Hurricane Harvey Potential Impact on Auto Lines

Hurricane Harvey Potential Impact on Auto Lines September 5, 2017 Aon Benfield Auto Practice Group

Agenda Agenda This presentation is designed for companies interested in learning about Hurricane Harvey Update Historical Perspective Aon Benfield s Observations & Loss Estimate Considerations Potential impact of Hurricane Harvey on Auto Aon Benfield s Observations, Loss Estimates & Methodologies Aon Benfield Auto Practice Group 2

Hurricane Harvey Overview Hurricane Harvey made its first landfall on August 25 at 10:00 PM CDT near Rockport, Texas Landfall Intensity: 130 mph Category 4 Highest recorded storm surge: 9.67 feet at Manchester, TX August 26-30: Storm essentially stopped its forward motion and prompted historic rainfall and catastrophic flooding across east-central & northeast Texas and southern Louisiana NOAA has deemed Harvey the worst flooding event in Houston s history Major wind damage in some spots near the landfall location Aon Benfield Auto Practice Group 3

Extensive Flooding & Rainfall Rainfall Accumulations Inland Flood Extent The flooding from Hurricane Harvey is catastrophic and widespread Impact Forecasting has provided a footprint of the flooding and at this point no model vendors have come out with tracks or projected loss estimates The number of risks in the footprint are imprecise, but are estimated to be ~3.4M risks with a total insured value of ~$37B Aon Benfield Auto Practice Group 4

Harvey Rainfall Accumulations Source: Weather Prediction Center, 10pm August 30 Aon Benfield Auto Practice Group 5

Superstorm Sandy PCS Industry Loss Estimate PCS Bulletin Cat Code 90 auto physical damage loss estimate (as of March 23, 2013) Superstorm Sandy produced 250,000 auto claims and $2.7B of insured loss Average claims per vehicle of $10,500 PCS Industry estimate is $18.75B APD estimate is $2.716B or 14.6% of total Vast majority of APD claims coming from New York and New Jersey 94% of claim dollars and 82% of claims reported PCS average claim payment is $10,527 Highest claims severity in New York Lower severity in peripheral states State Number Of Claims Payment Total Claim Dollars Claims Claim $ NY 150,000 $13,000 $1,950,000,000 58.1% 71.8% NJ 60,000 $10,000 $600,000,000 23.3% 22.1% PA 11,000 $4,091 $45,000,000 4.3% 1.7% CT 8,000 $3,750 $30,000,000 3.1% 1.1% VA 4,500 $4,444 $20,000,000 1.7% 0.7% MD 5,500 $2,909 $16,000,000 2.1% 0.6% MA 5,500 $2,727 $15,000,000 2.1% 0.6% OH 4,000 $3,000 $12,000,000 1.6% 0.4% DE 2,000 $3,500 $7,000,000 0.8% 0.3% NH 2,000 $2,500 $5,000,000 0.8% 0.2% NC 1,500 $3,333 $5,000,000 0.6% 0.2% RI 1,000 $3,000 $3,000,000 0.4% 0.1% WV 1,000 $3,000 $3,000,000 0.4% 0.1% DC 1,000 $2,000 $2,000,000 0.4% 0.1% ME 500 $4,000 $2,000,000 0.2% 0.1% VT 500 $2,000 $1,000,000 0.2% 0.0% All 258,000 $10,527 $2,716,000,000 100.0% 100.0% Total PCS Estimate of $18.75B does not include uninsured property, including uninsured publicly owned property and utilities, agricultural, aircraft, ocean marine, including oil drilling platforms and insured under the NFIP or the WYO Flood Program. Aon Benfield Auto Practice Group 6

Auto Physical Damage Share of Total Loss Historical Hurricane Comparison Category at Total Published Total Auto Phys Auto Losses as Year Storm Landfall in the U.S. States PCS Estimate ($M) Damage Estimate ($M) % of Total 2001 Tropical Storm Alison Tropical Storm FL, LA, MS, NJ, PA, TX 2,500 538 21.5% 2004 Hurricane Charley 4 FL 7,430 280 3.8% Hurricane Frances 2 FL, GA, NC, NY, SC 4,595 158 3.4% 2005 Hurricane Katrina 3 AL, FL, GA, LA, MS, TN 41,100 2,168 5.3% Hurricane Wilma 3 FL 10,300 750 7.3% Hurricane Gustav 2 AL, AR, LA, MS 2,150 128 6.0% 2008 Hurricane Ike 2 AR, IL, IN, KY, LA, MO, OH, PA, TX 2012 Hurricane Sandy 1 CT, DC, DE, MA, MD, ME, NC, NH, NJ, OH, PA, RI, VA, VT, WV Based on most recent PCS Report for corresponding event 12,500 476 3.8% 18,750 2,716 14.5% Alison and Sandy have by far the highest contribution of auto losses compared to recent major hurricanes APD Total Dollar loss estimate from Sandy is higher than Katrina, even though the total PCS loss estimates is half the size Aon Benfield Auto Practice Group 7

Factors Influencing the Seemingly Large APD Contribution to Loss Sandy was not a severe wind event, but it was a severe surge event Many individuals did not evacuate impacted areas If they did, they may have used public transportation, leaving vehicles vulnerable Others may have only driven their primary vehicle away from storm s path The flooding of major transportation tunnels leading into and out of highly populated areas may have also contributed to the exceptionally high auto losses For example Tropical Storm Allison, a 2001 tropical storm impacting the Houston area, flooded tunnels, several major highways, and parking structures APD contribution was 22% of total insured loss for that event When the event severity is low, auto physical damage tends to be a greater portion of total loss Aon Benfield Auto Practice Group 8 Auto Loss as a Percent of Total PCS Losses: PCS Events 1998 2013 Hurricane Category 0 1 2 3 4 % Auto Loss 13% 12% 6% 5% 7% # Events 11 8 6 6 5 Source: Aon Benfield Analytics APD contribution in Sandy (14.5%) relatively consistent with historical tropical storms and Category 1 hurricanes

Historical Post Hurricane/Flooding Loss Ratio Impact P&C Industry PPAPD Direct Incurred Loss + DCC Ratio P&C Industry CAPD Direct Incurred Loss + DCC Ratio Year Louisiana New Jersey New York Year Louisiana New Jersey New York 2002 67.8% 38.8% 55.2% 2002 57.2% 55.9% 37.3% Louisiana up 90 loss ratio points post Katrina 2003 59.4% 40.4% 51.8% 2004 52.6% 37.6% 47.0% 2005 143.4% 39.3% 50.2% 2003 41.7% 46.8% 36.2% 2004 57.1% 47.0% 38.7% 2005 191.3% 46.7% 40.1% Louisiana up 130 loss ratio points post Katrina 2006 49.8% 42.8% 51.6% 2006 38.5% 50.0% 41.4% 2007 56.1% 49.1% 58.5% 2007 43.2% 52.6% 45.7% 2008 70.5% 50.3% 60.9% 2008 52.4% 57.4% 50.5% 2009 52.8% 51.3% 59.0% 2009 44.4% 53.7% 47.3% New Jersey up 20 & NY up 30 loss ratio points post Sandy 2010 50.5% 54.4% 61.5% 2011 59.1% 61.0% 72.1% 2012 64.3% 80.7% 101.7% 2013 72.7% 53.0% 61.8% 2014 60.0% 58.2% 68.4% 2015 64.4% 58.9% 67.1% 2016 110.6% 59.1% 63.9% 2010 47.3% 65.8% 51.2% 2011 52.0% 85.3% 78.0% 2012 58.8% 128.1% 121.4% 2013 65.8% 74.4% 58.9% 2014 51.8% 60.0% 57.7% 2015 51.6% 60.3% 54.4% 2016 99.5% 61.9% 59.0% New Jersey & NY up 40 loss ratio points post Sandy Aon Benfield Auto Practice Group 9

Historical Post Hurricane/Flooding Loss Ratio Impact Low (PP 20% & C 40%) High (PP 90% & C 130%) 2016 DWP ($M) 2016 Incurred Loss ($M) Loss Ratio Low Estimate Loss Ratio Total Loss ($M) Increased Loss ($M) Low Estimate Loss Ratio Total Loss ($M) Increased Loss ($M) TX PPAPD 8,486 6,993 82.4% 102.4% 8,690 1,697 172.4% 14,630 7,637 TX CAPD 741 595 80.3% 120.3% 891 296 210.3% 1,558 963 TX Total APD 9,227 7,588 82.2% 1,993 8,600 Low (PP 20% & C 40%) High (PP 90% & C 130%) Low range of $2B by applying similar loss ratio spike observed post Sandy High range of $8.6B by applying similar loss ratio spike observed post Katrina Aon Benfield Auto Practice Group 10

Majority of Precipitation within Harris County / Houston Metro Aon Benfield Auto Practice Group 11

Estimated APD Loss Houston Metro Total TX PPA Premium ($M) 19,181 Avg PPA Prem in TX ($) 1,620 Total # of vehicles in TX 11,840,010 Total TX Population 28,449,186 Total Houston Population 2,296,224 Houston % of TX 8.07% # of Vehicles in Houston 955,645 Estimated APD Losses ($M) % of Vehicles with a Claim Avg. Claim Amount ($) 20% 30% 40% 50% 5,000 957 1,433 1,911 2,389 10,000 1,911 2,867 3,823 4,778 15,000 2,867 4,300 5,734 7,167 ADJUSTED TO INCLUDED COMMERCIAL Commercial Auto is 8.7% of Total TX Auto Premium. % of Vehicles with a Claim Avg. Claim Amount 20% 30% 40% 50% 5,000 1,039 1,558 2,078 2,597 10,000 2,078 3,116 4,155 5,194 15,000 3,116 4,675 6,233 7,791 Average Sandy APD Claim for NY was $13K Reasonable proxy since NY corresponds to highest levels of flooding Aon Benfield Auto Practice Group 12

Estimated APD Loss Harris County Total TX PPA Premium ($M) 19,181 Avg PPA Prem in TX ($) 1,620 Total # of vehicles in TX 11,840,010 Total TX Population 28,449,186 Total Harris Population 4,538,000 Harris % of TX 15.95% # of Vehicles in Harris 1,888,629 Estimated APD Losses ($M) % of Vehicles with a Claim Avg. Claim Amount 20% 30% 40% 50% 5,000 1,889 2,833 3,777 4,722 10,000 3,777 5,666 7,555 9,443 15,000 5,666 8,499 11,332 14,165 ADJUSTED TO INCLUDED COMMERCIAL Commercial Auto is 8.7% of Total TX Auto Premium. % of Vehicles with a Claim Avg. Claim Amount 20% 30% 40% 50% 5,000 2,053 3,079 4,106 5,132 10,000 4,106 6,159 8,212 10,265 15,000 6,159 9,238 12,318 15,397 Average Sandy APD Claim for NY was $13K Reasonable proxy since NY corresponds to highest levels of flooding Aon Benfield Auto Practice Group 13

Commercial and Personal Auto Carriers in Texas Insurer PPAPD DWP ($000) 2016Y % Market Share Top 20 TX Personal Auto Carriers State Farm 1,415,679.33 16.68% Allstate Corp. 1,102,880.43 13.00% Berkshire Hathaway Inc. 931,983.54 10.98% Farmers Insurance Group of Cos 832,207.56 9.81% Progressive Insurance Group 759,095.79 8.95% USAA Insurance Group 709,878.89 8.37% Liberty MHC Inc. 417,857.90 4.92% Texas Farm Bureau Insurance Companies 323,941.59 3.82% Nationwide Mutual Group 221,221.96 2.61% Consolidated Lloyds Insurance Group 205,512.59 2.42% Home State Insurance Grp Inc. 166,808.93 1.97% Old American 122,800.29 1.45% AmTrust Financial Services 118,999.69 1.40% Auto Club Exchange Group 115,049.37 1.36% Germania Mutual Group 95,772.44 1.13% Loya Insurance Group 92,499.04 1.09% MetLife Inc. 86,059.91 1.01% Amica Mutual Insurance Co. 67,729.38 0.80% Alinsco Insurance Co. 56,982.52 0.67% Infinity P&C Corp. 37,830.02 0.45% All Other TX Personal Auto Carriers 605,126.14 7.13% Total 8,485,917.31 100.00% Insurer CAPD DWP ($000) 2016Y % Market Share Top 20 TX Commercial Auto Carriers Progressive Insurance Group 86,739.48 11.75% Zurich Insurance Group 63,933.80 8.66% Motors Insurance Corporation 34,423.91 4.66% Travelers Companies Inc. 32,860.60 4.45% State Farm 30,273.58 4.10% Nationwide Mutual Group 29,472.46 3.99% Old Repub International Corp. 28,593.80 3.87% Liberty MHC Inc. 26,733.99 3.62% Berkshire Hathaway Inc. 25,995.39 3.52% AmTrust Financial Services 22,655.49 3.07% Hallmark Financial Services 20,682.66 2.80% Farmers Insurance Group of Cos 18,795.26 2.55% W. R. Berkley Corp. 16,726.54 2.26% United Fire Group Inc. 15,357.41 2.08% QBE Insurance Group Ltd. 14,669.03 1.99% Hartford Financial Services 14,217.47 1.93% American International Group 13,235.27 1.79% Allstate Corp. 13,008.92 1.76% Fairfax Financial Holdings 12,991.74 1.76% Sentry Insurance a Mutual Co. 11,488.05 1.56% All Other TX Commercial Auto Carriers 205,637.24 27.85% Total 738,492.10 100.00% Aon Benfield Auto Practice Group 14

Industry Reports https://www.cnbc.com/2017/08/29/a-half-million-flooded-cars-and-trucks-could-be-scrapped.html https://www.reinsurancene.ws/harvey-insured-loss-will-large-geico-exposure-similar-sandy-warren-buffett/ 30th August 2017 - Author: Steve Evans Warren Buffett of reinsurance and investments giant Berkshire Hathaway said today that he expects that the insured loss from hurricane Harvey will be large, but uninsured will eclipse it, while also admitting that his auto insurer Geico could face a similar impact to the one it suffered from superstorm Sandy. In the case of our particularly company, we write about 10% of the auto insurance in Texas, he said referring to Berkshire Hathaway s Geico subsidiary. If you have comprehensive insurance which covers flood, and about 70% of people who buy auto insurance get that, then you may well have a total loss. Buffett then went on to explain that Geico could face a loss of the magnitude it saw after superstorm Sandy. We have about 500,000 cars insured in that area, around 10% of the total, and we don t know at this point but I wouldn t be surprised if we had 50,000 losses, and most of them would be total losses, he said, adding that this would be about the same amount of losses as Geico saw from Sandy. When asked what he thought of insured loss estimates suggesting the re/insurance market could face $10 billion to $20 billion of losses from hurricane Harvey, while the economic loss could be as high as $150 billion, Buffett said Nobody has too good a feel, but those don t strike me as silly in any way. Aon Benfield Auto Practice Group 15

Conclusions Aon Benfield is closely monitoring Harvey and will continue to provide updates Variables impacting loss are emerging as flooding continues Auto assumptions will vary due to the mobile nature of the risk ~500k of impacted vehicles seems reasonable based on current conditions ~70% of Auto is Comprehensive, 30% does not include Auto Physical Damage $3B to $6B is a reasonable range considering flooding impact observed in Sandy and Katrina Source: NASA Aon Benfield Auto Practice Group 16

Contact Information Randy Stanco Senior Managing Director Aon Benfield Commercial Auto Practice Group +1.212.441.1585 randy.stanco@aonbenfield.com Thomas Kenia Senior Managing Director Aon Benfield Analytics Commercial Auto Practice Group +1.212.441.1535 thomas.kenia@aonbenfield.com Chris Widowski Director Aon Benfield Commercial Auto Practice Group +1.212.441.1522 Chris.Widowski@aonbenfield.com Aon Benfield Auto Practice Group 17

Aon Benfield 2017. All rights reserved. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Benfield s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Benfield disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Benfield reserves all rights to the content of this document. Aon Benfield Auto Practice Group 18