State Risk & Insurance Management Association

1. State Risk & Insurance Management Association State Risk & Insurance Management Association Conference September 2008 William M. Choate Executive Vice President Aon Risk Services

2. State of P&C Industry – Broker’s Perspective • The Marketplace - its current environment and what’s happening to rate structure • Contingent Commissions – what the Brokers and agents are saying • Banks – are they in or out of the insurance business? • Competitive Landscape – a Broker’s world today • Revenue Remedies – what you can expect to see Let’s look at:

3. State of P&C Industry – Broker’s Perspective • Still remains mired in soft market conditions, now through second quarter of ‘08 • Minor to no change from first quarter ’08 to second quarter ’08. Insurers are willing to accept lower deductibles, looser terms & conditions • Plenty of capacity, BUT recent economic woes, coupled with soft market, will continue to hurt and maybe reverse the cycle • Large accounts are getting very favorable terms • Windstorm in Southeast & Gulf Coast, better pricing, but could change quickly • Underwriters easing up on standards, deductibles, loss history and terms & conditions to get new business The Marketplace

4. State of P&C Industry – Broker’s Perspective • Gustav gross onshore losses expected to be projected at 3–7 billion, with offshore losses from 1–3 billion • The industry has the necessary capital to withstand this loss, meaning it’s an earnings not a capital event. • Primary insurers will likely bear the brunt due to increased reinsurance retention • All could change with Hanna, Ike and Josephine The Marketplace (con’t)

5. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – All Regions Source: CIAB 2nd Qtr Survey, July 2008

6. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI)

7. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – Southeast (AL, FL, GA, KY, LA, MS, NC, SC, TN, VA, WV)

8. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – Midwest (AR, IL, IN, IA, KS, MI, MO, MN, NE, ND, SD, OH, WI)

9. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – Southwest (So. CA, AZ, NM, OK, TX)

10. State of P&C Industry – Broker’s Perspective Commercial Property/Casualty Premium Rate Changes 2nd Qtr ’08 – Pacific NW (No. CA, AK, CO, HI, ID, MT, NV, OR, UT, WA, WY)

11. State of P&C Industry – Broker’s Perspective • Has become and continues to be a hot topic • The July ’08 hearings in NY found: • Regulators will likely require small brokers to increase disclosure on contingent commissions • While possible, it is less likely regulators will implement full allowance or ban all contingent commissions • Industry is divided – MMC, AOC & AJG support return of contingent commissions with full disclosure; Willis and RIMS oppose contingent commissions • Tone is more tolerant, allowing MMC, AOC, WSH to accept contingent commissions on business they acquire for 3 years • Ongoing hearings could indicate regulators are open to further revisions in the settlement to where NY sets the tone. Contingent Commissions

12. State of P&C Industry – Broker’s Perspective • Current economic environment puts pressure on non-core assets • Except for very few, no investment in people or no capital for expansion • Bank of America – sold to HRH Wachovia – uncertain Regions – uncertain BB&T – moving forward Wells Fargo – moving forward and some investing • Private Equity – rollups are a possibility, i.e., Goldman Sachs, Blackstone Banks (Financial Institutions)

13. State of P&C Industry – Broker’s Perspective Competitive Landscape – U.S. Organic Growth Rates

14. State of P&C Industry – Broker’s Perspective • “War for talent”, professionals that can move business • Willis/HRH merger – fallout? • Marsh beginning to come around, will take time • Regionals struggling with growth and retention • More acquisitions/mergers will occur • Acquisitions to compliment existing portfolio of products & services • Innovation solutions & cost efficient models are key to survival Competitive Landscape

15. State of P&C Industry – Broker’s Perspective • What risk managers can expect to see: • Brokers looking at non-client facing assets • Off-shoring of backroom operations • New technology allowing clients to facilitate certificates of insurance, auto ID cards, etc. • Client profitability • Penetration on existing relationships • Re-negotiating of fees • No more “scope creep”, will be cost adjusted • Geographical considerations • Strategic account reviews/stewardship (you should be feeling a lot of love) Revenue Remedies