ACEUSACompanyProfile-MarineSeminar-Houston.pptVIP

Outline Historical Results and Baseline 2005 and 2007 – A period of change 2007 and beyond – Insight and Perspective Industry Issues TRIA, OFC and Cat Fund. Questions Supply Side Business Insurance is classic supply demand business model Demand is more or less constant follows GDP Market is supply driven Supply = Capital = Surplus. Capital Moves to returns and away from losses Capital becomes variable creating hard and soft markets Capital leaves: capital to reserves, losses, buy-backs and reduction of risk appetite. Capital enters: net income, new capital models and new capital Underwriting Gain (Loss)1975-2006 Cyclical Growth Rate for PC Insurance Industry* and Historical Interest Rates U.S. Policyholder Surplus: 1975-2006 Average Commercial Rate Change by Line: 4Q99 – 1Q07 Ten Lowest P/C Insurance Combined Ratios Since 1920 Highlights: Property/Casualty,2006 vs. 2005 2006 Calendar Year by Accident Year A 100 Combined Ratio Isn’t What it Used to Be Historical ROE For Property Casualty vs. All Industries - 1987–2006 and Interest Rates 2005 to 2007 - A Period of Change 2004 and 2005 – Natural Cat losses. Model Changes Rating Agency Changes Bifurcated market: CAT and all else New Capital Sources Distribution – Finding balance Casualty Pricing Pressure Why Property Prices Went Up… Historical results Cost and availability of reinsurance Portfolio Management RMS Model changes SP and AM Best capital requirements Magnitude of supply imbalance. Commercial Property Calendar Year Results 1993-2005 Average Commercial Rate Change by Line: 4Q99 – 1Q07 Industry Track Record During the period January 1, 1997 through December 31, 2005, the US PC Industry experienced $35.2 Billion in adverse development: 1996 prior AY’s $ 21.2 Billion 1997 - 2001 AY’s $ 58.7 Billion 2002 subs. AY’s $(44.7)Billion Total $ 35.2 Billion Source Dowling IBNR Weekly Reserve Development DistortsCalendar Year PictureP C Insurance Industry Prior Year Reserve Development* In