Property/Casualty Insurance

1. Property/Casualty Insurance Jay Cohen First Vice President Merrill Lynch 212 449-5206 jay_a_cohen@ml.com Refer to important disclosures at the end of this report.Analyst Certification on page 23. Investors should assume that Merrill Lynch is seeking or will seek investment banking or other business relationships with the companies in this report.

2. The Fundamental ViewOverview • Price Increases Continuing • Balance Sheet Strain Evident • Commercial Lines/Reinsurance Turning Faster than Personal Lines • Claims Inflation, Low Interest Rates, Reserve Issues Held Back Earnings • Expect Earnings to Reflect Improving Environment in 2003 and 2004 • Still Challenges Ahead

3. Balance Sheet Strain • September 11th Losses • Loss reserve issues • Equity market declines • Credit losses • Rating Agency Pressures

4. Combined Ratio 1Q95-4Q02

5. Investment Income % of Premiums

6. Return on Surplus, 1Q95-4Q03

7. Management Changes • IPC Re • Horace Mann • Zurich • Royal Sun • Commercial Union • Allianz • Argonaut • St. Paul • CNA (2x) • SAFECO • Ohio Casualty • Chubb • PartnerRe • Allmerica Financial

8. The Fundamental View Commercial Lines • Premium Rates Rising in Most Lines 10%+ • Expect Rates to Rise for Another 1-2 Years • Margin pressure still evident • Supply Constrained • Reinsurance prices rising • Increases for Standard Risks Decelerating • Larger Risks/Specialty Seeing Bigger Increases • Look for Earnings Growth in 2003-2004 • Reserves Will Be an Issue for Some Insurers

9. The Fundamental View Commercial Lines (Cont.) “Anecdotes from Agents” • Carriers looking for more (clean) business • Underwriting standards have not changed • Risk appetite is still limited • No changes in terms/conditions • Kemper an issue for smaller brokers • Price increases staying ahead of claims • Buyers seem prepared for more increases

10. The Fundamental View Reinsurance • Prices began rising in early 2001 • Earnings Deteriorated in 2001 and 2002 • Reserve Shortfall Still An Issue • Property Catastrophe Levelling Off • Casualty Still Needs Improvement • New Capacity Focused on Reinsurance • Flight To Quality

11. The Fundamental View Personal Lines • Margins Peaked in 1999 • Claims Expenses on the Rise (Auto and Home) • Prices Rising, and Now Exceeding Claims Inflation • Distribution Issues • Largely a Commodity

12. Challenges • Loss Reserves • The Alternative Market • Dominance of Mutuals in Certain Lines • Lower Investment Yields • Increased Credit Risk • Regulatory Constraints • Price Increases relative to starting point • Claims Inflation • Capital Availability

13. Challenges • Industry Structure • Mature Industry • Capital Intensive • Little Control Over Distribution • Little Product Differentiation • Losses Slow to Emerge • Pricing Tends to Lag Loss Costs

14. Challenges Capital Availability

15. What Moves the Stocks • Fundamentals • Pricing • Earnings • Interest Rates • Higher rates bad for stocks (all else being equal)

16. Valuation • Price Earnings • Earnings growth • Earnings consistency • Earnings sustainability • Group discount to the market • lower quality earnings • Price/Book (see later slide)

17. Price/Book VS. 2004E ROE • Sustainability of ROE • Consistency of ROE • Quality of Book Value • Leverage • Investment Portfolio

18. Historic P/E Ratios

19. Historic Price/Book Ratios