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A DECADE’S JOURNEY THROUGH THE INSURANCE INDUSTRY (AND WHAT THE NEXT DECADE HOLDS…)

A DECADE’S JOURNEY THROUGH THE INSURANCE INDUSTRY (AND WHAT THE NEXT DECADE HOLDS…). Joe Plumeri Chairman and CEO, Willis Group Holdings plc IISA/SAIA/FIA Conference Sun City, South Africa – June 11, 2012. THE LESSONS OF HISTORY …IN BUSINESS. From this…. …to this!. 2012. 2000. 1.

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A DECADE’S JOURNEY THROUGH THE INSURANCE INDUSTRY (AND WHAT THE NEXT DECADE HOLDS…)

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  1. A DECADE’S JOURNEYTHROUGH THE INSURANCE INDUSTRY(AND WHAT THE NEXT DECADE HOLDS…) Joe Plumeri Chairman and CEO, Willis Group Holdings plc IISA/SAIA/FIA Conference Sun City, South Africa – June 11, 2012

  2. THE LESSONS OF HISTORY …IN BUSINESS From this… …to this! 2012 2000 1

  3. HOW DID WE GET THERE? From memories… …to dreams 1912 2009 2

  4. IT WASN’T EASY IN A DECADE OF UPHEAVAL… • Natural Catastrophes: • 2011: Costliest year ever for nat cat losses -- $105 bn insured losses. • 2005: 2nd costliest year with insured losses of $101 bn. • Regulatory Upheaval: • 2004-2005: Age of Spitzer brings $3 bn in fines. • Today: Solvency II implementation cost €2-3 bn over 5 years. • Man-Made Disasters: • 2001: 9/11 - Largest single property, aviation & WC loss. • 2008: Global financial crisis – 389 banks failed; how many insurers? Lessons Learned: Contract Certainty & stick to your knitting Lessons Learned:The importance of resiliency & analytics Lessons Learned:The importance of transparency & ERM 3

  5. …ALL IN THE DECADE OFTHE BLACK SWAN • 8 of the top 10 costliest insurance losses in the past 30 years occurred in the last decade! • Event Year Total Insured Losses • 1. Hurricane Katrina 2005 $74.7 billion • 2. Tōhoku quake and tsunami 2011 $35 billion • 3. Hurricane Andrew 1992 $25.6 billion • 4. September 11 Attacks 2001 $23.8 billion • 5. Northridge Earthquake 1994 $21.2 billion • 6. Hurricane Ike 2005 $21.5 billion • 7. Hurricane Ivan 2004 $15.3 billion • 8. Hurricane Wilma 2005 $14.5 billion • 9. Thailand Flooding 2011 $12 billion • 10. Christchurch Earthquake 2011 $12 billion 2010 Eyjafjallajökull Volcano: Cost airlines €150m a day for 6 days Source: Swiss Re 4

  6. PLUMERI’S TOP 10 RISKS: 6 Cost and Availability of Credit 1Climate Change 10Reputation 9 Piracy 4MarketCapRisk 5Regulation and Compliance 8 Cyber Security 3Pandemics 7 Globalization 2Terrorism

  7. NEW TYPES OF RISK PROLIFERATE • Lloyds Risk Index 2011 – Top 5 Risks • Loss of customers • Talent and skills shortages • Reputational risk • Currency fluctuation • Changing legislation • All difficult or impossible to insure • Demanding resiliency “The top 5 risks on the minds of business leaders today aren’t easily solved by purchasing insurance. Traditional risks… wind, earthquake, flood – aren’t even in the top 30 anymore.” -- Hank Watkins, Lloyd’s December 19, 2011 6

  8. TODAY’S GLOBAL INSURANCE INDUSTRY Today our industry is facing aperfect storm of: • Heavy regulatory demands on capital and solvency vs need to run a profitable business • Continuing global macro economic uncertainty • Low interest rates impacting investment performance • A continued soft market – excess capacity and stiff competition; surge in mega catastrophe claims • Top 10 Risks Facing Global • Insurance Industry (2011): • Regulation • Capital • Macro-economic trends • Investment performance • Natural catastrophes • Talent • Long tail liabilities • Corporate governance • Distribution channels • Interest rates • Source: PwC/CSFI 7

  9. THE INSURANCE INDUSTRY: WE OWN RESILIENCE • Insurance industry proven its own resilience throughout the decades. • Focus on extreme 1:200 year events – made us more resilient to catastrophe and shocks from mother nature and markets. • Transforming the scale, depth and quality of insight about the risks facing our clients and how to manage and transfer them. • Our market is fully operational – testament to the strength and resilience of this capital market. 8

  10. FOR OUR INDUSTRY: A ONCE IN A LIFETIME OPPORTUNITY Our responsibility as an industry: To “own” resilience… To lead using our expertise and resources to address long term risks… To be an industry building sustainable and predictable growth in the face of new risks… To bring knowledge, expertise, products and services as risk and uncertainty grows… To establish resilience as an aspirational purchase Insurance is the vehicle for delivering resilience rather than a transaction; to bring risk management and analytical services to our clients. 9

  11. THE EMERGING GLOBAL MIDDLE CLASS Relentless rise Middle class population as % of world total • The big story of the 21st Century is the rise of a new global middle class, most of it in Asia. • Two billion more people will join the middle class by 2030. • They will accumulate property and income, and rival the U.S. consumer in spending. A business opportunity this large is unprecedented. • They will want to protect their lives, property and income, too – the insurance opportunities are huge. • Greatest need will be in cities. 60 50 40 30 20 10 0 1820 90 1913 38 50 60 80 90 2000 06 Source: Surjit Bhalla, “The Middle Class Kingdoms of India and China” 10

  12. THE NEXT DECADE:AFRICA’S ERA? Offshore expansion strategies South African insurers are focusing on: e.g. Mozambique & Angola Over the past decade, the number of middle-class consumers in Africa has grown 60% to 313 million • 34% of Africans are firmly entrenched in the new middle class, spending between $2 and $20 a day. • By 2060, African middle class will be 1.1 bn strong • On par with Chinese and Indian middle classes. • 2nd fastest-growing economy in the world. • Huge potential for global investors. • Africa now has more mobile-phone subscribers than entire U.S. population Source: WSJ, The Economist The emerging African Middle Class will contribute to an emerging Golden Age for Insurance! Rest of Africa Asia South America China Europe and USA 0 5 10 15 20 25 30 Number of companies Source: PwC 11

  13. SOUTH AFRICA: GATEWAY TO THE CONTINENT Global brands using South Africa as a “foothold for continental expansion”: • Wal-Mart paid $2.4 billion to buy 51% of South Africa's Massmart Holdings Ltd • U.S. Yum Brands Inc. to invest $74 million in 100 new KFC outlets in Africa in 2012, and will double the number of stores to 1,200 by 2014 • Ford Motor invested $500 million in its SA operations in 2011 • British Vodafone now owns 65% of Vodacom, SA's largest mobile phone operator Source: WSJ South African insurance market will lead the way as the dominant market in Africa, accounting for 90% of regional life premium volume and half of the regional non-life premium volume. "Yes, there are risks to doing business in Africa. However, here in Africa, right now the rewards could be as vast as the continent itself." Donald H. GipsU.S. Ambassador to South Africa 12

  14. ANYTHING IS POSSIBLE… 13

  15. A DECADE’S JOURNEYTHROUGH THE INSURANCE INDUSTRY(AND WHAT THE NEXT DECADE HOLDS…) Joe Plumeri Chairman and CEO, Willis Group Holdings plc IISA/SAIA/FIA Conference Sun City, South Africa – June 11, 2012

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