CASUALTY ACTUARIAL SOCIETY

2004 Annual Meeting

Montreal, Canada

November 16, 2004

Security and the Reinsurer

Security and the Reinsurer

Presentation Format

I. Introduction

II. Brief Presentation

III. Panelist Q/A

IV. Audience Q/A

Reinsurance Recoverable as a Percent of Surplus

48%

59%

56%

41%34%32%

0%10%20%30%40%50%

60%70%80%90%

100%

1998 1999 2000 2001 2002 2003

Source: Standard & Poors/Fitch

0%

10%

20%

30%

40%

50%

60%

70%

1997 1998 1999 2000 2001 2002 2003

0

20

40

60

80

100

120

140

160

180

200

1997 1998 1999 2000 2001 2002 2003

Unsecured

% of SurplusIn Billions $

Unsecured

Secured Secured

Secured vs. Unsecured Reinsurance Recoverables

Source: Standard & Poors

Provision For Uncollectible Reinsurance

$6,369

$6,245

$5,588$5,378$5,007

$3,764

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1998 1999 2000 2001 2002 2003

$ M

illio

ns

Source: Fitch Ratings

Reinsurance Industry Combined Ratio Versus ROR

0

20

40

60

80

100

120

140

160

-25.0%-20.0%-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%

CR ROR

Source: Standard & Poors

Reinsurer Profitability Has Been Poor

Source: Standard & Poors

Source: NAIC data as of 5-24-2004

Total Reserve Development

2003- 2001

Reserve Development

as a % of 2000 Surplus

Reinsurers 15,174,963 68%

1 Amer Reins Group 3,630,626 167%2 Ge Reins Corp 1,151,223 149%3 Discover Rein Co 89,429 149%4 Scor Reins Co Grp 442,222 131%5 XL Reins America Inc & Affiliates 746,619 130%6 Gerling Global Rein Corp Grp 733,265 110%7 Gerling Global Rein Corp of US Branch 112,564 86%8 Employers Reins Corp Grp 4,191,686 81%9 Converium Reins North Amer Inc 636,551 74%

10 Transtatlantic Rein Co 659,356 43%11 General Rein Corp 1,786,767 40%12 Putnam Rein Co 34,719 32%13 Folkesmerica Rein Co 126,498 28%14 Everest Reins Grp 303,055 24%15 Pxre Reins Co 65,539 19%16 Odyssey America Reins Co 142,290 17%17 Swiss Re Amer Corp Group 292,745 15%18 Qbe Reins Corp 10,798 7%19 Axa Corp Solutions Reins Co 19,011 7%20 Partner Reins co of the US and Affil N.A N.A

PC Reinsurance Industry Adverse Reserve Development Top 20 Groups or companies (In $000s)

Where Has All the Ceded Gone?

Direct Insurer Reserve Increases (examples, asbestos alone)

Ace Ltd. $2.2 billion (4Q ‘02 - gross of reinsurance)

Travelers Insurance Co. $2.7 billion (4Q ‘02 - net of reinsurance

Hartford Financial Services Group Inc. $3.9 billion (1Q ‘03 - gross of reinsurance)

CNA Financial Corp. $642 million (1Q ‘03 - net of reinsurance)

Chubb Corp. $250 million (4Q ‘03 - net of reinsurance)

Source: Standard & Poors

Source: Conning & Co.

Historical Aggregate Recoverable Gap

020406080

100120140160180200

1995

1996

1997

1998

1999

2000

2001

2002

2003

$ M

illi

ons

TotalCase &IBNRCeded

TotalCase &IBNRAssumed

Global Premium/Rating Shift

% Premium % PremiumRating 2001 2002 Difference

Aaa/AAA 61.9% 11.9% -50.1%

Aa/AA 28.3% 68.8% 40.5%

A 9.8% 14.1% 4.3%

Below A 0.0% 5.2% 5.2%

Total 100.0% 100.0% 0.0%

Negative Outlook 69.3%

Source: Morgan Stanley

S&P Ratings Drift by Reinsurers

0

5

10

15

20

25

30

35

40

AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- R NR

S&P Financial Strength Rating

Nu

mb

er o

f T

op

150

Rei

nsu

rers

(G

lob

al)

8/1/2002 8/1/2003 8/1/2004

Source: Standard & Poors/AON

Rating Trends: North America Reinsurance

Source: Standard & Poors

12

10

8

6

4

2

0

2

4

6

8

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Upgrades

Downgrades

* Year-over-Year changes, Ratio above bar shows upgrades / downgrades (green) or downgrades / upgrades (red). Chart tracks universe of 30 companies and groups rated today, looking backward. 2004 data is through May 21.

Even

3.0

Even

1.3

8.0

Even

US Reinsurers in 1993

Source: Standard & Poors

Transatlantic/Putnam

Employers Re

Scor U.S. Group

Prudential Re

Skandia AmericaReins

PMA Reins Co.

American Re

Chartwell ReinsCo

Chatham ReinCorp

General Re Group

Signet StarReins Co

NAC Reins Corp

Zurich ReinsCentre

ConstitutionReins

FolksamericaGroup

Frankoana ReinsCo

Axa ReinsCo

Tig ReinsCo

Gerling GlobalReins

Winterthur ReinsCoSorema NA

Reins Co

Toa –RE America

CIGNAReins

Cologne ReinsCo of Amer

US Reinsurers Today

Source: Standard & Poors

Transatlantic/Putnam

Employers Re

Scor U.S. Group

Prudential Re/ Everest Re

Skandia AmericaSkandia AmericaReinsReins

PMA ReinsPMA Reins Co.Co.

American Re

Chartwell ReinsChartwell ReinsCoCo

Chatham ReinChatham ReinCorpCorp

General Re Group

Signet StarReins Co/Berkley

Ins Co

NAC Reins Corp

Zurich ReinsZurich ReinsCentreCentre

ConstitutionConstitutionReinsReins

FolksamericaGroup

Frankoana ReinsFrankoana ReinsCoCo

Axa ReinsCo

Tig ReinsCo

Gerling GlobalGerling GlobalReinsReins

Cologne ReCologne ReCo of AmerCo of Amer

Sorema NASorema NAReins CoReins Co

Toa –ReToa –ReAmericaAmerica

CIGNACIGNAReins CoReins Co

WinterthurWinterthur ReinsReinsCoCo

Exit - Stage Right

Source: Standard & Poors

Notable Reinsurer that ceased underwriting over the last several years

Gerling-Konzern Globale Rückversicherungs-AG (GKG) Trenwick America Reinsurance Corp Scandinavian Reinsurance Co. Ltd.; Commercial Risk Reinsurance Co. Ltd. and Commercial Risk Re-

Insurance Co. AXA Corporate Solutions Reinsurance Co. and AXA

Corporate Solutions Life Reinsurance Co. PMA Capital Insurance Co. CNA Re

Exit - Stage Left

Notable Spin-Offs/Renewal Rights Sales

Zurich Re/Converium

St. Paul Re/Platinum

Hart Re/Endurance

Still on Stage

Notable Recent Downgrades

Scor

Converium

New Capital Post 9/11 (as of May 21, 2002)

$ Billions

• Capital Raised:

– 2001 $20.5

– 2002 $4.1

• Total $24.6

• Bermuda Start-ups: $8.5

Source: Guy Carpenter

Not All Reinsurers Will Survive

• Balance Sheet Repair Efforts will be Hindered• New Capacity• Market Showing Signs of Turning• Ample Capacity Available at the Right Price

Conclusion

• Reinsurance Recoverables make up a significant portion of policyholder surplus

• Cedants and Rating Agencies are concerned with the financial strength of reinsurers

• The game has changed and the pace of change has increased.

Security and the Reinsurer

2004 CAS Annual Meeting

Montreal, Canada

November 16, 2004

Panelist Questions

Security and The Reinsurer

Is the focus on reinsurers’ security a new phenomenon or is it an old issue?

What is your perspective on the history of reinsurers’ security?

Security and The Reinsurer

How should reinsurance buyers evaluate reinsurers’ security?

What things should they look at and what methods should they employ?

Security and The Reinsurer

How should buyers differentiate between reinsurers with different credit quality?

What are common existing practices and what are some ideas for the future?

Security and The Reinsurer

How has the insurer/reinsurer relationship changed over the last decade?

What has led to the change?

How has this impacted reinsurer security?

Security and The Reinsurer

In the last decade there have been many innovations

in the ways to manage run-off insurer and reinsurer

businesses. How have these innovations impacted

the security of reinsurance recoverables?

Security and The Reinsurer

What tools do cedants use to mitigate their risk to reinsurance unrecoverable?

Are there differences between the US and the Rest of the World in this regard?

Security and The Reinsurer

Do so-called “ratings triggers” in reinsurance contracts

help mitigate credit risk or do they exacerbate the

credit exposure?

Security and The Reinsurer

In recent discussions on managing the cycle, the concept of

capital management has been raised as a tool to help reduce

the amplitude of the cycle. In fact, several reinsurers have

recently initiated share buy backs and increased dividends as

a way to return capital to shareholders as they perceive

opportunities to deploy that capital to be more limited. Do

such capital management strategies help or hurt the security

of the reinsurance recoverables?

Security and The Reinsurer

What is the current quality of reinsurance recoverables in general?

Is it getting better or worse in 2004?

Security and The Reinsurer

What methods should cedants use to establish a provision for reinsurance unrecoverable?

Is there a consistent approach used or are there big differences from company to company?

Security and The Reinsurer

What methods should cedants use to build the cost of uncollectible reinsurance into their rates?

Are these methods accepted by regulators in the rate filing process?