1ST VIEW 1 April 2013

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Table of Contents Renewals – 1 April 2013 Introduction 3 Property Territory and Comments 4 Rates 5 Pricing Trend Graphs 6 Casualty Territory and Comments 7 Rates 7 Specialties Line of Business and Comments 8 Rates 9 Capital Markets Comments 9 1st View This thrice yearly publication delivers the very first view on current market conditions to our readers. In addition to real-time eVENT Responses, our clients receive our news brief, The Daily Willis ReView, periodic newsletters, white papers and other reports. Willis Re Global resources, local delivery For over 100 years, Willis Re has proudly served its clients, helping them obtain better value solutions and make better reinsurance decisions. As one of the world’s premier global reinsurance brokers, with 40 locations worldwide, Willis Re provides local service with the full backing of an integrated global reinsurance broker.

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Capital overflow Sentiment in the global reinsurance market can at times be volatile, no more so than over the last three months. Most reinsurers produced a very strong set of 2012 results, comfortably overcoming the impact of both low interest rates and Superstorm Sandy. Combined with other natural catastrophe losses, this was enough to make 2012 the third worst year for natural catastrophe losses. Any lingering concerns over Superstorm Sandy at the end of 2012 have been rapidly forgotten and many reinsurers have used their good results to support a variety of capital management actions while maintaining capital strength. Just as nearly all reinsurers enjoyed a dramatic recovery after poor 2010 and 2011 results, so have some primary companies, largely driven by underlying rate increases. Even so, there is a gap in performance between reinsurers and primary companies. At the same time, many capital markets are expanding the scope of their activities in alternative investments with a growing emphasis on the universe of insurance event risk. Currently, approximately US$35 billion of capital is flowing into the global reinsurance market through a variety of sources. Further, there is a clear acceleration in the volume of fresh capital seeking appropriate opportunities. Faced with this wave of new capital, traditional reinsurers have begun to recognize the scale of the challenge to their current portfolios that the new capital represents. While some reinsurers are considering how to respond, others are developing third party capital management propositions to offer their own skills and platforms as fund managers. The advent of new capital is likely to have a significant impact on any post-event response which may occur after a major loss. To date, the traditional model of fresh capital coming into the market has been through the formation of new companies but it is being overtaken by a new model of fast capital flowing in through less permanent structures. For an industry where primary insurance companies value sustainability, this emerging model brings many challenges. Traditional reinsurers have begun to voice concern about access to risk to feed their own growth aspirations. The overall volume of reinsurance premium coming into the global market is being squeezed by a combination of M&A activity and higher retentions by larger insurers, based on revised capital management strategies. Additionally, in the current economic climate, growth in mature markets remains sluggish. It is not being offset by growth in developing economies. Reinsurer growth concerns are also being heightened by both new incoming capital and changes in the primary market distribution models across all segments – from personal lines to large commercial risks handled by global brokers. Changes in distribution models are, in effect, acting to concentrate premium into fewer larger players’ hands. Along with strong underwriting results, these factors have led to the significant shift in market sentiment. The 1 April market rate movements have not yet fully reflected the changing market sentiment. Major Japanese buyers are mindful of the support that they obtained from their reinsurers over the difficult renewals of 2011 and 2012, and they have been rewarded with offers of substantial increases in capacity. Treaties that were very challenging to complete 12 months ago are now heavily oversubscribed, with no change in the underlying risk / reward dynamic. However, we are seeing early indications for renewals over the next few months which may be a more accurate reflection of market sentiment. The renewal of the Citizens Everglades Re 2013 natural catastrophe bond at a significantly reduced price and Allstate’s decision to reduce their traditional placement and increase their use of catastrophe bonds and alternative markets are driving more aggressive pricing. Against this background, the outlook for many reinsurers is challenging with profit margins coming under pressure during 2013. In contrast, some primary markets are able to achieve underlying rate increases. This may very well lead to the recent gap in underwriting profitability between primary companies and reinsurers being narrowed.

Peter C. Hearn John Cavanagh Chairman, Willis Re CEO, Willis Re 1 April 2013 1 April 2013

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Property – territory and comments

India • General Insurance Corporation of India (GIC) compulsory cession reduced from 10% to 5% • Due to this reduction in compulsory cession and growth in aggregates, many companies are buying more

cover • Original rates markedly improving • Significant risk losses in the market have affected Surplus treaty results and some risk excess of loss • Terms and conditions on surplus treaties are stable as many improvements had already occurred at last

renewal (event limits, interest abroad limitations)

Japan – Earthquake • There were generally no adverse loss developments from the Tohoku Earthquake that needed to be factored

into the renewal and both buyers and reinsurers had a clear understanding of where the loss is likely to settle • Plentiful capacity; many existing reinsurers were looking to deploy more capacity than they have in the recent

past and this was further helped by the depreciation of the Japanese Yen and the arrival of a few new reinsurers / funds looking to enter Japan for the first time

• Primary earthquake rates continued to show improved terms and conditions; consequently, earthquake quota share treaties proved popular and most were over placed

• Earthquake quota share treaties generally renewed with expiring commission terms; there were a few that were able to achieve increased commission terms

• Earthquake excess of loss generally renewed with modest risk-adjusted reductions • There was very little impact from the release of the updated RMS SP4 Natural Catastrophe Model

Japan – Property • It is very difficult to generalize about Property per risk as the results of the proportional fire treaties and risk

excesses of loss contracts differ significantly by company • There were program restructures and mergers to consider • Overseas losses (mainly catastrophe), as well as some large domestic single risk fire losses, have made for a

challenging backdrop to renewal • Buyers and reinsurers have managed these losses in such a way that the renewal was generally successful for

both sides • There are a number of examples of renewals that fall outside of the price guidance in the tables, but for

renewals without individual circumstances that render year-on-year comparisons difficult, we would suggest that pricing was largely risk-adjusted flat

• For some of the contracts most heavily affected by losses, rate increases have been mitigated due to the already very high rates on line being paid

Japan – Wind and Flood • Some additional Wind cover bought by clients • Supply of capacity exceeded demand • A number of reinsurers were looking to deploy more capacity than they have done in the recent past; this was

further helped by the depreciation of the Japanese Yen and the arrival of a few new reinsurers / funds • Pricing was generally flat, resulting in modest risk-adjusted reductions for buyers

Korea • Most cedants were affected in some way by both risk and catastrophe losses during 2012 - 2013 • Renewal pricing on loss-affected programs varied significantly, depending on the level of loss • Due to the change in the Korean financial year from 1 April to 1 January, most treaties carried a Cancel &

Replace Clause

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• On the whole, risk excess of loss, proportional treaties and Casualty excess of loss enjoyed pro-rata premium returns for a short-term cancellation at 31 December, but catastrophe excess of loss varied; due to seasonality, most reinsurers offered only 8% to 10% return of premium in the event of early cancellation

• Apart from the Cancellation Clauses, most other contractual conditions remained unchanged

United States – Nationwide • Despite the effects of Superstorm Sandy, overall downward pressure on pricing continues • Capacity remains healthy, with managed fund vehicles providing new capital to support traditional markets • Capital markets are providing more aggressive competition to the traditional reinsurers in both the regional

and national account arena • With sufficient capacity, pricing variations are being driven by individual company experience, exposure

changes and perceived attitudes towards long-term relationships versus opportunistic capacity

Rates

Property rates

Territory Pro rata

commission

Risk loss free %

change

Risk loss hit %

change

Catastrophe loss free %

change

Catastrophe loss hit %

change India 0% 0% +5% 0% N/A

Japan – Earthquake 0% to +1% N/A N/A 0% to -2.5% N/A

Japan – Property 0% 0% 0% to +10% N/A N/A

Japan – Wind and Flood N/A N/A N/A 0% to -2.5% N/A

Korea 0% to -2.5% 0% N/A 0% +10% to +15%

United States – Nationwide N/A -5% to -10% +10% -5% to -10% +2.5% to +10% Note: Movements are risk-adjusted.

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Property catastrophe pricing trends The charts on these pages display estimated year-to-year Property catastrophe rate movement, using 100 in 1990 as a baseline.

Japan

United States

0

100

200

300

400

500

600

700

800

0

100

200

300

400

500

600

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Casualty – territory and comments

Japan – Personal Accident • Personal Accident was one of the softer classes of business • Capacity was plentiful; few new markets, but most participants happy to offer increases, especially those that

entered Japanese Personal Accident following the Tohoku earthquake • If exposures were reducing, pricing tended to be risk-adjusted flat • For those experiencing exposure growth, however, premiums tended to remain flat, giving the buyers up to

10% risk-adjusted reductions Japan – Third Party General Liability

• Very calm renewal with few structural changes and a benign loss environment • Over the last few years, a number of Casualty reinsurers with limited involvement in Japan have begun to

express interest in the territory • A number of new markets showed much greater appetite at this renewal and offered either more meaningful

shares or offered capacity for the first time • Pricing was risk-adjusted flat

Korea – Third Party General Liability

• Capacity remains abundant for all Casualty lines in Korea • On average, most cedants obtained “risk-adjusted” price reductions • Placement of Personal Accident quota share treaties remained challenging, despite the general trend of

improving results

Rates

Casualty rates

Territory Pro rata

commission

XL – No loss emergence %

change

XL – With loss emergence %

change Japan – Personal Accident N/A 0% to -10% N/A

Japan – Third Party General Liability N/A 0% N/A

Korea – Third Party General Liability 0% to -1% -1% N/A Note: Movements are risk-adjusted.

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Specialties – line of business and comments Aerospace

• Favorable results for Aviation insurers and reinsurers alike continues to result in downward pressure on rates in both markets

• No significant new loss activity has materialized, while there has been some improvement in prior year experience

• Availability of reinsurance capacity remains significant across all segments, including the retrocessional market, with new participants entering the market generating further competition

• Experience is not dissimilar in the Space market which, despite some loss activity (including the largest loss ever recorded in February 2013), remains profitable over time; consequently, capacity, in both the direct insurance and proportional reinsurance areas in particular, is high

Japan – Marine • Marine hull business in Japan has seen a stable year leading to a neutral renewal in

terms of commission levels and capacity remained firm compared to recent years; the same situation has continued with the cargo proportional business, which is also showing stable results

• Cargo catastrophe excess of loss business has been impacted by the recent major losses, such as Thailand floods and Superstorm Sandy

• Pricing movements by buyer have been directly related to loss activity making overall market rate movements difficult to estimate

Non-Marine Retrocession • Plentiful capacity as traditional reinsurers and sidecars reallocate surplus capacity

from heavily signed January 1 and the influx of capital markets funds continues • Signs of budget constraints for buyers, generally due to high take-up of pillared

products (Catco / PURPle) • Superstorm Sandy has not impacted retrocession programs, resulting in market

softening • Capacity providers continue their emphasis on named territories / perils, with little

worldwide product in comparison to 2010 and prior • Currently reduced activity in the Industry Loss Warranty market as the Industry

Linked Securities funds increase their Ultimate Net Loss offering • Outlook: as first-tier price competition increases, reinsurers are looking to

retrocession for meaningful returns and, in the absence of any major losses, continued downward pressure on pricing throughout 2013 and beyond

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United States – Healthcare • Medical professional liability reinsurance pricing remains stable • Treaty reinsurance capacity is adequate overall and abundant on working layers • Reinsurers acknowledge improved frequency trends in establishing loss cost projections, although are paying

close attention to any changes that may emerge related to health care reform measures • Reinsurers are receptive to required increased vertical limit capacity and expanding lines of covered business • Reinsurer required underwriting margins are being impacted by reduced investment returns

Rates

Specialty rates

Territory Pro rata

commission

Risk loss free %

change

Risk loss hit %

change

Catastrophe loss free %

change

Catastrophe loss hit %

change Aerospace X% X% X% X% X%

Japan – Marine 0% N/A N/A 0% to -3% +25%

Non-Marine Retrocession N/A N/A N/A -5% N/A Note: Movements are risk-adjusted.

Capital Markets

• New players and new capital for existing players have combined to increase capacity and reduce spreads • Catastrophe bond issuance has surged at the end of Q1 with more expected to come in Q2 • Minimum coupons (similar to rate on line) have dropped for life and nonlife • Indemnity trigger market share continues to rise • Sidecar and third party capital initiatives continue to grow even in the absence of a hard market • Some investors favor bonds over collateralized reinsurance while others are more indifferent • Continuing M&A activity across the board, notwithstanding uncertain economic and political environment

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