Renewal Review January 1, 2004

Transcription

1 Renewal Review January 1, 4 Willis Re Making better reinsurance decisions

2 Contents Overview... 3 Property... 5 Catastrophe Excess of Loss...5 Risk Excess of Loss...5 Pro Rata...6 Casualty... 7 Retrocession... 9 Catastrophe Excess of Loss...9 Risk Excess of Loss...10 Pro Rata...10 ILW...10 Engineering...11 Life, Accident and Health...12 Credit and Political Risk...13 Rating Movements...14 Rate movements table and charts...14 Rate movements by Territory...15 Catastrophe rate movement charts...19 Copyright 3 Willis Limited 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, electronic, mechanical, photocopying, recording, or otherwise without the permission of Willis Limited. The information contained in this report is compiled from sources we consider to be reliable; however, we do not guarantee and are not responsible for its accuracy. This report is for general guidance only and action should not be taken without obtaining specific advice from a suitably qualified professional. For further information contact: James Byng Regional Director Lucy Gilchrist Marketing Telephone: +44 (0) Telephone: +44 (0) Facsimile: +44 (0) Facsimile: +44 (0) byngj@willis.com gilchristl@willis.com Willis Re Willis Limited Ten Trinity Square London EC3P 3AX Willis Group Holdings Limited is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. With over offices in more than 80 countries, its global team of 13,000 assoc iates serves clients in some 180 countries. Willis is publicly traded on the New York Stock Exchange under the symbol WSH. Additional information on Willis may be found on its web site: Copyright 3 Willis Re 1 January, 1, 422

3 Overview Is the insurance and reinsurance industry massively overcapitalised? So said one of the world s leading management consultants only four years ago. This serves as a useful reminder of just how fragile our industry has become in recent years. Nobody needs to be reminded about the impact on our industry following the appalling events of September 1. Few insurers or reinsurers in the world were untouched by those events, but all have been affected post event through the dramatic increases in the cost of cover and tightening of terms. This was without doubt a shock loss not only for the loss of life, but also in financial terms. But this has not been the only problem which has decimated the financial strength of the market. The consequent fall in stock markets around the world reduced the asset side of many balance sheets to such an extent that many reinsurers have been forc ed to seek new capital through rights issues or other similar means. Much of the capital raised has been used to support the increase in reserves required to meet the ever increasing bill from long tail accounts. It is worth noting that companies are strengthening reserves for their underwriting in the relatively recent years, which suggests continued weakness in the science of reserving for long-tail liabilities. The key point of discussion at this autumn s conference season was security, and in particular the downgradings by the rating agencies which have taken place this year. Reinsurance collectables have also bec ome the focus of many chief executives as the strains outlined above have taken their toll on a number of companies previously thought to be impervious to the industry s ills. The questions we have to ask and some suggested answers might be: Are the past problems over? Answer: Probably not. Are shareholders receiving an adequate return on their investment in the industry? Answer: Probably not. Were insurers happy with the outcome of their recent reinsurance renewal negotiations? Answer: Probably not. So where do we go from here? There has been wide discussion about the desire to remove the cyclical nature of our business and the next few years will test the resolve of most companies. Willis Re 1 January, 1, 433

4 Overview (continued) If the reinsurance industry is to offer a product which will sustain the uncertainties of the years ahead, it surely has to re-build its balance sheet. This is also the case for insurers if they in turn are to continue to provide the necessary coverage for their clients. The greater use of capital management techniques should assist this process and enable insurers to identify lines of business or sectors which require management attention before radical surgery becomes necessary. Perhaps an intelligent move by insurers would be to defer their demands for reinsuranc e premium reductions in favour of an enhanced product. By this we mean a more secure protection through the use of credit enhancement. Underwriting profit for insurers and reinsurers is not only desirable, but an absolute requirement. We comment on the constituent parts of our business and the issues which have arisen in the course of renewal negotiations. Paul Wenham Deputy Chairman, Willis Re Willis Re 1 January, 1, 444

5 Property Catastrophe Excess of Loss The continued over supply of capacity for this product coupled with a benign catastrophe loss period has provided little surprise to the January 1 4 renewal season. Early indications show that the market is accepting rate reductions either on the premise that in recent years there has been an overcorrection of catastrophe pricing or simply due to the aforementioned oversupply. This may come as quite a surprise following both the Monte Carlo Rendezvous and the Baden Baden conferences, where the general call was for price and credit rating stability. However, it would seem that the much needed additional premium to restore or replenish reinsurer balance sheet strength will not be gleaned from the catastrophe product. Perhaps most interesting is that individual reinsurer s appetite for this product differs by region or territory and so, as a result, does their pricing. Global buyers may be rather confused when they see that reinsurer A was extremely competitive for one of their programmes and yet expensive for another. This positive anti selection by territory together with the continuous updating and refinement of vendor catastrophe models leaves the buyer in no doubt that true price stability is unlikely in this particular product. Aside from price, coverage terms and conditions in the main seem consistent with last year with few cedants accepting more onerous clause language. In simple terms, 4 appears no different to any other catastrophe renewal year, wherein the product is traded by both buyer and seller as almost the perfect Commodity, with the market or rather its capacity and desire to sell, dictating the final strike price of the contracts. Risk Excess of Loss 4 risk capacity would appear more than sufficient, fuelled by the profitability in the underlying portfolios coupled with cedants desire to increase retentions. Ironically, improved data transparency is helping cedants rather than reinsurers to determine the true value of transferring risk to counter parties. Where cedants find the risk transfer option of marginal value, it is clear that reinsurers need to adjust their pricing accordingly in order to maintain their participation. Certain reinsurers have been trying to impose exclusionary language into the reinsurance contract mainly in areas where they are not comfortable with the coverage granted on original policies. In most cases this has been refuted with buyers insisting that the market sits alongside original policy conditions. Most surprising is the short lived desire of the market to make risk protections non catastrophe exposed. Post 9/11, much debate ensued as to the validity of event protection within risk programmes and whether the market would insist on nil recovery in an event. Willis Re 1 January, 1, 455

6 Property (continued) It seems that, while the risk market succeeded in minimising this exposure to no more than one loss in an event, 4 is showing signs of increased limits in an event situation and in certain cases removal of this restriction altogether. Pro Rata Unlike the over supply of capacity for catastrophe excess of loss reinsurance, this more traditional and historic product has seen a more consistent renewal. Appetite to sell seems stable, and appetite to purchase the more modern version of pro rata with event limits or exclusion of natural perils is, not surprisingly, unchanged. In fact, some pro rata placements have increased in size, despite the fact that some reinsurers are still seeking restrictions on the following: Contingent Business Interruption Overseas exposures Nuclear Terrorism Asbestos Reinsurers have shown some interest in opportunistic pro rata offerings for books of business where the profit margins are expected to be very high in the short term, but until the true follow the fortunes pro rata product is offered, cedants with strong portfolios and balance sheets are unlikely to consider such offers. Reinsurers are also keeping a watchful eye on the rating cycle in the original market. Already there are signs which suggest a return to a softer pricing arena. The next 24 months will be a strong test for reinsurers and cedants alike. If 3 was a year of low 90 s combined ratios for property accounts it will be interesting to see, in what we should expect to be a low interest rate environment, whether these combined ratios can be sustained or even bettered. Warren Neale Regional Director, Property Practice Group Willis Re Willis Re January 1, 4 6

7 Casualty Unusually, the 4 renewal season has highlighted no particular single issue to overshadow the casualty market (in the way that, say, Y2K, terrorism and asbestos have variously dominated discussions in recent years). Hopes that this state of affairs might result in a smoother and easier renewal season have, however, proved over optimistic. Casualty reinsurers minds have been occupied by a number of concerns. On a macro level they are facing the twin problems of continued back year claims deterioration and some of the lowest investment returns in recent history. These, in themselves, would provide a rationale for insisting on a continued improvement in casualty rates, but there are other factors influencing the market. Much of reinsurers attention has been focussed recently on attempting to evaluate the real rate of inflation for bodily injury awards. In the UK, where there is a good database of appropriate information, a recent IUA study has suggested that an annual increase of 8 10% has been experienced up to 0. Several reinsurers have suggested, however, that this range understates the real rate of increase, especially on the higher value claims where, as providers of excess of loss programmes, they are most likely to be exposed. In discussions with major reinsurers, they have indicated their view that they should, in theory at least, be securing significant rate increases on bodily injury exposed business. Whether this is actually achievable remains, as yet, unclear. On the professional classes, much consideration has been directed to the US exposures, especially those presented by investment banks and the directors and officers of publicly quoted companies. Treaty reinsurance capacity for US publicly quoted D&O had dissipated almost entirely last year, and although there are signs of a re-awakening of appetite, it remains a class viewed with suspicion by most. The latest ethical problems emanating from Wall Street, concerning the trading of mutual funds at stale prices, seem to have re-enforced the opinion of many reinsurers, that, following other well publicised problems such as laddering, this is a class of business filled with considerable moral hazard. Asbestos continues to be an issue that occupies reinsurers minds. We were active in ameliorating the worst effects of the broad-ranging asbestos exclusions that were imposed by certain reinsurers last year. It is anticipated that the market, as a whole, will address the issue with greater flexibility this year. The European casualty reinsurance market remains dominated by a small number of London and continental based operations; this small number may reduce further with the ratings downgrades of several. The appetite of the new markets, especially those based in Bermuda, for casualty business remains unproven. To date, whatever interest they have shown has not translated into any significant involvement in the casualty co-reinsurance market, nor to a propensity to under-cut existing programme prices to enable them to access business. Many of the newer carriers have been more active in their marketing during the past year and this may manifest itself in an increased involvement in the casualty reinsurance market in the future. Willis Re 1 January, 1, 477

8 Casualty (continued) Our initial estimates of price changes for casualty business this renewal season centred around a prediction of modest increases in the 10 15% range. This was based on the assumption that the traditional markets would have had no motivation to reduce rates, for the various reasons already outlined, and that the new markets would continue to show limited propensity to challenge the status quo through aggressive pricing. At this stage of negotiations, we would conclude that, while much motor business is seeing rate increases, other areas of the market are proving softer than we originally envisaged. Indeed, we have been successful in securing renewal terms for several non-motor clients at prices that are not materially different from expiry. Grange Turner Executive Director, Casualty Practice Group Willis Re Willis Re January 1, 4 8

9 Retrocession Yet again, the retrocession renewal season was incredibly late and eventually took off in the second half of December and continues in full swing as we write. As in the past the quoting process was more diffic ult and once lead terms were established, provided they were relatively sensible, programmes have been placed without too much difficulty. The 3 renewal saw a levelling off in pricing which led us to the conclusion that the retrocession market reached its peak during 2, with some caveats on programmes with historical problems. The pricing trend continues and it would be difficult to pretend that there has been no softening in terms, especially for non-us exposed business. Some of the larger reinsurers have been very aggressive on more substantial programmes and these can still achieve competitive pricing. The presence of these reinsurers has had an impact on the pricing environment particularly at the mid to top end of programmes. The number of reinsurers who are prepared to participate at the lower end of programmes remains limited and pricing has probably held up more strongly at this level. There were no major new entrants, but the increased appetite of some of the larger reinsurers more than com pensated for this. The issues of security rating and downgrading clauses are still very important factors this year. Catastrophe Excess of Loss The quality of information continues to improve and reinsurers seem to have streamlined their quoting proc ess which has helped to speed placements up. There are of course exceptions to this with some non- US, non-london domiciled clients having portfolios which are less suited to detailed modelling analysis; this has precluded some markets from participating on their business. We have also noticed that modelling information alone is generally not accepted without aggregate information to back it up and it seems that a balance between the old and the new seems to be the ideal in this market. Discussions have taken place regarding the terrorism exclusion and the inclusion of non-certified US terrorism coverage has become a negotiating point, with some reinsurers prepared to accept this element of coverage and others adopting a more conservative stance. Worldwide catastrophe capacity has been more widely available at an acceptable price, with pricing reducing slightly or remaining flat on a stable portfolio. Worldwide ex-usa and specific territory capacity has also been available and there has been a bigger downwards shift in pricing for non-us exposed business. Willis Re 1 January, 1, 499

10 Retrocession (continued) Risk Excess of Loss There still appears to be limited capacity available for this product although one or two new reinsurers did enter the market this year. Although stable, pricing is still difficult from both the buyers and sellers perspectives. For direct and facultative risk excess of loss, the deductible level remains an important factor and it would appear that the market has maintained discipline in setting these at sensible levels. Price has remained stable after increasing substantially last year and capacity has not changed substantially. Again, the inclusion of non-certified Terrorism has become possible in some cases. Pro Rata This remains a very difficult area and usually new transactions can only be completed on a bespoke basis where there is an obvious alignment of objectives for both parties. The main change in this arena has been the reduction in Lloyd s Qualifying Quota Share allowances which has freed up capacity to be used elsewhere. ILW The ILW market has been relatively quiet so far, although there have been some pockets of interesting capacity being placed. As usual, we expect this activity to increase over the next few weeks as buyers look to supplement their core programmes, plug gaps and buy out peaks of exposures. Colin Kiddie Managing Director, Retrocession Department Willis Re Willis Re January 1, 4 10

11 Engineering The 3/4 renewal season has been staggered with presentations out to the market early, yet few programmes were completed earlier than normal. While reinsurers are trying to sustain the momentum seen over the past couple of renewal seasons, cedants are feeling there has been enough pay back. As a result, cedants are being more opportunistic with their reinsurance carriers and relationships are being passed over for commercial considerations, although there is no compromise on security. General response time from reinsurers has been poor and needs to be improved. On proportional treaty business, they have been opportune in squeezing deductions for fear of the markets and original terms deteriorating. While premium incomes have increased, reinsurance excess of loss rates are under pressure. Attachment points are static and a strong emphasis is being placed on slip discipline; termination / downgrade clause being one of the biggest issues. Julian Wood Executive Director, Engineering Department Willis Re Willis Re 1 January, 1, 411

12 Life, Accident and Health Market conditions remained challenging during 3, but without the dramatic, adverse developments witnessed during 2. The market is still dominated by few reinsurers, but overall capacity is relatively stable. A number of reinsurers have been watching the market closely and there has been some new capacity, but not sufficient to influence market trends. Many composite reinsurers continue to reserve capacity for Property, often perceived as more attractive in terms of pricing and exposures. Terms and conditions required by reinsurers are now largely standardised. Many placements have become commoditised with success increasingly dependent upon accessing detailed underwriting information. Market conditions are unlikely to improve, but significant adverse developments are unlikely during 4. If pricing competition is to emerge during 4, this is likely to depend on whether reinsurers have met their income targets for 3. Gabriel Manoughian Divisional Director, Life, Accident and Health Practice Group Willis Re Willis Re 1 January, 1, 412

13 Credit and Political Risk This market continues to suffer a shortage of reinsurers (if not of capacity) as a result of the onerous charge on capital imposed by the rating agencies. The year has seen further notable withdrawals of reinsurers from the class. On a more optimistic note, underwriting results from the major Credit Insurers have shown a distinct and rapid improvement. Nowhere is this better demonstrated than in the depressed German domestic market, where more selective underwriting and significant rate increases have been sufficient to overcome a continuing poor economic situation. Where results have shown significant improvements, cedants have been rewarded with small improvements in commission terms for their 4 Quota Shares. Pricing on Excess of Loss programmes has remained fairly static at low levels, but increased on the higher layers. In the developing world the trend towards comprehensive cover for commercial and political risk continues as more state-owned companies are forced to operate in a commercial environment, making the dividing line more difficult to define. Many Trade Credit and Political Risk Insurers will probably fail to reach their premium forecasts for 3. This is due to a generally depressed level of world trade. In addition, some major traditional buyers of project-related Political Risk Insurance (such as engineering companies) have experienced financial difficulties in 3, leading them to cut back on premium spend. Particularly hard hit are those Insurers whose products are less adaptable than their competitors. The reinsurance market welcomes a small number of newcomers in the class for the 4 renewal season. Overall, capacity should be sufficient, although the major reinsurers remain concerned about their exposure to the peak risks in Europe, e.g. Metro, Carrefour etc. Mark Jenkins Executive Director, Credit and Political Risk Practice Group Willis Re Willis Re 1 January, 1, 413

14 Rating Movements Rate movements table and charts Please find attached table of rate movements and charts (for January 1, 4 renewals). While the information provided in the table covers a wide number of territories, there are some areas at the time of this document going to press that due to the lateness of market negotiations, are still in the midst of placement. The graphs relate to overall property catastrophe excess of loss pricing movements based upon a base for the index of in Willis Re 1 January, 1, 414

15 Rating Movements (continued) Rate movements by Territory Territory Property Casualty General Comments Pro Rata Notes Risk Loss free Risk Loss hit Cat Loss free Cat Loss hit Pro Rata Notes Loss free Loss hit Australia Movement towards exclusion of natural perils or XOL. +5% to +10% +5% to +10%, but claims driven -10% to 0%, depending on deductibles, some reduction in top layers Claims driven, some reduction N/A +5% to +15% +15% to +20% Casualty: 1. Unlimited motor bodily injury capacity withdrawal 2. Catastrophe WC layers: costing issues 3. Motor bodily injury: costing issues Caribbean No change -10% N/A -10% N/A -10% General tightening of conditions on Casualty business Chile -15% China 1. Small commission N/A N/A N/A N/A N/A N/A N/A reduction 2. Event Limit reduction 3. Co-insurance tightened Colombia No change -15% E. Europe Reduction in Capacity and a tendency to reduce commission Engineering 1. Capacity steady 2. Continued pressure on event limits 3. Over-riding commission under pressure +10% Flat to +10% 1. No softening in XL rates 2. Proportional more difficult than a year ago. N/A N/A N/A N/A N/A N/A N/A 1. Original single period project business seeing increases in rates 2. Original busines rates on annually renewable business are reducing/under pressure in line with Property class France No change No change +20% -10% N/A N/A +10% +20% On Property Cat there have been no losses except from floods that were covered by the State Willis Re January 1, 4 15

16 Rating Movements (continued) Territory Property Casualty General Comments Pro Rata Notes Risk Loss free Risk Loss hit Cat Loss free Cat Loss hit Pro Rata Notes Loss free Loss hit Germany Commission terms firm or decreasing, stricter clauses Firm terms and stricter clauses Rate increases depending on loss Widely unchanged in exceptional cases up to 10% reductions Depending on loss up to 20% increase Commission terms firm Firm terms Firm terms Substantial/sufficient capacity available for all classes of business. More competitive prices were followed from a certain level onwards, slight price rises triggered plentiful capacity Healthcare Flat +10% to +30% 1. Retentions stable 2. Slight rate increases 3. Heavilly increased US domestic and Bermudan markets all looking to increase market shares Hong Kong No change N/A N/A N/A N/A N/A -10% to - 15% N/A Exclusion of BI following Infectious Disease Indonesia Italy 1. Market hardened 2. More pressure on Nat. Cat exposures 3. Movement to XL for Nat. Cat 1. Decreased capacity on Surplus Treaties 2. Increased capacity on QS Treaties 3. Co-insurance restrictions more relaxed 4. Cat limitations continue 5. Commission maintained or up by 5-12% with good results -5% Small increase depending on loss size Price increased from 2% to 10% (rates unchanged on higher ESPI) Price increased proportionally to B/C increase -5% to -10% N/A Market remains hard As expiry Significant increases Prices remain stable N/A Decreased capacity Price unchanged (rates decreased on higher ESPI) or decreased from 2% to 5% Price increased in proportion to B/C increase Nat. Cat element main point of discussion (BC = Burning Cost) (ESPI = Estimated Subject Premium Income) Willis Re January 1, 4 16

17 Rating Movements (continued) Territory Property Casualty General Comments Pro Rata Notes Risk Loss free Risk Loss hit Cat Loss free Cat Loss hit Pro Rata Notes Loss free Loss hit Life, A&H N/A Flat As before +30% 1. Capacity relatively stable 2. Composite reinsurers closely monitoring market dev elopments with possible view to entering market 3. Terms and conditions largely standardized many placements now price driven 4. Signs that a few reinsurers may consider NBC cover but market very limited Mexico -15% Phillipines 1. Conditions stable 2. Co-Ins and BI restrictions in place 3. Event Limits and min rates for Natural perils apply -5% to -10% +5% to +10% -10% N/A N/A N/A N/A Scandinavia Stable but dependent on results -5% to -10% Flat -5% to -10% No Loss this year +10% to 15% +30% Very loss size dependent Taiwan Commission +5% -10% Stable -12.5% N/A N/A N/A N/A Turkey Minimum fire rates +% for Commercial and Industrial Flat N/A -15% to -20% N/A N/A N/A N/A UK Flat -15% -15% to -20% N/A Flat 0 to +10% +10% to +30% US (Regional Accounts) Flat -5% to -15% +5% to +15% -5% to -15% Flat to -5% Abundant capacity for Auto business. Reinsurers favoring sliding scale commission terms. Flat to slight improvements in commission terms Clash Flat to -5% Excess Flat to -5% Casualty figures shown relates to pure casualty Motor business seeing greater increases Casualty: Reinsurer security has taken on increased prominence. Market in general appears to be more stable than last year. Increases still sought for business with significant loss activity Willis Re January 1, 4 17

18 Rating Movements (continued) Territory Property Casualty General Comments Pro Rata Notes Risk Loss free Risk Loss hit Cat Loss free Cat Loss hit Pro Rata Notes Loss free Loss hit US (Global Accounts) 1. Underlying rates starting to decline 5% to 10% 2. Commissions largely Flat to -10% +5% to +15% -5% to -10% +5% to +15% As shown above under US (Regional Accounts) Clash Flat to slight Excess Moving towards flat 1. Property: Larger rate reductions seen where subject premium increased significantly through unchanged decrease original rate increases without corresponding increase in exposure 2. Casualty: Collateralization of reinsurance recoverables / special termination provisions becoming key issues. Pricing and terms sensitive to line / class of business, e.g. Public D&O Venezuela -15% Much discussion about strike, riots and civil commotion coverage Vietnam 1. Commissions increased by up to 2.5% 2. Co-Ins remains restricted but less pressure on Inward fac restrictions -10% to -15% -5% to -10% -5% to -10% (on increased exposures) N/A 1. Commissions increased by up to 2.5% 2. Co-Ins remains restricted but less pressure on Inward fac restrictions Flat N/A Willis Re January 1, 4 18

19 Rating Movements (continued) Catastrophe rate movement charts Australia LOCAL ISSUES IN AUSTRALIA Single site versus whole portfolio views on purchasing decisions Pro-rata excluding catastrophe versus risk excess of loss Australian Terrorism Pool s inclusion or exclusion of strata policies Security issues Caribbean LOCAL ISSUES IN THE CARIBBEAN Pressure on original rates Chile LOCAL ISSUES IN CHILE 500 Downward pressure on XL rates Colombia LOCAL ISSUES IN COLOMBIA Downward pressure on XL rates Market available for Terrorism specific Willis Re January 1, 4 19

20 Rating Movements (continued) France LOCAL ISSUES IN FRANCE Stable renewal overall Little business has changed leadership but: Bermudans and Lloyd s growing share French reinsurers are downsizing Major floods in December (approx. Euro 1bn although covered by the State) Germany Mexico LOCAL ISSUES IN GERMANY Rating clause not acceptable for most German/continental based reinsurers Loss reserve deposits difficult to negotiate Motor proportional: Commission levels difficult to maintain GTPL: Asbestos exclusions required / limitations of unlimited exposures, i.e. free and unlimited reinstatements Close attention by reinsurers in respect of clauses governing the coverage of original policies renewal decision only particularly price driven LOCAL ISSUES IN MEXICO Downward pressure on XL rates More attention to Hurricane exposure Retrocession Willis Re January 1, 4 20

21 Rating Movements (continued) Turkey LOCAL ISSUES IN TURKEY Terrorism Increase of EQ tarif and minimum fire rates Strength of TL against USD causing aggregate growth Pressure on rates UK LOCAL ISSUES IN THE UK NCB Terrorism, potential gaps around Pool Re definition of Event Price Reinsurer Security, credit exposure to reinsures security Reinsurance for maintaining capital adequacy FSA capital requirements (CP190) Casualty classes - Asbestos exposures US LOCAL ISSUES IN THE US (REGIONAL ACCOUNTS) Terrorism coverage for non-certified CA Fires (no. of events) Abundance of Capacity for Regional programs Security Semi to quarterly deposits LOCAL ISSUES IN THE US (GLOBAL ACCOUNTS) Reinsurance Security Terrorism Cat Modelling assessing the impact of RMS v 4.3 Transparency of underwriting information Pricing: rates down where premium income up and exposures flat Willis Re January 1, 4 21

22 Rating Movements (continued) Venezuela LOCAL ISSUES IN VENEZUELA Downward pressure on XL rates Internal discussion on introduction of Strike, Riot and Civil Commotion clause reinsurers opposing to the new clause to date Italy Commentary Prior to 1 Italian Ceding Companies tended to buy per Risk and per Event Property protections on a combined basis (i.e. the same layers worked per Risk and/or per Event). This was a great advantage for them because the Cat cover was almost given for free by the reinsurers. To change that situation, reinsurers started to quote and accept separately the Cat cover. Following 1, the pricing for the Catastrophe covers increased quite dramatically since it was difficult to establish the appropriate price particularly in light of the losses which were widely reported in the media during 1 and 2. For this reason, Willis Re is not providing a separate chart for Italian business. The main local issues affecting the Italian market involve a total exclusion on Asbestos related claims and limited coverage for Motor Third Party with unlimited no longer being available (apart from green card). Willis Re January 1, 4 22