Catastrophe Risk Tolerance Study

Transcription

1 Study s by Sector As of Year End 2014 Prepared by Aon Benfield Analytics

2 Contents Section 1 Section 2 Section 3 Section 4 Overview and Key Findings Analysis of Disclosure Data Risk Tolerance Metrics Disclosure Risk Tolerance Summary 1

3 Section 1: Overview and Key Findings 2

4 Study Overview Composition: 102 Different Reinsurers/Insurers Global Reinsurers/Insurers Year Percent Reporting * % % % % % % % % 84% of the industry disclosed some type of information relating to catastrophe risk tolerance, less than year-end However, the percentage of "primary" source disclosures remained same at 69%: Data Sources Primary % 69% 10K Reports % 41% Annual Reports % 24% Investor / Analyst Presentations 4 4 4% 4% Secondary % 16% A.M. Best Reports % 16% S&P Reports 2 0 2% 0% Not Disclosed % 16% Totals % 100% Notes: Compared to last year: Tower Group has been removed as it was acquired. Echelon Financial Holdings, Intact Financial Corp, National General Holding Corp, Federated National Holdings Co, HCI Group Inc, Heritage Insurance Holdings Inc, United Insurance Holding Corp & Universal Insurance Holdings have been added to the Personal lines sector this year. * Based off of the 2014 population to have a common denominator base. The population excludes sectors such as Medical Professional Liability, Life & Health, Financial / Mortgage Guaranty and Title companies 3

5 Event-Level Risk Tolerance: Post Katrina Typical CRO/CFO Risk Tolerance Questions What proportion of one years earnings can be lost in a single event without an adverse stock price reaction? What proportion of GAAP equity? Post-event share price decline best predicted by reported Katrina losses alone, rather than Katrina, Rita and Wilma losses combined Indicates a greater sensitivity to a single large loss than an aggregation of events Reinsurers/Insurers losing less than 10% of shareholder value had Katrina losses in the following ranges, which are consistent with recent PML public disclosures: Katrina Study Loss % Ranges* YE 1:100 PML Disclosure Mean As a % of Equity* Sector As % of Equity As % of Prospective Consensus Earnings Primary Insurers 3% to 6% 21% to 34% 4% 4% 4% Reinsurers 12% to 19% 107% to 110% 14% 14% 13% * Shown on a net post-tax basis The average 100-year PML risk tolerance disclosure for primary and reinsurance companies is inline with Aon Benfield s post-katrina study 4

6 Disclosure Trend Analysis Sample Composite PML Target Ranges Post Tax Detail Post Tax Net PML as a Percent of Equity: Insurers 1 in 100 Yr 1 in 250 Yr Count Median Max Count Median Max % 17% 15 8% 26% % 17% 19 9% 29% % 16% 18 9% 29% Post Tax Net PML as a Percent of Equity: Reinsurers 1 in 100 Yr 1 in 250 Yr Count Median Max Count Median Max % 18% 7 16% 25% % 19% 7 14% 25% % 20% 7 20% 25% Note: The composite for 2014 consists of approximately 30 companies across all sectors where definitive PML targets or actuals were disclosed. There were 34 companies in the 2013 composite, and 37 companies in the 2012 composite. Where companies reported an actual instead of a target we assumed the actual was their target. Due to a limited dataset, results should be used for informational purposes only. An assumed effective 35% tax rate for insurers and 15% tax rate for reinsurers was used by Aon Benfield as needed for level setting since some firms disclosed pre-tax and others post-tax. 5

7 Key Findings of Catastrophe Risk Tolerance Study Approximately 84% of companies disclose risk tolerance or related information, of which approximately half use PML figures: Disclosure Type Percentage Disclosed as Diclosed as Undetermined/ Target Not Disclosed Count PML Figure (Net) 46% As Part of Discussion 33% Other Disclosure Type 6% Undetermined / Not Disclosed 16% Totals 100% * *Note: Total count is more than total number of companies as some companies disclose both and Target PMLs Disclosures varied by sector with Commercial Lines and companies using net PML most often, while reinsurance structure was most commonly the form of disclosure for Personal Lines carriers Aon Benfield s post-katrina risk tolerance study indicates that a catastrophe event can range from 3 6% of equity for primary companies and 12-19% of equity for reinsurers before impacting stock price by more than 10% The average 100yr PML risk tolerance disclosure for primary and reinsurance companies is in-line with Aon Benfield s post-katrina study Market results from Sandy are consistent with the lower end of the Katrina study tolerance Majority of companies with Strong and Adequate S&P ERM ratings disclose net PML as their risk tolerance measures; whereas companies with no ERM rating are more inclined towards structure disclosure. 6

8 Section 2: Analysis of Disclosure Data 7

9 Disclosure Distribution by Sector Disclosures varied by sector with Commercial Lines and companies using net PML most often, while reinsurance structure was most commonly the form of disclosure for Personal Lines carriers Commercial Lines Sector 10% Personal Lines Sector 11% 30% 25% 40% 25% 59% Specialty Lines Sector Sector 26% 5% 10% 37% 37% 85% 8

10 Risk Metrics Disclosures vs. Target PML Aggregate vs. Occurrence # Companies Commercial Personal Specialty # Companies Commercial Personal Specialty Target Aggregate Occurrence # Companies All Peril vs. Regional PML All Perils Regional All Perils All Regions 5 22 Specific Peril Specific Peril Regional All Regions 2 7 Note: Includes companies reporting reinsurance structure Commercial and Specialty lines are more inclined towards PML disclosure, while Personal and sectors are evenly spread Specialty line predominantly reports on an Occurrence basis, while the other lines are more evenly spread PML are more concentrated towards Specific Peril Regional disclosure while Target PML is more All Peril All Regions disclosure Target 9

11 S&P ERM Evaluations and Catastrophe Risk Tolerance Disclosures Distribution of S&P ERM Evaluations (102 companies) Catastrophe Risk Tolerance Disclosures by S&P ERM Evaluation 7 9% 3 32% Very Strong 25% Strong Adequate (SRC)** Adequate No ERM % 14% Very Strong Strong Adequate (SRC)** Adequate No ERM Net PML Other None Majority of companies with Strong and Adequate S&P ERM ratings disclose net PML as their risk tolerance measures; whereas companies with no ERM rating are more inclined towards structure disclosure. Notes: S&P ERM Evaluations are as of 4/28/2015 ** SRC = Strong Risk Controls 10

12 Section 3: Risk Tolerance Disclosures 11

13 P&C Commercial Lines Sector Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating ACE Limited Net PML Pre-Tax Aggregate Strong Allianz SE None Strong American International Group, Inc. Net PML Post-Tax Occurrence Adequate Chubb Corporation Cincinnati Financial Corp 50-yr, 500-yr Strong Net PML Aggregate Adequate CNA Financial Corp Net PML Target Aggregate Adequate (SRC) Fairfax Financial Other Pre-Tax Target Aggregate Adequate FM Global No ERM Rating Hartford Financial Services Net PML Pre-Tax Aggregate Adequate (SRC) Liberty Mutual Metric Disclosures Aggregate Strong MS&AD Insurance Group Holdings Other Adequate NKSJ Holdings Other Adequate 12

14 P&C Commercial Lines Sector Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Old Republic International Corp None Adequate QBE Insurance Group Selective Ins Group 25-yr,50- yr,150- yr,200yr Aggregate Strong Net PML Post-Tax Occurrence Adequate (SRC) Talanx Group 200-yr Net PML Occurrence Strong Tokio Marine Holdings, Inc. Other Strong Travelers Companies 50-yr, 1000-yr Net PML Both Occurrence Very Strong XL Group Other Pre-Tax Occurrence Strong Zurich Financial Services AG Metric Disclosures Aggregate Strong 13

15 P&C Personal Lines Sector Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Metric Disclosures Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Allstate Corporation Net PML Pre-Tax Target Aggregate Strong Assicurazioni Generali Net PML Occurrence Adequate (SRC) Aviva PLC 10-yr Net PML Target Occurrence Adequate (SRC) Axa None Strong Donegal Group Echelon Financial Holdings Inc Erie Indemnity Corp Federated National Holdings Co Hanover Insurance Group Aggregate No ERM Rating Target Occurrence No ERM Rating Occurrence No ERM Rating No ERM Rating Occurrence Adequate (SRC) HCI Group Inc None No ERM Rating 14

16 P&C Personal Lines Sector Company 100 Yr 250 Yr Heritage Insurance Holdings Inc Hilltop Horace Mann Educators Corp Insurance Australia Group Infinity P&C Corp Intact Financial Corp Kemper Other RPs (List) 181- yr, 30 -yr 200 yr, 500 yr Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Net PML Post-Tax Aggregate No ERM Rating Metric Disclosures No ERM Rating Occurrence Adequate Occurrence Strong Adequate Aggregate No ERM Rating Aggregate Adequate Mapfre S.A None Adequate (SRC) 15

17 P&C Personal Lines Sector Mercury General Corp National General Holding Corp Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Occurrence No ERM Rating No ERM Rating Progressive Corp Net PML Post-Tax Aggregate Strong Royal & Sun Alliance Insurance Group 200-yr Net PML Occurrence Very Strong Safety Insurance Group Net PML Post-Tax Aggregate No ERM Rating State Auto Financial Corp United Insurance Holding Corp Universal Insurance Holdings Inc 185-yr Metric Disclosures Occurrence Adequate No ERM Rating No ERM Rating Vienna Insurance Group Net PML Target Occurrence Adequate (SRC) 16

18 P&C Specialty Lines Sector Affirmative Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating No ERM Rating Alleghany Corp Net PML Post-Tax Occurrence Adequate Allied World Assurance Company None Strong American Financial Group, Inc. 500-yr Net PML Occurrence Adequate (SRC) Amerisafe None No ERM Rating Amtrust Financial Services, Inc. Occurrence No ERM Rating ARCH Capital Group, Ltd. Net PML Pre-Tax Target Occurrence Strong Argo Group None Adequate Assurant Net PML Occurrence Adequate Aviabel None Adequate Baldwin & Lyons None No ERM Rating Beazley Net PML Target Occurrence Strong CV Starr None No ERM Rating EMC Insurance Group Employers Holdings, Inc. Metric Disclosures No ERM Rating Occurrence No ERM Rating 17

19 P&C Specialty Lines Sector Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Endurance Specialty Holdings, Inc. Net PML Target Aggregate Strong First Acceptance Fuji Fire & Marine Insurance Company Ltd. Global Indemnity Hallmark Financial Services No ERM Rating Occurrence Adequate Occurrence No ERM Rating Occurrence No ERM Rating HCC Insurance Holdings Net PML Post-Tax Occurrence Strong Hiscox 80-yr, 110-yr, 200-yr, 240-yr Net PML Both Occurrence Strong Ironshore None Adequate Kingsway Financial Services None No ERM Rating Lancashire Net PML Pre-Tax Occurrence Strong Markel Corp Metric Disclosures Occurrence Adequate (SRC) 18

20 P&C Specialty Lines Sector Company 100 Yr 250 Yr Meadowbrook Insurance Group, Inc. National Interstate Corp Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Occurrence No ERM Rating No ERM Rating Navigators Group Net PML Pre-Tax Occurrence Adequate Novae Net PML Occurrence No ERM Rating OneBeacon Insurance Group, Inc. Net PML Occurrence Adequate RLI Corp Net PML Both Adequate (SRC) Unico American Corp None No ERM Rating United Fire Group W.R. Berkley Corp Metric Disclosures No ERM Rating Adequate (SRC) 19

21 P&C Sector Amlin Asia Capital Company 100 Yr 250 Yr Other RPs (List) Less than 100-yr 1 in 1000 yr Risk Quantification Metric Metric Disclosures Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Net PML Target Occurrence Very Strong Net PML Target Occurrence Adequate Aspen Insurance Holdings Net PML Post-Tax Both Very Strong Axis Capital Holdings 50-yr Net PML Target Both Strong Berkshire Hathaway Net PML Target Aggregate Adequate Catlin Net PML Occurrence Very Strong Everest Re Group Net PML Target Occurrence Strong Greenlight Re Net PML Aggregate No ERM Rating Hannover Ruckversicherung AG 200 yr Net PML Target Aggregate Very Strong Maiden Holdings Net PML Target Occurrence Adequate Montpelier Re Holdings Net PML Occurrence Strong 20

22 P&C Sector Company 100 Yr 250 Yr Other RPs (List) Risk Quantification Metric Pre- or Post-Tax / Target Aggregate/ Occurrence S&P ERM Rating Muenchener Ruckversicherung AG Net PML Occurrence Very Strong Partner Re 500-yr Net PML Pre-Tax Occurrence Adequate (SRC) Platinum Underwriters Net PML Pre-Tax Target Aggregate Adequate (SRC) Renaissance Re Holdings None Very Strong SCOR Company Other Target Occurrence Very Strong Swiss Company 200-yr Net PML Occurrence Strong Third Point Re None No ERM Rating Validus Holdings Ltd. 20-yr, 50-yr, Agg Metric Disclosures Net PML Both Strong White Mountains Net PML Post-Tax Aggregate No ERM Rating 21

23 Section 4: Risk Tolerance Summary 22

24 P&C Commercial Lines Sector Company ACE Limited 5.9% 8.1% / Target 1:100 1:250 Summary Source Date For 100-year return period scenario, Modeled Annual Aggregate pre-tax PML for U.S. hurricanes is $1.757B (1.1% of industry aggregate losses, 5.9% of total shareholder equity), which is equivalent to a one percent change that losses incurred in any year from U.S. hurricanes could be in excess of $1.757B. For 250-year return period ACE K Filing, scenario, Modeled Annual Aggregate pre-tax PML for U.S. hurricanes is $2.383B Catastrophe (1.1% of industry aggregate losses, 8.1% of total shareholder equity). For 100-year management section, return period scenario, Modeled Annual Aggregate pre-tax PML for CA Earthquake is page 76 $0.797B (2.0% of industry aggregate losses, 2.7% of total shareholder equity). For 250-year return period scenario, Modeled Annual Aggregate pre-tax PML for CA Earthquake is $1.046B (1.7% of industry aggregate losses, 3.5% of total shareholder equity). Allianz SE N/A - - No risk tolerance metrics indicated N/A N/A American International Group, Inc. 1.7% 2.1% Chubb Corporation - - Disclosed Risk Tolerance For 100-year return period scenario, Occurance Exeedence Probability (OEP) losses are $1.821B (net of 2014 reinsurance, after tax) (1.7% of total equity) for US American International Hurricane and $0.796B (0.7% of Total Equity) for Japanese Wind. For 250-year return Group K Filing, period scenario, Occurance Exeedence Probability (OEP) losses are $2.289B (net of Natural Catastrophe 2014 reinsurance, after tax) (2.1% of total equity) for US Earthquake and $0.584B Risk section, Page 172 (0.5% of Total Equity) for Japanese Earthquake. Effective April 1, 2014, the group's traditional property catastrophe reinsurance treaty provides coverage for United States and Canadian exposures of approximately 34% of losses (net of recoveries from other available reinsurance) between $500 million and $900 million, and approximately 75% of losses (net of recoveries) between $900 million and $1.75 billion. For certain exposures in the northeastern part of the United States, the combination of the traditional treaty, supplemental catastrophe reinsurance and catastrophe bond arrangements provides additional coverage of approximately 63% of losses (net of recoveries from other available reinsurance) between $1.75 billion and $3.65 billion. The company also has a $150 million catastrophe bond arrangement that provides Chubb Group of coverage for homeowners-related hurricane and severe thunderstorm losses in eight Insurance Companies states along the southern U.S. coastline. In addition, for exposures in Florida, the AM Best Report Florida Hurricane Catastrophe Fund provides coverage of 90% of homeowners-related # (05/22/2014), hurricane losses in excess of an initial retention of $160 million per event, with Section aggregate recoveries during the annual coverage period limited to approximately $395 million. The primary property catastrophe treaty for exposures outside the United States, including Canada, provides coverage of approximately 75% of losses (net of recoveries from other available reinsurance) between $100 million and $350 million. For Australian and Canadian exposures, additional reinsurance provides coverage of 80% of losses (net of recoveries from other available reinsurance) between $350 million and $475 million. 5/22/2014 Information in red is disclosed on a post-tax basis 23

25 P&C Commercial Lines Sector Company Cincinnati Financial Corp 1.2% 4.3% CNA Financial Corp Target - - Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date We use the Risk Management Solutions (RMS) and Applied Insurance Research (AIR) models to evaluate exposures to a once-in-a-100-year and a once-in-a-250- year event to help determine appropriate reinsurance coverage programs. In Cincinnati Financial conjunction with these activities, we also continue to evaluate information provided by Corp K Filing, our reinsurance broker. These various sources explore and analyze credible scientific Programs evidence, including the impact of global climate change, which may affect our section, Page 107 exposure under insurance policies. (Net PML for 1:100 Year, 1:250 Year and 1:500 based upon RMS is 1.2%, 4.3% and 7.7% of total equity and based upon AIR is 1.2%, 2.4% and 4.0% of total equity) CNA's net catastrophe leverage as depicted in a probable maximum loss (PML) analysis is less than 5% of surplus. CNA Insurance Companies AM Best Report #18313 (01/12/2015), Risk Management Section 1/12/2015 Fairfax Financial Target % Currently the company s objective is to limit its company-wide catastrophe loss exposure such that one year s aggregate pre-tax net catastrophe losses would not exceed one year s normalized net earnings before income taxes. The company takes a long term view and generally considers a 23.1% (15%/0.65) return on common shareholders equity, adjusted to a pre-tax basis, to be representative of one year s normalized net earnings. The modeled probability of aggregate catastrophe losses in any one year exceeding this amount is generally more than once in every 250 years.(shareholders Equity as of is $8,361 mn) Fairfax Financial 2014 Annual Report, Underwriting Risk section, Page 89 FM Global - - FM Global Group AM The Group maintains excess-of-loss protection of $1210 million excess of its $250 Best Report #18502 million per risk retention and $1000 million excess of its $500 million per catastrophe (10/08/2014), retention. Section 10/8/2014 Hartford Financial Services % The estimated pre-tax loss for a 1 in 250 single event net of reinsurance is less than 15% of statutory surplus of the P&C operations. The estimated 250 year pre-tax probable maximum losses from hurricane events are estimated to be $1.5 bn and $570 mn, before and after reinsurance, respectively. The estimated 250 year pre-tax probable maximum loss from earthquake events is estimated to be $736 mn before reinsurance and $471 mn net of reinsurance. (Stockholders Equity as of is $18,720 mn) Hartford K Filing, Natural catastrophe risk section, Page 89 24

26 P&C Commercial Lines Sector Company Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Liberty Mutual - - MS&AD Insurance Group Holdings - - On March 6, 2012, the Company entered into two multi-year property catastrophe reinsurance agreements with Mystic Re III Ltd. ("Mystic III"), a Cayman Islands domiciled reinsurer, to provide a total of $275 million of reinsurance coverage for the Company and its affiliates for a U.S. hurricane or earthquake event. The reinsurance agreements are collateralized. Such collateral is provided by Mystic III using proceeds from the issuance of certain catastrophe bonds. The reinsurance agreements provide coverage based on actual reported losses by the Company and its affiliates. The Company has not recorded any recoveries under this program. Mystic III does not have any other reinsurance in force. As of 3/31/2015, MS has catastrophe reserves of JPY 442.5B and AD has catastrophe reserves of JPY 257.6B. MS has catastrophe risk of JPY 158B and AD has catastrophe risk of JPY 55.3B. As of 12/3/2014, NKSJ's risk amounted to JPY 2.48 Tn calculated as 99.5% VaR. Liberty Mutual AM Best Report #2283 (12/16/2014), Section MS&AD 2014 Supplement Report, page 21,25 MS&AD: FY2014 Second Information Meeting, page 17 12/16/ /3/2014 NKSJ Holdings - - As of 3/31/2015, NKSJ has catastrophe reserves of JPY 565.6B and major catastrophe risk of JPY 167.8B. As of, NKSJ's risk amounted to JPY 1.6 Tn calculated as 99.95% VaR. NKSJ 2014 Annual Report, page 11 NKSJ Highlights of 3Q FY2014 Results, page 34 02/13/2015 Old Republic International Corp N/A - - No risk tolerance metrics indicated N/A N/A QBE Insurance Group - - The Group limits its exposure to an individual catastrophe or an accumulation of claims by reinsuring a portion of risks underwritten. In this way, the Group can control exposure to insurance losses, reduce volatility of reported results and protect capital. Effective governance and management of reinsurance protection is a fundamental part of the Group s risk management practices. QBE has in place systems, internal controls and processes to ensure that its reinsurance QBE Insurance Group arrangements are appropriate to enable the Group to meet its obligations to 2014 Annual Report, policyholders, whilst protecting the wealth of its shareholders. This framework is Risk Management outlined in the Group s REMS, which states that QBE Group has also assessed its Section, Page120 major exposure to be a catastrophe loss that may impact more than one class of business and more than one of the Group's divisions and is estimated using RDSs, Group aggregate methodology and catastrophe modelling. The Group s exposure is further managed through Group aggregate covers and sideways protections, aimed at containing large risk and catastrophe claims over $2.5 million within the risk appetite. 25

27 P&C Commercial Lines Sector Company Selective Ins Group 3.0% 5.0% Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Our current catastrophe reinsurance program covers up to a 1 in 273 year return period, or events with 0.37% probability, based on a multi-model view of hurricane risk. 3.0% of equity after tax for 1:100 year event (OEP: 1%); 5% of equity after-tax for 1:250 year event (OEP: 0.4%) The Property Catastrophe treaty structure provides coverage of $685 million in excess of $40 million and the annual aggregate limit net of our co-participation continues to be approximately $1.02 billion for Selective Insurance Group K Filing, page 62 Talanx Group - - Tokio Marine Holdings, Inc. - - Travelers Companies 9.2% 12.2% The estimates for the 200-year net loss burdens for the Group are as follows: Atlantic HU - EUR 1253M; US EQ - EUR 983M; EU WS - EUR 803M; JP EQ - EUR 805M; Pacific EQ - EUR 707M; Chiliean EQ - EUR 838M; EU EQ- EUR 977M.(Total Shareholders Equity as of is EUR 12,900M) As of 3/31/2015, Tokio Marine & Nichido Fire has catastrophe reserve of JPY Bn, Nisshin Fire & Marine Insurance has major catastrophe reserve of JPY 53 Bn and Tokio Marine & Nichido Fire has catastrophe risk of JPY Bn, Nisshin Fire & Marine Insurance has major catastrophe risk of JPY 11.1 Bn As of 9/30/2014, Tokio Marine Group's risk amounted to JPY 3.3 Tn calculated as 99.95% VaR. Net, after-tax single U.S. hurricane 1:100 is 6% and 1:250 is 8% while Net, after tax single U.S. and Canadian EQ 1:100 is 2% and 1:250 is 4% (single U.S. hurricane pre-tax is 9.2% and 12.2%, single U.S. and Canadian EQ pre-tax is 3.0% and 6.1% respectively assuming a 35% tax rate). Talanx Group 2014 Annual Report, Reserving Risk Section, Page 145 Tokio Marine Information about major subsidaries 2014, page 12,18 Tokio Marine Group FY2014 Business Plan Update, page 31 9/30/2014 Travelers K Filing, Catastrophe Modeling Section, Page 117 XL Group 12.5% 16.7% Per event 1% TVaR underwriting limits for North Atlantic Windstorm are set at a level not to exceed approximately 22% of Tangible Shareholders Equity. PML per event net 1% exceedence probability exposure for North Atlantic Windstorm is 12.5%, North America Earthquake is 7.1%, Europe Windstorm is 5.3%, Japan Earthquake is 2.2% and Japan Windstorm is 1.4% of Tangible Shareholders' Equity. PML per event net 0.4% exceedence probability exposure for North Atlantic Windstorm is 16.7%, North America Earthquake is 12.9%, Europe Windstorm is 7.4%, Japan Earthquake is 2.9% and Japan Windstorm is 2.0% of Tangible Shareholders' Equity. XL K Filing, Risk Management Section, Page 73 Zurich Financial Services AG - - Information in red is disclosed on a post-tax basis All natural catastrophe losses in excess of the franchise deductible of USD 35 million occurring in a single calendar year are aggregated upto USD 950 million. Zurich Financial Variable retention between USD 950 million and USD 1,150 million, depending on the Services 2014 Annual details of the catastrophe events i.e. which peril regions are hit and with what Report, Risk Review frequency. Once these add up to USD 1,150M reinsurance kicks with a cap at USD Section, Page 134 1,400M. 26

28 P&C Personal Lines Sector Company Allstate Corporation Target 9.0% - Assicurazioni Generali - - Aviva PLC Target 2.5% - / Target 1:100 1:250 Summary Source Date As of December 31, 2014, we have less than a 1% likelihood of exceeding average annual aggregate catastrophe losses by $2 billion, net of reinsurance, from hurricanes and earthquakes, based on modeled assumptions and applications currently available. The use of different assumptions and updates to industry models, and updates to our risk transfer program, could materially change the projected loss. Allstate Corp K Our growth strategies include areas previously restricted where we believe we can Filing, page 49 earn an appropriate return for the risk and as a result our exposure may increase, but remain lower than $2 billion as noted above. In addition, we have exposure to severe weather events which impact catastrophe losses. (Shareholders Equity as of is $22.30 bn) For catastrophe cover, Generali uses an internal model together with third-party independent models, such as RMS, EQECAT and AIR. The largest cat exposure refers to an earthquake in Italy; the other major cat exposures refer to a European windstorm and a flood in Italy. The total Group potential loss from its most concentrated catastrophe exposure peril (Northern Europe Windstorm) is approximately 150 million, for a one in ten year annual loss scenario, compared to approximately 260 million when measured on a one in a hundred year annual loss scenario. (Shareholders Equity as of is billion) Assicurazioni Generali S.P.A. AM Best Report A.M. Best # Aviva PLC 2014 Annual Report, Risk Management Section, Page 228 Axa N/A - - No risk tolerance metrics indicated N/A N/A Donegal Group - - Echelon Financial Holdings Inc - - Disclosed Risk Tolerance Our insurance subsidiaries and Donegal Mutual maintain external property catastrophe coverage through a series of layered treaties up to aggregate losses of $154.0 million for any single event. 3/30/2015 Donegal Insurance Group K Filing, - Unaffiliated Reinsurer Section, Page 77 During 2014, the Company followed the policy of underwriting and reinsuring EGI Financial Holdings contracts of insurance, which limits the net exposure of the Company to a maximum Inc 2014 Annual report amount on any one loss to $1,750 (2013 -$1,500). In addition, the Company obtained,underwriting Policy & catastrophe reinsurance which limits the loss from a series of claims arising from a Ceded single occurrence to $2,000 ( $2,000), to a maximum coverage of $23,000 section, Page 67 (2013 -$23,000). 27

29 P&C Personal Lines Sector Company Erie Indemnity Corp - - Federated National Holdings Co Target - - Hanover Insurance Group - - Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date The Property and Casualty Group maintains several property catastrophe reinsurance treaties with nonaffiliated reinsurers to mitigate future potential catastrophe loss exposures. The property catastrophe reinsurance treaties that became effective for January 1, 2015 included a first property catastrophe Erie Indemnity Corp reinsurance treaty providing coverage of up to 35% of a loss of $100 million in excess K of the Property and Casualty Group s loss retention of $300 million per occurrence, a Filing, second treaty providing coverage of up to 90% of a loss of $500 million in excess of section, page 104 $400 million, a third treaty providing coverage of up to 86% of a loss of $200 million in excess of $900 million, and a fourth treaty providing coverage of up to 100% of a loss of $25 million in excess of $1.1 billion. There have been no losses subject to these treaties. The estimated cost to the Company for the excess of loss reinsurance products for the hurricane season, inclusive of approximately $40.20 million payable to the FHCF and the prepaid automatic premium reinstatement protection, is approximately $117.0 million. Our amount of maximum reinsurance coverage is determined by subjecting our homeowner exposures to statistical forecasting models that are designed to quantify a catastrophic event in terms of the frequency of a storm occurring once in every "n" years. Our reinsurance coverage contemplates the effects of a catastrophic event that occurs only once every 100 years. Our amount of losses retained (our deductible) in connection with a catastrophic event is determined by market capacity, pricing conditions and surplus preservation. There can be no assurance that our reinsurance coverage and other measures taken will be sufficient to mitigate losses resulting from one or more catastrophic events. The property catastrophe occurrence treaty provides coverage, on an occurrence basis, up to $1.1 billion countrywide (previously it provided $700 million of coverage countrywide, with an additional $400 million of coverage for the Northeast only, i.e., up to $1.1 billion for the Northeast only), less a $200 million retention, with no coparticipation, for all defined perils. Federated National Holdings Co K Filing, section Page 11, 25 Hanover Insurance Group K Filing, page 18 HCI Group Inc N/A - - No risk tolerance metrics indicated N/A N/A 28

30 P&C Personal Lines Sector Company Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Heritage Insurance Holdings Inc - - Assuming the reoccurrence of the 2004 calendar year events, the probable maximum net loss to us in 2014, based on the coverage for our reinsurance program, would be $21.4 million (after tax, net of all reinsurance recoveries and including our retention through Osprey). This loss would have represented 8.4% of our stockholders equity at December 31, 2014.We estimate that, based on our portfolio of insured risks as of August 31, 2014, the 2004 calendar year events would have represented, in the aggregate, a catastrophic event likely to occur approximately once every 181 years and would have exhausted approximately 18.7% of our total expected reinsurance coverage. Heritage Insurance Assuming the reoccurrence of Hurricane Andrew, which is considered to be the most Holdings Inc K catastrophic single event in Florida s recorded history, the probable maximum net Filing, Product & loss to us in 2014, assuming the reinsurance coverage described above, would be Distribution, Page 12 $9.3 million (after tax, net of all reinsurance recoveries and including our retention through Osprey). This loss would have represented 3.7% of our stockholders equity at December 31, We estimate that, based on our portfolio of insured risks as of August 31, 2014, Hurricane Andrew would have represented a catastrophic event likely to occur approximately once every 30 years and would have exhausted approximately 26.2% of our total expected reinsurance coverage. Hilltop - - NLC purchases catastrophe excess of loss reinsurance to a limit that exceeds the Hurricane 200-year return time as modeled by RMS Risk Link v.13.1 and exceeds the Hurricane 500-year return time as modeled by AIR Touchstone v.2. Additionally, NLC purchased an underlying excess of loss contract that provides $10 million aggregate coverage for sub-catastrophic events. As of January 1, 2015, NLC retains a 9% participation in this coverage, down from 34% participation during Hilltop K Filing, Section, Page 13 Information in red is disclosed on a post-tax basis 29

31 P&C Personal Lines Sector Disclosed Risk Tolerance Company / Target 1:100 1:250 Summary Source Date Horace Mann Educators Corp - - For 2014, the Company s catastrophe excess of loss coverage consisted of one contract in addition to the Florida Hurricane Catastrophe Fund ( FHCF ). The catastrophe excess of loss contract provided 95% coverage for catastrophe losses above a retention of $25.0 million per occurrence up to $175.0 million per occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were $25.0 million excess of $25.0 million, $40.0 million excess of $50.0 million and $85.0 million excess of $90.0 million. In addition, the Company s predominant insurance subsidiary for property and casualty business written in Florida reinsured 90% of hurricane losses in that state above an estimated retention of $4.1 million up to $15.1 million, based on the FHCF s financial resources. The FHCF contract is a oneyear contract, effective June 1, In Horace Mann's opinion, its geographic spread of exposures and its stringent underwriting guidelines and reinsurance program limit the potential gross and net probable maximum loss (PML) for a 100-year Atlantic Basin hurricane (the group's largest potential peril as depicted by PML analysis), to a manageable level. Horace Mann K Filing, Property & Casualty Section, page 13; AM Best Report #4934 (Risk Management Section) (10K); 02/18/2015 (AMB) Insurance Australia Group - - Infinity P&C Corp - - Intact Financial Corp - - A main catastrophe cover for losses up to $6.75bn, including one prepaid reinstatement. The Group retains the first $250m of each loss, with three reinstatements secured for the lower layer of the main programme ($250m excess of $250m);An expanded aggregate sideways cover which reduces the cost of a second event to $175m and subsequent events to $25m. The aggregate provides protection of $450m excess of $375m, with qualifying events capped at a maximum contribution of $225m excess of $25m per event; and a $250m upper layer providing earthquake and cyclone cover in respect of Australia and New Zealand, extending from $6.75bn to $7.0bn.Specific buy-down covers are in place to protect the Group s Thai and Malaysian interests, excess of a $25m retention and including one prepaid reinstatement. For 2014, we added an additional layer of catastrophe reinsurance that covers 100% of $55 million of losses in excess of $5 million for any single event. Insurance Australia Group 1H15 Investor Presentation, Page 53 Infinity P&C corp K Filing, page 60 Multi-risk events and catastrophes as of Jan1 2015: Retention limit $100m & Coverage Limits $3,100m Intact Financial corp The 2015 multi-risk events and catastrophes retention and coverage limits exclude 2014 Annual Report, an aggregate reinsurance treaty to protect for frequency of events below $150 million. page 49 2/18/

32 P&C Personal Lines Sector Company Kemper - - Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date The Kemper property catastrophe program covers $350m in excess of $50m in three layers with 95% co-participation on each layer. The first layer covers 95% of $50m in excess of $50m, the second layer covers 95% of $100m in excess of $100m; the third layer covers 95% of $200m in excess of $200m. Kemper P&C Group AM Best Report #914 (7/14/2014), Section Mapfre S.A N/A - - No risk tolerance metrics indicated N/A N/A 7/14/2014 Mercury General Corp - - The Company is party to a Catastrophe Treaty ( Treaty ) that is effective through June 30, The Treaty provides for $100 million coverage on a per occurrence basis after covered catastrophe losses exceed a $100 million Company retention limit, excludes coverage in Florida, and limits certain coverages to 37% of catastrophe losses resulting from earthquakes and fire following earthquakes. The annual premium is $4.8 million. The Company has reinsurance for PIP claims in Michigan through the Michigan Catastrophic Claims Association, a private non-profit unincorporated association created by the Michigan Legislature in The Mercury K reinsurance covers losses in excess of $530,000 per person and has no maximum Filing, limit.for California homeowners policies, the Company has reduced its catastrophe Section Page 19 & AM exposure from earthquakes by placing earthquake risks directly with the California Best Report #18195, Earthquake Authority ( CEA ). However, the Company continues to have catastrophe section exposure to fires following an earthquake.the Company carries a commercial umbrella reinsurance treaty and seeks facultative arrangements for large property risks. The group's primary exposure to catastrophic losses continues to be from fire following an earthquake and potential CEA assessments in the event of a major earthquake. However, the group's after-tax net catastrophe leverage from a 250-year earthquake, as depicted in a probable maximum loss analysis, is manageable. (10K); 3/09/2015 (AMB) National General Holding Corp - - As of July 1, 2014, the Company's new reinsurance program went into effect with respect to excess of loss catastrophic and casualty reinsurance for protection against catastrophic and other large losses. The property catastrophe program provides a total of $550,000 in coverage in excess of a $50,000 retention, with one reinstatement and the casualty program provides $45,000 in coverage in excess of a $5,000 retention. National General Holdings Corp Annual Report, Page F-49 Section 31

33 P&C Personal Lines Sector Company Progressive Corp - - Royal & Sun Alliance Insurance Group - - Safety Insurance Group 17.0% - State Auto Financial Corp - - Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Based on the group's most recent catastrophe risk assessment, as depicted in a probable maximum loss (PML) analysis, the after-tax PML for a one in 100-year hurricane represents only a moderate impact to the group's surplus base. Per event catastrophe reinsurance limits to be set at no less than 1 in 200 year return period (e.g. 1.6bn for UK/Europe), supported by strong exposure control. Retentions in 2015: 50m/C$50m per Catastrophe ex UK, 75m for UK Catastrophe, subject to group aggregate cover with a 180m excess. A comprehensive catastrophe reinsurance program reduces the net after-tax probable maximum loss (PML) expected to arise from a 100-year hurricane event to approximately 17% of reported policyholders' surplus. For 2015, our program has stayed consistent with the prior year as we have purchased three layers of excess catastrophe reinsurance providing $515,000 of coverage for property losses in excess of $50,000 up to a maximum of $565,000. Our reinsurers coparticipation is 65.0% of $100,000 for the 1st layer, 80.0% of $280,000 for the 2nd layer, and 80.0% of $135,000 for the 3rd layer. As a result of these changes to the models, and our revised reinsurance program, we maintain coverage that protects us in the event of a "111year storm". Under this (property catastrophe reinsurance) agreement, the State Auto Group retains the first $55.0 million of catastrophe loss, each occurrence, with a 5% coparticipation on the next $285.0 million of covered loss, each occurrence. The reinsurers are responsible for 95% of the excess over $55.0 million up to $340.0 million of covered losses, each occurrence. Under this agreement, the State Auto Group is responsible for losses above $340.0 million. The State Auto Group also maintains a separate property catastrophe excess of loss reinsurance agreement covering Excess & Surplus property and Programs catastrophe related events affecting at least two risks. Under this agreement, the State Auto Group retains the first $15.0 million of catastrophe loss, each occurrence, and the reinsurers are responsible for 100% of the excess over $15.0 million up to $55.0 million of covered loss, each occurrence. Progressive Corp AM Best Report #18637 (12/29/2014), Risk Management section 12/29/2014 RSA Group, page 45 Safety Group AM Best Report #18080 (4/4/2014), Balance Sheet Strength Section (10K); ; Safety Insurance 04/04/2014 (AMB) Group K Filing, Section, Page 15 State Auto Financial Corp K Filing, Resinsurance Arrangements Section, page 67 Information in red is disclosed on a post-tax basis 32

34 P&C Personal Lines Sector Company Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date United Insurance Holding Corp - - Universal Insurance Holdings Inc - - For the 2014 hurricane season, our insurance affiliate purchased catastrophe excess of loss reinsurance protection of $1,080,200,000 excess $25,000,000 providing sufficient protection for approximately a one-in-185 year hurricane event as calculated by our licensed modeling software, AIR model version 15 using long-term United Insurance event rates excluding demand surge. For a single hurricane catastrophe, we will pay, Holding Corp 2014, or retain up to $25,000,000. The catastrophe excess of loss reinsurance program Annual Report, provides 100% coverage for all losses in excess of $25,000,000 up to Section $1,105,200,000. Page 72 Our agreement with the FHCF consists of a single layer of coverage, the mandatory layer. Under the agreement, we estimate the FHCF will provide approximately $555,200,000 of aggregate coverage for covered losses in excess of $230,800,000. The initial premium for the FHCF agreement is approximately $38,594,000. UIH protects its own assets against diminution in value due to catastrophe events by purchasing coverage that would provide $80 million in the form of insurance proceeds plus an amount equal to the forgiveness of related debt through a catastrophe risklinked transaction contract, effective June 1, 2013 through May 31, This contract provides for recovery by UIH in the event of exhaustion of UPCIC s catastrophe coverage. The total cost to UIH of this risk-linked transaction contract is $9.0 million per year for each of the three years. Universal Insurance Holding Inc 2014, 10K, Section Page 26 Vienna Insurance Group Target - - It is Group-wide policy that no more than EUR 45 million for the first two natural catastrophe events and EUR 20 million for each additional event can be placed at risk on a PML (probable maximum loss) basis. The maximum Group-wide retention per individual loss is less than EUR 10 million. VIG 2014 Annual Report, Section, Page

35 P&C Specialty Lines Sector Disclosed Risk Tolerance Company / Target 1:100 1:250 Summary Source Date Affirmative - - In the year 2014, the company has incurred catastrophes, net of reinsurance, equal to 2.0% for 2013 and Both of these numbers are higher than their long term average expectation of 0.5%. Affirmative Insurance Group K Filing, Page 31 Alleghany Corp 6.0% 9.0% Florida, Wind has the highest modeled aftertax net catastrophe costs for both a 100 and 250 year return period. These costs would represent approximately 6 percent and 9 percent, respectively, of stockholders equity attributable to Alleghany as of December 31, (Shareholders Equity as of is $7.4 bn) Alleghany K Filing, Catastrophe Exposure section, page 109 & 110 Allied World Assurance Company N/A - - No risk tolerance metrics indicated N/A N/A American Financial Group, Inc. - - AFG s net exposure to a catastrophic earthquake or windstorm that industry models indicate could occur once in every 500 years (a 500-year event ) is expected to be less than 3.5% of AFG s shareholders equity. American Financial Group K Filing, page 4 Amerisafe N/A - - No risk tolerance metrics indicated N/A N/A Amtrust Financial Services, Inc. - - ARCH Capital Group, Ltd. Target % The group's property catastrophe reinsurance program provides protection up to $140 million per occurrence in a four layer tower, excess of the retention of $5 million per occurrence on property losses, net of recoveries under the property per risk reinsurance coverage. Amtrust Group AM Best Report #18533 (06/13/2014), Section Currently, we seek to limit our 1-in-250 year return period net probable maximum pretax loss from a severe catastrophic event in any geographic zone to approximately 25% of total shareholders equity. We reserve the right to change this threshold at ARCH Capital Group any time. Based on in-force exposure estimated as of January 1, 2015, our modeled K Filing, peak zone catastrophe exposure is a windstorm affecting the Northeastern U.S., with Natural Catastrophe a net probable maximum pre-tax loss of $544 million, followed by windstorms Risk section, Page 88 affecting the Gulf of Mexico and Florida Tri-County with net probable maximum pretax losses of $527 million and $419 million, respectively.(shareholders Equity as of is $6,574 mn) Argo Group N/A - - No risk tolerance metrics indicated N/A N/A Information in red is disclosed on a post-tax basis 6/13/

36 P&C Specialty Lines Sector Company Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Assurant - - Assurant's most recent catastrophe loss analysis revealed the continued increase in estimated gross probable maximum loss (PML) for a 1 in 100 year hurricane (the group's largest natural peril) which represents a significant amount of surplus. However, through the use of traditional catastrophe reinsurance and capital market securitizations (2012 and 2013 catastrophe bonds) the net probable maximum loss from such an event is reduced to a more manageable level. Assurant AM Best report #18523 (12/12/2014), Balance Sheet Strength Section 12/12/2014 Aviabel N/A - - No risk tolerance metrics indicated N/A N/A Baldwin & Lyons N/A - - No risk tolerance metrics indicated N/A N/A Beazley Target % The group s high-level catastrophe risk appetite is set by the board and the business plans of each team are determined within these parameters. The board may adjust these limits over time as conditions change. In 2014 the group operated to a catastrophe risk appetite for a probabilistic 1-in-250 years US event of $532m net of reinsurance. The catastrophe risk appetite reduced by 7% in 2014 from $574m in 2013, due to a change in the catastrophe model.(shareholders Equity as of is $ 1.34 billion) Beazley 2014 Annual Report, Risk Management Section, Page 131 CV Starr N/A - - No risk tolerance metrics indicated N/A N/A EMC Insurance Group - - Catastrophe reinsurance recovers $180 million excess of $10 million in five layers. EMC Insurance Companies AM Best Report #2161 (03/25/2015), Section 3/25/2015 Employers Holdings, Inc. - - We purchase reinsurance to protect us against the costs of severe claims and catastrophic events, including natural perils and acts of terrorism, excluding nuclear, biological, chemical, and radiological events. On July 1, 2014, we entered into a new reinsurance program that is effective through June 30, The reinsurance program consists of one treaty covering excess of loss and catastrophic loss events in five layers of coverage. Our reinsurance coverage is $195 million in excess of our $5 million retention on a per occurrence basis, subject to a $2 million annual aggregate deductible and certain exclusions. Employers Holdings K Filing, page 17 Endurance Specialty Holdings, Inc. Target 25.0% - It is our corporate objective to limit the risk of a significant loss on an economic basis from a one-in-one-hundred year series of catastrophic events to no more than 25% of our shareholders equity Endurance Specialty Holdings Ltd K Filing, Enterprise Risk Management section, Page 9 35

37 P&C Specialty Lines Sector Company First Acceptance - - Disclosed Risk Tolerance / Target 1:100 1:250 Summary Source Date Since its inception, the Group has not sustained a significant loss of surplus from a First Acceptance single catastrophic event. This may be attributed to its minimum liability limits private Insurance Group AM passenger non-standard automobile risk profile. Property catastrophe reinsurance Best Report #18600 protection is not purchased and higher limits offered are only aproximately 1% of all (12/09/2014), Balance premium and 100% reinsured. Sheet Strength Section 12/9/2014 Fuji Fire & Marine Insurance Company Ltd. - - The company has been consistently maintaining a significant amount of catastrophe reserves, which totaled JPY 93 billion as at the end of March These reserves continue to be a major component of the company s adjusted capital and surplus (accounting for approximately 50%), offering a sufficient buffer to absorb potential volatility arising from large catastrophe events. Fuji Fire & Marine Insurance Co AM Best Report (AMB# ) 3/27/2015 Global Indemnity - - Hallmark Financial Services - - HCC Insurance Holdings 1.1% 2.1% Information in red is disclosed on a post-tax basis Effective June 1, 2014, the Company renewed its property catastrophe excess of loss treaty which provides occurrence coverage for losses of $70.0 million in excess of $20.0 million. At this renewal, the Company participated on 60% of the $20 million in excess of $20 million layer and 40% of the $50 million in excess of $40 million layer. This treaty provides for one full reinstatement of coverage at 100% additional premium as to time and pro rata as to amount of limit reinstated. Global Indemnity Plc K Filing, Page 8 We retain the first $3.0 million of property catastrophe losses and our reinsurers Hallmark Financial reimburse us 100% for any loss occurrence in excess of our $3.0 million retention up Services K to $32.0 million for each catastrophic occurrence, subject to an aggregate limit of Filing, Resinsurance $64.0 million. Section, page 19 As of 03/01/2014, after-tax net PML for a single event is managed to 5% of HCC Insurance Shareholders' Equity (1:100 CA EQ after tax net PML is 0.7%, for US Named Wind it Holdings Q is 1.1% and for European Wind it is 0.9% ; 1:250 CA EQ after tax net PML is 1.1%, Investor Presentation, for US Named Wind it is 2.0% and for European Wind it is 2.1%) Page 8 3/2/