Willis Re 1st View. Plenty of capacity, plenty of capital. Renewals 1 April Contents. 1st View Willis Re Renewals 1 April 2008

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1 1st View Willis Re Willis Re 1st View Plenty of capacity, plenty of capital As predicted in the previous edition of 1st View, the global reinsurance industry posted exceptionally strong financial results last year with a number of reinsurers achieving historic, high levels of profit. While 2007 was a fantastic year for reinsurers, their clients faced an arduously competitive marketplace. Closing out the 1st quarter of 2008, it appears that reinsurers are now also confronting an increasingly competitive market for their products. Our analysis of the 1st April renewals has confirmed a continuation, and in some markets acceleration, of the pricing decreases seen across January renewals. The greatest reductions were evident in smaller markets, driven by an increase in both the number and capacity of regional reinsurers, as well as by a continuing appetite for diversification by larger global reinsurers. Consistent with the preceding comments, buyers seem to be taking advantage of this more palatable pricing as demonstrated by general cessation of the retention increases that characterized much of Most practitioners appreciate that reinsurers strong 2007 returns were enhanced by solid investment results, reserve redundancies, and abnormally benign loss experience. Clearly, such a fortuitous set of circumstances is likely unrepeatable in Ongoing turmoil in global financial markets is depressing overall investment returns. Continuing softening in rates and terms over a wide range of classes and territories is eroding reserves. And, despite the lack of major catastrophe activity to date this year, a number of large risk losses in the 1st Quarter have already affected results. This may be an omen of things to come when the Atlantic storm season is upon us. Renewals 1 April 2008 Contents Introduction 1 Overview 2 Property Review 4 Rates and Territories 5 a number of large risk losses in the first quarter have already affected results. This may be an omen of things to come when the Atlantic storm season is upon us. While buyers gain pricing and coverage improvements in a more competitive reinsurance marketplace, reinsurers providing coverage remain in a strong capital position following successive years of excellent results. Although the rating outlook for many of the leading reinsurers is currently stable, these same reinsurers are now faced with the pressing challenge of how to best manage their capital position in a waning market. More aggressive dividend strategies, based upon the presumed ability to quickly raise fresh capital following a market shift, and acquisitions are two of the more prominent approaches we expect to see over the course of the year. Nevertheless, surplus and capacity remain abundant at the present time, as evidenced by some of the large Lloyd s syndicates recent expressions of disappointment that the overall Lloyd s market capacity for 2008 did not reduce more substantially. Plentiful capacity is not restricted to traditional markets. Despite difficult credit markets, investor appetite for insurance-linked securities remains strong with a number of new catastrophe bond issues being completed in the 1st quarter Similarly, the collateralized security market has remained buoyant with the recent announcement of several new entrants. On the ensuing pages, you will find information from our experts that I hope will provide you with a more thorough understanding of the most recent market trends. I look forward to communicating with you again in a few months to provide our perspective on the outcome of the summer renewals. Peter Hearn, CEO, Willis Re Copyright 2008 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 authorised and regulated by the Financial Services Authority. Contact Information Douglas Keighley Willis Re Public Relations Douglas.keighley@willis.com Phone: Willis Re 1st View Renewals

2 Overview Aviation Difficulty in finding new pro rata capacity and indeed maintaining existing capacity due to the continued falling of the original rates. XL rate reductions in the range of 5% to 7.5%. (US) Rate reductions not as large as originally anticipated. Lack of pro rata capacity on poor performing accounts. () Rate reductions on XL programs have been achieved based on good results and general market trend. Capacity plentiful and a few examples of buyers using premium savings to purchase additional cover. pro rata business for both hull and cargo is being renewed on a case-bycase basis, but the capacity for cargo is still plentiful. It is not necessarily the case for hull. Hull is still an area of concern for reinsurers. Rate reductions of 5% to 7.5% being achieved on XLs during Q Local accounts single territory are more competitive with 15% to 20% reduction. Gulf of Mexico Energy exposures now creeping back into General Covers. Of note in Gulf of Mexico Energy exposures now creeping back into General Covers Non- Retrocession Retro and Global Direct and Facultative Catastrophe capacity relatively stable, more availability of multi-territory capacity. Increased buying interest. Increased risk loss activity during Q1 2008, full effect still to be seen, but will certainly hit a number of programs. EQ Appreciation of Yen versus US$ has created some capacity issues for Reinsurers operating in US$. Pro rata generally renewed as expiring with some small increases in commission levels. Few structural changes in XLs and modest rate reductions. Property ese market has suffered a number of major industrial fire losses which have affected individual companies and treaties differently. Commission terms have varied widely depending on result and the ability / desire of ceding companies to cede increased premium volumes to loss affected treaties. Considerable efforts in terms of original underwriting improvements and transparency being made by leading insurance companies to rectify recent loss history. Appreciation of Yen versus US$ has created some capacity issues for Reinsurers operating in US$. New program leaders emerging on some catastrophe programs. Few structural changes to Wind XLs with rates flat to -5%. Of note in Appreciation of Yen versus US$ has created some capacity issues for Reinsurers operating in US$ Credit and Bond Plenty of capacity available with straightforward renewal. No major changes in terms and conditions or structures which remain Proportional Quota Shares. Upwards movement of commission on Bond treaties based on good results. Willis Re 1st View Renewals

3 PA and Liability PA Portfolio largely stable with some softening in pricing. No hot topics this renewal. For Liability renewals there has been a continued focus on both the original pricing and transparency of pharmaceutical risks. Liability XLs renewed with few structural changes and mainly flat rates Some softening was further assisted by new capacity. South Korea Many companies have increased their Property Retentions and have purchased larger XL programs. Cedents finding it hard to reach estimated proportional treaty incomes as direct market continues to soften. Of note in and South Korea Many companies have increased their Property Retentions and have purchased larger XL programs Many companies have increased their Property Retentions and have increased XOL cover. Incomes have increased as the impact of market detariffication has not affected companies as severely as initially predicted. Willis Re 1st View Renewals

4 Class Review Property Larger limits being purchased, but this is not necessarily reflected in the price. Rate reductions are varied but generally we are seeing approximately 15% to 20% reductions. Structure, commissions, terms and conditions remain generally unchanged other than some increased retentions. Earthquake Proportional and XL structures largely unchanged. Property Proportional treaty structures largely unchanged. Some increase in XL limits. Wind & Cover limits largely unchanged. Flood S. Korea Generally more cover is being purchased but this is not necessarily reflected in the price despite a few risk losses. No Cat losses this year and rate reductions are varied but in the Cat region of 15% to 20% off most programs. Largely unchanged limits being purchased. Commissions, terms and conditions remain generally unchanged despite a few risk losses. United States There has been high loss activity in the risk market in the Q1, although a large proportion of these losses fall within the Onshore Energy sector. Competition remains keen and pricing continues to reduce on loss-free business. The most competitive sector within US property reinsurance with plentiful capacity for adequately priced business. There are some Cat signs that cedants may be dropping retentions as pricing continues to lower, but supply materially outweighs demand. Reinsurers are cutting back their capacity in this sector and looking to reduce commissions to reflect that the pricing and terms & conditions on the original business are falling away quickly. Non- Retrocession Cat US Increased loss activity during Q1 will affect renewals; too early to assess impact. Retro and Global Direct & Facultative Catastrophe capacity is relatively stable, more availability of multi-territory capacity. Increased buying interest. Softening market making proportional capacity more difficult to find, other than for niche classes. Programs are remaining relatively stable in terms of structure. There has been a move, where possible to buy larger limits, in some cases. Cargo pro rata treaties are showing good results and renewals are basically unchanged. Hull pro rata treaties are an area of concern for reinsurers, but great efforts are being made by the reinsureds to rectify this situation. Renewals are being transacted on a case by case basis and therefore there is no particular trend. Reductions on accounts with good records. Some amelioration in pricing. Continued pressure on commissions. Concern over original pricing environment. Property Catastrophe Pricing Trend The following chart in the Willis Re 1st View relates to overall property catastrophe excess of loss pricing movements. It is indexed to 100 in Windstorm Competition remains keen and pricing continues to reduce on loss-free business Retro and Global Direct & Facultative Catastrophe capacity is relatively stable, more availability of multi-territory capacity.increased buying interest. Willis Re 1st View Renewals

5 Rates and Territories Property Non- Retro Commission Flat Flat to +10% Loss Free % -15% to -5% to -15% Loss Hit % Cat Loss Free % Cat Loss Hit % -10% -15% NA Flat -10% to - EQ Flat to +1% NA NA -5% NA - Prop Varies by Flat to Flat to result -5% +5% NA NA - Wind Flat to NA NA NA / Flood -5% NA - Credit Flat NA NA NA NA - Bond +1% to +2.5% NA NA NA NA S. Korea Flat -15% -7.5% -15% to NA US Flat to -1% to -2% -15% Flat to +10% NA Casualty Commission XL Loss Free % XL Loss Hit % NA -15% NA - PA NA -2% to -5% NA - Liab. NA Flat NA S. Korea NA -15% NA UK Flat Flat to -5% + 5 to + 15% US + 1% to + 2.5% -10% to -15% + 5 to + 10% 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, Willis Re employs 1,100 Associates and handles more than USD12 billion in premiums. With 40 locations worldwide, Willis Re provides local service with the full backing of an integrated global reinsurance broker. This thrice yearly publication delivers the very first view on current market conditions to our readers. In addition to real-time Event Reports, our clients receive daily news briefs, Willis Re Rise n shine, periodic newsletters, white papers and other reports. Willis Re 1st View Renewals