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Casualty Actuarial Society May 17, 2005

Casualty Actuarial Society May 17, 2005. MMC Capital. Property/Casualty Industry’s ROE is Lower than All Industries’ ROE. Source: Insurance Information Institute, Fortune. Property/Casualty Industry’s ROE is Lower than Other Financial Services Industries’ ROEs. Asset Management.

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Casualty Actuarial Society May 17, 2005

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  1. Casualty Actuarial SocietyMay 17, 2005 MMC Capital

  2. Property/Casualty Industry’s ROE is Lower than All Industries’ ROE Source: Insurance Information Institute, Fortune

  3. Property/Casualty Industry’s ROE is Lower than Other Financial Services Industries’ ROEs Asset Management Investment Banks Credit Cards Brokerages Commercial Banks Life P&C Source: McKinsey & Company

  4. Insurance Industry can be an Attractive Sector for Investments • Large, growing and profitable • Investment opportunities created by market dislocations, restructuring and outsourcing trends • Very complex, diversified and highly regulated • Few private equity investors focus on this sector • Wide disparity between best and worst performers

  5. Top Performing Quintile Second Quintile Third Quintile Fourth Quintile Fifth Quintile Performance of Property/Casualty Companies Varies Widely Source: McKinsey & Company

  6. Categories WinnersLosers Commercial Lines AIG Reliance/Kemper Reinsurance Renaissance Re Trenwick/Gerling Re Personal Lines Progressive American Horizon Start-Ups AXIS ESG Re Services Sedgwick CMS MRM The Insurance Industry Is Made Up Of Winners And Losers

  7. Underwriting Performance is the Key to Book Value Growth Source: Dowling & Partners

  8. The U.S. P/C Insurance Industry Is Large U.S. P/C premiums were $423bn in 2004 (3.6% of U.S. GDP) Source: A.M. Best.

  9. U.S. Property/Casualty Premiums Have Grown Faster Than The U.S. Economy U.S. P/C Insurance Premiums were $423bn in 2004 U.S. Property & Casualty NPW CAGR: 6.6% U.S. Nominal GDP CAGR: 5.6% Source: Bureau of Economic Analysis, A.M. Best and Insurance Information Institute.

  10. P/C Industry Has Earned $337 Billion In Net Income Since 1985 U.S. P/C net income Average ROE = 8.6% Source: Insurance Services Office and Insurance Information Institute. Net income includes realized capital gains. Average ROE is represents average ROE for 1986 – 2004 period.

  11. P/C Insurance Underwriting Fundamentals Are Not Correlated With Equity Markets Change in commercial lines rates versus change in S&P 500 Source: Goldman Sachs Research and Bloomberg.

  12. The Private Equity Industry Is Under-Invested In The Insurance Industry ($ in billions) Contribution of Insurance Premiums to GDP U.S. (1) Global (2) Insurance Premiums $ 890 $ 2,408 GDP $10,446 $30,757 % of GDP 8.5% 7.8% Private Equity Capital Invested (’93 – ’02) (3) Total Ex. 9/11 (4) Insurance Investments $ 8.9 $ 5.6 Total Investments $ 174.5 $ 171.2 % of Total 5.1% 3.3% • Source: A.M. Best and Bureau of Economic Analysis 2002 Data. • Source: Sigma Research 2001 Data. • (3) Source: PricewaterhouseCoopers/Venture Economics/NVCA MoneyTree Survey and MMC Capital.Excludes venture capital investments. • (4) Excludes AXIS, Allied World, Endurance, Montpelier Re, Arch and Olympus.

  13. Periodic Market Dislocations

  14. Post 9/11 Start-ups have Generated Attractive Investment Returns

  15. P/C Industry Undergoes Constant Business Realignments Consolidation/Entering New Businesses Divestitures/Exiting Businesses • Travelers – Aetna P/C • AIG – Sun America, American General • Chubb – Executive Risk, Hiscox • St. Paul – USF&G, MMI • Berkshire Hathaway – General Re • ACE – Tempest Re, CIGNA P/C • XL – Mid Ocean, NAC Re • Fairfax Financial – Crum & Forster, Seneca, Odyssey Re • Citigroup – Travelers • Zurich – Converium • St. Paul – Platinum • CNA – personal lines • Multi-lines: • Aetna – P/C, Reinsurance • Cigna – P/C • Lincoln Financial – P/C Outsourcing Market Dislocations • Claims Administration – CMS, Gallager Basset, Crawford, Cambridge • Warranty Servicing – Signal, Asurion, Lock/line, NEW • Software & Information Services – AMS, Applied, A.M. Best, ISO • Run-off Management – Castlewood, East Gate, Resolution Group (Fairfax) • Investment management – Wellington, BlackRock, New England, PIMCO • HR / Benefits – Hewitt, Towers Perrin • Liability crisis – ACE, XL • Property Catastrophe reinsurance – Mid Ocean, Partner Re, Renaissance Re, IPC Holdings, LaSalle Re • 9/11 – AXIS, Arch, Allied World, Endurance, Montpelier Re

  16. Ownership Changes – Top 50 Property/Casualty Groups in 1985

  17. MMC Capital Investment Considerations • Market Size • Supply / demand imbalance • Rate adequacy • Historical profitability • Management track record • Key success factors • Distribution • Capital/rating • Exit

  18. Trident Has Invested Successfully In A Variety of Underwriting Situations Valuations as of 3/31/2005

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