PROPERTY INSURANCE REPORT

PROPERTY INSURANCE REPORT The Authority on Insuring Homes and Commercial Property Vol. 21#15/495 Jan. 26, 2015 INSIDE U.S. property insurance profit margins, 2003-2012. Page 2 Best homeowners markets over time. Page 3 home insurance premium, market share and loss ratios. Page 4 Clarity Act data continues to fuel controversy. Pages 6-7 THE GRAPEVINE Google Is Coming There has not yet been a formal announcement, and everyone involved is trying their best to maintain a straight face as they utter no comment. But this much is known clearly: Google will be bringing its online insurance marketplace to the United States at some point in the next few weeks. Called Google Compare in Europe, the program offers consumers a way to shop for insurance prices online from multiple insurers. True, this is exactly what other online shopping businesses are doing. But Google is the zillion-pound gorilla, and it stands to accelerate acceptance of this marketing channel. Google will not overwhelm the existing online shopping portals. Please see GRAPEVINE on Page 3 Struggles to Measure Risk to Everyone s Satisfaction If insurers have finally settled into the routine of providing premium, policy counts and loss data by ZIP code to comply with s 2012 Property Clarity Act, they will be soon be gearing up for the next level of transparency: By 2018, all homeowners insurers will have to quote three separate premiums for hurricane coverage, other wind and hail coverage and all other perils. is the only state to mandate filings that break out coverages in this way, said Charles Angell, deputy commissioner and chief actuary of the Department of. The regulation was adopted in late 2013 to help regulators make sure the rates are appropriate for each of those sets of coverages, and to ensure one line Please see ALABAMA on Page 4 Plentiful Reinsurance Capacity Provides Opportunities for Insurers Homeowners insurers are taking advantage of the continuing surge in reinsurance supply in ways that will reduce the volatility of pricing after a major catastrophe and protect insurers from the multitude of severe storms that have been prevalent in the Midwest and South. Even as the demand for property catastrophe reinsurance has been growing, the available supply is growing even faster, owing to the increasing influence of alternative capacity and below-average catastrophe losses. Estimates of global insured catastrophe losses ranged from $34 billion and $39 billion in 2014, according to reports from reinsurance brokers Guy Carpenter and Aon Benfield. Aon Benfield said losses were down nearly 38 from the 10-year average of $63 billion, down 20 from those sustained in 2013 and down 49 from 2012. Reinsurance capital grew to $575 billion last year, including $62 billion of deployed alternative capacity both of them records, according to Aon Benfield s Reinsurance Please see REINSURANCE on Page 2 33765 Magellan Isle Dana Point, CA 92629 (949) 443-0330 www.riskinformation.com

Page 2 PROPERTY INSURANCE REPORT January 26, 2015 REINSURANCE Continued from Page 1 Market Outlook. The supply of alternative capital grew 25 in 2014, compared with 6 for traditional reinsurance capital. Though alternative capital represented just 12 of total reinsurance capacity, it represents 40 to 50 of the capital allocated to global property catastrophe risk, according to Aon Benfield. In addition, more traditional reinsurers are incorporating alternative capital into their own programs through catastrophe bonds, sidecars and industry loss warrants. As a result of low catastrophe losses and an abundant supply of capital, reinsurers are offering excess capacity at attractive terms and pricing. Guy Carpenter s global catastrophe rateon-line index fell 11. These trends are expected to continue at April, June and July renewals. In general, homeowners insurers are experiencing less expensive underwriting capital, and the value proposition of reinsurance the combination of the quality and price has never been higher, said Aon Benfield Americas CEO Bryon Ehrhart. Ehrhart described three significant ways in which homeowners insurers are taking advantage of the current conditions. More home insurers are placing multiyear agreements of two, three or even five years, he said. Multiyear agreements smooth out the pricing volatility so common after a major disaster Line of Business Nat l Homeowner Nat l Fire Nat l Comm MP Nat l Allied Lines by protecting insurers from skyrocketing reinsurance costs. More homeowners insurers are also adding aggregate protection below catastrophe retentions. Demand for aggregate coverage increased after 2011, during which primary insurers found themselves largely on the hook for $25 billion in tornado, hail and severe thunderstorm losses that fell below their reinsurance retentions. Pricing for this coverage shot up, however, as reinsurers worried about whether the excessive losses represented a new normal. As the number of storms have reverted to normal levels, Ehrhart said, reinsurers have been more willing to offer aggregate coverage at prices that make sense for primary insurers. This year insurers are more able to arm themselves against losses within that retention, he said. Finally, home insurers are also adding reinsurance at the top of their program for further protection against mega catastrophes, Ehrhart added. Market conditions that continue to bring downward pressure on pricing are being met with tremendous client-focused innovation, Lara Mowery, global head of property specialty at Guy Carpenter said in a statement. The result has been a customized approach with expanded product offerings and terms and conditions that benefit our clients. PIR United States Property Margins 10 Year Summary, of Direct Premiums Earned 2013 16.5 26.9 14.9 6.3 2012 8.1 24.7 9.0-19.4 2011-3.8 24.8 4.1 5.7 2010 7.2 27.6 13.2 28.5 2009 2008 2007 2006 2005 2004 Avg 6.4 22.7 Sources: National Association of Commissioners; Property Report. Calculations by Property Report using NAIC data. Calculations are estimates, some based on national averages. Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. fax or email, without prior permission of the Publisher. For information call (949) 443-0330. 5.7 24.5 11.0 2-2.4 13.2 9.2 2.8 15.0 20.2 19.9 29.9 17.0 27.3 19.7 23.9-2.4 8.2 6.8-125.1 3.0 29.8 9.8-1.4 11.8-2.8

January 26, 2015 PROPERTY INSURANCE REPORT Page 3 Continued from Page 1 Rather, Google is more likely to partner with them, providing (at a price) marketing support for enterprises such as CoverHound and comparenow.com. No matter how it plays out, Google won t suddenly own the world. It couldn t take over the much more open European market, and it won t be able to suddenly take over the much more closed U.S. market. However, unless it makes a mess of things, there is no reason to think that Google won t grab a big slice of the awareness of the insurance shopping consumer. This much is pretty much a certainty. What is not a certainty is exactly how all this is going to play out. Just how will Google partner with other shopping sites? Will it be an agency or a lead generator? Will Google spend a bunch of money on old-media advertising, or Best Homeowners Markets Over Time States Ranked By Average Margin On Direct Homeowners Premiums Earned 2004-2013 Margin 10-Yr Avg 2013 1) Hawaii 36.8 29.6 2) Dist of Columbia 21.4 27.5 3) Rhode Island 19.5 22.5 4) California 19.1 17.1 5) Nevada 18.8 14.6 6) Delaware 18.8 22.8 7) South Carolina 17.2 25.8 8) Alaska 17.2 20.0 9) Oregon 17.1 18.9 10) Virginia 16.9 25.5 11) Massachusetts 16.5 22.3 12) New York 15.4 24.6 13) Vermont 14.6 15.8 14) Washington 14.5 18.7 15) Utah 13.8 15.0 16) Maine 13.7 16.3 17) Connecticut 13.4 25.9 18) Maryland 12.7 21.0 THE GRAPEVINE Margin 10-Yr Avg 2013 19) Idaho 12.7 12.4 20) New Hampshire 12.2 20.5 21) North Carolina 10.3 17.7 22) Iowa 9.9 16.0 23) Pennsylvania 9.9 22.3 24) Michigan 9.6 11.8 25) Texas 9.2 17.4 26) North Dakota 9.0 14.1 27) West Virginia 8.7 15.2 28) Wyoming 8.6 2.7 29) Arizona 8.3 12.1 30) New Mexico 7.5 13.0 31) New Jersey 7.0 32.6 32) Wisconsin 5.0 15.0 33) Montana 4.4 0.3 34) Illinois 3.2-0.4 35) Kansas 0.3 10.2 36) South Dakota 0.1-26.8 lock into online-only advertising? Will Google be able to bring data skills to bear that will result in more accurate shopping experiences for consumers? For answers to all these questions, and many more, keep your eye on these pages and our soon-to-be soldout Auto Report National Conference, to be held May 3-5 and will feature a session examining the online shopping landscape. Hawaii and California Set the Pace Hawaii has retained its crown as champion both of long-term and short-term homeowners insurance profitability, posting the nation s highest average profit for the decade ended 2013 at 36.8 and also the highest one-year profit margin in 2013 of 29.6. The national average profit Please see GRAPEVINE on Page 10 Margin 10-Yr Avg 2013 37) Florida -0.5 33.0 38) Nebraska -1.6-47.8 39) Colorado -1.9-3.1 40) Missouri -2.5 2 41) Ohio -2.7 13.8 42) Indiana -3.4 7.0 43) Arkansas -3.9 20.9 44) Kentucky -4.3 23.0 45) Minnesota -6.4 5.7 46) Georgia -7.6-0.4 47) Tennessee -10.8 16.0 48) -11.7 17.1 49) Oklahoma -16.8-46.2 50) Mississippi -35.6-8.4 51) Louisiana -36.8 22.4 52) United States 6.4 16.5 Note: This table is calculated by Property Report using data from the National Association of Commissioners, which does not endorse these calculations. See adjacent notes for information on data limitations. Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. fax or email, without prior permission of the Publisher. For information call (949) 443-0330.

Page 4 PROPERTY INSURANCE REPORT January 26, 2015 Continued from Page 1 State Market Focus: ALABAMA Homeowners Multiperil Insurers charged more for fire coverage than homeowners of coverage is not s subsidizing Ranked another. by The separate premiums will also have to appear Mkt on the Loss if it s true. With Mkt the Loss regulation we will Mkt be able Lossto 2013 share Ratio 2012 share Ratio 2011 share Ratio 2013 Direct in Birmingham, Premium Angell Written said. (000) None of us know policy Name declarations page. Premium 2013 2013 tell. Premium 2012 2012 Premium 2011 2011 Coastal homeowners complain that they are State Farm $461,918 29.6 48.0 $439,621 29.8 55.6 $406,974 29.2 168.2 Alfa $216,132 13.8 5 $218,522 14.8 56.9 $240,021 17.2 202.6 $146,341 9.9 50.2 $112,419 7.6 46.2 Homeowners Multiperil $87,125 5.9Insurers 68.5 Allstate $164,232 10.5 42.8 $133,296 9.6 231.6 Farmers $109,888 7.0 35.9 $102,502 7.3 128.4 Travelers Companies Inc. $89,407 5.7 45.2 $85,176 6.1 234.2 s Ranked by 2013 Direct $69,275 Premium 4.7 Written 60.3 (000) USAA $84,064 5.4 66.8 $61,064 4.4 209.8 Liberty $54,015 3.5 53.6 $47,500 3.2 6 $42,015 3.0 198.6 Mkt Loss Mkt Loss Mkt Loss Nationwide 2013 $49,737 share 3.2 Ratio 36.5 2012 $48,766 share 3.3 Ratio 68.3 $47,826 2011 share 3.4 191.0 Ratio Country Name Financial Premium $49,378 2013 3.2 45.4 2013 Premium $48,473 2012 3.3 42.7 2012 Premium $46,760 2011 3.4 189.2 2011 Auto-Owners State Farm Co. $461,918 $35,207 29.6 2.3 34.7 48.0 $439,621 $35,031 29.8 2.4 49.9 55.6 $406,974 $33,489 29.2 2.4 182.5 168.2 Cincinnati Alfa Financial $216,132 $31,695 13.8 44.7 5 $218,522 $29,874 14.8 45.2 56.9 $240,021 $27,600 17.2 156.3 202.6 ARX Allstate Holding/American Strategic $164,232 $21,942 10.5 1.4 53.3 42.8 $146,341 $14,743 1.0 9.9 49.0 50.2 $133,296 $4,638 0.3 9.6 231.6 42.7 MetLife Farmers Inc. $109,888 $21,665 1.4 7.0 42.3 35.9 $112,419 $19,774 1.3 7.6 48.3 46.2 $102,502 $16,999 7.3 236.1 128.4 Munich-American/American Travelers Companies Inc. Modern $20,621 $89,407 1.3 5.7 42.8 45.2 $21,630 $87,125 1.5 5.9 4 68.5 $23,582 $85,176 1.7 6.1 109.7 234.2 Assurant USAA Inc. $16,521 $84,064 5.4 57.3 66.8 $12,940 $69,275 0.9 4.7 42.9 60.3 $61,064 $7,814 4.4 209.8 95.6 Hartford Liberty Financial Services $15,737 $54,015 1.0 3.5 38.8 53.6 $15,190 $47,500 1.0 3.2 46.4 6 $14,415 $42,015 1.0 3.0 176.1 198.6 GeoVera Nationwide Holdings Ltd $15,529 $49,737 1.0 3.2 17.1 36.5 $18,761 $48,766 1.3 3.3 10.1 68.3 $22,274 $47,826 1.6 3.4 191.0 15.9 Chubb Country Financial $12,596 $49,378 0.8 3.2 35.2 45.4 $11,594 $48,473 0.8 3.3 81.8 42.7 $11,090 $46,760 0.8 3.4 158.5 189.2 American Auto-Owners Co. $10,945 $35,207 2.3 18.3 34.7 $12,972 $35,031 0.9 2.4 15.3 49.9 $14,572 $33,489 1.0 2.4 182.5 2 Centauri Cincinnati Specialty Financial Ins Co. $31,695 $9,081 42.4 44.7 $29,874 $2,326 0.2 30.0 45.2 $27,600 156.3 Auto ARX Club Holding/American Exchange Strategic (SoCal) $21,942 $9,042 1.4 8 53.3 $14,743 $7,005 0.5 1.0 135.8 49.0 $4,706 $4,638 0.3 330.5 42.7 American MetLife Inc. National $21,665 $7,422 0.5 1.4 35.3 42.3 $19,774 $8,335 1.3 36.9 48.3 $16,999 $8,525 115.4 236.1 Tower Munich-American/American Modern $20,621 $5,921 0.4 1.3 51.3 42.8 $21,630 $2,159 0.2 1.5 26.3 4 $23,582 $0 0.0 1.7 109.7 State Assurant Auto Inc. Companies $16,521 $4,797 0.3 26.9 57.3 $12,940 $4,801 0.3 0.9 38.6 42.9 $4,947 $7,814 0.4 161.3 95.6 National Hartford Financial Security Services Inc. $15,737 $4,517 0.3 1.0 44.4 38.8 $15,190 $4,145 0.3 1.0 46.2 46.4 $14,415 $4,450 0.3 1.0 110.8 176.1 IAT GeoVera Reinsurance (U.S.) Holdings Ltd $15,529 $4,381 0.3 1.0 17.1 6.3 $18,761 $4,480 0.3 1.3 10.1 7.9 $22,274 $3,151 0.2 1.6 18.2 15.9 American Chubb Family $12,596 $3,987 0.3 0.8 51.0 35.2 $11,594 $4,890 0.3 0.8 94.3 81.8 $11,090 $5,362 0.4 0.8 210.4 158.5 QBE American (Gen Cas/Unigard) $10,945 $3,597 0.2 27.3 18.3 $12,972 $3,346 0.2 0.9 19.1 15.3 $14,572 $583 0.0 1.0 38.8 2 Ameriprise Centauri Specialty Financial Ins Inc. Co. $3,234 $9,081 0.2 64.6 42.4 $1,989 $2,326 0.1 0.2 132.4 30.0 $1,178 $0 0.1 307.8 Companion Auto Club Exchange P&C (SoCal) $3,069 $9,042 0.2 8 3.3 $2,777 $7,005 0.2 0.5 135.8 6.7 $2,610 $4,706 0.2 0.3 330.5 7.0 PURE American National of Companies $2,945 $7,422 0.2 0.5 35.3 9.2 $1,810 $8,335 0.1 48.2 36.9 $8,525 $708 0.1 115.4 2 Armed Tower Forces Exchange $2,849 $5,921 0.2 0.4 46.3 51.3 $2,781 $2,159 0.2 51.6 26.3 $2,780 $0 0.2 0.0 134.8 GuideOne State Auto Companies $1,988 $4,797 0.1 0.3 44.0 26.9 $2,146 $4,801 0.2 0.3 38.6 5.3 $2,543 $4,947 0.2 0.4 231.4 161.3 Kemper National Security Inc. $1,952 $4,517 0.1 0.3 47.5 44.4 $2,031 $4,145 0.1 0.3 223.1 46.2 $1,560 $4,450 0.1 0.3 361.5 110.8 Employers IAT Reinsurance (U.S.) Casualty Co. $1,760 $4,381 0.1 0.3 65.6 6.3 $2,287 $4,480 0.2 0.3 30.1 7.9 $2,849 $3,151 0.2 542.5 18.2 Amica American Family Co. $1,707 $3,987 0.1 0.3 34.6 51.0 $1,510 $4,890 0.1 0.3 66.3 94.3 $1,340 $5,362 0.1 0.4 210.4 80.9 Horace QBE Mann Educators (Gen Cas/Unigard) $1,491 $3,597 0.1 0.2 65.1 27.3 $1,311 $3,346 0.1 0.2 59.3 19.1 $1,143 $583 0.1 0.0 28 38.8 AXIS Ameriprise Capital Financial Holdings Inc. $1,292 $3,234 0.1 0.2 46.8 64.6 $1,989 $593 0.0 0.1 132.4 2.6 $1,178 $0 0.0 0.1 307.8 Markel Companion P&C $1,018 $3,069 0.1 0.2 25.8 3.3 $1,414 $2,777 0.1 0.2 126.5 6.7 $2,610 $404 0.0 0.2-77.6 7.0 PURE Statewide of s Companies$1,562,262 $2,945 0.2 46.0 9.2 $1,477,102 $1,810 0.1 54.2 48.2 $1,395,561 $708 0.1 181.3 2 Armed Forces Exchange $2,849 0.2 46.3 $2,781 0.2 51.6 $2,780 0.2 134.8 Source: SNL Financial, by permission, and the Property Report database. GuideOne Loss ratio is incurred losses as a percentage $1,988 of 0.1 direct premium 44.0 earned. $2,146 The ratio 0.2 does 5.3not include $2,543 dividends 0.2or loss 231.4 Kemper adjustment expense. Single year data $1,952 can be skewed 0.1 by 47.5 reserve adjustments. $2,031 0.1 223.1 $1,560 0.1 361.5 Employers Casualty Co. $1,760 0.1 65.6 $2,287 0.2 30.1 $2,849 0.2 542.5 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. Amica No part of this publication Co. may $1,707 be reproduced 0.1 34.6 by any form $1,510 or means, 0.1 66.3 including photocopying, $1,340 0.1 scanning, Mann fax Educators email, without prior $1,491 permission 0.1 of 65.1the Publisher. $1,311 For 0.1 information 59.3 call $1,143 (949) 0.1443-0330. 28 80.9 Horace AXIS Capital Holdings $1,292 0.1 46.8 $593 0.0 2.6 $0 0.0 Markel $1,018 0.1 25.8 $1,414 0.1 126.5 $404 0.0-77.6 Statewide s $1,562,262 46.0 $1,477,102 54.2 $1,395,561 181.3 Source: SNL Financial, by permission, and the Property Report database. Please see ALABAMA on Page 5

January 26, 2015 PROPERTY INSURANCE REPORT Page 5 Continued from Page 4 Angell acknowledges that it will be expensive for the industry to change their rating process, but he didn t get much pushback since regulators worked with the industry to refine the regulation. Currently, all attention is focused on the second release of data under s controversial Property Clarity Act. The 2013 data released earlier this month will do nothing to stem complaints from coastal homeowners who believe they are overpaying for insurance and subsidizing inland policyholders. The new data is also unlikely to convince insurers and regulators that the information published under the act which includes premiums and losses for 10 years by county and ZIP code should have any bearing on the rates that insurers are allowed to charge coastal homeowners. When the Department published the first set of Clarity Act data in November 2013, it set off a firestorm. The Homeowners State Market Focus: ALABAMA Hurricane Initiative (HHII), a consumer group based on the coast, produced an analysis showing that homeowners premiums in Mobile and Baldwin counties were four times higher than the rest of the state despite substantially lower insurance losses over the 10 years ended in 2012. They argue that insurers should be charging rates based primarily on historical losses and not based on hurricane models, whose results they distrust. In March 2014, the Department responded with a white paper disputing the HHII analysis by noting the weaknesses in the Clarity Act data. The coast has much lower loss ratios in part because they represent losses as a percentage of much higher premiums paid at the coast. More importantly, the data includes only losses and not other costs of doing business, including reinsurance and additional cost of capital required to attract companies to invest on the coast because of the volatility. In addition, the depart- Please see ALABAMA on Page 6 Property Margins 10-Year Summary, of Direct Premiums Earned, With National Averages Line of Business State Homeowner 2013 17.1 2012 12.4 2011-80.4 2010 4.4 2009-2 2008 3.6 2007 10.3 2006 6.1 2005-13.9 2004-55.2 Avg -11.7 Nat l Homeowner 16.5 8.1-3.8 7.2 5.7-2.4 15.0 17.0-2.4 3.0 6.4 State Fire 18.6 14.0-21.3 7.7 15.8-6.3 7.3 19.6 19.2-2.1 7.3 Nat l Fire 26.9 24.7 24.8 27.6 24.5 13.2 20.2 27.3 8.2 29.8 22.7 State Comm MP Nat l Comm MP State Allied 15.6 14.9 31.7 16.0 9.0 35.4-84.2 4.1-119.1 11.0 13.2 18.1 4.6 11.0 2.9 16.5 9.2-20.9 21.4 19.9 25.3 11.9 19.7 118.8-10.8 6.8-401.7-26.0 9.8-143.3 Lines Nat l Allied 6.3-19.4 5.7 28.5 2 2.8 29.9 23.9-125.1-1.4 Lines Note: calculations are by Property Report using data from the National Association of Commissioners. Calculations are estimates, some based on national averages. -2.4 11.8-45.3-2.8 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. fax or email, without prior permission of the Publisher. For information call (949) 443-0330.

Page 6 PROPERTY INSURANCE REPORT January 26, 2015 State Market Focus: ALABAMA Continued Commercial from Multiperil Page 5 Nonliability Insurers ment s argued Ranked that the by 2013 2011 Premiums tornado losses Written should (000) not be factored into the inland 2013 losses because Mkt Loss the probability Name of an event Premiums share Ratio like that is just one in Travelers Companies Inc. $35,319 9.2 14.6 250 years, while a major hurricane, despite the Cincinnati Financial $26,232 6.9 40.4 Auto-Owners Co. $24,780 6.5 42.9 State Farm $23,381 6.1 71.6 Commercial Multiperil Nonliability Insurers Nationwide $22,283 5.8 62.9 s Ranked by 2013 Premiums Written (000) Municipal Ins $18,011 4.7 - Alfa 2013 $14,984 Mkt 3.9 Loss 65.0 Name Premiums share Ratio Hartford Financial Services $12,571 3.3 61.9 Travelers Zurich Companies Inc. $35,319 $12,227 9.2 3.2 14.6 31.4 Cincinnati Allstate Financial $26,232 $12,190 6.9 3.2 40.4 50.1 Auto-Owners Tokio Marine Co. $24,780 $11,658 6.5 3.1 42.9 1 State Farmers Farm $23,381 $10,977 6.1 2.9 71.6 34.6 Nationwide Liberty $22,283 $10,593 5.8 2.8 62.9 41.6 CNA Financial Municipal Ins $18,011 $10,366 4.7 2.7 26.8 - Alfa Starr Co. $14,984 $10,029 3.9 2.6 65.0 54.7 Hartford Chubb Financial Services $12,571 $9,113 3.3 2.4 61.9 38.1 Zurich American $12,227 $8,564 3.2 2.2 31.4 2.4 Allstate American Financial Inc. $12,190 $7,937 3.2 2.1 50.1 73.8 Tokio QBE Marine (Gen Cas/Unigard) $11,658 $7,689 3.1 1 17.8 Farmers ACE $10,977 $7,634 2.9 34.6-5.3 Liberty Pennsylvania National Casualty $10,593 $7,321 2.8 1.9 41.6 49.4 CNA GuideOne Financial $10,366 $5,430 2.7 1.4 26.8 29.5 Starr W. R. Berkley Co. $10,029 $5,108 2.6 1.3 54.7 95.6 Chubb Church Co. $9,113 $4,514 2.4 38.1 39.4 American Allianz /Fireman s Fund $8,564 $4,084 2.2 23.2 2.4 American Argo Financial Inc. $7,937 $4,009 2.1 73.8 10.5 QBE Munich-American/American (Gen Cas/Unigard) Modern $7,689 $3,716 1.0 17.8 40.2 ACE State Auto Companies $7,634 $3,569 0.9 73.2-5.3 Pennsylvania IAT Reinsurance National (U.S.) Casualty $7,321 $3,118 1.9 0.8 49.4 47.7 GuideOne FCCI Holding Co. $5,430 $2,759 1.4 29.5 54.1 W. Arch R. Capital Berkley $5,108 $2,581 1.3 95.6 32.6 Church Markel Co. $4,514 $2,404 39.4 21.8 Allianz Tower /Fireman s Fund $4,084 $2,260 23.2 14.7 Argo Fairfax Financial Holdings $4,009 $1,956 0.5 10.5 43.2 Munich-American/American Alleghany Modern $3,716 $1,927 1.0 0.5 40.2 35.9 State Assurant Auto Inc. Companies $3,569 $1,913 0.9 0.5 73.2 29.0 IAT Employers Reinsurance (U.S.) Casualty Co. $3,118 $1,747 0.8 0.5 47.7 64.2 FCCI Frankenmuth Holding Co. Co. $2,759 $1,741 0.5 54.1 67.8 Arch MS&AD Capital Holdings Inc. $2,581 $1,620 0.4 32.6 Markel $2,404 21.8 na Tower Statewide s $361,871 $2,260 14.7 53.5 Fairfax Data Source: Financial SNL Holdings Financial, by permission, $1,956 and 0.5the 43.2 Alleghany Property Report Database. $1,927 0.5 35.9 Loss Ratio is incurred losses as a percentage of direct Assurant premium Inc. earned. The ratio does not include $1,913 dividends 0.5 29.0 or Employers loss adjustment expense. Casualty Co. Single-year $1,747 data can 0.5 be skewed 64.2 Frankenmuth by reserve adjustments. Co. $1,741 0.5 67.8 recent calm, is likely to occur more frequently. In its rebuttal, the HHII disputed the rarity of the 2011 tornado. The fact that the DOI persists in minimizing tornado damage while enforcing draconian hurricane models, demonstrates its bias against the coastal counties, the group wrote. None of these arguments about the fairness of coastal rates will change with the 2013 data. The latest data doesn t show anything different than what the data did last year, Angell said. The [coastal] homeowners are paying premiums that contemplate some level of hurricane losses on average, so the loss ratios look very low down on the coast because the hurricane losses are nonexistent. The 2012 data showed a 10-year loss ratio of 52 for the coastal counties and 92 for the rest of the state. Incorporating the 2013 data produces an 11-year loss ratio of 45 for the coast and 88 for the rest of the state. Looking at 2013 alone, the coast loss ratio was 19 while the remainder was 53. Perhaps more significant than the average Please see ALABAMA on Page 7 2011 Insured Home Values Home National Value Average <$50K $50-75K 4.0 1.0 $75-100K 9.0 3.1 $100-125K 14.4 6.7 $125-150K 15.3 9.6 $150-175K 14.0 1 $175-200K 1 1 $200-300K 20.8 3 $300-400K 6.5 14.3 $400-500K 2.5 6.2 >$500K 2.2 6.1 exposures 900,451 51,317,678 Source: NAIC, Property Report MS&AD Holdings Inc. $1,620 0.4 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. Statewide fax or s email, without $361,871 prior permission 53.5 of the Publisher. For information call (949) 443-0330. Data Source: SNL Financial, by permission, and the Property Report Database. Loss Ratio is incurred losses as a percentage of direct premium earned. The ratio does not include dividends or loss adjustment expense. Single-year data can be skewed by reserve adjustments.

Statewide s $220,302 52.5 Reprinted With Permission Of The Publisher January 26, 2015 PROPERTY INSURANCE REPORT Page 7 Continued from Page 6 loss ratio is loss per policy. When HHII took into account some data issues raised by the DOI in its white paper, the group estimated that for the decade ended in 2012 the average loss per policy at the coast was 23 higher than for the rest of the state, $888 vs. $722. Meanwhile, the average premium for a home in Foley near the coast is two to three times higher, all things being equal, than for a home in Birmingham. (The gap has been shrinking but is still substantial.) However unfair it may seem, it doesn t affect the rate-making process. While the past five years of losses form the basis for fire, theft or liability rates, companies today must use modeling data for hurricanes in place of historical loss data, Angell said. Not even accounting for the modeled expected loss from hurricanes, the cost of reinsurance alone boosts coastal rates about 50 higher than inland rates. We would not be surprised to see a similar controversy erupt in Louisiana, which passed a Property Clarity Act modeled on s. In an effort to stave off similar legislation in Mississippi, Commissioner Mike Chaney is producing his own geographic comparison and market analysis. He told us the data collection should be completed in early April. While the debate about coastal insurance rates flares up again it never actually goes away it s worth pointing out that the market as a whole is actually quite stable, even after a period in which the statewide loss ratio has far exceeded the national average. Over the last five years, homeowners insurers have experienced an average annual loss ratio of 88.6 compared with the national average of 60.2. The high five-year loss ratio was driven by severe storms in 2009 and 2011. The 2011 Tuscaloosa tornado drove up the statewide loss ratio to 181.3, even higher than the 146.8 loss ratio after Hurricane Ivan devastat- State Market Focus: ALABAMA ed the coast in 2004 Fire and Insurers the highest since 1996, when our records begin. s Ranked by 2013 Premiums Written (000) Though it still can be a challenge 2013 for Mkt some Loss Name Premiums share Ratio homeowners to buy coverage at the coast, at American $24,863 10.8 31.9 least a dozen new admitted carriers, including Farmers $19,699 8.6 32.5 new Assurant companies Inc. from Florida $16,062 and Louisiana, 7.0 19.8 have Auto-Owners started writing Co. wind coverage $13,342 in 5.8 Mobile 39.9 and Zurich Baldwin counties, and two $11,646 more applications 5.1 Travelers Companies Inc. $10,910 4.8 159.3 Please see ALABAMA on Page 8 Munich-American Holding $10,228 4.5 2 National Security Inc. $7,688 3.4 37.9 Liberty $7,203 Fire Insurers 3.1 31.9 FM Global $6,941 3.0 141.5 s Ranked by 2013 Premiums Written (000) Alfa $6,746 2.9 49.8 2013 Mkt Loss Pennsylvania NameNational Casualty Premiums $6,623 share 2.9 Ratio 35.1 Alleghany American $24,863 $5,595 10.8 2.4 31.9 2.1 USAA Farmers $19,699 $5,231 2.3 8.6 30.2 32.5 Cincinnati Assurant Inc. Financial $16,062 $4,695 7.0 52.1 19.8 Nationwide Auto-Owners Co. $13,342 $4,652 5.8 39.3 39.9 XL Zurich plc $11,646 $4,397 1.9 5.1 64.6 10.9 Arch Travelers Capital Companies Inc. $10,910 $3,743 1.6 4.8 159.3 0.2 AXIS Munich-American Capital Holdings Holding $10,228 $3,361 1.5 4.5 79.1 2 Baldwin National Security Inc. Co. $3,318 $7,688 1.4 3.4 22.5 37.9 Kemper Liberty $2,945 $7,203 1.3 3.1 4 31.9 Swiss FM Global Re Ltd $2,666 $6,941 3.0 141.5-24.4 Allianz Alfa /Fireman s Fund $2,666 $6,746 2.9 185.7 49.8 QBE Pennsylvania National (Gen Cas/Unigard) Casualty $2,650 $6,623 2.9 18.6 35.1 HDI-Gerling Alleghany America Co. $2,584 $5,595 2.4 40.4 2.1 Chubb USAA $2,176 $5,231 1.0 2.3 30.2 1.6 Pennsylvania Cincinnati Financial Lumbermens Ins $2,020 $4,695 0.9-13.1 52.1 CNA Nationwide Financial $1,826 $4,652 0.8 73.4 39.3 ACE XL plc $1,780 $4,397 0.8 1.9-14.9 64.6 Employers Arch Capital Casualty Co. $1,735 $3,743 0.8 1.6 1 0.2 Federated AXIS Capital Holdings Co. $1,690 $3,361 1.5 79.1 9.6 Lumbermen's Baldwin Undrwtg Alliance Co. $1,600 $3,318 1.4 5 22.5 Tokio Kemper Marine $1,508 $2,945 1.3 96.2 4 Markel Swiss Re Ltd $1,470 $2,666 213.5-24.4 ARX Allianz Holding /Fireman s Fund $1,455 $2,666 185.7 13.4 Aspen QBE (Gen Holdings Cas/Unigard) $1,419 $2,650 18.6-8.9 Ironshore HDI-Gerling Inc. America Co. $1,317 $2,584 40.4-6.1 Berkshire Chubb Hathaway Inc. $1,310 $2,176 1.0 20.3 1.6 AXA Pennsylvania Lumbermens Ins $1,273 $2,020 0.9-13.1 29.1 CNA Statewide Financial s $220,302 $1,826 0.8 52.5 73.4 ACE Data Source: SNL Financial, by permission, $1,780 and 0.8the -14.9 Employers Property Casualty Report Co. Database. $1,735 0.8 1 Federated Loss Ratio is incurred losses Co. as a percentage of direct $1,690 9.6 premium earned. The ratio does not include dividends or Lumbermen's loss adjustment Undrwtg expense. Alliance Single-year $1,600 data can be skewed 5 Tokio by reserve Marine adjustments. $1,508 96.2 Markel $1,470 213.5 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. No part of this publication may be reproduced by any ARX form Holding or means, including photocopying, $1,455 scanning, 13.4 fax or email, without prior permission of the Aspen Publisher. For Holdings information call $1,419 (949) 443-0330. -8.9 Ironshore Inc. $1,317-6.1 Berkshire Hathaway Inc. $1,310 20.3 AXA $1,273 29.1

Page 8 PROPERTY INSURANCE REPORT January 26, 2015 State Market Focus: ALABAMA Allied Lines Insurers s Ranked by 2013 Premiums Written (000) Continued from Page 7 are in the works, Angell said. 2013 Some new Mkt surplus Loss Name Premiums share Ratio lines Zurich carriers have also started $15,214 offering 8.0coast- al FM coverage, Global he said. Well over $13,888 50 carriers 7.3 are 84.5-5.8 writing American wind coverage in Mobile $12,319and Baldwin 6.4 139.9 counties, Assurant Inc. including leading companies $11,853 6.2 like State 69.6 Alleghany $10,812 5.7 6.5 Farm, Allstate and Farmers. Travelers Companies Inc. $9,010 4.7 278.6 More and more companies insist on covering ACE $8,612 4.5-9.9 a home customer s automobiles as well. Those USAA $7,996 4.2 55.3 Nationwide $6,688 3.5 81.5 Cincinnati Financial $6,082 3.2 30.8 Allied Lines Insurers Alfa $5,984 3.1 42.2 Munich-American/American s Ranked by 2013 ModernPremiums $5,803 Written 3.0 (000) 37.5 GeoVera Holdings Ltd $5,442 2.8 5.8 2013 Mkt Loss QBE Name (Gen Cas/Unigard) Premiums $5,079 share 2.7 Ratio 28.5 Zurich AXIS Capital Holdings $15,214 $4,221 8.0 2.2-5.8 7.2 FM National Global Security Inc. $13,888 $3,992 7.3 2.1 84.5 45.0 American Swiss Re Ltd $12,319 $3,713 6.4 1.9 139.9-29.3 Assurant Baldwin Inc. Co. $11,853 $3,584 6.2 1.9 69.6 20.0 Alleghany IAT Reinsurance (U.S.) $10,812 $3,275 5.7 1.7 6.5 8.1 Travelers Markel Companies Inc. $9,010 $3,272 4.7 1.7 278.6 3.2 ACE Liberty $8,612 $2,711 4.5 1.4 28.0-9.9 USAA Arch Capital $7,996 $2,627 4.2 1.4-77.9 55.3 Nationwide State Auto Companies $6,688 $2,443 3.5 1.3 81.5 10.4 Cincinnati Argo Financial $6,082 $2,276 3.2 30.8 Alfa ARX Holding $5,984 $1,956 3.1 1.0 42.2 34.9 Munich-American/American Employers Casualty Co. Modern $5,803 $1,881 3.0 1.0 37.5 22.4 GeoVera HDI-Gerling America Holdings LtdCo. $5,442 $1,722 2.8 0.9 125.9 5.8 QBE CNA Financial (Gen Cas/Unigard) $5,079 $1,671 2.7 0.9-45.2 28.5 AXIS Aspen Capital Holdings Holdings $4,221 $1,299 2.2-35.1 7.2 National XL Security plc Inc. $3,992 $1,257 2.1 45.0 6.1 Swiss Kemper Re Ltd $3,713 $1,254 1.9-29.3 32.8 Baldwin Farmers Co. $3,584 $1,240 1.9 20.0 1.6 IAT W. R. Reinsurance Berkley (U.S.) $3,275 $1,155 1.7 36.8 8.1 Markel Allianz /Fireman s Fund $3,272 $1,123 1.7 23.5 3.2 Liberty Federated Co. $2,711 $1,090 1.4 28.0 59.4 Arch Auto-Owners Capital Co. $2,627 $1,057 1.4-77.9 13.6 State Houston Auto Companies $2,443 $1,053 1.3 10.4 3 Argo RLI $2,276 $959 0.5-7.7 ARX Tokio Holding Marine $1,956 $856 1.0 0.5 34.9 97.2 Employers Berkshire Hathaway Casualty Inc. Co. $1,881 $822 1.0 0.4 22.4 20.1 HDI-Gerling Chubb America Co. $1,722 $765 0.9 0.4 125.9 9.7 CNA Financial $1,671 0.9-45.2 Statewide s $175,996 38.0 Aspen Holdings $1,299-35.1 Data Source: SNL Financial, by permission, and the XL Property plc Report Database. $1,257 6.1 Kemper Loss Ratio is incurred losses as a percentage $1,254 of direct 32.8 premium earned. The ratio does not include dividends or Farmers loss adjustment expense. Single-year $1,240 data can be skewed 1.6 W. by R. reserve Berkley adjustments. $1,155 36.8 Allianz /Fireman s Fund $1,123 23.5 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. Federated Co. $1,090 59.4 fax or email, Co. without prior $1,057 permission 13.6 of the Publisher. For information call (949) 443-0330. Auto-Owners Houston $1,053 3 RLI $959 0.5-7.7 Tokio Marine $856 0.5 97.2 Berkshire Hathaway Inc. $822 0.4 20.1 that don t require it offer substantial discounts to entice customers to bundle. The state hasn t experienced significant nonrenewals since Alfa, the state s second largest homeowners writer, dropped more than 70,000 policyholders in 2011. Statewide, homeowners rates increased 4.5 in 2014 and 6.9 in 2013, Angell said, adding that rates are moving in the right direction. Angell also noted that the newly released data from the National Association of Commissioners shows that residents pay far less than other Gulf Coast residents. In 2012, average premium for homeowners insurance was about 71 higher in Florida, 14 higher in Mississippi, 38 higher in Louisiana and 17 higher in Texas. (We will publish average homeowners premium in the next issue of Property Report.) Carriers have been raising inland rates, which were kept artificially low as insurers sought business away from the coast in the mid- 2000s, but even today indicated rates for inland risks are higher than what insurers are requesting, Angell said. Five companies have decreased rates on the coast, some by double digits. The wind pool increased rates 1.5 last year, but that came after an 11 decrease in 2013 and a 6 decrease in 2011 while staying flat in 2012. The size of the wind pool has been relatively stable. Written premium fell about 3 in 2014 even as policy count rose 6, Angell said, suggesting that the wind pool is writing less coverage among highly exposed properties near the Gulf of Mexico and more for less exposed policies near Interstate 10. One more factor is making property risk along the coast somewhat more attractive: As the economy and housing construction pick up, the coastal housing stock is becoming more resilient. More coastal communities require new con- Please see ALABAMA on Page 9

January 26, 2015 PROPERTY INSURANCE REPORT Page 9 State Market Focus: ALABAMA Continued from Page 8 struction to meet the highest levels of fortification based on standards set by the Institute for Business and Home Safety. As of December, 1,100 properties nationwide were designated as fortified, with most of them along the and Mississippi Gulf Coast, according to Alex Cary and Julie Shiyou-Woodard of Smart Home America. leads in new construction, and Mississippi leads in mitigation retrofits. The numbers are increasing quickly and are expected to grow even more significantly this year because of builder buy-in and several larger builders adopting fortified as their standard, said Shiyou-Woodard. Still, there is still a long way to go, and lacking funding to offer retrofit grants in, the existing housing stock is not getting upgraded as fast as anyone would like. Gov. Robert Bentley has promised to dedicate $100 million in fines from the Deepwater Horizon oil spill to fund a mitigation grant program that, without a budget, exists in name only. It s unclear, however, when that money will be available. Increasing mitigation efforts is a priority, and regulators are pressing insurers to do more to educate their agents and policyholders about the benefits of fortification; the mandatory insurance discounts that come with achieving an official fortified designation; and the ability to pay for improvements with catastrophe savings accounts, which allow homeowners to accumulate funds free from state tax to pay for improvements and storm deductibles. The accounts hold great promise, but no one is marketing them and no one has any idea how many actually exist. Smart Home America is launching a campaign with the recently trademarked slogan: Don t goof when you reroof. Shiyou-Woodard said numerous towns in Baldwin and Mobile counties require homeowners installing a new roof to meet the IBHS Fortified Bronze standard. Unfortunately, she said, many homeowners don t realize that they need a third-party evaluation as the roof goes on in order to qualify for IBHS certification and the mandated insurance discounts. Insurers, agents and building code officials, she said, are our first responders. The mitigation discounts are larger than they are in any other state, Angell said. Mitigating to the silver level, for example, gets a 45 discount on wind premium and a new home built to the bronze standard earns a 60 discount. For all the improvements, members of HHII, including the 1,000 or so who gathered for a fish fry last spring and the contingent expected to meet tonight, strongly believe they are paying rates that are unfair. They are pursuing a longterm strategy that they hope will dramatically change the current system so that it is not beholden to hurricane models and global reinsurers. They are working with grassroots groups in coastal states along the Eastern Seaboard and the Gulf Coast to develop a proposal that would create a multistate catastrophic insurance district. Creation of the district would require an act of Congress. Their idea is for a non-governmental agency that would collect all of the wind and flood insurance premium for properties within a certain distance perhaps 50 to 70 miles from the coast, and pay all wind and flood losses for named storms. This approach, according to Dan Hanson, a volunteer leader with HHII, would end the conflict between coastal and inland homeowners over rates and subsidies. Acknowledging that the plan was far from complete, Hanson said he hoped this program could be collecting its first premiums by December 2017. The idea of a multistate approach to insurance issues is not entirely within the imagination of grassroots consumer groups. The Affordable Homeowners Commission, which was Please see ALABAMA on Page 10 Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. fax or email, without prior permission of the Publisher. For information call (949) 443-0330.

Page 10 PROPERTY INSURANCE REPORT January 26, 2015 GRAPEVINE Continued from Page 3 for the decade was 6.4, pushed upward by a 16.5 profit margin in 2013. While Hawaii has the biggest profit margin, its small size requires us to expand our search for profit leaders to include the larger markets. And you don t need to look any further than the nation s third-largest market by premium volume, California, which is far and away more profitable than any other big state. For the decade ended 2013, California posted and average annual profit of 19.1 and a one-year 2013 profit of 17.1. That ranks fourth in the nation, and far ahead of New York, the next best state among the 10 largest, which posted a 10-year average profit of 15.4, thanks to a 24.6 profit in 2013. When we ask property insurers for states that frighten them, New York is often on the list. Clearly that is for what might happen in the future (as predicted by catastrophe models), because even with Hurricane Sandy on the books, the past looks too solid for a rational person to fear. The nation s biggest market by premium volume, Texas, boasts an above-average profit margin for both the decade (9.2) and in 2013 alone (17.4). Given the volatility of the Texas market, and the capital requirements necessary to manage that volatility, Texas superior profits seem only acceptable at best. But at least they re better than the nation s second-biggest market, Florida, which had a gangbuster 2013, with a 33 profit margin that led the nation, but only in service of balancing the long-term results, which shows an average annual loss of 0.5 for the decade. When the huge losses flowing from multiple 2004 hurricanes leave the decadal average, Florida will look much better but will still fall far short of the kind of long-term profit insurers require to handle the volatility endemic to this market. PIR PROPERTY INSURANCE REPORT Established 1994 Brian P. Sullivan, Editor Telephone: (949) 443-0330 Email: bpsullivan@riskinformation.com Leslie Werstein Hann, Managing Editor Telephone: (908) 574-5041 Email: leslie@hannwriting.com Patrick Sullivan, Associate Editor Telephone: (949) 412-5851 Email: bpsullivan@gmail.com Subscription Information: (800) 633-4931 On the Web: www.riskinformation.com Property Report, 2015, published weekly, 48 times a year, by Risk Information Inc., 33765 Magellan Isle, Dana Point, CA 92629. It is a violation of federal law to photocopy or reproduce any part of this publication without first obtaining permission from the Publisher. ISSN: 1084-2950 Subscription Rates: $767 per year in U.S. and Canada. Elsewhere $807 per year. Focus: ALABAMA Continued from Page 9 established by Bentley in 2011, released a report that included two recommendations promoting the pursuit of a multistate approach to insurance issues. Another recommendation from the commission called for the establishment of a new Center for Research. On Jan. 5, Lars Powell, a professor of insurance a the University of Arkansas-Little Rock, became the first director of the center, which is based at the University of. Powell told us that the center will serve as a think tank aimed at improving the insurance market in, with a near-term focus on the hot topic of property insurance. One research interest is what impact should mitigation have on the price of insurance and the price of reinsurance. To the extent that the center s research can produce answers that give the global reinsurance community a way to limit uncertainty, Powell said, we would expect prices to come down. PIR Warning: Property Report is a confidential, copyrighted newsletter for subscribers only. fax or email, without prior permission of the Publisher. For information call (949) 443-0330.