Profitability, Growth in P/C Industry Missouri and Beyond

Profitability, Growth in P/C Industry Missouri and Beyond St. Louis CPCU Chapter, September 13, 2016 Download at www.iii.org/presentations James Lynch, FCAS MAAA, Chief Actuary Insurance Information Institute 110 William Street New York, NY 10038 Tel: 212.346.5533 jamesl@iii.org www.iii.org

Insurance Industry: Financial Update & Outlook 2015 Was a Reasonably Good Year and Similar to 2014 2016: Smarting from Catastrophes

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q2-6,970 14,178 5,840 19,316 10,870 20,598 24,404 36,819 30,773 21,865 20,559 3,046 3,043 Millions 30,029 38,501 44,155 28,672 35,204 19,456 33,522 65,777 62,496 63,784 55,501 56,600 45,000 P/C Industry Net Income After Taxes 1991-2016:Q2 (preliminary) Profits Are 28 Percent Below Last Year Through Two Quarters. Little Cats, Weak Auto Results $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 -$10,000 2005 ROE*= 9.6% 2006 ROE = 12.7% 2007 ROE = 10.9% 2008 ROE = 0.1% 2009 ROE = 5.0% 2010 ROE = 6.6% 2011 ROAS 1 = 3.5% 2012 ROAS 1 = 5.9% 2013 ROAS 1 = 10.2% 2014 ROAS 1 = 8.4% 2015 ROAS 1 = 8.4% -$20,000 *ROE figures are GAAP; 1 Return on avg. surplus. Excluding Mortgage & Financial Guaranty insurers yields a 8.2% ROAS in 2014, 9.8% ROAS in 2013, 6.2% ROAS in 2012, 4.7% ROAS for 2011, 7.6% for 2010 and 7.4% for 2009. 2016:Q2 is annualized Sources: A.M. Best; ISO, a Verisk Analytics company; Insurance Information Institute. 3

Return on Equity by Financial Services Sector vs. Fortune 500, 2004-2015* 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Average: 2004 2014 Fortune 500: 13.9% Commercial Banks: 9.8% Life: 8.2% P/C: 7.1% Fortune 500 P/C Insurers Life Insurers Commercial Banks 04 05 06 07 08 09 10 11 12 13 14 15E Banks and Insurers Have Substantially Underperformed the Fortune 500 Since the Financial Crisis. *GAAP basis. Sources: ISO, a Verisk Analytics company; Fortune; Insurance Information Institute. 4

ROE Profitability Peaks & Troughs in the P/C Insurance Industry, 1975-2015 25% 20% 19.0% 17.3% History Suggests Next ROE Peak Will Be in 2016 2017, But Looks Like 2013 Was Most Recent Peak. 15% 10% 5% 0% -5% 2.4% 1.8% 4.5% 11.6% 9 Years -1.2% 12.7% 7 Years 9.8% 8.4% 8.4% 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 *Profitability = P/C insurer ROEs. 2011-14 figures are estimates based on ROAS data. Note: Data for 2008-2014 exclude mortgage and financial guaranty insurers. Sources: Insurance Information Institute; Natl. Assoc. of Insurance Comm.; ISO, a Verisk Analytics company; A.M. Best, Conning. 5

RNW All Lines, 2005-2014 Average: Highest 25 States 22% 20% 18% 16% 19.9 19.0 The Most Profitable States Over the Past Decade Are Widely Distributed Geographically, Though None Are in the Gulf Region Profitability Benchmark: All P/C U.S.: 7.7% 14% 14.0 13.3 13.2 13.0 12% 11.9 11.7 11.7 11.5 11.3 11.1 11.0 10.9 10.8 10.6 10.6 10.5 10.3 10.0 9.9 9.6 10% 8.9 8.9 8.8 8.3 8% 6% 4% 2% 0% HI AK VT ME ND FL WY NH VA ID UT NC WA MA SC OH WV OR DC CA RI CT MD NM SD MT Sources: National Association of Insurance Commissioners; Insurance Information Institute. 6

RNW All Lines, 2005-2014 Average: Lowest 25 States 9% 7.8 7.8 7.7 7.5 7.5 7.4 7.3 7.3 7.1 7.1 7.0 6.9 6.8 6.5 6.3 6.2 6.1 Some of the Least Profitable States Over the Past Decade Were Hit Hard By Catastrophes. 7% 5% 3% 1% -1% -3% -5% 5.5 5.1 5.1 4.7 4.1 3.4 1.7-7% -9% -11% PA WI US IL TX IA KS MN AR NE IN CO AZ KY MO TN NV NJ GA NY DE AL MI OK MS LA -7.4-9.4 Sources: National Association of Insurance Commissioners; Insurance Information Institute. 7

06:Q4 07:Q4 08:Q4 09:Q4 10:Q4 11:Q4 12:Q4 13:Q4 14:Q4 16:Q1 Billions Policyholder Surplus, 2006:Q4-2016:Q1 Surplus has not grown significantly in the last 7 quarters $700 $650 $600 $550 $500 $450 2007:Q3 Pre-Crisis Peak 522 513 518 516 505 487 497 479 463 456 437 491 Drop Due to Near-Record 2011 CAT Losses 511 583587 559 567 571568 559 541 545 539 550 531 608 614624 653 662672 674675672 664 674676 $400 The Industry Now Has $1 of Surplus for Every $0.75 of NPW, Close to the Strongest Claims-paying Status in its History. The P/C Insurance Industry Entered 2016 in Very Strong Financial Condition. 2010:Q1 data includes $22.5B of paid-in capital from a holding company parent for one insurer s investment in a non-insurance business. Sources: ISO, a Verisk Analytics company; A.M. Best. 8

Investments: The New [Grim] Reality Investment Performance is a Key Driver of Profitability Depressed Yields Will Necessarily Influence Underwriting & Pricing

Distribution of Invested Assets*: P/C Insurance Industry, 2015 Cash, Cash Equiv. & ST Investments All Other 6% 8% Total Invested Assets= $1.53 Trillion Stocks 18% 68% Bonds *Unaffiliated investments Sources: SNL Financial; Insurance Information Institute 10

U.S. Treasury Security Yields: A Long Downward Trend, 1990-2016* 9% 8% Yields on 10-year U.S. Treasury Notes Have Been Essentially Below 5% for a Full Decade. 7% 6% 5% 4% 3% 2% 1% 0% Recession 2-Yr Yield 10-Yr Yield Despite the Fed s December 2015 Rate Hike, Yields Remain Low Though Short-term Yields Have Seen Some Gains. 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 15 16 Bonds Constitute Slightly More Than 2/3 of P/C Industry Investments. Roughly 36% of P/C Bonds Are in 1-5-Year Durations, So They Will Respond to Rising Interest Rates in Just a Few Years. But Nearly Half of the Bond Portfolio is in 5-Year or Longer Durations, Which Will Take Longer to Rise. *Monthly, constant maturity, nominal rates, through April 2016. Sources: Federal Reserve Bank at federalreserve.gov/releases/h15/data.htm; National Bureau of Economic Research (recession dates); Insurance Information Institute. 11

P/C Insurer Portfolio Yields, 2002-2015 6% 5% 4% 3% 4.85 4.44 4.03 4.59 4.50 4.49 4.20 3.93 P/C Carrier Yields Have Been Falling for Over a Decade, Reflecting the Long Downtrend in Prevailing Interest Rates. 3.73 3.83 3.68 3.43 3.65 3.18 2% 1% 0% 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Even as Prevailing Rates Rise in the Next Few Years, Portfolio Yields Are Unlikely to Rise Quickly, Since Low Yields of Recent Years Are Baked In to Future Returns. Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 12

Distribution of Bond Maturities, P/C Insurance Industry, 2005-2015 <1 yr 1 5 years 5 10 years 10-20 20> 2015 16.3% 35.8% 33.7% 9.0% 5.1% 2014 16.8% 37.1% 30.8% 9.6% 5.7% 2013 16.5% 38.8% 29.3% 9.8% 5.7% 2012 16.6% 40.4% 27.6% 9.8% 5.7% 2011 14.9% 41.2% 27.3% 10.4% 6.2% 2010 16.0% 39.5% 27.1% 11.2% 6.2% 2009 15.6% 36.4% 29.0% 11.9% 7.1% 2008 15.7% 32.4% 31.2% 12.7% 8.1% 2007 15.2% 30.0% 33.8% 12.9% 8.1% 2006 16.0% 29.5% 34.1% 13.1% 7.4% 2005 16.0% 28.8% 34.1% 13.6% 7.6% Two main shifts over these years: From 2007 to 2011-12, from bonds with longer maturities to bonds with shorter maturities. But beginning in 2013, the reverse. Note, however, that the percentages in bonds with maturities over 10 years continues to drop. Sources: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 13

P/C Insurers: Below-Investment-Grade (BIG) Bonds as a Percent of Total Bonds, 2001-2015 5% 4% 3% 2% 3.07 3.37 2.69 2.10 2.17 1.98 2.04 2.27 2.58 3.07 3.10 4.07 3.99 4.22 4.46 1% 0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Chasing Yield? As a Group, P/C Carriers Have Increased the Percentage of Bond Investments in Riskier Instruments. Since 2006, That Percentage Has Risen About 250 Basis Points. As Interest Rates Rise, Will This Percentage Return to Pre-recession Levels? Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 14

Under 0.1% 0.11% - 0.99%% 1% - 1.99% 2% - 2.99% 3% - 3.99% 4% - 4.99% 5% - 5.99% 6% - 6.99% 7% - 7.99% 8% - 8.99% 9% - 9.99% 10% - 10.99% 11% - 11.99% 12% - 12.99% 13% - 16.99% 17% and over Number of Groups P/C Insurer Groups Holdings of BIG* Bonds as a Percent of Total Bonds, 2014 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 10 11 2 11 4 The 67 Groups Graphed Are Those with Over $3 Billion in Cash & Admitted Assets as of Year-end 10 P/C Industry Average 3 3 1 4 3 0 2 1 0 2 There is a Wide Disparity Among Insurance Groups Regarding Holdings of Below-investment-grade Bonds. Some Hold None (Or Almost None); a Few Have Over 10% of Their Bond Portfolio in BIGs. *Below Investment Grade Sources: NAIC, via SNL Financial; Insurance Information Institute. 15

Billions Property/Casualty Insurance Industry Investment Income: 2000-2015 1 $60 $50 $49.5 $52.3 $54.6 $51.2 Investment Earnings Are Still Below Their 2007 Pre-crisis Peak. $47.1 $47.6 $49.2 $48.0 $47.3 $46.2 $47.2 $40 $38.9 $37.1 $36.7 $38.7 $39.6 $30 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Due to Persistently Low Interest Rates, Investment Income is Basically Stuck at its 2009 Level 1 Investment gains consist primarily of interest and stock dividends. Sources: ISO, a Verisk Analytics company; Insurance Information Institute. 16

Billions P/C Insurer Net Realized Capital Gains/Losses, 1990-2015 $20 $15 $10 $5 $0 -$5 -$10 -$15 -$20 -$25 2.88 4.81 9.89 9.82 1.66 6.00 9.24 10.81 18.02 13.02 16.21 6.63-1.21 9.13 9.70 8.92 6.61 3.52 Realized Capital Gains Rose Sharply as Equity Markets Rallied in 2013-14. -19.81-7.90 5.85 7.04 6.18 11.37 10.06 9.40 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 15* Insurers Posted Net Realized Capital Gains in 2010-2014 Following Two Years of Realized Losses During the Financial Crisis. Realized Capital Losses Were a Primary Cause of 2008-09 s Large Drop in Profits and ROE. Sources: A.M. Best, ISO, SNL, Insurance Information Institute. 17

Billions Property/Casualty Insurance Industry Investment Gain: 1994-2015 1 Investment Gains in 2015 were Virtually the Same as Those Earned in 2010-14 but Still Well Below the Pre-crisis High. $70 $60 $50 $40 $30 $20 $10 $0 64.0 58.0 59.4 56.9 55.7 52.3 51.9 53.4 56.2 58.7 54.2 56.2 56.6 47.2 42.8 44.4 45.3 48.9 39.2 35.4 36.0 31.7 94 95 96 97 98 99 00 01 02 03 04 05* 06 07 08 09 10 11 12 13 14 15 Total Investment Gains Were Flat in 2015 as Realized Capital Gains Remained Robust. 1 Investment gains consist primarily of interest, stock dividends and realized capital gains and losses. *2005 figure includes special one-time dividend of $3.2B Sources: ISO, a Verisk Analytics company; NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 18

Yield Interest Rate Forecasts: 2016-2021 6% 5% 4% 3% 2% 1% 0% 0.3 0.9 3-Month Treasury 2.3 2.7 The End of the Fed s QE Program in 2014 and its First Rate Increase in Dec. 2015 Have Yet to Push Longer-term Yields Much Higher 2.9 3.0 1.7 10-Year Treasury 2.1 3.4 3.7 3.8 3.9 16F 17F 18F 19F 20F 21F 16F 17F 18F 19F 20F 21F A Normalization of Interest Rates is Unlikely Until 2019, More than a Decade After the Onset of the Financial Crisis. Note how flat the Yield Curve is Expected to be. Sources: Blue Chip Economic Indicators (8/10 for 2016 and 2017; for 2018-2021 3/16 issue); Insurance Information Institute. 19

Underwriting Performance

Net Premium Growth (All P/C Lines): Annual Change, 1971-2016 25% 20% 1975 78 1984 87 2000 03 NPW Growth Nominal GDP Growth 15% 10% Outlook 2016F: 4.0% 2017F: 3.8% 2016: 2.6% 2015: 3.4% 2014: 4.1% 2013: 4.4% 2012: 4.2% 5% 0% -5% Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930 33. 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 1416:Q2 Shaded areas denote hard market periods Sources: FRED Economic Data for GDP; A.M. Best (1971-2013), ISO (2014-15); NAIC data sourced from S&P Global Market Intelligence for 2016:Q2, Insurance Information Institute calculations. 21

Real GDP Growth U.S. Real GDP Growth,* Quarterly 6% 4% 2% 0% -2% -1.8 Recession Began in Dec. 2007 and Ended in June 2009 1.3-0.3 1.4 5.0 2.3 2.2 2.6 2.4 0.1 2.5 1.3 4.1 2.0 1.3 3.1 0.4 2.7 1.8 4.5 3.5-0.9 4.6 4.3 2.1 0.6 3.9 2.0 0.9 0.8 1.2 3.5 2.3 2.2 2.3 2.2 2.1-4% -6% -3.7-5.3 For Some (Currently Unknown) Reason, in the Post-recession Period, Frequently Q1 has Been a Weak Quarter GDP now estimate as of August 12-8% -10% -8.9 The Q4:2008 Decline was the Steepest Since the Q1:1982 Drop of 6.8%. 08:1Q 09:1Q 10:1Q 11:1Q 12:1Q 13:1Q 14:1Q 15:1Q 16:1Q 17:1Q Demand for Insurance Should Increase Slowly in 2016 as GDP Growth Continues at a Steady, Albeit Moderate Pace and Gradually Benefits the Economy Broadly *Estimates/Forecasts (gold bars) from Blue Chip Economic Indicators. Sources: U.S. Department of Commerce, Blue Chip Economic Indicators 8/10; Insurance Information Institute. 22

% Change 24.7 23.7 21.6 20.7 Direct Premiums Written: Total P/C Percent Change by State, 2007-2014 Top 25 States 80% 70% 60% 70.7 North Dakota was the Country s Growth Leader Over the Past 7 Years With Premiums Written Expanding by 70.7%, Fueled by the State s Energy Boom. Growth Benchmarks: Total P/C U.S.: 13.0% 50% 40% 36.7 36.2 30% 30.3 29.4 26.8 20% 19.2 19.2 18.6 18.1 18.0 17.0 15.2 15.1 15.0 14.9 14.8 14.7 14.4 14.2 13.8 13.5 10% 0% ND OK SD TX NE KS IA VT WY CO MN IN MI TN AR WI GA SC NJ OH AK KY VA LA CT MT Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 23

% Change Direct Premiums Written: Total P/C Percent Change by State, 2007-2014 Bottom 25 States 15% 13.4 13.1 13.1 13.0 13.0 12.9 12.4 12.2 11.7 11.0 10.5 9.4 9.4 9.2 9.1 8.2 6.3 6.0 4.7 5% 2.2 1.3-0.8-1.6-5% -4.3 Growth was Negative in 4 States and DC Between 2007 and 2014. -7.3-15% -12.9 MO NY UT US NM MS MA AL NC MD WA RI NH IL PA ID ME CA OR FL AZ DC HI WV NV DE Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 24

$ Billions P/C Insurance Loss Reserve Development, 1992-2017E* Reserve Releases Are Expected to Taper Off Slowly, But They Will Continue to Benefit the Bottom Line and Combined Ratio Through at Least 2017 Reserve Change $30 PY Reserve Development ex A&E (lhs) Asbestos & Environmental Development (lhs) Combined Ratio Points (rhs) 8% $25 $20 6% $15 $10 $5 $- $(5) $(10) $(15) Strengthening Releases 4% 2% 0% -2% -4% Combined Ratio Points $(20) 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15E16E17E -6% Sources: A.M. Best; Barclays research for estimates. 25

P/C Direct Written Premium by Line (Billions of Dollars) LOB 2016 2015 % Chg From Year Earlier Personal Auto Liab 62.5 59.1 5.8% Homeowners 46.4 45.3 2.3% PhysDam (PA, CA) 46.4 43.4 7.1% GL (incl Products) 32.9 32.1 WC 29.5 28.8 2.4% 2.5% Fire & Allied Lines 17.3 18.3-5.5% CMP 20.2 20.1 Comm Auto Liab 12.8 12.3 Other 32.9 32.4 Total 300.9 291.8 0.5% 4.2% 1.5% 3.1% Through Q2 Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute. 26

P/C Insurance Industry Combined Ratio, 2001-2016:Q2* 3 Consecutive Years of U/W Profits; 1 st time since 1971-73 120 110 100 As Recently as 2002, Insurers Paid Out Nearly $1.08 for Every $1 in Earned Premium. 107.5 100.1 Heavy Use of Reinsurance Lowered Net Losses. 98.4 100.8 Relatively Low CAT Losses, Reserve Releases Best Combined Ratio Since 1949 (87.6) 95.7 Cyclical Deterioration 101 99.3 Avg. CAT Losses, More Reserve Releases 101.1 Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market 106.5 Sandy Impacts 102.5 Lower CAT Losses 96.4 97.0 97.8 Lotsa Small CATs, Auto 99.8 92.6 90 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16:Q2 *Excludes Mortgage & Financial Guaranty insurers 2008-2014. Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. Sources: A.M. Best; ISO, a Verisk Analytics company; 2010-2014 is from A.M. Best P&C Review and Preview, February 16, 2016; 2015 from I.I.I/PCI/ISO; 2016 Estimate from I.I.I. based on S&P Global Market Intelligence data. 27

P/C Direct Incurred Loss Ratio by LOB LOB 2016 2015 Chg From Year Earlier Personal Auto Liab 72 68 4 Homeowners 56 55 1 PhysDam (PA, CA) 67 64 3 GL (incl Products) 52 51 1 WC 54 59 (5) Fire & Allied Lines 56 55 1 CMP 51 48 3 Comm Auto Liab 64 62 3 Other 44 42 Total 59 57 2 2 Through Q2 Sources: NAIC data from S&P Global Intelligence, Insurance Information Institute. Positive Number = Bad News 28

Percent Return on Net Worth (RNW) Largest Lines: 2005-2014 Average 16 Commercial Lines Have Tended to be More Profitable Than Personal Lines Over the Past Decade 15.6 12 12.8 11.9 8 6.2 8 6.3 6.4 6.9 6.7 4 3.8 2.2 2.8 0 PP Auto Total Homeowners MP Other Liability Workers Comp Comm MP Comm Auto Total Inland Marine Allied Lines Fire Med Prof Liab A & H Farm MP *GAAP basis. Sources: ISO, a Verisk Analytics company; Fortune; Insurance Information Institute. 29

Catastrophes

Billions ($2015) U.S. Insured Catastrophe Losses $90 $80 $70 $60 $50 $75.7 2012 was the 3 rd Most Expensive Year Ever for Insured Cat Losses. Thru Q2: 20% Above 10-Yr Average $40 $30 $38.9 $27.2 $35.8 $34.7 $30.1 $34.6 $36.1 $20 $10 $0 $14.4 $5.0 $8.2 $9.1 $13.0 $11.3 $3.9 $14.8 $11.9 $6.3 $7.8 $16.8 $10.9 $7.7 $11.8 $14.9 $15.5 $15.0 $13.1 $13.5 89 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 15 16* 2013/14/15 Were Welcome Respites from 2011/12, Which Were Among the Costliest Years for Insured Disaster Losses in U.S. History. Longer-term Trend is for More Not Fewer Costly Events. *Estimate through first quarter. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars). Sources: Property Claims Service, a Verisk Analytics business; Insurance Information Institute. 31

States Hit by Cats, First Half 2016 (Millions of Dollars) - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Texas 7,600 Nebraska Missouri Arkansas Illinois Virginia Kansas Indiana Montana New York 550 440 410 360 340 290 280 260 250 Midwest Was Hit Hard By Cats But Not As Hard As Texas. Source: Property Claim Services. 32

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1995-2014 1 Other (5) $0.2 Fires (4) $6.0 Wind / Hail / Flood (3) $21.4 Geological Events $0.5 Terrorism $24.5 Winter Storms $26.9 0.1% 1.5% 5.4% 0.1% 6.2% 6.8% Hurricanes & Tropical Storms $161.2 40.7% Insured Cat Losses from 1995-2014 Totaled $395.6B, an Average of $19.8B per Year or $1.65B per Month Wind Losses Are by Far Cause the Most Catastrophe Losses, Even if Hurricanes/TS Are Excluded Winter Storm Losses Were Much Above Average in 2014/15 Are Will Push This Share Up 39.2% Events Involving Tornadoes (2), $154.9 Tornado Share of CAT Losses is Rising 1 Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2014 dollars. 2 Excludes snow. 3 Does not include NFIP flood losses 4 Includes wildland fires 5 Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation. Amounts in billions of 2014 dollars. Source: ISO s Property Claim Services Unit. 33

Commercial Rates* Steady Going *These Publicly Available Estimates May Differ Substantially From Events In Individual States and Markets

Commercial Lines Rate Change by Quarter (vs. Year Earlier) 20% 15% 13 12 21 Consecutive Quarters of Rate Increases 10% 9 5% 0% 5 3 0 1 0 0 1 2 2 3 5 6 6 7 7 6 6 5 4 3 3 2 2 1 1 1 <1-1 -1-2 -2-2 -2-1 -1-1 -1-1 -1-1 -5% -3-3 -4-4 -5-5 -5-6 -6-10% 2003:Q2 2004:Q4 2006:Q2 2007:Q4 2009:Q2 2010:Q4 2012:Q2 2013:Q4 2015:Q2 First Quarter: <1% Decreases: WC, Property, D&O. Meaningful Increases: Commercial Auto similar to 2015:Q4 Sources: Willis Towers Watson Commercial Lines Insurance Pricing Survey, Insurance Information Institute. 35

Commercial Lines Rate Change by Month (vs. Year Earlier) 40% Jul-02 33% 30% 20% 10% Feb-05 0% Not Much of a Hard Market, by Historic Standards 3 Straight Months: -4%; Recent Months -1% Sep-13 5% 0% 79 Months of Rates < 0% 37 Months of Rates > 0% -10% -20% Dec-07-16% Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 16-Jul Rates Are as Stable as They ve Been in 15 Years. Modest Declines This Year but That May Be Ebbing. August: -1% Sources: MarketScout, Insurance Information Institute. 36

Commercial Property Rate Change by Month (vs. Year Earlier) 8% Sep-12 6% 6% 4% Jul-15 2% 2% 0% 4 Years of Rates 0% -2% -4% Feb-09-7% -6% -8% -10% Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 16-Feb Commercial Property Rates Track Closely with Commercial Rates Overall Sources: MarketScout, Insurance Information Institute. Interpolated Commercial Property Estimates for May, August, September 2010. 37

Business Interruption Rate Change by Month (vs. Year Earlier) 5% 4% 4 4 4 4 3% 3 3 3 3 3 3 3 3 3 3 3 2% 2 2 2 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1 -1-1 -1-1 -2% -2-2 -2-2 -2-2 -3% -3-3-3-3-3-3-3-3-3-3-3-3-3-4% -4-4-4-4-4-5% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 38

BOP Rate Change by Month (vs. Year Earlier) 8% 6% 4% 3 5 4.5 4 4 6 5 4 4 5 4 5 5 4 4 4 5 5 5 4 3 3 4 4 3 3 3 2% 1 1 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-2% -2-2 -1-2 -2-1 -1-1-1-2-2-1 -4% -3-3 -3-4 -4-4 -4-4 -3-3 -4-5-5-6% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun Rate Change on Business Owners Policies Can Be Bellwether for Small Commercial Risks Sources: MarketScout, Insurance Information Institute. Interpolated Commercial Property Estimates for May, August, September 2010. 39

Inland Marine Rate Change by Month (vs. Year Earlier) 4% 3% 3 3 3 3 3 3 3 3 3 2% 2 2 2 2 2 2 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1 -1-1-1-1-1-1-1-1 -2% -2-2-2-2 -3% -3-3-3-3-3-3-3-3-3-3 -4% -4-4 -4-4-4-4 -4-5% -5-5-5-6% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 40

General Liability Rate Change by Month (vs. Year Earlier) 8% 6% 6 6 5 5 5 6 6 6 6 5 5 5 4% 3 3 4 4 4 4 4 4 3 3 3 3 2% 1 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0-2% -2-2-2-2-2-2-2-1 -4% -4-4 -4-4-4-3 -6% -6-5 -6-6 -5-5-5-5 -5-5-5-5 -5-6-6-6 -7-7 -8% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 41

Umbrella/Excess Rate Change by Month (vs. Year Earlier) 6% 5 5 5 5 5 4% 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 2% 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0-2% -2-2 -2-2 -2-1 -1-2 -2-2-2-1-1-1 -4% -4-4 -3-3 -3-4 -4-4 -4-3-3-3-3-3 -4-4 -3-4 -3-3 -5-5 -6% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 42

Commercial Auto Rate Change by Month (vs. Year Earlier) 8% 6% 5 6 6 5 5 5 5 5 5 5 5 5 5 5 5 4% 3 4 4 4 4 4 4 4 3 3 3 3 3 3 3 2% 1 1 1 1 2 2 2 1 1 2 2 2 2 2 2 2 1 2 2 0% 0 0 0 0 0 0 0-2% -2-2 -1-2 -1-2 -1-1 -1-1-1-4% -4-3 -3-3-3-4-4-4 -4-4 -3-3-3-3 -3-3 -3-5-5-6% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun Unlike Willis Towers Watson, MarketScout Sees Flat Commercial Auto Rates Sources: MarketScout, Insurance Information Institute. 43

Workers Comp Rate Change by Month (vs. Year Earlier) 10% 8% 6% 4% 2% 0% 0 6 6 5 5 5 55555 5 555 4 4 4 4444 3 3333 33 2 22 1 111 11 0 0 000000 000-2% -4% -6% -8% -10% -9-6 -7-7 -9-9-9-6 -7-8 -8-6 -7-7 -1-2 -2-2 -3-3-3-3 -3-3-3-3 -3-3 -3-4-4-4-4-4 -4-4 -5-5 -1-1-1-2 -1-1-1-1 -2-2 -2-3-3-4 -12% -14% -12-14 -16% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 16-Jul Workers Comp Rates Often Have Their Own Dynamic Apart from Market Sources: MarketScout, Insurance Information Institute. 44

Professional Liability Rate Change by Month (vs. Year Earlier) 6% 4% 3 3 3 4 4 4 4 3 3 3 3 3 3 3 3 3 2% 1.5 1 2 2 2 2 1 1 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-2% -2-1 -2-2 -1-2 -1-1-1-1-1-2 -2-1 -4% -3-3 -4-3 -4-4 -3-3-3-6% -5-5 -6-8% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 45

D&O Liability Rate Change by Month (vs. Year Earlier) 6% 5% 5 4% 4 4 4 4 4 4 4 4 4 4 3% 3 3 3 3 3 3 2% 1.5 2 2 2 2 2 2 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1-1-1 -1-1-1-1-1-2% -2-2 -2-2-2-2-2-3% -3-4% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun Willis Towers Watson Notes Decreases in This Line. Sources: MarketScout, Insurance Information Institute. 46

EPLI Rate Change by Month (vs. Year Earlier) 6% 5% 5 4% 4 4 4 4 4 3% 3 3 3 3 3 3 3 3 3 3 2% 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -2% -3% -4% -1-1-1-1-1-1-1-1 -2-2-2-2-2-3-3-3 -4-5% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 47

Fiduciary Liability Rate Change by Month (vs. Year Earlier) 4% 3% 3 3 3 3 3 3 3 2% 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1-1-1-1-1 -1-1-1-1 -1-1-1-1 -2% -2-2 -2-2 -2-2-2-2-2-3% -3-3 -4% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 48

Crime Rate Change by Month (vs. Year Earlier) 4% 3% 3 3 2% 1.5 2 2 2 2 2 2 2 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1-1-1-1-1 -1-1 -2% -2-2-2-2-2-3% -4% -4-3 -3-5% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 49

Surety Rate Change by Month (vs. Year Earlier) 3% 2% 1.5 2 2 2 2 2 1% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0-1% -1-1-1-1-1-1 -1-1-1-1-1-1 -2% -2-2 -2-2 -2-3% -3-3-3-4% -4-4 -5% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 15-Dec 16-Jun 50

Profitability and Growth in Missouri P/C Insurance Markets Analysis by Line and Nearby State Comparisons

All Lines DWP Growth: MO vs. U.S., 2006 2015 6% Average 2006 2015 U.S. MO 5% 4% US: 1.8% MO: 1.9% 3% 2% 1% 0% -1% -2% -3% -4% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute. 52

Comm. Lines DWP Growth: MO vs. U.S., 2006 2015 8% Average 2006 2015 U.S. MO 6% 4% US: 1.2% MO: 0.9% 2% 0% -2% -4% -6% -8% -10% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute. 53

Personal Lines DWP Growth: MO vs. U.S., 2006 2015 6% Average 2006 2015 U.S. MO 5% US: 2.6% MO: 3.2% 4% 3% 2% 1% 0% -1% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute. 54

Private Passenger Auto DWP Growth: MO vs. U.S., 2006 2015 6% Average 2006 2015 U.S. MO 5% US: 1.8% MO: 1.9% 4% 3% 2% 1% 0% -1% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute. 55

Homeowners MP DWP Growth: MO vs. U.S., 2006 2015 10% Average 2006 2015 U.S. MO 9% 8% US: 4.5% MO: 5.8% 7% 6% 5% 4% 3% 2% 1% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute. 56

Top Ten Most Expensive and Least Expensive States for Automobile Insurance, 2013 1 Rank Most Expensive States Average Expenditure Rank Least Expensive States Average Expenditure 1 New Jersey $1,254.10 1 Idaho $553.38 2 D.C. 1,187.49 2 Iowa 572.14 3 New York 1,181.86 3 South Dakota 580.99 4 Louisiana 1,146.29 4 Maine 592.82 5 Florida 1,143.83 5 North Dakota 604.58 6 Michigan 1,131.40 6 Wisconsin 621.05 7 Delaware 1,101.12 7 Indiana 621.71 8 Rhode Island 1,066.25 8 North Carolina 624.76 9 Connecticut 1,011.27 9 Nebraska 638.74 10 Massachusetts 1,007.98 10 Wyoming 639.71 Missouri Ranked 34 th in Average Expenditure for Auto Insurance in 2013. The Average Expenditure was $704.22. 1 Based on average automobile insurance expenditures. Source: 2016 National Association of Insurance Commissioners. 57

Top Ten Most Expensive and Least Expensive States for Homeowners Insurance, 2013 1 Rank Most Expensive States HO Average Premium Rank Least Expensive States HO Average Premium 1 Florida $2,115 1 Idaho $561 2 Texas 2 1,837 2 Oregon 568 3 Louisiana 1,822 3 Utah 609 4 Oklahoma 1,654 4 Wisconsin 665 5 Mississippi 1,395 5 Washington 676 6 Kansas 1,343 6 Nevada 687 7 Rhode Island 1,334 7 Delaware 709 8 Alabama 1,323 8 Arizona 724 9 Connecticut 1,274 9 Ohio 763 10 Massachusetts 1,263 10 Maine 776 Missouri Ranked as the 18 th Most Expensive State for Homeowners Insurance in 2013, with an Average Expenditure of $1,143. 1 Includes policies written by Citizens Property Insurance Corp. (Florida) and Citizens Property Insurance Corp. (Louisiana), Alabama Insurance Underwriting Association, Mississippi Windstorm Underwriting Association, North Carolina Joint Underwriting Association and South Carolina Wind and Hail Underwriting Association. Other southeastern states have wind pools in operation and their data may not be included in this chart. Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written. 2 The Texas Department of Insurance developed home insurance policy forms that are similar but not identical to the standard forms. In addition, due to the Texas Windstorm Association (which writes wind-only policies) classifying HO-1, 2 and 5 premiums as HO-3, the average premium for homeowners insurance is artificially high. Note: Average premium=premiums/exposure per house years. A house year is equal to 365 days of insured coverage for a single dwelling. The NAIC does not rank state average expenditures and does not endorse any conclusions drawn from this data. Source: 2016 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC. 58

RNW All Lines: MO vs. U.S., 2005 2014 20% U.S. MO 15% 10% 5% 0% -5% -10% Average 2005 2014 U.S.: 7.7% MO: 6.3% -15% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 59

RNW PP Auto: MO vs. U.S., 2005 2014 16% U.S. MO 14% 12% 10% Average 2005 2014 U.S.: 6.2% MO: 6.9% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 60

RNW Comm. Auto: MO vs. U.S., 2005 2014 16% 14% 12% 10% 8% 6% U.S. MO 4% 2% 0% -2% Average 2005 2014 U.S.: 8.1% MO: 8.2% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 61

RNW Comm. Multi-Peril: MO vs. U.S., 2005 2014 30% 20% 10% 0% -10% -20% -30% -40% -50% U.S. Average 2005 2014 U.S.: 8.9% MO: 0.4% MO -60% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 62

RNW Homeowners: MO vs. U.S., 2005 2014 Average 2005 2014 30% US MO U.S.: 7.6% MO: -2.6% 20% 10% 0% -10% -20% -30% -40% -50% March/April Spring Storms, Dec. 1 Ice Storm Joplin Tornado -60% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 63

RNW Workers Comp: MO vs. U.S., 2005 2014 16% U.S. MO Average 2005 2014 14% U.S.: 6.8% MO: 9.4% 12% 10% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: NAIC. 64

All Lines: 10-Year Average RNW MO and Nearby States, 2005 2014 U.S. IL IA Missouri All Lines profitability is below the U.S. and regional average (7.0%) 7.4% 7.7% 7.5% KS 7.3% KY 6.5% MO 6.3% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Sources: NAIC, Insurance Information Institute. 65

PP Auto: 10-Year Average RNW MO and Nearby States, 2005 2014 IA 10.0% KS 7.8% IL 7.8% MO 6.9% U.S. KY 5.0% 6.2% Missouri PP Auto profitability is above the U.S. and below the regional average (7.5%) 0% 2% 4% 6% 8% 10% 12% Sources: NAIC, Insurance Information Institute. 66

Comm. Auto: 10-Year Average RNW MO and Nearby States, 2005 2014 IA 11.6% KS 10.2% IL 8.9% MO 8.2% U.S. KY 6.8% 8.1% Missouri Comm. Auto profitability is above the U.S. and below the regional average (9.1%) 0% 2% 4% 6% 8% 10% 12% 14% Sources: NAIC, Insurance Information Institute. 67

Comm. M-P: 10-Year Average RNW MO and Nearby States, 2005 2014 IL 9.3% U.S. 8.9% KY 6.4% IA 6.3% KS MO 0.4% 5.8% Missouri Comm. M-P profitability is below the U.S. and regional average (5.6%) 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Sources: NAIC, Insurance Information Institute. 68

Homeowners: 10-Year Average RNW MO & Nearby States, 2005 2014 U.S. 7.6% IA 4.6% IL 1.7% -4.0% -2.6% -0.2% KS MO KY Missouri Homeowners profitability is below the U.S. and regional average (-0.1%) -6% -4% -2% 0% 2% 4% 6% 8% 10% Sources: NAIC, Insurance Information Institute. 69

Workers Comp: 10-Year Average RNW MO & Nearby States, 2005 2014 MO 9.4% KS 7.6% KY 6.9% U.S. 6.8% IA IL 3.4% 4.0% Missouri Workers Comp Profitability is Above the U.S. Average and the regional average (6.2%) 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Sources: NAIC, Insurance Information Institute. 70

Auto Insurance Rising Frequency, Severity Pinching the Largest P/C Line

Return on Net Worth: Personal Auto, 2005 2014 18% 16% 14% 12% 10% 8% 6% 4% 2% Personal Auto Fortune 500 14.3% 4.3% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Auto Insurance Profitability Has Been Stuck at Low Levels. Source: National Association of Insurance Commissioners. 72

Net Combined Ratio, 2005-2015 115% Commercial Personal 110% 105% 100% 95% 90% 108.8% 107.0% 106.9% 103.6% 103.4% 104.6% 100.2% 101.3% 101.0% 102.0% 102.1% 101.6% 102.5% 98.3% 99.5% 98.1% 96.8% 95.1% 95.6% 94.3% 92.1% 92.5% 85% 80% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Loss Ratios Have Been Rising for a Decade. 2015 Return on Net Worth is Likely Close to Zero or Negative. Source: National Association of Insurance Commissioners data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 73

Why Personal Auto Loss Ratios are Rising: Severity & Frequency by Coverage, 2016 vs. 2015 Annual Change, 2016 Over 2015* 9.0% 8.0% 8.5% Severity Frequency 7.0% 6.8% 6.0% 5.6% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4.3% Bodily Injury 2.2% 2.3% Property Damage Liability 4.6% 0.8% 0.0% 0.0% PIP Collision Comprehensive Across All Personal Coverage Types (Except Comprehensive) in 2015, Frequency and Severity Rose. This Pattern is Continuing in 2016. *Four quarters ending in March. Source: ISO, a Verisk Analytics company; Insurance Information Institute. 74

Claim Trends by Coverage Focus on Collision

Collision Claims: Frequency Trending Higher in 2015 Annual Change, 2005 through 2015 6.0% 4.4% 4.0% 2.5% 2.4% 2.0% 0.9% 0.8% 0.0% -0.5% -2.0% -1.8% -2.4% -1.4% -1.8% -4.0% -3.6% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 For a Long Time, Claim Frequency Was Falling, But Since 2010 This Trend Seems to Have Reversed. Source: ISO, a Verisk Analytics company; Insurance Information Institute. 76

Collision Claims: Severity Trending Higher in 2009-2015 Annual Change, 2005 through 2015 6.0% 5.7% 4.0% 3.9% 3.1% 2.8% 4.1% 2.0% 0.0% 0.1% 0.5% -0.1% 1.3% 1.3% -2.0% -4.0% -2.3% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The Great Recession and High Fuel Prices Helped to Temper Claim Severity, But These forces Have Clearly Reversed, Consistent with Experience from Past Recoveries. Source: ISO, a Verisk Analytics company; Insurance Information Institute. 77

Collision Claims: Pure Premium (Losses per Insured Unit), 2012:Q4 to 2016:Q1 $210 $200 $190 % Chg from Prior Yr (right axis) Pure Premium (left axis) $198 $194 $192 $190 $188 $186 $201 $205 $207 10% 8% 6% $180 $170 $171 $175 $177 $179 $182 4% 2% $160-0.3% 3.0% 2.9% 3.8% 6.6% 6.8% 6.4% 6.2% 5.8% 4.3% 5.3% 5.9% 6.7% 6.5% 0% $150 12:Q413:Q113:Q213:Q313:Q414:Q114:Q214:Q314:Q415:Q115:Q215:Q315:Q416:Q1-2% Over the Latest Four Years, the Collision Pure Premium Rose by 22.2%. Note: Data is for four quarters ending in quarter shown. Source: ISO, a Verisk Analytics company; Insurance Information Institute. 78

What s Driving These Trends? Frequency; Severity

America is Driving More Again: Total Miles Driven*, 1990-2016 Billions of Miles Driven 3,200 3,000 Some of the 1990-2007 growth in miles driven (+43.9%) is due to population growth (+20.7%) 2,800 2,600 but the population grew by 6.6% from 2007-2015 and miles driven didn t grow at all. From November 2007 until January 2015, miles driven was below the prior peak for 87 straight months over 7 years! Previous record was in the early 1980s (39 months) Records in 2015/6 2,400 2,200 2,000 *Moving 12-month total. Data through May 2016, the latest available. Note: Recessions indicated by shaded columns. Sources: Federal Highway Administration; National Bureau of Economic Research (recession dates); Insurance Information Institute. 80

America is Driving More Again: 2000-2016 Percent Change, Miles Driven* 3.5% 3.4% 3.4% 2.5% 2.5% 1.8% 2.1% 2.5% 1.5% 1.2% 1.3% 0.5% 0.8% 0.8% 0.6% 0.4% 0.6% 0.6% -0.5% -1.5% -2.5% -1.8% 2000 2002 2004 2006 2008 2010 2012 2014 2016-0.7% -0.5% Fastest Growth Since Late 1990s Tremendous Growth In Miles Driven. The More People Drive, The More Frequently They Get Into Accidents. *2000-2015: Moving 12-month total vs. prior year. 2016 data through May 2016, the latest available, vs. May 2015. Sources: Federal Highway Administration; National Bureau of Economic Research (recession dates); Insurance Information Institute. 81

06:Q1 06:Q3 07:Q1 07:Q3 08:Q1 08:Q3 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 12:Q3 13:Q1 13:Q3 14:Q1 14:Q3 15:Q1 15:Q3 16:Q1 More Miles Driven => More Collisions, 2006-2016 Billions of Miles Driven in Prior Year 3,200 Recession 3,150 3,100 3,050 Overall Collision Claims Per 100 Insured Vehicles 6.0 Miles Driven (left axis) Collision Claim Frequency (right axis) 5.9 5.8 3,000 2,950 2,900 2,850 2,800 5.7 5.6 5.5 The More Miles People Drive, the More Likely They are to Get in an Accident, Helping Drive Claim Frequency Higher. Sources: Federal Highway Administration; Rolling four-quarter average frequency from ISO, a Verisk Analytics company; Insurance Institute for Highway Safety; Insurance Information Institute. 82

06:Q1 06:Q3 07:Q1 07:Q3 08:Q1 08:Q3 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 12:Q3 13:Q1 13:Q3 14:Q1 14:Q3 15:Q1 15:Q3 Why Are People Driving More Miles? Cheap Gas? Billions of Miles Driven in Prior Year 3,150 Recession 3,100 Miles Driven (left axis) Average Price Per Gallon $4.5 Gas Prices (right axis) $4.0 3,050 $3.5 3,000 $3.0 2,950 $2.5 2,900 $2.0 2,850 $1.5 Gas Prices Don t Seem Correlated With Miles Driven. Sources: Federal Highway Administration; Energy Information Administration; Insurance Institute for Highway Safety; Insurance Information Institute. 83

06:Q1 06:Q3 07:Q1 07:Q3 08:Q1 08:Q3 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 12:Q3 13:Q1 13:Q3 14:Q1 14:Q3 15:Q1 15:Q3 Why Are People Driving More Miles? Jobs? Billions of Miles Driven in Prior Year 3,150 Recession 3,100 3,050 3,000 2,950 2,900 Miles Driven (left axis) Millions Employed 145 # Employed (right axis) 140 135 130 125 2,850 120 People Drive to and from Work and Drive to Entertainment. Out of Work, They Curtail Their Movement. Sources: Federal Highway Administration; Seasonally Adjusted Employed from Bureau of Labor Statistics; Insurance Institute for Highway Safety; Insurance Information Institute. 84

06:Q1 06:Q3 07:Q1 07:Q3 08:Q1 08:Q3 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 12:Q3 13:Q1 13:Q3 14:Q1 14:Q3 15:Q1 15:Q3 16:Q1 More People Working and Driving => More Collisions, 2006-2016 Number Employed, Millions 145 Recession 140 Overall Collision Claims Per 100 Insured Vehicles Number Employed (left axis) 6.0 Collision Claim Frequency (right axis) 5.9 135 5.8 130 5.7 125 5.6 120 5.5 When People are Out of Work, They Drive Less. When They Get Jobs, They Drive to Work, Helping Drive Claim Frequency Higher. Sources: Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling four-quarter average frequency from ISO, a Verisk Analytics company; Insurance Information Institute. 85

Severity: Driving Fatalities are Rising Annual Change in Motor Vehicle Deaths 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% Seatbelt Use Rose to 62% of Drivers, From 49% in 90-7.0% -5.9% 2.2% 1.5% 2.0% 0.7% -0.4% 0.1% -2.5% 2.2% 1.0% 3.6% -1.4% 0.4% 0.9% Big Drop-off Due to the Great Recession -0.1% -3.0% -9.5% -9.0% -2.4% -0.1% 3.1% -2.9% 0.1% 8.0% Driving Has Been Getting Safer for Decades, But Recent Trend is Discouraging 38,300 Deaths in 2015. Sources: National Safety Council, Insurance Information Institute. 86

Summary The industry is in good financial shape with several years of modest profits. Interest rates look like they ll stay low; equity market is uncertain (as always) Recent years have had modest cats; U.S. This year hurt by severe weather Flat commercial rates, perhaps softening Auto costs are rising (both frequency and severity) 87

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