PCI Humans Resources Conference Year in Review and 2015 Outlook

PCI Humans Resources Conference Year in Review and 2015 Outlook April 28, 2015 Presented by: Jeff Rieder Partner, Head of Ward Group

Agenda About Ward Group Industry Challenges and Initiatives High Level Overview of Major Financial Indicators Expense Improvements Across the Business Technology Trends and Considerations Sales Marketing and Underwriting Claims Talent Trends Compensation and Pay for Performance Closing Summary The underlying data and content of this presentation conform to the Safe Harbor issued by the Department of Justice and Federal Trade Commission to guide the participation of competitors in industry surveys, including but not limited to compensation surveys. Specifically, the information contained in this presentation is based on data collected more than 3 months prior to the date of the presentation. In addition, at least five survey participants reported data upon which each presented statistic is based, with no individual participant s data representing more than 25% on a weighted basis. 2 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

About Ward Group Leading provider of performance and reward benchmarking and consulting services for propertycasualty and life-annuity insurance operations We help companies measure results, optimize performance and improve profitability Founded in 1991 and acquired by McLagan Aon Hewitt in 2011 Annually conduct Ward s 50 Top Performer analysis Global operation insurance emphasis on U.S., Canada and UK markets 3 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

2014 and 2015 Observations Financial results are still favorable but losing steam - Commercial markets are softening at greater pace - Substantial surplus positions will affect strategies Starting to see operational efficiencies within companies - Positive staffing relative to both premium and policy - Capacity from new systems in production now being leveraged Data analytics driving more company-wide decisions but still underinvested - Trying to be more proactive rather than reactive - Companies still struggle with where and how to use analytics Lines are blurring in distribution - Companies continue to develop digital presence - Successful companies will integrate direct/agency/broker strategies - Many concerned by the threat of new entrants such as Google, Facebook, Overstock.com, etc. Customer experience is driving more strategy - Need to define what value to agent/policyholder means - Business strategies need to be deployed against customer expectations 4 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

2014 and 2015 Observations Agency Compensation and Management Plans are Changing Rapidly - You need to have a proactive strategy for both monitoring and executing against plans - Take the opportunity to design a better/more competitive agency compensation program Workforce planning is taking greater priority - Senior management turnover picking up with market stability and retirement - Attracting younger generation is more important with aging workforce The labor market is very competitive - Companies need to sell themselves - Compensation programs must be updated to attract and retain key staff Most companies do a poor job of linking pay and performance - Reality: most focus on market pay leveling for non-senior positions - There are easy ways to integrate compensation analytics at both the agency and functional level There is no rest for the weary - Virtually every aspect of the business is challenged to operate smarter - Companies better at addressing rapid pace of change and integration of technology will win - Must avoid the cost of standing still 5 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

How is the Industry Performing? Maintaining underwriting profitability Capitalize on improving economy/push growth Mixed Distribution channel management / omni channel Mixed Leverage technology investments Underinvested Data analytics for informed business decisions Improving but needs work Enhancing customer experience Debatable Becoming more efficient 6 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Management Perspective State of the Industry Compared to 2013 20% Moderately Worse 8% 14% Commercial Lines About the Same 43% 64% Personal Lines 53% Overall Benchmark 38% Moderately Better 28% 33% 0% 20% 40% 60% 80% 100% Source: Ward Group 2014 Business Environment Survey 7 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Macro Premium Trends Net Written Premium to GDP Ratio 4.25% 3 years 3 years 13 years 4 years 4.00% 3.75% 0.6% 7 years 0.6% 1.1% 1.1% 0.5% 10+ years >0.7% 3.50% 3.25% 3.00% 3% 2.75% 2.50% 1970 1975 1980 1985 1990 1995 2000 2005 2010 Historical ratio of NPW to GDP provides a macro-level summary of the underwriting cycle of hard and soft markets Sources: A.M. Best s Aggregates and Averages, IMF World Economic Outlook Database (www.imf.org), Aon Benfield Analytics 8 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Positive Premium Growth In Most Lines - US YTD Change in Direct Premium Through Q3 2014 7.3% 5.6% 4.6% 4.9% 3.8% All Lines Commercial Personal Home / Farm Private Auto (Est.) Measures change of premium written through Q3 2014 relative to Q3 2013. Source: SNL Financial 9 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Commercial Lines Losing Steams 10% U.S. Quarterly Year over Year Premium Change 8% 6% 4% 2% 0% 5.1% 3.3% 1.3% -2% -4% -6% -8% -10% Source: SNL Financial 10 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 Total Personal Commercial Measures change of premium written in the quarter relative to the same prior year quarter.

Slight Deterioration in Losses U.S. Direct Loss Ratio 70.2% 67.4% 65.9% 66.5% 62.9% 59.7% 56.4% 63.4% 59.2% 54.4% 65.3% 60.1% 63.1% 62.0% 64.1% 59.7% 56.2% 61.9% 57.4% 52.2% 52.3% 2008 2009 2010 2011 2012 2013 2014-YTD Source: SNL Financial 11 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 Total Personal Commercial

Key Performance Measures U.S. Worse Combined Ratio Net Premium Written to Surplus Total Expenses 150% 130% 110% 90% 70% 99.8% 73.5% 1990 2013 Average 104.6% 104.1% Better 50% 30% Source: Ward s Results 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Proj Combined ratio is prior to effect of policyholder dividends Expenses include Underwriting, Loss Adjusting and Investment Projections are based upon first 3 quarters trends and do not try to guess anticipated reserve changes by companies 12 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 40.2% 39.9%

Return on Equity U.S. 16% 14% 12% 10.6% 10% 8% 6% 7.4% 4% 2% 0% -2% -4% 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Proj Projections are based upon first 3 quarters trends and do not try to guess anticipated reserve changes by companies or realized investment gains Source: Ward s Results 13 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Expense and Employee Productivity

Expecting Improvement in Expenses 43% Expenses as % of Net Premiums Written 42% 41% 40% 40.6% 40.2% 39% 38% 37% 36% 35% 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Proj * Expenses include Underwriting, Loss Adjusting and Investment Expenses Source: Ward s Results 15 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Where is the Improvement Coming From? Accelerated Market Entry Select Product Exits Aggressive Repricing UBI/Telematics Digital Strategy Continued Distribution Consolidation More Aggressive Broker/Agent Management Increasing Development/ Investment In Alternative Channels Including Mobile/Social Further Improvements in STP Specialty Departments More use of the Production Underwriter Role Expansion of Shared Servicing Increased Client Self Service Improved Call Handling & CRM to Enhance Customer Experience Aggressive Process Improvement Improved Fraud Detection Litigation Mgmt and Suit Avoidance Early Settlement Strategies Increased Job Role Segmentation Heavier Focus on Quality Assurance and NPS Growing Vendor Management Sophistication Aggressive Span of Control Management Reduction in Functional Duplication Rationalization of Risk Management Resources Core System Replacement Product Development Customer Acquisition Underwriting Agent/ Policy Servicing Claims Admin & Legal Finance and Accounting Actuarial Risk Management Human Resources Legal Shared Services Information Technology General Support 16 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Measurable Impact at Various Levels Staff Productivity Improvement per Policy or Reported Claim from 2009-2013 Unit Cost Change from 2009-2013 Commercial UW * -4% 19% Personal UW * -2% 11% Claims Adjusting 4% 5% Billing 7% 9% Commercial Processing 8% 0% Claims Support Personal Processing 11% 15% -9% -4% Overall 4% 9% -10% -5% 0% 5% 10% 15% 20% -20% -10% 0% 10% 20% 30% * Indicates function is less productive relative to unit count Source: Ward CEO Benchmarking 17 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Functional Expense Trends 2009-2013 Pers Corp UW Actuarial Investments Comm UW Comm Corp UW Sales Marketing Loss Control Financial Auditing Executive Information Tech. Pers UW Total Gen Counsel Corp Claims Billing Claims Adjusting Agency Management Human Resources Comm Processing Claims Legal Claims Support Occupancy Premium Audit Gen Support Pers Processing -15% -3% -25% -20% -15% -10% -5% 0% 5% 10% 15% FTE Change Relative to Premiums Expense Ratio Change Source: Ward CEO Benchmarking 18 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Revenue and Staffing Expectations 12 Month Staffing Plan Maintain Staff 29.2% Decrease Staff 4.8% 12-Month Revenue Plan Flat Growth 13.0% Decrease Revenue, 3.0% Increase Staff 66.0% Increase Revenue 84.0% 19 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

12-Month Staffing Plans 70% July 2009 January 2015 Prior Survey Results 60% 66% 50% 40% 30% 29% 20% 10% 5% 0% Increase Employees Decrease Employees Maintain Size 20 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Likelihood of Increasing Staff Most Likely 8 By Function P&C Balanced P&C Commercial P&C Personal 7 6 5 4 3 2 Least Likely 1 0 21 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

The Best Jobs are Still Tough to Get 22 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

But Still Need to Invest In the Future

2014 Spending Changes - By Function Spend Levels Compared to 2013 Significantly Less (-15% or less) Moderately Less (-3% to -15%) About the Same (-3% to 3%) Moderately More (3% to 15%) Significantly More (15% or more) Information Technology Commercial UW/Processing Actuarial Marketing Claims Administration 54% 37% 31% 35% 27% 28% 7% 8% 6% Product Development Personal UW/Processing Human Resources Audit Agency/Broker Mgmt Commissions Investment Mgmt Other Sales Expense Finance Billing and Collections General Counsel Rent/Occupancy 0% 28% 19% 16% 14% 14% 13% 14% 12% 9% 8% 7% 7% 3% 3% 1% 1% 1% 1% 1% 1% 0% 20% 40% 60% 80% 100% Source: Ward 2014 Business Environment Study 24 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

New System Implementation 60% 50% 40% 30% 20% 10% 0% 50% 19% 19% 12% 42% 42% 4% 27% 27% Vendor Custom Developed Not currently replacing, but within 2 years No plans to replace 23% 35% 35% 0% 0% Policy Administration Claims Billing Enterprise 19% 46% 62% of companies are participating in a policy administration system implementation and 46% of companies are implementing a new claims system New system projects remain a high priority item for insurance carriers. As companies achieve some moderate growth, they are looking to start or escalate their systems projects In 2012, companies were starting new system projects. In 2013, many of those projects are entering development and integration of the initial location. There are also a high percentage of companies planning system replacement within the next two years (27% for claims systems and 23% for billing systems) Source: Ward 2014 IT Investment Survey 25 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Budget and Timeline Status Policy Administration Budget Status Timeline Status 50% 6% 44% Under Budget/ Timeline On Budget/ Timeline Over Budget/ Timeline 65% 35% Source: Ward 2014 IT Investment Survey 26 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Age of Systems (Years) 21.8 The average age of systems is 17.2 years, with an expected 8.4 years of remaining life 17.2 14.0 17.7 Legacy systems were 21.8 years old, with only 5.1 years of remaining life expected Only 30% of companies responded they have updated their legacy systems 8.4 8.5 5.1 4.2 Additionally, legacy systems were significantly deficient in upgrades, which may cause even greater disparity on capabilities to modern systems! 1.4 Overall Legacy Systems Modern Systems Years in Production Remaining Life Years Since Upgrade Source: Ward 2014 Policy Administration system Total Cost of Ownership Study 27 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

A Lasting Legacy Legacy Systems Although the average legacy system was 21.8 year old, only 52% are in process of being sunsetted 52% 48% Legacy systems can be difficult to retire completely due to the amount of premium, states and lines of business affected. The average legacy systems also supported nearly 2.5 times more products than the modern systems Ongoing System Sun-setting Source: Ward 2014 Policy Administration system Total Cost of Ownership Study 28 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Legacy System Status Conversion Type 15% System will be shut down 15% 19% 52% System is shut down System will be maintained for historical data No plans to shut down - still process business Only 19% of companies have successfully shut down the legacy system In addition, 30% of companies plan to maintain the system into the future Source: Ward 2014 Policy Administration system Total Cost of Ownership Study 29 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Systems Expense Cost per System (mms) Cost per System (% GPW) 1.66 0.38 0.31 1.79 0.39 0.35 1.38 0.35 0.21 0.44% 0.40% 0.10% 0.09% 0.08% 0.08% 0.58% 0.15% 0.09% 0.97 1.04 0.82 0.26% 0.23% 0.35% Overall Legacy System Modern System Overall Legacy System Modern System Company Staff Maintenance Consultants Company Staff Maintenance Consultants Modern systems required 23% less to maintain per system However, due to less premium actually moved to the systems, expenses relative to premium were higher on the new systems If the average modern system had the full premium of the average legacy system, expenses relative to premium would drop from 0.58% to 0.31% Source: Ward 2014 Policy Administration system Total Cost of Ownership Study 30 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Marketing Trends

Business Growth and Retention New Policies as % of Total Policies In Force Policy Retention Ratio 22% 87% 21% 20% 19% 18% 86% 85% 84% 17% 16% 15% 14% 83% 82% 81% 13% 2009 2010 2011 2012 2013 80% 2009 2010 2011 2012 2013 Commercial Lines Personal Lines Commercial Lines Personal Lines Personal lines policy retention improved since 2009; but dipped slightly in 2013 Improvement in commercial policy retention may be linked to softening market conditions Source: Ward CEO Benchmarking 32 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Everyone s chasing customers 2.5% Total Marketing Expense 43% Largest 9 Advertising and Market Share (Excluding AIG) 2.5% 2.0% 2.0% 1.5% 1.0% 42% 41% 41.9% 41.9% 41.4% 41.4% 41.5% 1.5% 1.0% 0.5% 0.5% 0.0% 2009 2010 2011 2012 2013 40% 2009 2010 2011 2012 2013 0.0% Total US Largest 9 Rest of Industry Market Share Advertising Spend The marketing expense ratio has decreased slightly the past two years. Despite massive investments in advertising, the top 9 US carriers lost market share since 2010, however notable gains achieved by several major direct writers in personal lines 33 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

And Trying to Expand the Agency Footprint Percentage of Agencies Terminated New Agency Appointments 10% 10% 9% 8% 7% 6% 5.6% 6.3% 6.1% 6.1% 5.9% 9% 8% 7% 6% 8.4% 8.4% 8.0% 7.3% 7.6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 2010 2011 2012 2013 2014 0% 2010 2011 2012 2013 2014 New agency appointments are down as both independent and captive writers have had difficulty recruiting new producers Regional expansion is picking up again since the 2008 2010 timeframe Terminations are still lower as companies would rather rehabilitate and may be less aggressive managing producers Source: Ward 2013 and 2015 Agency Management and Compensation Study 34 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Agency Commission and Production 12% Contingent Commission as % of Total Commission 750,000 Premium per Producer/Agency 700,000 10% 650,000 8% 600,000 6% 2009 2010 2011 2012 2013 550,000 2009 2010 2011 2012 2013 Contingent commissions are higher due to better loss results, despite modifications to formulas that would lower payments to agents Agency consolidation also drives up premium per agency and the ability for agency to earn more contingent commission Source: Ward CEO Benchmarking Study 35 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

How are Independent Agents Competing? Market Share 35% 30% 30.1% 32.9% 31.6% Chart illustrates the direct premium market share of approximately 625 legal entities identified as either Independent Agency or Broker, Independent Agency by SNL. 25% Total Home and Auto market share for the group grew 1.5 points since 1996. 20% 16.1% 17.8% Personal auto market share declined 1.7 points since it s peak in 2004 and 0.2 points since 1996. Home/Farm market share grew 1.7 points since 1996. 15% 14.0% 15.5% 13.8% Excludes companies with multiple distributions channels. 10% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Home and Auto Home/Farm Pers Auto 36 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Most Important to Companies Within Agency Force Least Important 6 Ranking of What is Most Important Scale of 1-6 5 4.6 5.0 4 3.3 3.4 3 2.7 2 2.0 1 Most Important 0 Loss Ratio Premium Growth Policy Growth Policy Retention Premium per Agent/Broker Hit Ratio Profitability ranks as the most important issue. The lower priority of premium per agent may suggest less emphasis on franchise value as in the past. However, many independent agency companies lack the systems, process efficiencies and analytical capabilities of the direct and national companies to compete on price. Source: Ward 2015 Agency Management and Compensation Study 37 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Agency Management Programs Vary Significantly Agency Tiering and Segmentation Practices Maintain an Agency Tiering/Segmentation Program 77% Maintain a Formal Scoring System to Determine Tier (of those with program) 56% Average Number of Levels in the Tiering Plan 4.4 Inform Agencies of Ranking Within the Plan 50% Base Commissions Vary by Tier 18% Contingent Commissions Vary by Tier 38% Additional Incentives or Compensation by Tier 56% 77% of all companies maintain an agency tiering program, a 16% increase over 2013. The average premium written for the top tier of agents is $5.2M Linking a defined tiering program to pay and/or other agency incentives is a very effective way to enable discussion with the agency. Plans in excess of five tiers become more difficult to understand and administer. Tier Specific to Newly Appointed Agencies 44% Source: Ward 2015 Agency Management and Compensation Study 38 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Defining What is Important to Customers The evolution of the customer experience team/department has changed over time. Initially focused on branding, marketing, product development and pricing Now evaluating and defining what is important along the following key experiences: Quoting Policy Issuance Online Interaction Digital/Mobile Strategy Loss Prevention Claims Process Billing Premium Audit 39 39 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Policyholder Self Service Capabilities Personal Lines Percentage of Respondents with Capability Overall High Performer View Account Info View Policies Receive Quotes Purchase/Bind Policies Report Claims View Claim Status Pay Bills Source: Ward 2013 Underwriting Productivity Study 40 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 0% 25% 50% 75% 100%

Policyholder Self Service Capabilities Commercial Lines Percentage of Respondents with Capability Overall High Performer View Account Info View Policies Report Claims View Claim Status Pay Bills Source: Ward 2013 Underwriting Productivity Study 41 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 0% 25% 50% 75% 100%

Underwriting Impact of System Capabilities Average Premium per Underwriter $26,391 $15,510 $11,497 $9,806 $13,918 $6,290 Personal Lines Multi-Line Work Comp Overall High Performer Source: Ward 2013 Underwriting Productivity Study 42 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Claims Trends

Claims Adjusting Workloads 3% 2% 1% 0% -1% -2% -3% Change in Reported Claims per Adjuster 2010 2011 2012 2013 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Change in Pending Claims per Adjuster 2010 2011 2012 2013 Claims workloads remained relatively flat over past 2 years, despite quiet CAT activity in the US Reported claims for support/claims reporting staff is also up 11% since 2009 External LAE decreased 11% since 2009 Average adjusting expense per claim increased only 5% from 2009 to 2013 Source: Ward CEO Benchmarking 44 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Claims Litigation Changes From 2009-2013 Litigation Expense Ratio Cost per Litigated Case Internal Case Handling Litigation Frequency Fraud Investigated per Claim -15% -10% -5% 0% 5% 10% 15% 20% 25% Litigation frequency increased since 2009 relative to reported claims The cost per litigated case and expense ratio decreased due to aggressive measures to reduce external counsel fees and billing arrangements Companies that have moved litigation in-house typically achieve notable cost savings Fraud claims investigated as percent of total reported claims increased nearly 25% over the 5 year period Source: Ward CEO Benchmarking 45 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Leveraging Talent

Current Talent Trends Aging Workforce Workers aged 45 and older make up 48% of the industry workforce, while only 26.67% of insurance professionals are under the age of 35. The number of insurance employees aged 55 and older is nearly 30% higher than the rest of the economy and has increased by 74% throughout the past 10 years. Currently, 20% of the insurance workforce is approaching retirement a number that will increase to 25% by 2018. 21% Turnover Rate Annual Quits 20.4% Talent War Unemployment for college graduates is 3.1%. 19% 17% 15% 13% 13.5% 11% 9% 2009 2010 2011 2012 2013 Insurance U.S. 47 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 Sources: BLS, SunTrust

And a Changing Workforce Average Years of Employee Tenure 11.6 10.4 10.3 10.3 10.2 10.1 9.7 10.9 Age Ranges of Employees based on Percent of Staff Overall Benchmark >70 Years, 0.7% 61-70 Years 9.7% <21 Years 0.6% 21-30 Years 11.2% 51-60 Years 27.5% 31-40 Years 21.6% Overall Small Company Medium Company 2013 2011 Large Company 41-50 Years 28.7% Key Points Average tenure showing slight decline despite improving economy. Employees continue to work longer than historical retirement ages. 67% of employees are over 40. Employees over age 60 represent 10.4% of the workforce compared to 6.1% in 2006. Source: Ward 2014 HR and Employee Compensation Practices Study 48 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Training $439 Training Expense per FTE $422 Key Points Company budgets for training have been slow to return due to overall expense pressures The training budgets do not appear aligned to meet organizational transition, new system development and other growth initiatives The decline of organized, formal and consistent training could be influencing why companies are not gaining more efficiency with new systems $355 2009 2011 2013 Source: Ward 2014 HR and Employee Compensation Practices Study 49 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

12-Month Staffing Plans Increase vs. Expected Revenue Growth 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 56% 35% 66% 65% 66% July 2009 January 2015 44% 39% 44% 44% 75% 69% 77% Expected Revenue Growth 51% 54% 56% 54% 86% 81% 87% 85% 84% 62% 58% 66% Increase Employees 88% of P&C companies expect an increase in revenue growth, while 71% of Life/Health companies responded the same. 2.5% of all P&C companies expect a decrease in revenue during the next 12 months. Life/Health companies do not expect a decrease. Both Life/Health and P&C companies responded that the primary driver for expected revenue changes will be market share rather than pricing or expansion/contraction. 63% of national/multi-national companies expect market share to drive revenue changes compared to 60% of regional carriers. 50 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Unemployment Rates 12% Insurance & Related Overall 6 per. Mov. Avg. (Insurance & Related) 10% 8% 6% 5.8% 4% 2% 3.1% 0% Source: U.S. Bureau of Labor Statistics 51 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Job Openings in Finance and Insurance Yearly Averages 250 213 229 In Thousands 200 150 100 120 178 163 185 50 0 2009 2010 2011 2012 2013 2014 Source: U.S. Bureau of Labor Statistics 52 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Personnel Costs Projected to Increase 14% Salaries and Benefits as % of Net Premiums Written 13% 13.4% 13.5% 12% 11% 10% 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Proj Source: Ward s Results 53 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Headcount and Compensation Trends Changes From 2009-2013 FTEs per $100M of Premium Compensation per FTE Compensation Expense as % of Premium -20% -15% -10% -5% 0% 5% 10% 15% Despite double digit headcount reductions, compensation expense is outpacing premium Part of the compensation increase is more reductions in clerical/support staff than technical staff Compensation represents approximately 28% of the expense ratio (38% for Direct Writers) Premium growth will need to be 1.3% to offset compensation expenses to keep the expense ratio level. Source: Ward CEO Benchmarking 54 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Recruiting Difficulty Continues Actuarial Technology Executives Analytics Underwriting-Reinsurers Underwriting Product Management Sales/Marketing Compliance Claims Accounting Operations 55 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 January 2015 January 2014 0 2 4 6 8 10

New Skills Required Analytics Not just within analytics department Technology Adaptive to new tools Critical Thinking Decision making and problem solving Social Media Savvy Aware of new trends Communication Lost art 56 P&C Year in Review and 2015 Outlook December 2014 Copyright Ward Group 2014

Recruiting and Retaining Talent Selling is key! First and foremost do they like the environment? Millennials are social and want to work in teams. Culture Financial Benefits Reward = Impact Opportunity Can they envision challenge, growth, financial rewards in the near future? Relationships 57 P&C Year in Review and 2015 Outlook December 2014 Copyright Ward Group 2014

Are the financial benefits there?

Merit Increases 4.5% Average Annual Merit Increases 4.0% 3.5% 3.0% 2.5% 4.0% 3.8% 2.9% 2.6% 2.8% 3.0% 3.0% 3.0% Merit increases have increased slightly from 2010, but are still over 30% lower than 2007. 2.0% 2007 2008 2009 2010 2011 2012 2013 2014 Key Points 6% of companies froze salaries in 2012 As of 2014, fewer companies were freezing salaries on a wide scale basis, however, some continued to freeze salaries for higher paid positions in certain cases Source: Ward 2014 HR and Employee Compensation Practices Study 59 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Looking Back: 2014 Survey Results What Happened to Base Salary from 2013 to 2014? Percent Change in Base Salary 2013 to 2014 # of Incs 10th 25th 50th 75th 90th $0 to 50K 6,671 0.0% 2.0% 3.0% 4.5% 9.4% $50 to 100K 11,467 0.0% 1.8% 3.0% 3.8% 7.0% $100 to 150K 1,824 0.0% 1.0% 3.0% 4.0% 7.6% $150 to 200K 452 0.0% 0.0% 2.7% 4.0% 8.0% $200 to 250K 168 0.0% 0.0% 3.0% 4.5% 10.2% $250K+ 195-2.0% 0.0% 3.0% 5.0% 10.4% Total 20,778 0.0% 1.8% 3.0% 4.0% 8.0% <-20% -20 to -10% -10 to -5% -5 to 0% 0 to +5% +5 to +10% >+10% Source: Ward 2014 P&C Compensation Study 60 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Looking Back: 2014 Survey Results Health Care Contribution Key Points Average % of Health Premiums Paid by Employer 2013 2011 Single Employee 78% 83% Employee and Child 70% 73% Employee & Spouse 69% 72% Family 71% 72% Average 72% 75% 95% of companies provided health insurance to their current employees Healthcare contributions have not changed significantly over past 3 years 74% of companies provided PPO/EPO plan (up from 67% in 2011) Only 9% offered HMO (down from 16%) 39% offered an HSA plan (up from 30% ) 10% offered an HRA plan Out of pocket costs down 10% from 2011 Source: Ward 2014 HR and Employee Compensation Practices Study 61 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Looking Back: 2014 Survey Results Retirement Plan Offerings Key Points 50% offered a defined benefit pension plan, compared to 73% in 2006 Defined Contribution Only 51% Defined Benefit & Defined Contribution 49% The average company planned to replace 36% of employee income for an employee with 30 years of service (down from 49% in 2009) Average retirement age was 64.3 34% of companies managed the assets internally 54% of plans had a liability funded ratio of 100% or greater (up from 27% in 2011) Source: Ward 2014 HR and Employee Compensation Practices Study 62 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Looking Back: 2014 Survey Results Base Salary Increases Average Base Salary Increase 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% Source: Ward 2014 P&C Compensation Study 63 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Looking Back: 2014 Survey Results Employee Pay Not Linked to Long-Term 9% Long Term Incentive as % of Total Compensation 8% 7% 6% 5% 4% 3% 67% of companies did not provide long term incentives! 2% 1% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 Source: Ward 2014 P&C Compensation Study 64 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

How well was pay linked with performance?

Profile of Compensation Performance Combined Ratio Average Net Premiums Written (millions) Medium Stock Non Ward 50 Overall Medium Stock Non Ward 50 Overall 93.2% Expense Ratio 96.3% 102.0% 100.3% 99.7% 101.0% 101.5% 100.6% 40.4% 42.6% 53.5% 46.4% 44.4% 45.5% 41.7% 45.1% 564 1,042 504 Overall Ward 50 Non Ward 50 411 863 41 332 2,105 Mutual Stock Small Medium Large # cos 115 13 102 76 39 30 65 20 Medium Stock Non Ward 50 Overall Salary and Benefits Expense 13.2% 14.7% 16.5% 15.9% 14.5% 15.3% 11.8% 14.9% Small 27% Large 17% Medium 56% Stock 34% Mutual 66% Source: Ward 2014 P&C Compensation Study, Ward s Results 66 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Did Insurers Pay for Performance? 78 87 76 Overall Ward 50 Non-Ward 50 Overall Pay (000's) 84 86 79 76 72 Mutual Stock Small Medium Large Avg Base Increase Large 3.3% Medium 3.2% Small 4.3% Stock 3.0% Mutual 3.6% Non-Ward 50 3.1% Ward 50 3.9% Overall 3.3% 0% 1% 2% 3% 4% 5% 100% 80% 60% 40% 20% 0% Overall Ward 50 Non-Ward 50 Source: Ward 2014 P&C Compensation Study Overall Pay Distribution Salary Short Term Incentive Long Term Incentive Mutual Stock Small Medium Large 67 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015 Total Bonus as % Base Large 8% Medium 6% Small 7% Stock 7% Mutual 8% Non-Ward 50 7% Ward 50 9% Overall 7% 0% 2% 4% 6% 8% 10%

Company Percentile Pay Relative to Performance Graph compares performance of each company on relative scale against total compensation per employee of the overall employee population. Performance measures include: Combined Ratio Return on Equity Surplus Growth Pay for half of the companies was not in line with organizational performance. Ward 50 company Pay and Performance Perfectly Aligned Linear Trend Actual Pay and Performance Source: Ward 2014 P&C Compensation Study, Ward s Results, Ward CEO Benchmarking 68 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Other Functional Comparisons CEO Information Technology Ward 50 company Pay and Performance Perfectly Aligned Linear Trend Actual Pay and Performance Source: Ward 2014 P&C Compensation Study, Ward s Results, Ward CEO Benchmarking 69 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Closing Thoughts

Top Takeaways and Summary Financial results are still favorable but losing steam - Commercial markets are softening at greater pace - Substantial surplus positions will affect strategies Starting to see operational efficiencies within companies - Positive staffing relative to both premium and policy - Capacity from new systems in production now being leveraged Data analytics driving more company-wide decisions but still underinvested - Trying to be more proactive rather than reactive - Companies still struggle with where and how to use analytics Lines are blurring in distribution - Companies continue to develop digital presence - Successful companies will integrate direct/agency/broker strategies - Many concerned by the threat of new entrants such as Google, Facebook, Overstock.com, etc. Customer experience is driving more strategy - Need to define what value to agent/policyholder means - Business strategies need to be deployed against customer expectation 71 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Top Takeaways and Summary Workforce planning is taking greater priority - Senior management turnover picking up with market stability and retirement - Attracting younger generation is more important with aging workforce The labor market is very competitive - Companies need to sell themselves - Compensation programs must be updated to attract and retain key staff Most companies do a poor job of linking pay and performance - Reality is most focus on market pay leveling for non-senior positions - There are easy ways to integrate compensation analytics at functional level There is no rest for the wary - Virtually every aspect of the business is challenged to operate smarter - Companies better at addressing rapid pace of change and integrating technology - Must avoid the costs of just standing still/doing nothing 72 PCI - Year in Review and 2015 Outlook APRIL 2015 Copyright Ward Group 2015

Questions and Discussion Contact Information: Jeff Rieder jrieder@wardinc.com 513-746-2400