Professional Liability: State of the Market

1. Professional Liability: State of the Market Karen McCabe CIC, CWCA, CWCP, SDA Insurance Management Consultants Inc.

2. Property Casualty Markets1987–2008E P/C profitability is cyclical, volatile and vulnerable Sept. 11 Hugo Katrina, Rita, Wilma Lowest CAT losses in 15 years Andrew Northridge 4 Hurricanes *2007 is actual 9-month ROAS of 13.1%. 2008 P/C insurer ROE is I.I.I. estimate. Source: Insurance Information Institute; Fortune

3. Average Commercial Rate ChangeAll Lines (1Q:2004 – 4Q:2007) Magnitude of rate decreases diminished greatly after Katrina but have grown again -0.1% KRW Effect Source: Council of Insurance Agents & Brokers; Insurance Information Institute

4. Strength of Recent Hard Markets by NWP Growth* 1975-78 1984-87 2001-04 Post-Katrina period resembles 1993-97 (post-Andrew) 2008: Projected -0.3% premium growth would be the first decline since 1943 Note: Shaded areas denote hard market periods. Source: A.M. Best, Insurance Information Institute *2007 figure is actual 9-month figure.

5. Underwriting Gain (Loss)1975-2007F* Insurers earned a record underwriting profit of $31.7 billion in 2006, the largest ever but only the second since 1978. Expected gain for 2007 is approximately $24 billion. Cumulative underwriting deficit since 1975 is $417 billion. $ Billions Source: A.M. Best, Insurance Information Institute *Actual 2007:9M underwriting profit = $18.146B annualized to $24.192B.

6. U.S. Insured Catastrophe Losses* $ Billions $100 Billion CAT year is coming soon 2006/07 were welcome respites. 2005 was by far the worst year ever for insured catastrophe losses in the US, but the worst has yet to come. *Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B. Source: Property Claims Service/ISO; Insurance Information Institute

7. Expected 2008 Losses • 2008 was forecast to be a year of above average activity for hurricanes • Reinsures balance sheet well prepared • US had been hit twice by powerful hurricanes caused significant insured losses • Consensus view of rating trends in 2009 had been one of continued price reduction

19. What's does this mean? • Is the market getting hard? • Will the market continue to be soft? • Or will the market be just right?

20. Like Goldie Locks and the Three Bear

21. What we are seeing: • Continued soft market with talk of hard market • Rumors of New Companies entering the market • Rates decreasing/premiums increasing • Firms Laying off • Firms Closing Doors • New small firms • Mergers • Extended Reporting Periods - Tails

22. Estimated Not Include in Rater

23. Rates based on 2005, 2006 & 2007

24. Fees up - Rate Down

25. 5 year Loss Summary

26. 10 year Loss Summary

27. Claims • Overall claims trends are stable • Problem areas • Colleges and universities • Mechanical engineering and HVAC • Surveying • Multi Family housing

28. Risk Management • Contracts • Billing & Payment, include termination of services • Coverage's • Liability Limits • Deductibles • Increase risk management training • Written processes • Put processes in place

29. Thank you!