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The Insurance Industry Outlook Presented By Frederick Eppinger ,

The Insurance Industry Outlook Presented By Frederick Eppinger , Executive Vice President, Field & Service Operations The Hartford To The MetroHartford Regional Economic Alliance/ CBIA Economic Summit and Outlook Conference January 3, 2003. The Insurance Industry in 2001.

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The Insurance Industry Outlook Presented By Frederick Eppinger ,

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  1. The Insurance Industry Outlook Presented By Frederick Eppinger, Executive Vice President, Field & Service OperationsThe Hartford To The MetroHartford Regional Economic Alliance/ CBIA Economic Summit and Outlook Conference January 3, 2003

  2. The Insurance Industry in 2001 • The stock market significantly under performed – and the beginnings of a real recession in almost a decade • September 11 became the largest tragedy in American history • As a result of 9/11, the insurance industry suffered the single largest insurable loss to date • After declining prices since the 1980s, rates began to increase in mid 2000 and accelerated in 2001, surging after 9/11 • Many carriers began raising new replacement capital

  3. The Current Landscape • Firming market conditions will continue into 2003 • Companies continue to focus on underwriting profitability given current industry underwriting trends • Continued pressure on personal and auto lines due to increase in loss costs due to increasing medical, repair, litigation and fraud costs • Winners' and losers' performance continues to separate • Potential share consolidation due to "flight to quality"

  4. ROE: P/C vs. All Industries ROE (1998-2002*) *2002 figures are estimates; P/C figure based on first-half 2002 data. Source: Insurance Information Institute; Fortune

  5. ROE v. Cost of Capital US Non-Life: 1991-2002 7.9 pts 14.6 pts Source: The Geneva Association, III

  6. P/C Net Income After Taxes (’91-’02*) ($Millions) *Insurance Information Institute Estimate based on first half 2002 data.

  7. Reserve Deficiency, by Line (Accident Year 1992-2001, as of 12/01) Estimated Deficiency Total Excluding A&E: $64 Billion A&E Deficiency: $55 Billion Total Including A&E: $120 Billion *Occurrence and claims made Source: Morgan Stanley, Insurance Information Institute

  8. Interest Rates *Average for week ending September 6, 2002. Source: Board of Governors, Federal Reserve System; Insurance Information Institute

  9. Net Written Premium as % of GDP Sources: Insurance Information Institute, calculated from U.S. Bureau of Economic Analysis and A.M. Best data.

  10. Challenges Facing the Industry • Managing Terrorism Risk • Losses due to 9/11 estimated at $40+ billion • Reinsurance for terrorism has disappeared • Federal backstop legislation requires careful management of exposures • Tort Reform • Class actions filed in state courts has risen by 1,043% in ten years • Asbestos liability could reach $55-$65 billion in U.S. alone • Last year only 6% of claimants were actually sick • Corporate Governance • We must overcome the “crisis of confidence” in American businesses • Opens companies to class action lawsuits • Must involve management in attesting to accuracy of financials

  11. The Winning Carriers • Deep partnerships with distribution channel • Maintain top rating • Excellent execution • Acquire carefully • Exploit market niches • Invest in technology

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