1ST VIEW. 1 January Page 1

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1 1ST VIEW 1 January 2013 Page 1

2 TABLE OF CONTENTS RENEWALS 1 January 2013 Introduction 3 Property Territory and Comments 4 Rates 8 Pricing Trend Graphs 9 Casualty Territory and Comments 11 Rates 13 Specialties Line of Business and Comments 14 Rates 16 Capital Markets Comments 17 Workers Compensation Comments 17 Rates 17 1st View This thrice yearly publication delivers the very first view on current market conditions to our readers. In addition to real-time event Responses, our clients receive our news brief, The Daily Willis ReView, periodic newsletters, white papers and other reports. Willis Re Global resources, local delivery For over 100 years, Willis Re has proudly served its clients, helping them obtain better value solutions and make better reinsurance decisions. As one of the world s premier global reinsurance brokers, with 40 locations worldwide, Willis Re provides local service with the full backing of an integrated global reinsurance broker. Copyright 2013 Willis Limited / Willis Re Inc. All rights reserved: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, whether electronic, mechanical, photocopying, recording, or otherwise, without the permission of Willis Limited / Willis Re Inc. Some information contained in this report may be compiled from third party sources we consider to be reliable; however, we do not guarantee and are not responsible for the accuracy of such. This report is for general guidance only, is not intended to be relied upon, and action based on or in connection with anything contained herein should not be taken without first obtaining specific advice. The views expressed in this report are not necessarily those of the Willis Group. Willis Limited / Willis Re Inc. accepts no responsibility for the content or quality of any third party websites to which we refer. Willis Limited, a Lloyd s broker is authorized and regulated by the Financial Services Authority. Page 2

3 Reinsurers Clear the Sandy Hurdle After 10 months of benign natural catastrophe activity, the Global Reinsurance Market had begun to hope that 2012 would be the year that Natural Catastrophes no longer dominated their results and they could deliver stronger underwriting results. Unfortunately, with the year end in sight, these hopes have been suppressed by Superstorm Sandy. Current loss estimates stand in the region of US $20 billion to US $25 billion. These estimates are likely to change due to vendor model uncertainty driven by the complexity, scope and coverage of the loss which may take many years to settle. Taking the current estimates for Superstorm Sandy overall, natural catastrophe losses for 2012 are estimated to be about half the US $120 billion total in 2011 meaning that most reinsurers are still within their annual catastrophe budgets for 2012 and not facing any capital impact. This has resulted in a stabilization of rates on Property classes. Modest risk-adjusted rate reductions have been achieved by buyers with good records, while rate increases have been targeted on buyers with specific loss or exposure issues; there are no signs of attempts at blanket rate increases. However, certain specific classes, such as Marine which has suffered one of its worst underwriting years in recent history and the U.K. Motor excess of loss market, have faced very difficult and late renewals with substantial changes to both terms and conditions driven by loss activity and capacity withdrawal. At the same time, to the credit of the global reinsurance market, the difficulties of these classes have not spilled over into the wider market. In longer tail classes, frequency and severity of losses continue to decline, and buyers continue to retain more. Concerns over reserving adequacy, investment returns and the ability to deliver further reserve releases remain unabated and the potential fallout of the LIBOR scandal is a growing concern for reinsurers writing financial lines. The capital base of the global reinsurance industry remains adequate and has benefitted from an accelerating inflow of new capital, particularly from longer duration investors drawn to event risk as an alternative non correlated investment class. As more capital flows into the market, some new business models are emerging; existing reinsurers are leveraging their expertise in underwriting and managing insurance risk by providing services to dedicated funds backed by longer term investors. These new models are increasingly able to offer traditional reinsurance s convenience, back-to-back cover and speed of execution as well as giving investors some added leverage. This is providing an increasingly viable investment alternative to catastrophe bonds. Despite the comfort of new capital and reasonable underwriting results for 2012, the underlying issues of the global reinsurance market remain: investment returns are dwindling with little medium term relief in sight, primary companies in most mature markets are finding growth difficult and larger primary insurance groups are restructuring the way they buy reinsurance. While this restructuring does not always lead to reduced ceded reinsurance premiums, the buying process and structures are changing, putting pressure on the underwriting skills and organizational flexibility of reinsurers to respond to their clients. Lastly, Superstorm Sandy has yet again demonstrated the danger of overreliance on catastrophe models, due to the complexity of the original loss as well as the emergence of a new and as yet unmodeled uncertainty: the politicization of policy form interpretation. Buyers who have relied on covers with indexed, non-indemnity triggers may yet find their reinsurance protections do not respond to Superstorm Sandy loss recoveries in the way they had planned. Overall, the global reinsurance market has maintained a measured and increasingly client-centric approach by providing adequate capacity to buyers, together with an increasingly differentiated approach at a client- and class-specific level. Final terms and conditions have, in most cases, been in line with client expectations, as reinsurers largely delivered on the undertakings they made in the run up to renewal. In the absence of Superstorm Sandy, reinsurers would have found it difficult to resist buyer pressure for further concessions. As such, Sandy s impact has helped to stabilize market pricing on an overall basis and reinsurers have largely delivered to their clients in terms of capacity and continuity. Peter C. Hearn Chairman, Willis Re 1 January 2013 John Cavanagh CEO, Willis Re 1 January 2013 Page 3

4 Property territory and comments Asia 2012 has proven to be far more benign in terms of insured losses, allowing reinsurers to recoup some of the losses of last year; the recent loss of life in the Philippines as a result of Typhoon Bhopal, and other smaller events in the region are reminders of the devastation and tragic loss of life that such events can cause and the need for a prudent approach to risk management Reinsurers have generally remained committed to the region throughout 2012 and there has been solid support for renewals placed at 1 January Cedants have provided firm order instructions in a timely fashion and programs were completed in advance of inception which is in stark contrast to last year s renewals Clients have remained focused on the timely collection of claims from the natural disasters of 2011 and claims paying performance is playing an increasingly important role in the selection of reinsurers We have witnessed stable to downward pricing trends in many territories; this is in part a reaction to the continued strong aggregate growth in the developing areas of Asia and also a recognition of some overreaction in 2012, particularly where cedants have restricted original coverage and where reinsurance terms and conditions have narrowed A clear trend which has emerged this renewal season is the willingness of reinsurers to segment their approach, not only by region but also by client Australia Appetite remains strong with solid traditional reinsurance capacity and the growing collateralized sector targeting the region Level and pricing is key in understanding specific reinsurer appetites, with upwards pressure on attachment levels continuing Still some uncertainty regarding Christchurch and the Earthquake Commission (EQC) review and what effect this may have on the region going forward into 2013 Some leveraging of catastrophe capacity through Casualty relationships Caribbean No changes to pricing in the Caribbean at this renewal with stable capacity Central & Eastern Europe No significant losses in region Property catastrophe pricing Risk-adjusted down (between 5 and 10%) Property per Risk pricing Flat or risk-adjusted down (up to 5%) Pro rata stable or terms improved China Property proportional capacity is more than adequate, with a few newcomers attracted to the market Property excess of loss quotation competition is fierce, with expiring leaders fighting hard to maintain leads resulting in some reductions Any estimated premium income shortfalls in 2012 on the back of lower economic growth likely to be made up in 2013 as economic growth picks up Reinsurers are keen on Agricultural, and hence commissions increased by 3% and still obtained adequate support Page 4

5 Colombia A strong economy and a stable rate of exchange against the U.S. dollar has meant an increasing capacity requirement for the Colombian reinsurance programs throughout 2012 Local regulation for the purchasing of catastrophe reinsurance cover has still not officially changed to a model-driven formula, and so, catastrophe excess of loss covers must still protect a minimum Probable Maximum Loss (PML) of 15% of main zone aggregates The local insurance regulators still do not permit event limits in local proportional treaties, which greatly tempers the supply of capacity for this type of treaty, although generally decent results have allowed most renewals to prosper Some per risk covers have been affected by rain and flood related losses and this has led to some reinsurers trying to restrict protection for this type of risk at subsequent renewals Owing to a growing presence of foreign groups in the country, a growing percentage of the catastrophe excess of loss requirement is satisfied through regional and worldwide structures Europe Increased capacity available for all catastrophe perils including wind No impact from Superstorm Sandy on European renewals Peak peril Global programs attracted similar modest risk-adjusted price reductions to smaller single territory, limited peril covers Risk-adjusted price decreases were more easily negotiated where exposure increases resulted in actual ceded premiums still going up Holistic capital and performance management considerations have led to the purchase of more multi-class aggregate excess of loss protections Clients and reinsurers are using a blended approach to catastrophe models with all parties increasingly developing their own views of risk, often guided by their brokers advisors France Risk excess of loss is rated on its own merits and is very competitively priced since heavily sought after All catastrophe excess of loss covers are claims free and have achieved modest risk-adjusted rate reductions Market continued to use RMS V9 due to the major volatility in results from the later version Germany Market successfully managed the RMS model change challenge Oversupply of Europe wind capacity drove risk-adjusted reductions Stronger differentiation of client base by reinsurers flight to quality Indonesia Natural peril event limits imposed across proportional treaties Greater transparency required on overseas interests and contingent business interruption exposures Italy The Emilia earthquake hit some programs and reinsurers (total insured loss about Euro 1.3 billion, total reinsured loss of Euro 800 million) Rate increase expectations have been partly offset by new catastrophe capacity flowing into the market Aggressive buying stance of cedants driven by severe budget constraints Attachment points moderately up, to contain cost increases on lower layers Page 5

6 Latin America Interest in the region has been steadily growing as reinsurers try to diversify more The quality and availability of catastrophe models is improving allowing more reinsurers to form certain views and participate The catastrophe models have played their part in helping to stabilize the pricing cycle (whether during loss or loss-free periods) and avoid the pronounced peaks and troughs of previous decades Interest in offering proportional capacity has undergone a mini-revival as a viable alternative to risk excess of loss underwriting, greatly helped by the presence of event limits in most treaties The incidence of medium to large risk losses has increased in the past five years as the economies in the region develop Catastrophe excess of loss business is thriving in the region with many reinsurers filling their allocated capacities in some countries (mainly Chile and Colombia) Middle East On proportional treaties there has been an increase in the application of Strikes, Riots, Civil Commotion clauses; event limits are now standard and based on individual leaders perception of countrywide or key zone Probable Maximum Loss (PML). The variance between leaders on this subject is quite apparent Poor results have been met by reduced commissions; restrictions in facultative inwards and co-insurance cessions is a standard across the market There have been increasing restrictions for interests abroad business and request for transparency is standard Netherlands Intense price pressure from Dutch clients due to their own financial and market tensions Dutch property catastrophe risk-adjusted rates reduced by 2% On larger contracts, there is not an over surplus of storm wind capacity at competitive prices Some reinsurers are only renewing signed lines, some are reducing; a small number are increasing Very few per risk losses in the Netherlands leading to further downward pricing pressure Nordic Countries Property catastrophe: Losses from the 2nd July 2011 Cloudburst in central Copenhagen deteriorated for most Danish insurers during 2012; increases in incurred losses between +25% to +50% in some cases Layers within the loss deterioration have seen risk-adjusted price increases ranging from 7.5% to 30%, depending on level of deterioration and price adjustments made during the 2012 renewal The Dagmar windstorm that occurred between 25th -27th December 2012 is estimated at a NOK 1.4 billion loss in Norway and around Euro 100 million loss in Finland; the Norwegian Natural Perils Pool renewed at fairly stable terms in 2013, whereas Finnish companies experienced some upward price adjustments Overall capacity was stable Page 6

7 North Africa There has been an increase in requests for event limits and Strikes, Riots, Civil Commotion clauses on proportional treaties; apart from this, terms remain unchanged where treaties have performed well Poor results have been met by reduced commissions and restrictions in facultative inwards and co-insurance cessions There have been restrictions in interests abroad business Philippines Risk-adjusted reductions on loss-free programs, both per risk and catastrophe Limited expansion in proportional capacity; commission terms stable Spain Loss free excess of loss prices are down around 5% to 10% Proportional conditions where margins are very slim have been renewed stable or slightly improved Where losses have occurred, there have been small increases In general, very aggressive market conditions with plenty of capacity Switzerland Increased capacity for Property catastrophe led to risk-adjusted rate reductions despite increased demand of catastrophe limits Uniform pricing expectations of new and old capacity providers Increasing model awareness by market Turkey Growing market driven by underlying economic expansion Signs of improvement in original pure Fire rates supported pro rata renewals Tightening of event limits of pro rata treaties for financial losses (e.g., business interruption and advanced loss of profits) Growth in aggregates and capacity requirement varied by client Loss-free catastrophe year led to pricing movement being driven exclusively by aggregate growth and capacity requirement U.K. Many clients carried out detailed work prior to renewal to develop their own view of their catastrophe exposure through adjustments to the vendor models Reinsurers have offered small discounts for another claim-free year, despite RMS model changes in 2011 which pushed up modeled PMLs in this version Risk excess of loss is highly sought after and this has been reflected in pricing Buyers increasingly recognize the capital benefit of catastrophe aggregate cover which is available at viable terms Pro rata renewals continue with no particular changes U.S. Nationwide Superstorm Sandy occurred late in the season and moderated the downward pressure on pricing that had been previously evident from mid-year 2012 renewals A number of the large catastrophe programs impacted by Superstorm Sandy do not renew until mid-year Capacity remains healthy with managed fund vehicles providing new capital to support traditional markets With sufficient capacity, pricing variations are being driven by individual company experience and exposure changes rather than the macro economics of supply and demand Loss escalators have been pushed by reinsurers with limited success Page 7

8 Venezuela The Venezuelan Property insurance and reinsurance market has faced growing challenges throughout 2012, more of a political and macro-economic nature A higher incidence of risk losses has led to a more restrictive supply of reinsurance capacity and tighter terms On the plus side, the general elections in October passed without major incident The supply of capacity for catastrophe excess of loss has remained reasonably steady Rates Territory Pro rata commission Property rates Risk loss free Risk loss hit Catastrophe loss free Catastrophe loss hit Australia N/A 0% N/A 0% N/A Caribbean 0% 0% varies 0% N/A Central & Eastern Europe +2.5% to +5% -2.5% to -7.5% 0% to -5% -5% +5% China -1.5% to +1% 0% +10% to +20% 0% to -15% 0% to +15% Colombia 0% -1% to -5% +15% to +45% 0% to +4% N/A Europe 0% 0% to -10% varies 0% to -5% N/A France N/A 0% +5% -2% to -5% N/A Germany 0% -5% varies 0% to -5% N/A Indonesia 0% 0% to -5% +5% to +10% 0% to -5% N/A Italy N/A -5% 0% to +5% N/A +5% to +10% Latin America -5% to +2% -5% to +5% +15% to +60% 0% to +6% N/A Middle East -3% to +2% 0% to +5% +5% to +10% 0% +25% Netherlands N/A -8% N/A 0% to -5% N/A Nordic Countries 0% 0% +2.5% to +5% 0% to -5% +7.5% to +30% North Africa -2% to +4% -5% to -10% +5% to +10% -5% to -10% +5% to +10% Philippines 0% 0% to -5% +10% 0% to -5% +10% South Africa N/A 0% to +10% +10% +5% to +10% +8% Switzerland 0% N/A N/A 0% to -5% N/A Taiwan N/A 0% to +5% N/A +5% to +30% N/A Turkey 0% to -2.5% N/A N/A 0% to +15% N/A U.K. 0% 0% to -10% varies -3% to -5% N/A U.S. National N/A 0% to -5% +10% 0% to -5% +10% Venezuela +1% to -5% 0% to +5% +15% to +60% +3% to +6% N/A Page 8

9 Property Catastrophe pricing trends The charts on these pages display estimated year-to-year Property catastrophe rate movement, using 100 in 1990 as a baseline Australia Caribbean France Page 9

10 Germany Turkey U.K U.S. Nationwide Page 10

11 Casualty territory and comments Australia There remains an abundance of reinsurance capacity for all Casualty lines of business Pricing remains dependent on movements in a client s original business; claims experience and movements in exposure will determine reinsurer pricing Declining investment yields has been a discussion point for the market (both insurance and reinsurance) Pricing has been stable There have been some amendments made to reinsurance coverage Central & Eastern Europe Motor Central European Motor business: prices increased by up to 20% Eastern European Motor business: in particular, Romania saw significant increases up to 200% (due to recent increases in moral damages awards) Relatively small number of markets interested in writing Central & Eastern European Motor business Reinsurance retentions have increased in most cases Europe General Liability / Employers Liability / Professional Liability Pricing generally flat across the region New capacity is available from the newer reinsurers in Zurich and London, but struggled to secure participations Concerns expressed in Monte Carlo and Baden Baden about the impact of reduced investment returns on long-tail pricing have not translated into any noticeable pricing effect Europe Motor Pricing remains generally flat across Continental Europe Concerns about claims inflation and reduced investment returns are not translating into rate changes Potential changes in the way annuities for bodily injury claims are handled in France are prompting debate about reinsurance prices and terms France General Liability / Employers Liability / Professional Liability Prices are stable in the absence of any sizeable claims and strong supply of capacity Global Professional Liability Reinsurance capacity for all Professional Liability business is in plentiful supply Additional capacity is benefitting cedants in terms of price, capacity, counterparty risk and reduced dependency Most reinsurers continue to quantitatively differentiate among cedants; those that struggle are being replaced Financial Institutions Professional Indemnity (FIPI) capacity has increased but remains more limited, given accumulation and systemic concerns Reinsurers are continuing to respond to clients based on their experience; cedants with good results are receiving appropriate discounts to technical / exposure pricing Cedants continue to have broad choice of structure whether quota share, cession, ceded excess, surplus and excess of loss Italy General Liability / Employers Liability / Professional Liability No major changes in the direct market as compulsory Employers Liability has been postponed to mid 2013 Main issues and lack of capacity remain in the Medical Malpractice area Most excess of loss programs unchanged and flat in terms of pricing Page 11

12 Italy Motor Softening prices in the primary market Still profitable results in 2012 for the insurance market and for reinsurers in general Uncertainties remain on bodily injury claims involving more severe levels of disability Aggressive reinsurance conditions and programs generally overplaced Most attachments points unchanged or slightly increased Netherlands Motor Dutch Motor market under considerable pressure Loss free excess of loss covers achieved stable price Some small adjustments on loss-affected excess of loss covers Nordic Countries Pricing remains flat except for loss-affected portfolios New capacity is available, particularly from Zurich and London It has been difficult for new capacity to achieve participation Some desire from reinsurers to tighten up exclusions relating to U.S. exposures but nothing achieved U.K. Motor The U.K. has seen a continued tightening of excess of loss capacity More polarized views on the issue of large bodily injury capitalization clauses Pricing for alternative bespoke capitalization clauses Significant excess of loss rate increases even on programs without loss experience Late development of reinsurer pricing models delayed release of quotations U.S. General Liability On proportional covers ceding commissions were up slightly On rated covers rates were down slightly Improved market pricing coupled with increasing net retentions by cedants has motivated some reinsurers to be more active over the last six months The placement by one major buyer of a large new quota share treaty is an example of a change in reinsurer appetite U.S. Motor Risk exposed rated covers were flat Proportional ceding commissions were unchanged Page 12

13 U.S. Professional Liability Several new reinsurance markets increasing supply side with resulting benefits to all buyers in pricing, counterparty credit risk and dependency Continuing trend of shifting away from pro rata towards excess of loss as cedants seek choice and improved capital efficiency Ceding company retentions remaining stable given current and forecast market conditions Reinsurers are continuing to differentiate and responding to clients based on performance, reflecting results in ongoing pricing Capacity for Errors and Omissions continues to be plentiful Capacity for Directors and Officers liability has increased but remains limited where aggregation issues exist Rates Territory Pro rata commission Casualty rates XL No loss emergence XL With loss emergence Australia N/A 0% 0% to +5% Central & Eastern Europe Motor 0% +1% 0% to +5% Europe GL/EL/PL N/A 0% N/A Europe Motor varies 0% +5% to +10% France GL/EL/PL N/A 0% N/A France Motor N/A 0% to +5% 0% to +5% Global Professional Liability 0% to +5% -5% to -14% 0% Italy GL/EL/PL N/A 0% 0% to +5% Italy Motor N/A -5% 0% to +5% Netherlands Motor N/A 0% N/A Nordic Countries N/A 0% +10% South Africa 0% +5% to +10% +10% U.K. Motor varies +20% to +30% +35% and upwards U.S. General Liability +0.36% -0.75% 0% U.S. Motor 0% -0.75% 0% U.S. Professional Liability 0% to +3.75% 0% to -15% 0% to +10% Page 13

14 Specialties line of business and comments Aerospace In the absence of any meaningful loss activity, an acceleration of the level of premium reduction has materialized within the direct Aviation market; during Q premium reductions in the region of 15% have been evident Despite falling premiums and in the absence of losses, expiring policies have generally delivered a good experience, and on the whole, the 2011 underwriting year is on course to deliver a profitable result Given the challenging position of the market, many direct underwriters are looking to carefully re-underwrite their portfolios, reallocating capacity in search of maximum value Within the reinsurance market, Aviation excess of loss reinsurers have been responsive to the needs of their direct writing clients; non-proportional reinsurer results have similarly remained favorable and this continues to influence pricing with rate reductions, after risk adjustment, in the region of 5% to 10% being evident depending on base starting price and record Despite the ongoing softening within the direct Aviation market, commission levels on a number of proportional treaty contracts have been subject to increases due to favorable performance Aviation retrocession pricing has remained relatively stable although again favorable experience and continuity has been rewarded, with rate improvement circa -2.5% to -5.0% being evident Engineering Proportional treaty commissions remain flat 2012 natural peril losses have re-focused attention on contingent business interruption and catastrophe pricing on original business Client provision of transparent natural perils exposure data key is critical in reinsurance treaty pricing Excess of loss pricing flat for Engineering risk / event covers New specialist reinsurer entrants adding further proportional and non-proportional capacity There is a move for excess of loss programs to be placed on a risk attaching during basis where available Healthcare U.S. Reinsurance rate levels on U.S. Healthcare liability reinsurance has remained stable throughout 2012 reflective of the favorable experience of both the original business and reinsured layers Overall reinsurance capacity has continued to increase in terms of reinsurer allocated capital Reinsurers have exhibited a willingness to support expanded product offerings and policy limit requirements of cedants as they seek to meet the needs of the changing healthcare landscape Reinsurer margins on U.S. Healthcare Liability lines have continued to moderate as investment yields on fixed income securities remain at historically low levels Marine Difficult year for the Marine market, impacted by Superstorm Sandy, Costa Concordia and deterioration of the Rena loss from 2011 Superstorm Sandy will be the largest ever Marine loss with a disproportionate impact on the Marine market Losses are coming from Yachts and Pleasure Craft, General Cargo, Imported Cars, Specie and Inland Marine Very late renewals due to uncertainty surrounding quantum of Superstorm Sandy loss Unlike previous large losses, market capacity remains stable with only one modest new entrant and no signs of a post-loss capacity glut Many buyers increasing retentions on loss hit programs to help mitigate rate increases which are a minimum of +15%, even on loss-free offshore Energy excess of loss contracts P&I market seeing minimum of 10% increases with International Group Reinsurance Program +40%. P&I Clubs passing on increased reinsurance costs via original General Increases in the range of +7.5% to +10% Page 14

15 Medical Excess U.S. High quality reinsurance capacity is plentiful There is an increase in the frequency of per person losses exceeding $1 million Non-Marine Retrocession No shortage of traditional capacity and abundant collateralized capacity with new / renewed sidecars, start-up funds and more sellers of the pillared retrocession product Sustained focus by writers on named territories / perils; worldwide cover still available where needed and priced accordingly While unlikely to impact retrocession market significantly, Superstorm Sandy slowed any potential downward rate movement. With clients who are buying additional vertical cover also willing to take higher retentions to maintain the same spend, limits, retentions and riskadjusted pricing were flat in general Significant limits of strategically purchased peak zone aggregate and U.S. earthquake Industry Loss Warranties have been traded in December, while some decisions on windstorm covers and the more opportunistic post 1 January trades are temporarily delayed as collateral is trapped by Superstorm Sandy Personal Accident / Life Catastrophe High quality reinsurance capacity is plentiful Companies buying increased limits on Life Catastrophe Political Risk With recent individual underwriters moving in the last half of this year, there has been both new and additional lead capacity available in the market Rates remain competitive with slight reductions being secured, where improved experience and redundancy in reserves demand it Reinsureds continuing to seek to purchase more proportional protections to manage and reduce up front and fixed costs associated with excess of loss protections More positive developments on PPMC Nigeria passed payment issue are encouraging market sentiment that this major issue will be satisfactorily resolved shortly Overall, the market remains stable with original insurance pricing on Political Risk / Contract Frustration remaining competitive with reinsurance pricing remaining somewhat more stable Surety U.S. Reinsurance rates, on the whole, have softened supported by reductions in exposure, relative stability of portfolio credit quality and continued favorable underwriting results for reinsurers Markets continue to support well-performing companies providing meaningful rate concessions where underwriting expertise and prudent market cycle management are apparent; distressed programs were required to make economic concessions in order to achieve desired program placement Reinsurers looked to maintain their support of existing clients despite pricing concerns, motivated by the prospect of losing renewable income and market share; on those placements where existing markets reduced their levels of participation, replacement capacity was successfully introduced with little difficulty Page 15

16 Reinsurance capacity levels have increased year over year exerting influence on pricing and non-economic terms and conditions The U.S. Surety industry continued to report strong results through the third quarter of 2012 despite an increase in loss frequency driving slightly higher loss ratios compared to the prior year; loss frequency for reinsurers has increased with severity trending higher in some segments of the market Trade Credit Global Although loss frequency has increased since 2011, Credit insurers continue to achieve satisfactory underwriting results Southern Europe (Italy and Spain) continues to have high loss frequency One significant loss to the market (Schlecker, Germany) in early 2012 Reinsurance market capacity at the highest level seen for many years Market leaders programs renewed with very small increases in quota share commissions excess of loss prices flat Loss-affected programs (mainly Surety) have seen only marginal, if any, improvements for reinsurers Rates Territory Pro rata commission Specialty rates Risk loss free Risk loss hit Catastrophe loss free Catastrophe loss hit Aerospace +2.5% to +5% -5% to -10% N/A -5% to -10% N/A Engineering 0% 0% +10% 0% +10% Marine 0% N/A N/A +15% to +20% +20% to +25% Medical Excess U.S. N/A +3% to +10% +15% to +30% N/A N/A Non-Marine Retrocession 0% 0% N/A 0% N/A Personal Accident / Life Catastrophe N/A 0% +10% to +15% 0% N/A Political Risk 0% 0% N/A N/A N/A Trade Credit Global +1% 0% +10% 0% N/A Page 16

17 Capital Markets Thus far, Superstorm Sandy has not triggered any catastrophe bonds Competitive environment for catastrophe bond issuance Catastrophe bond deal pipeline for Q is developing well Third party capital activity picking up and broadening Investor demand outstripping issuer supply Steady flow of merger and acquisition transactions Workers Compensation Catastrophe market is stable and continues to offer a significant amount of capacity with pricing flat to slightly down on a riskadjusted basis, even in earthquake-exposed portfolios Per life pricing is trending upwards, capacity is slightly reduced year on year Reinsurers seeking higher rate increases below US $2 million than the US $8 million in excess of US $2 million range Reinsurance rate increases are tempered when cedants can demonstrate original rate increases Cedants with loss development above industry norm are attracting punitive reinsurance rate increases Rates Territory Workers Compensation rates Catastrophe XL Per life / Per occurrence XL United States 0% to -5% 0% to +10% Page 17

18 Global and local reinsurance Willis Re employs reinsurance experts worldwide. Drawing on this highly professional resource, and backed by all the expertise of the wider Willis Group, we offer you every solution you look for in a top tier reinsurance advisor, one that has comprehensive capabilities, with on-the-ground presence and local understanding. Whether your operations are global, national or local, Willis Re can help you make better reinsurance decisions, access worldwide markets, negotiate optimum terms and boost your business performance. How can we help? To find out how we can offer you an extra depth of service combined with extra flexibility, simply contact us. Begin by visiting our website at or calling your local office. Willis Limited The Willis Building 51 Lime Street London EC3M 7DQ Tel: +44 (0) Fax: +44 (0) Willis Re Inc. One World Financial Center 200 Liberty Street 3rd Floor New York, NY Tel: +1 (212) Media Inquiries Clare Kerrigan Communications and Marketing Director Willis Re The Willis Building 51 Lime Street London EC3M 7DQ Tel: +44 (0) clare.kerrigan@willis.com Page 18