Munich Re 2011 NatCat Review FINAL

2011 HALF-YEAR NATURAL CATASTROPHE REVIEW

July 12, 2011

Questions and Answers

Welcome/IntroductionTerese Rosenthal

U.S. Natural Catastrophe UpdateCarl Hedde

Global Natural Catastrophe UpdatePeter Höppe

Economic Implications of Natural Catastrophe LossesDr. Robert Hartwig

Agenda

2

You will have an opportunity to ask questions at the conclusion of the presentation.

To ask a question, please dial 1 4 on your phone.

An operator will facilitate your participation.

Question and Answer Process

3

U.S. NATURAL CATASTROPHE UPDATE

Carl Hedde, SVP, Head of Risk AccumulationMunich Reinsurance America, Inc.

From 1980 until today all loss events; for USA and selected countries in Europe all loss events since 1970.

Retrospectively, all great disasters since 1950.

In addition, all major historical events starting from 79 AD –eruption of Mt. Vesuvius (3,000 historical data sets).

Currently more than 30,000 data sets

5

The Database Today

MR NatCatSERVICEOne of the world‘s largest databases on natural catastrophes

© 2011 Munich Re

2011 Headlines

Very active thunderstorm (tornado-hail) season with insured losses exceeding $16 billion, far above the 2001 to 2010 January – June average thunderstorm loss of $6.4 billion (in 2010 Dollars). It was also the deadliest thunderstorm season in over 50 years.

Extensive severe flooding events in Midwest and Great Plains

Large, damaging wildfires in Texas, Arizona, and New Mexico.

Major blizzard and ice storm in Midwest; severe freezing conditions in Southwest

Seasonal forecasts indicate “active” hurricane season; neither El Niño or La Niña conditions are expected to be a factor this year

U.S. Natural Catastrophe Update

6© 2011 Munich Re

As of July 6, 2011

Number of Events Fatalities

Estimated Overall Losses (US $m)

Estimated Insured Losses (US $m)

SevereThunderstorm 43 593 23,573 16,350

Winter Storm 8 15 1,900 1,425

Flood 8 15 2,100 in progress

Earthquake 2 1 105 in progress

Tropical Cyclone 0 0 0 0

Wildfire 37 7 125 50

Natural Disaster Losses in the United States First Six Months of 2011

7© 2011 Munich Re


Source: MR NatCatSERVICE

Presenter

Presentation Notes

Thunderstorm insured: 3075 PCS *s 98-16, + 66 PCS #97, -200 to flood in PCS 11 = 2906, + 100 PCS 17, 18 19 20 TBD Thunderstorm econ: MR Natcat, only 100m from PCS 97, only 350m from PCS 11, 130 for PCS 17 Flood Insured: 235 PCS #11 + 200 NFIP (est.) for PCS #11 + 144 flood from PCS 97 + 30 NFIP PCS 97 Flood Econ: Discussed with Angelika, 2b from PCS 11, 300m from PCS 97, + 67 m econ from minor floods in natcatservice Winter Storm Ins: 2360 PCS + 25 crop loss on PCS 90 (MR agro) Winter Storm Econ: MR natCatservice estimate Wildfire: NatCat Service EQ: Natcat service

Natural Disasters in the United States, 1980 – 2011Number of Events (January – June Only)

Source: MR NatCatSERVICE 8© 2011 Munich Re

Meteorological events(Storm)

Hydrological events(Flood, massmovement)

Climatological events(Extreme temperature, drought, forest fire)

Geophysical events(Earthquake, tsunami, volcanic eruption)

20

40

60

80

100

120

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

First Six Months 201198 Events






Natural Disasters in the United States, 1980 – 2011Number of Events (Annual Totals 1980 – 2010 vs. First Six Months 2011)


50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

2

51

8

37



2011: Year of the Tornado

Pratt City, Alabama

Joplin, Missouri

Source: FEMA


10© 2011 Munich Re

Deadliest tornado year since 1953: 593 fatalities

Deadliest single tornado since 1947: Joplin, Missouri, 155 fatalities

Most observed tornadoes in a month: 875, April

Largest number of tornadoes in a day: 226, April 27

Most EF5 Tornados in a year: 6 (tied for first with 1974)

Five insured billion-dollar outbreaks

Two thunderstorm outbreaks each caused insured losses of about $5 billion

Late April (Alabama) outbreak is among top 10 largest natural catastrophe losses in U.S. history


2011: Year of the Tornado

11© 2011 Munich Re

U.S. Thunderstorm Loss TrendsJanuary – June only, 1980 - 2011

Thunderstorm losses for the period January – June in 2011 were more than double of the 2006-2010 5-year average.

Source: Property Claims ServiceMR NatCatSERVICE

First Half 2011 $16.4 bn


12© 2011 Munich Re

Source: Property Claims ServiceMR NatCatSERVICE

U.S. Thunderstorm Loss TrendsAnnual Totals 1980 – 2010 vs. First Half 2011

Average thunderstorm losses have increased fivefold since 1980.



13© 2011 Munich Re


2011 U.S. Tornado Count U.S. Natural Catastrophe Update

14© 2011 Munich Re

Lower Mississippi Flood of 2011

April 2011

Source: NASA


15© 2011 Munich Re

http://eoimages.gsfc.nasa.gov/images/imagerecords/50000/50504/missrv_amo_2010125_lrg.jpg�

http://eoimages.gsfc.nasa.gov/images/imagerecords/50000/50504/missrv_amo_2011125_lrg.jpg�

Lower Mississippi Flood of 2011

Heavy snowmelt, saturated soils, and over 20 inches of rain in a month lead to the worst flooding of the lower Mississippi River since 1927.

Record river crests at Vicksburg and Natchez; Morganza Spillway opened in Louisiana to protect Baton Rouge and New Orleans from possible levee failures.

Extensive agricultural damage, property, and inland marine losses due to flood.

Economic Losses: $2 billion

Insured Losses: Estimation in Progress


April 2011

16© 2011 Munich Re

Other Notable Floods of 2011

Similar to the triggers of the Mississippi River flood, heavy rains in the northern plains states and the melting of a heavy snowpack in the Rockies resulted in severe flooding along several river systems, including the:

Missouri River: Numerous breached levees (some intentional to prevent flooding in densely populated regions), agriculture and transportation networks severely disrupted, Fort Calhoun nuclear power plant threatened, but no damage.

Souris River: Record flood levels at Minot, North Dakota. Levees were overtopped by flood waters; an estimated 11,000 residents (25% of Minot’s population) was evacuated.

June 2011


17© 2011 Munich Re

Notable Wildfires in 2011

Texas: Over 3 million acres burned in west Texas from 12 major seats of fire. Over 200 homes and businesses destroyed, $50 million insured loss.

Arizona and New Mexico: “Wallow” fire largest in AZ history at 538,000 acres, Las Conchas fire near Los Alamos, 30 buildings destroyed.

April – June

Source: NASA


18© 2011 Munich Re

http://eoimages.gsfc.nasa.gov/images/imagerecords/50000/50924/wallow_amo_2011159_lrg.jpg�

Number of Acres Burned in Wildfires, 1980 – 2011 YTDU.S. Natural Catastrophe Update

Source: Property Claims ServiceMR NatCatSERVICE © 2011 Munich Re 19

U.S. Winter Storm Loss TrendsAnnual totals 1980 – 2010 vs. First Half 2011

Average annual winter storm losses have increased over 50% since 1980.

First Half 2011 $1.4 billion



Notable Winter Storms of 2011

1-2 feet of snow in Chicago with 60+ mph wind gusts

Up to 1” of freezing rain across Ohio River Valley

Economic Losses: $900 million

Insured Losses: $650 million

January 31-February 3, 2011

Source: NOAA



February 2-6, 2011

Notable Winter Storms of 2011

Cold arctic air over Rockies and Southwest

Deep freeze over agricultural areas of southwest during growing season

Economic Losses: $600 million

Insured Losses: $450 million (not including Agriculture)

-18 -9 0 9 18 27 36 45 ºFSource: NOAA



U.S. Tropical Cyclone Loss Trends,1980 – 2011

The current 5-year average (2006-2010) insured tropical cyclone loss is $3.2 bn.



GLOBAL NATURAL CATASTROPHE UPDATE

Prof. Dr. Peter HöppeHead of Geo Risks Research/ Corporate Climate CenterMunich Re

Global Natural Catastrophe Update

Geophysical events(earthquake, tsunami, volcanic activity)Meteorological events (storm)

Hydrological events(flood, mass movement)

Selection of significant loss events (see table)

Natural catastrophes

Earthquake, tsunami Japan, 11 March

EarthquakeNew Zealand, 22 Feb

Cyclone YasiAustralia, 2 Feb

Landslides, flash floodsBrazil, 12/16 Jan

Floods, flash floods Australia, Dec 2010-Jan 2011

Severe storms, tornadoesUSA, 22–28 April

Severe storms, tornadoesUSA, 20–25 May

WildfiresUSA, May–June

EarthquakeNew Zealand, 13 June

FloodsUSA, April–June

Climatological events(extreme temperature, drought, wildfire)

Number of events: 355

Natural loss events January – June 2011World map

25Source: MR NatCatSERVICE © 2011 Munich Re

Deadliest Disasters

Date Event Area Deaths

11.3.2011 Earthquake, tsunami Japan 15,500 (still missing: 7,297)

12/16.1.2011 Landslides, flash floods Brazil 1,350

22-28.4.2011 Severe storm, tornadoes USA 350

Costliest Disasters (Overall Losses)

Date Event Area Overall losses in US$m

11.3.2011 Earthquake, tsunami Japan 210,000

22.2.2011 Earthquake New Zealand 20,000

22-28.4.2011 Severe storm, tornadoes USA 7,500

Costliest Disasters (Insured Losses)

Date Event Area Insured losses in US$m

11.3.2011 Earthquake, tsunami Japan ~30.000

22.2.2011 Earthquake New Zealand >10,000

22-28.4.2011 Severe storm, tornadoes USA 5,050

Worldwide Natural Disasters 2011Significant Natural Disasters (January – June only)



Insured losses 2011 (January – June only): US$ 60bn

Worldwide Natural Disasters 2011Percentage Distribution of Insured Losses Per Continent (January – June only)

27

21%

49%

<1%

29% <1%

<1%

Continent Insured losses [US$ m] in 2011 Jan - June Africa minor America 17,800Asia 30,080Australia/Oceania 12,900Europe 100

Source: MR NatCatSERVICE © 2011 Munich Re


Insured losses 1980 - 2011 (January – June only): US$ 389bn

Worldwide Natural Disasters 1980 – 2011Percentage Distribution of Insured Losses Per Continent (January – June only)

28

Continent Insured losses [US$ m] Jan – June onlyAfrica 1,000America 237,200Asia 45,100Australia/Oceania 25,100Europe 80,900



58%

2%

21%

<1%

12%

6%

100

200

300

400

500

600

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Worldwide Natural Disasters 1980 – 2011Number of Events








US

$bn

Worldwide Natural Disasters 1980 – 2011Overall and Insured Losses

30

Losses in 2011: Overall = US$ 265bn ; Insured = US$ 60bn

Overall losses (in 2011 values) Insured losses (in 2011 values)


50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Loss figures 2011January – June only


2011 (Jan – June)

2010 (Jan – June)

Average of the last 10

years2001-2010

(Jan –June)

Average of the last 30

years1981-2010

(Jan –June)

Top Year 1981 -2010

(Jan –June)

Number of events 355 480 390 310 2007

Overall losses in US$m(original values)

265,000 97,200 47,400 36,400 1995 (EQ Kobe)

Insured losses in US$m(original values)

60,000 26,900 12,100 8,200 1994 (EQ, US

Northridge)

Fatalities 19,380 230,300 52,900 42,700 2010 (EQ Haiti)

Natural Catastrophes, 2011Overview and comparison with previous years



Worldwide Natural Disasters 2011January – June only

EarthquakeNew Zealand

Earthquake Japan

Tornadoes, Wildfires, Floods US

FloodsAustralia

Three strong earthquakes in 9 months

High losses due to soil liquefaction

Strongest EQ in Japan Mw 9.0

Spring time brought extreme weather and climate events

Deadliest tornado outbreak since 1925 in the US (1. Half year : 589)

The series of floods 2010/11 were the most devastating in modern Australian history

Highest sea surface temperature off the Australian coastline



Normalised overall and insured losses from US thunderstormsAll events

p = 0.023

Overall losses

Normalised overall losses: all eventsWealth proxy: housing stockEstimated Trend: 1.9% p.a.

p = 0.010

Insured losses

Wealth proxy: housing stockEstimated Trend: 2.4% p.a.

Normalised insured losses: all events

Trends of losses in line with meteorological trend of thunderstorm conditions.


33© 2011 Munich Re

Sources: MR NatCatSERVICE and New York Times

Floods, Queensland, AustraliaDecember 2010 to January 2011

Region Overall losses Insured losses Fatalities

Australia US$ 7,300m US$ 2,550m 35

Australia rainfall anomalies (Oct-Dec 2010)

Sea surface temperature is rising due to climate change


34© 2011 Munich Re

Date Affected Area Fatalities

1920 China 273,4001976 China 242,8002010 Haiti 222,5702004 Indonesia 220,0001923 Japan 142,800

Date AffectedArea

Overall losses (US$m, original values)

2011 Japan 210,0001995 Japan 100,0002008 China 85,0001994 USA 44,0002010 Chile 30,000

Deadliest/Costliest Earthquakes 1900 – June 2011



Costliest Natural Catastrophes Since 1950Rank by insured losses

Year Event Region Insured lossUS$m(in original values)

2005 Hurricane Katrina USA 62,200

2011 EQ, tsunami Japan ~30,000

2008 Hurricane Ike USA, Caribbean 18,500

1992 Hurricane Andrew USA 17,000

1994 EQ Northridge USA 15,300

2004 Hurricane Ivan USA, Caribbean 13,800

2005 Hurricane Wilma USA, Mexico 12,500

2005 Hurricane Rita USA 12,100

2011 EQ New Zealand New Zealand >10,000

2004 Hurricane Charley USA, Caribbean 8,000



Economic & Financial Implications of Natural

Catastrophe LossesFirst Half 2011

Insurance Information InstituteJuly 12, 2011

Robert P. Hartwig, Ph.D., CPCU, President & EconomistInsurance Information Institute ♦ 110 William Street ♦ New York, NY 10038

Tel: 212.346.5520 ♦ Cell: 917.453.1885 ♦ [email protected] ♦ www.iii.org

38

Top 16 Most Costly World Insurance Losses, 1970-2011*

(Insured Losses, 2010 Dollars, $ Billions)

*Through June 20, 2011. 2011 disaster figures are estimates; Figures include federally insured flood losses, where applicable.Sources: Swiss Re sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.

$11.3$14.0 $14.0$14.9$20.5$20.8 $23.1$24.9

$30.0

$72.3

$10.0$9.3$9.0$8.0$8.0$7.8

$0$10$20$30$40

$50$60$70$80

WinterStormDaria(1991)

ChileQuake(2010)

Hugo (1989)

TyphoonMirielle(1991)

Charley(2004)

NewZealandQuake(2011)

Rita (2005)

SpringTornadoes

(2011)

Wilma(2005)

Ivan (2004)

Ike (2008)

Northridge(1994)

WTCTerrorAttack(2001)

Andrew(1992)

JapanQuake,

Tsunami(2011)*

Katrina(2005)

Taken as a single event, the Spring 2011 tornado season would likely become the 9th

costliest event in global insurance history

3 of the top 15 most expensive

catastrophes in world history have occurred in the past 18 months

39

Top 12 (13?) Most Costly Disastersin U.S. History

(Insured Losses, 2010 Dollars, $ Billions)

*Losses will actually be broken down into several “events” as determined by PCS.Sources: PCS; Insurance Information Institute inflation adjustments.

$11.5 $12.8 $14.0$17.5

$22.6 $23.1

$45.8

$8.6$8.2$6.7$6.3$5.3$4.3

$0$5

$10$15$20$25$30$35$40$45$50

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

SpringTornadoes*

(2011)

Northridge(1994)

Andrew(1992)

9/11 Attack(2001)

Katrina(2005)

Taken as a single event, the Spring 2011 tornado season

would likely become 5th costliest event in US insurance history

Insurers Making a Difference in Impacted Communities

Source: Insurance Information Institute 40

Destroyed home in Tuscaloosa. Insurers will pay some 165,000

claims totaling $2 billion in the Tuscaloosa/

Birmingham areas alone.

Presentation of a check to Tuscaloosa Mayor Walt Maddox to the Tuscaloosa Storm

Recovery Fund

Location of Tornadoes in the US, January 1—June 30, 2011

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html# 41

1,585 tornadoes killed 537 people through June 30, including at least 340 on April 26 mostly in the

Tuscaloosa area, and 130 in Joplin

on May 22

http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html�

Location of Large Hail Reports in the US, January 1—June 30, 2011


There were 7,176 “Large Hail”

reports through June 30, causing extensive damage

to homes, businesses and

vehicles


Location of Wind Damage Reports in the US, January 1—June 30, 2011


There were 11,283 “Wind Damage” reports through June 30, causing extensive damage

to homes and, businesses


Severe Weather Reports,January 1—June 30, 2011

44Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

There have been 20,044

severe weather reports through

June 30; including 1,585

tornadoes; 7,176 “Large Hail” reports

and 11,283 high wind events


Large Hail, 7,176 , 36%

Wind Damage,

11,283 , 56%

Tornadoes, 1,585 , 8%

Tornadoes accounted for just 8% of all Severe Weather Reports through June 30 but more than 500 deaths

Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#

Number of Severe Weather Reports in US, by Type: January 1—June 30, 2011

45


46

Profit Recovery Will Be Set Back by High Catastrophe

Losses & Other Factors

P/C Insurance Industry Financial Overview

P/C Net Income After Taxes1991–2011:Q1 ($ Millions)

$14,

178

$5,8

40

$19,

316

$10,

870 $20,

598

$24,

404 $3

6,81

9

$30,

773

$21,

865

$3,0

46

$30,

029

$62,

496

$3,0

43

$34,

670

$7,8

07

$28,

672

-$6,970

$65,

777

$44,

155

$20,

559

$38,

501

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.3% 2009 ROAS1 = 5.9% 2010 ROAS = 6.5% 2011:Q1 ROAS = 5.6%

P-C Industry 2011:Q1 profits were down 12.2% to $7.8B vs. $8.9B in 2010:Q1, as underwriting results

deteriorated

* ROE figures are GAAP; 1Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 6.5% ROAS for 2011:Q1, 7.5% for 2010 and 7.4% for 2009.Sources: A.M. Best, ISO, Insurance Information Institute 47

Presenter

Presentation Notes

In my January 2010 report data through 2009:Q3 showed $16.2 billion of net profit The year finished strong with a total year profit of $28 billion 1st Quarter 2010 was strong with net profit of $8 billion, vs. -$1 billion in 1st quarter 2009

A 100 Combined Ratio Isn’t What ItOnce Was: Investment Impact on ROEsCombined Ratio / ROE

* 2009 and 2010 figures are return on average statutory surplus. 2008 -2011 figures exclude mortgage and financial guaranty insurers

Source: Insurance Information Institute from A.M. Best and ISO data.

97.5100.6 100.1 100.7

92.6

99.3100.8

102.2101.0

6.5%7.5%7.4%

9.6%

15.9%14.3%

12.7%

4.4%

8.9%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2008* 2009* 2010* 2011*0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Must Be Lower in Today’s DepressedInvestment Environment to Generate Risk Appropriate ROEs

A combined ratio of about 100 generated ~7.5% ROE in 2009/10,

10% in 2005 and 16% in 1979

48

-5%

0%

5%

10%

15%

20%

25%

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

Profitability Peaks & Troughs in the P/C Insurance Industry, 1975 – 2011*

*Profitability = P/C insurer ROEs are I.I.I. estimates. 2011 figure is an estimate based on annualized ROAS for Q1 data. Note: Data for 2008-2011 exclude mortgage and financial guaranty insurers.Source: Insurance Information Institute; NAIC, ISO, A.M. Best.

1977:19.0% 1987:17.3%

1997:11.6%2007:12.3%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

2011:6.1%*

History suggests next ROE peak will be in 2016-2017

ROE

1975: 2.4%

49

50

-5%

0%

5%

10%

15%

20%

25%

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

Soft Market Persisted in 2010 but Growth Returned: More in 2011?(Percent)

1975-78 1984-87 2000-03

*2011 figure is an estimate based on Q1 data. Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.

Net Written Premiums Fell 0.7% in 2007 (First Decline

Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.

NWP was up 0.9% in 2010

2011:Q1 growth was +3.5%; First Q1 growth since 2007

Presenter

Presentation Notes

The soft market seems to be continuing, at least for the start of 2010

51

P/C Net Premiums Written: % Change, Quarter vs. Year-Prior Quarter

Sources: ISO, Insurance Information Institute.

Finally! Back-to-back quarters of net written premium growth(vs. the same quarter, prior year)

10.2

%15

.1%

16.8

%16

.7%

12.5

%10

.1%

9.7%

7.8%

7.2%

5.6%

2.9%

5.5%

-4.6

%-4

.1%

-5.8

%-1

.6%

10.3

%10

.2% 13

.4%

6.6%

-1.6

%2.

1%0.

0%-1

.9%

0.5%

-1.8

%-0

.7%

-4.4

%-3

.7%

-5.3

%-5

.2%

-1.4

%-1

.3%

1.3% 2.

3%1.

3% 3.5%

-10%

-5%

0%

5%

10%

15%

20%

2002

:Q1

2002

:Q2

2002

:Q3

2002

:Q4

2003

:Q1

2003

:Q2

2003

:Q3

2003

:Q4

2004

:Q1

2004

:Q2

2004

:Q3

2004

:Q4

2005

:Q1

2005

:Q2

2005

:Q3

2005

:Q4

2006

:Q1

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

2010

:Q4

2011

:Q1

The long-awaited uptick. In 2011:Q1 occurring in

personal lines predominating cos. (+3.8%)

and commercial lines predominating cos. (+3.5%)

Property/Casualty Insurance Industry Investment Gain: 1994–2011:Q11

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$64.0

$31.7

$39.2

$52.9

$13.5

$58.0$51.9

$56.9

$0

$10

$20

$30

$40

$50

$60

$70

94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11:Q1

Investment Gains Recovered Significantly in 2010 Due to Realized Investment Gains; The Financial Crisis Caused Investment Gains to

Fall by 50% in 20081 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses.* 2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.

($ Billions)

Investment gains in 2010 were the best

since 2007

52

Presenter

Presentation Notes

In January we reported on industry investment income of $26.2 billion through 2009:Q3 For the full year it was $39.0 billion For 2010:Q1 it was $12.6 billion, helped by a big swing from realized capital losses in 2009:Q1 to capital gains in 2010:Q1

53

Treasury Yield Curves: Pre-Crisis (July 2007) vs. June 2011*

0.02% 0.04% 0.10% 0.18%0.41%

2.29%

3.00%

4.82% 4.96% 5.04% 4.96% 4.82% 4.82% 4.88% 5.00% 4.93% 5.00% 5.19%

1.58%

0.71%

4.23%3.91%

0%

1%

2%

3%

4%

5%

6%

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

June 2011 Yield Curve*Pre-Crisis (July 2007)

Treasury yield curve remains near its most depressed level

in at least 45 years. Investment income is falling as a result. Fed is unlikely to hike rates until well into 2012.

The End of the Fed’s Quantitative Easing Is Unlikely to Push Interest Rates Up Substantially Given Ongoing Economic Weakness

*Average of daily rates.Sources: Board of Governors of the United States Federal Reserve Bank; Insurance Information Institute.

QE2 Target

Financial Strength & Underwriting

54

Cyclical Pattern is P-C Impairment History is Directly Tied to

Underwriting, Reserving & Pricing

P/C Insurer Impairments, 1969–20108

1512

711 9

349

13 1219

916 14 13

3649

3134

50 4855

60 5841

2916

1231

18 1949 50

4735

1814 15 16 18

11

5

0

10

20

30

40

50

60

70

69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: A.M. Best Special Report “1969-2010 Impairment Review,” June 21, 2010; Insurance Information Institute.

The Number of Impairments Varies Significantly Over the P/C Insurance Cycle, With Peaks Occurring Well into Hard Markets

8 of the 18 in 2009 were small Florida carriers. Total also

includes a few title insurers.

55

56

Reasons for US P/C Insurer Impairments, 1969–2010

3.6%4.0%

8.6%

7.3%

7.8%

7.1%

7.8% 13.6%

40.3%

Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.

Historically, Catastrophe Losses Account for Only a Small Share of P-C Insurer Impairments.

Deficient Loss Reserves/Inadequate Pricing

Reinsurance Failure

Rapid GrowthAlleged Fraud

Catastrophe Losses

Affiliate Impairment

Investment Problems (Overstatement of Assets)

Misc.

Sig. Change in Business

57

Top 10 Lines of Business for US P/C Impaired Insurers, 2000–2010

2.0%4.4%

4.8%

6.5%

6.9%

7.7%

8.1%

10.9%

22.2%

26.6%

Source: A.M. Best: 1969-2010 Impairment Review, Special Report, April 2011.

Catastrophe Exposed Lines Account for a Relatively Small Share of the Premium Volume of Impaired Insurers Over the Past Decade

Workers Comp

Financial Guaranty

Pvt. Passenger Auto

Homeowners

Commercial Multiperil

Commercial Auto Liability

Other Liability

Med Mal

SuretyTitle

SURPLUS/CAPITAL/CAPACITY

58

Have Large Global Losses Reduced Capacity in the Industry, Setting

the Stage for a Market Turn?

$0$50

$100$150$200$250$300$350$400$450$500$550$600

75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11*

US Policyholder Surplus:1975–2011*

* As of 3/31/11.Source: A.M. Best, ISO, Insurance Information Institute.

“Surplus” is a measure of underwriting capacity. It is

analogous to “Owners Equity” or “Net Worth” in

non-insurance organizations

($ Billions)

The Premium-to-Surplus Ratio Stood at $0.77:$1 as of3/31/11, A Near Record Low (at Least in Recent History)**

Surplus as of 3/31/11 was a record $564.7B, up from $437.1B at the crisis trough at 3/31/09. Prior

peak was $521.8 as of 9/30/07. Surplus as of 3/31/11 was 8.2% above 2007 peak; Crisis trough was as of

3/31/0916.2% below 2007 peak.

59

60

Policyholder Surplus, 2006:Q4–2011:Q1

Sources: ISO, A.M .Best.

($ Billions)

$487.1$496.6

$512.8$521.8

$478.5

$455.6

$437.1

$463.0

$490.8

$511.5

$540.7$530.5

$544.8$556.9

$564.7

$505.0$515.6$517.9

$420

$440

$460

$480

$500

$520

$540

$560

$580

06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1

2007:Q3Previous Surplus Peak

Quarterly Surplus Changes Since 2007:Q3 Peak

09:Q1: -$84.7B (-16.2%)09:Q2: -$58.8B (-11.2%)09:Q3: -$31.0B (-5.9%)09:Q4: -$10.3B (-2.0%)

10:Q1: +$18.9B (+3.6%)10:Q2: +$8.7B (+1.7%)10:Q3: +$23.0B (+4.4%)10:Q4: +$35.1B (+6.7%)11:Q4: +$42.9B (+8.2%)

Surplus set a new record in 2011:Q1*

*Includes $22.5B of paid-in capital from a holding company parent for one insurer’s investment in a non-insurance business in early 2010.

The Industry now has $1 of surplus for every $0.77 of

NPW—the strongest claims-paying status in its history.

Presenter

Presentation Notes

The $540.7 billion shattered the previous industry record, set in 2007:Q3, of $521.8 billion A large part of it came as paid-in capital from Berkshire Hathaway’s purchase of Burlington Northern railroad, which it placed among assets of subsidiary National Indemnity

61

Above Average Activity, More Landfalls Expected

Outlook for the 2011 Atlantic Hurricane Season

Outlook for 2011 Hurricane Season: 75% More Active Than Average

Average* 2005(Katrina Year)

2011F

Named Storms 9.6 28 16Named Storm Days 49.1 115.5 80Hurricanes 5.9 14 9Hurricane Days 24.5 47.5 35Intense Hurricanes 2.3 7 5

Intense Hurricane Days 5.0 7 10

Accumulated Cyclone Energy 96.1 NA 160

Net Tropical Cyclone Activity 100% 275% 175%

*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011. 62

Probability of Major Hurricane Landfall (CAT 3, 4, 5) in 2011

Average* 2011F

Entire US Coast 52% 72%

US East Coast Including Florida Peninsula

31% 48%

Gulf Coast from FL Panhandle to Brownsville, TX

30% 47%

ALSO…Above-Average Major HurricaneLandfall Risk in Caribbean for 2011 (61% vs. 42%)

*Average over the period 1950-2000.Source: Dr. Philip Klotzbach and Dr. William Gray, Colorado State University, June 1, 2011. 63

64

Most States Fail to Address Their Vulnerabilities to

Catastrophic Coastal Loss

US Property Residual Markets Remain Under Strain

65

U.S. Residual Market Exposure to Loss($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.); http://www.iii.org/pr/last-resort-2010.

$281.8

$757.9

$430.5$372.3

$54.7

$150.0

$292.0$244.2$221.3

$419.5

$656.7 $696.4

$771.9$703.0

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

($ Billions)

In the 21-year period between 1990 and 2010, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7

billion in 1990 to $757.9 billion in 2010.

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

http://www.iii.org/pr/last-resort-2010�

U.S. Residual Market: Total Policies In-Force (1990-2010) (000)

Source: PIPSO; Insurance Information Institute; http://www.iii.org/pr/last-resort-2010.

931.6

1,785.0

1,458.1

1,196.5

1,741.7

2,841.4

2,479.4

1,319.7

2,621.32,780.6

1,642.3

2,840.4

2,209.32,203.9

0

500

1,000

1,500

2,000

2,500

3,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(000)

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

In the 21-year period between 1990 and 2010, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more

than tripled.

66

http://www.iii.org/pr/last-resort-2010�

www.iii.org

Thank you for your timeand your attention!

Twitter: twitter.com/bob_hartwig

Insurance Information Institute Online:

67

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Question and Answer Process

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More Information

Press InquiriesTerese RosenthalPhone: 609.243.4339E-mail: [email protected]

70

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© Copyright 2011 Munich Reinsurance America, Inc. All rights reserved. "Munich Re" and the Munich Re logo are internationally protected registered trademarks. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America, Inc. or Munich Re. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. Examples given are for illustrative purposes only. Each reader should consult an attorney and other appropriate advisors to determine the applicability of any particular contract language to the reader's specific circumstances.

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