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Midwest Actuarial Forum Aon Center March 26, 2002

Welcome. Midwest Actuarial Forum Aon Center March 26, 2002. I. Great Time To Be An Actuary II. Market Overview III. New World of Risk IV. Where the Industry is Headed. It Is A Great Time To Be an Actuary. Companies Looking for Ways To Quantify Risk Manage Risk/Reduce Volatility

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Midwest Actuarial Forum Aon Center March 26, 2002

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  1. Welcome Midwest Actuarial Forum Aon Center March 26, 2002

  2. I. Great Time To Be An Actuary • II. Market Overview • III. New World of Risk • IV. Where the Industry is Headed

  3. It Is A Great Time To Be an Actuary • Companies Looking for Ways To • Quantify Risk • Manage Risk/Reduce Volatility • Price Their Product to Achieve Adequate ROE’s

  4. It Is A Great Time To Be an Actuary • Companies Looking for Ways To • Quantify Risk • Manage Risk/Reduce Volatility • Price Their Product to Achieve Adequate ROE’s • Rapid Growth in Model Development and Usage • DFA • Catastrophe Models • Workers Compensation (Overlaid With Property Exposures) • Finite Reinsurance Covers

  5. It Is A Great Time To Be an Actuary • A Focus on • Innovation • Solutions • Is It Commercially Feasible? • Financial Actuaries

  6. It Is A Great Time To Be an Actuary • A Focus on • Innovation • Solutions • Is It Commercially Feasible? • Financial Actuaries • Capital Management

  7. Catastrophe Risk and Capital Management Overview Underwriting Strategies Captives Traditional Reinsurance Alternative Reinsurance Exposure Swaps Risk Transfer Securities Contingent Capital

  8. Management Overview • Underwriting Strategy • Risk Transfer • Capital Resources

  9. Is Volatility an Issue?

  10. Earnings Volatility Peer Analysis P&C Large Cap Sector Actual Results Through Third Quarter, 2001 Earnings Per Share Quarterly Growth (Decline) Rate Current Quarter versus Same Quarter Prior Year P&C Large Cap Sector Average

  11. Earnings Volatility Peer Analysis American International Group Actual Results Through Third Quarter, 2001 Earnings Per Share Quarterly Growth (Decline) Rate Current Quarter versus Same Quarter Prior Year P/E AIG 37 P&C Large Cap Sector Average AIG American International Group Earnings Volatility

  12. Earnings Volatility Peer Analysis CNA Financial Actual Results Through Third Quarter, 2001 Earnings Per Share Quarterly Growth (Decline) Rate Current Quarter versus Same Quarter Prior Year P/E CNA 7 P&C Large Cap Sector Average CNA CNA Financial Earnings Volatility

  13. Earnings Volatility Peer Analysis Shareholder Value Five Year Volatility EPS Growth Rate P&C Large Cap Sector

  14. Market Overview 9/11 3/31 Pre WTC WTC/Enron Aftermath New World Of Risk

  15. Pre – 9/11 • Worsening Results • Underwriting • Investment

  16. Industry Pretax Operating Income Percent of NPE – Year 1975 - 2000 % of NPE Source: Best’s Aggregates And Averages

  17. Industry Pretax Operating Income Percent of NPE – Year 1975 - 2000 % of NPE Source: Best’s Aggregates And Averages

  18. Industry Pretax Operating Income Percent of NPE – Year 1975 - 2000 % of NPE Source: Best’s Aggregates And Averages

  19. Pre – 9/11 (Cont’d) • Worrysome Issues Beginning to Emerge • Pricing Trends • Adverse Development of Reserves • Coverage Issues • Mold, Cyber, Etc. • Lower Investment Yields

  20. 9/11 Aftermath • Initial Shock, Disbelief • Little Immediate Impact for Many Companies

  21. 9/11 Aftermath • Initial Shock, Disbelief • Little Immediate Impact for Many Companies • Some Market Segments in Disarray • Losses Concentrated in Relatively Few Companies • WTC • Enron • Spread Through Reinsurance Mechanism

  22. Effects of Insured Catastrophe Losses on Industry Combined Ratios Year 1982 - 2001 Combined Ratio Est. WTC Andrew Hugo Northridge Source: Best’s Aggregates And Averages

  23. 9/11 Aftermath • Initial Shock, Disbelief • Little Immediate Impact for Many Companies • Some Market Segments in Disarray • Losses Concentrated in Relatively Few Companies • WTC • Enron • Spread Through Reinsurance Mechanism • Dealing With the Terrorism Issue • New Capital Flows

  24. New Capital Since 9/11

  25. 9/11 Aftermath • Increased Focus on Security • Rating Agencies • Regulators • Customers • Reinsurance • Attempts to Better Manage Earnings Volatility • Improved Risk Selection

  26. New World of Risk • Where Is the Rest of the WTC Loss? • Deteriorating Reserves • Ongoing Issues in • Asbestos and Environmental, Lead, Mold • Weather Volatility • Pricing • Regulation, Rating Agencies, etc.

  27. New World of Risk • Terrorism • Permanent Change in • Evaluation of Risk • Some Lines of Insurance • Where Are the Terminated Risks Going?

  28. New World of Risk • A Look Ahead • Capital Flows • Security Thresholds • Distribution • Retail • Reinsurance • Technology • Limiting Factors

  29. Thanks For Joining Us!

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