in the Industry, Setting

the Stage for a Market Turn?

75

Policyholder Surplus, 2006:Q4–2011:Q3

Sources: ISO, A.M .Best.

($ Billions)

$487.1$496.6

$512.8$521.8

$478.5

$455.6

$437.1

$463.0

$490.8

$511.5

$540.7$530.5

$544.8

$556.9 $559.1

$538.6

$564.7

$505.0$515.6$517.9

$420

$440

$460

$480

$500

$520

$540

$560

$580

06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3

2007:Q3Previous Surplus Peak

Quarterly Surplus Changes Since 2011:Q1 Peak

11:Q2: -$5.6B (-1.0%)

11:Q3: -$26.1B (-4.6%)

Surplus as of 9/30/11 was down 4.6% below its all

time record high of $564.7B set as of 3/31/11. Further

declines are possible.

*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.

The Industry now has $1 of surplus for every $0.83 of NPW, close to the strongest claims-

paying status in its history.

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© Copyright 2012 Munich Reinsurance America, Inc. All rights reserved. "Munich Re" and the Munich Re logo are internationally protected registered trademarks. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America, Inc. or Munich Re. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. Examples given are for illustrative purposes only. Each reader should consult an attorney and other appropriate advisors to determine the applicability of any particular contract language to the reader's specific circumstances.

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