Australian Insurance Market Intelligence

1. Broker Version Regional Watch Asia Pacific – Established Markets International MarketsMarket IntelligenceJanuary 2010 FOR BROKERS Disclaimer

2. Regional Dashboard Australia Currently only available for Managing Agents in password-protected Regional Watch New Zealand Click to navigate Currently only available for Managing Agents in password-protected Regional Watch Hong Kong Disclaimer

3. Agriculture 1000 10% 891 910 856 3% 800 8% Industry 600 6% 27% 400 4% 200 2% Services 0 0% 70% 2006 2007 2008 25 5% Misc, 12% 21.3 20.1 20 4% 17.5 Property, 30% 15 3% 10 2% Motor, 38% Liability, 18% 5 1% 0 0% MAT, 3% 2006 2007 2008 Misc 998 1000 15% MAT 2% 869 11% 772 800 10% 600 Motor 2% 400 Property 5% 200 36% Liability 49% 0 0% 2006 2007 2008 Direct 9% Other 10% Broker 81% click for basic information click for detailed information Back To >Regional Dashboard Australia: Country Dashboard GDP 2008 USD 891BN GDP SIZE IN USD BN AND GDP GROWTH OVERVIEW GDP SIZE : 14th worldwide (UK ranks 6th) EASE OF DOING BUSINESS: 9th worldwide GLOBAL COMPETITIVNESS: 18th worldwide STRENGTHS: the Australian economy is open, internationally competitive and export-oriented CHALLENGES: affected by the financial crisis, private individuals are expected to be very cautious when making new purchases ECONOMY NON-LIFE DWP 2008 USD 21.3BN OVERVIEW SIZE: 13th worldwide (UK ranks 3rd) TOP 5 INSURERS: Vero, QBE Australia, Insurance Australia, Allianz Australia, Insurance Manufacturers Australia – write 50% of total DWP KEY CLASSES: Motor with high claims ratio (90%), property and liability with medium claims ratio (65% and 50%, respectively) REINSURANCE: USD 1.1bn (2008) PENETRATION: ~ 2.4% DWP SIZE IN USD BN AND DWP GROWTH INSURANCE GWP SIZE IN USD BN AND DWP GROWTH NON-LIFE GWP 2008 USD 998M OVERVIEW SIZE: 4th for Lloyd’s (UK ranks 2nd) TOP 5 MAs: write 20% of non-life GWP KEY CLASSES: liability and property REINSURANCE: USD 180mn (2008) PENETRATION: ~ 4.5% STATUS: direct (re)insurance licence with certain exemptions: www.lloyds.com/crystal TYPE 3 OFFICE: www.lloyds.com/australia Lloyd’s COMPULSORY CLASSES: aircraft liability, builders warranty, workers compensation, 3rd party motor, maritime oil pollution liability, satellite launch operators liability, professional indemnity for financial services licensees REGULATOR OF INSURERS www.apra.gov.au REGULATOR OF INTERMEDIARIES www.asic.gov.au • BREAKDOWN OF COMMERCIAL LINES 2008 Commercial lines are broker dominated. The top 5 brokers by brokerage income are Marsh, Aon, Jardine Lloyd Thompson, Willis and OAMPS. regulations DISTRIBUTION catastrophes Highly susceptible to hail, storms, flooding and bushfires. Market Intelligence data based on: Australian Prudential Regulatory Authority General Insurance Bulletin, Australian Securities and Investments Committee, Deloitte, Global Edge, Global Opportunities, Insurance Council of Australia (ICA), Lloyd’s crystal, PricewaterhouseCoopers, Xchanging. DWP = direct written premiums. GWP = gross written premium (includes reinsurance). Claims ratio = claims as % of DWP earned from 2005 to 2008. Disclaimer

4. Bushfires Storm related events Hailstorms NSW = New South Wales, NT = Northern Territory, Q = Queensland, SA = Southern Australia, V = Victoria, WA = Western Australia NT Q WA SA NSW V Back To >Country Dashboard Australia: Catastrophes AUSTRALIAN NATURAL DISASTERS 1994 – 2009 Australia major cat events 1994-2009 Australia has seen a range of natural disasters over the last 15 years, with the 1999 hailstorms in Sydney still ranking as Australia’s most expensive natural disaster and estimated to have cost insurers USD 1bn. Natural disasters tend to cause most damage in NSW and Q. In the last 15 years, bushfires have caused approximately USD 340m worth of damage in NSW alone. Storm related events such as cyclones and flooding have lead to approximately USD 1.8bn worth of damage, with the majority of events located in north-eastern Australia (Q and NT). Hailstorms were responsible for approximately 2.1bn worth of damage, with the majority of events located in south-eastern Australia (NSW and V). AUSTRALIA: regulators All brokers must either hold an AFS (Australian Financial Services) licence issued by ASIC (Australian Securities and Investments Commission) or become an authorised representative of a separate licencee. To obtain a licence, the applicant must meet the general obligations set out by ASIC. These obligations pertain to responsibilities in the areas of compliance, internal systems, people and resources. ASIC monitors a licencee’s compliance, internal systems and people through surveillance checks and its financial resources by setting a minimum solvency margin and requiring annual financial reporting. asic APRA (Australian Prudential Regulation Authority) is responsible for the prudential regulation of insurers in Australia. APRA’s supervisory objectives are met by maintaining a regulatory framework within which insurers must operate and by setting solvency, capital adequacy and financial reporting requirements. apra For more information on regulators visit the PricewaterhouseCoopers Australian website, the APRA website and the ASIC website. Disclaimer

5. 120% 100% 80% 60% 40% 20% 0% 96 98 00 02 04 06 08 Back To >Country Dashboard Australia: insurance market (1 of 2) Between 1996 and 2001 Australian non-life DWP suffered a period of slow decline before two key factors in 2001 sparked a significant growth. The first factor were the events of 9/11, which led to a reduction in world-wide reinsurance capacity. The second factor was the collapse of HIH Insurance, at the time Australia’s second largest insurer, which led to a reduction in local insurance capacity. The average annual growth rate from 2001 to 2003 was strong at approximately 25%. Since 2004 however, the non-life insurance market has been softening due to stiff competition between insurers and recent tort law reforms. The underwriting expense ratio has remained fairly stable over the last 13 years at approximately 30%. The claims ratio was stable at approximately 80% between 1996 and 2000. Between 2001 and 2006 however, it plummeted to approximately 55%. Since 2006, it has been on the rise, back towards its pre 2000 value of approximately 80%. The dip in claims ratio observed between 2001 and 2006 coincides with the period of strong DWP growth mentioned above. The combined ratio closely follows the pattern set by the claims ratio and was below 100% only between 2002 and 2007. INSURANCE PROFITABILITY 1996 – 2008 INSURANCE TREND 1996-2008 Underwriting Expense Ratio Claims Ratio Combined Ratio Driven by concerns over rising insurance premiums and the reported unavailability of liability insurance, the Australian government decided to review its tort law in late 2002. In 2003 all territories legislated to both narrow the scope of potential liability and reduce the damages that may be awarded. The ultimate objective was to confine insurers’ exposure so that they could deliver more affordable insurance products to consumers. Since the implementation of the tort law reforms, the Australian Competition and Consumer Commission has reported a drop both in claims brought forward by plaintiffs and the average liability premium charged by insurers. Notwithstanding the increased affordability of liability cover, the tort law reforms have incurred some criticism as they are now less plaintiff friendly. Whilst some minor changes may hence be expected, there is however very little prospect that tort law will revert back to its pre-2003 status. Tort law reforms For more information on the tort law reform read ‘Tort law reform throughout Australia’ by Minter Ellison. Insurance trends obtained from APRA and Pricewaterhouse Coopers Australian website. Disclaimer

6. WA 11% NSW 39% V 22% SA 6% T 2% Q 19% NT 1% Back To >Country Dashboard Australia: insurance market (2 of 2) KEY CLASSES in the Australian Insurance Market are motor, property and liability, accounting for approximately 85% of total non-life DWP over the last four years (2005-2008). The size of the liability class (on average 20% of total non-life DWP over the last four years) reflects the sophisticated nature of the Australian non-life insurance market. MOTOR is divided into third party liability and comprehensive. Liability policies provide unlimited indemnity in respect of bodily injury or death. Recent tort law reforms have reduced premium levels for third party liability policies. For information on class size, growth and claims ratio... PROPERTY is divided with an approximate 50/50 premium split between household and commercial. Whilst household rates are stable and the market is fairly profitable, commercial rates have been driven down by an absence of large fire losses to the point where the market is barely profitable. For information on class size, growth and claims ratio... LIABILITY includes public, product and D&O liability and professional indemnity. Following the tort law reforms, liability became a more profitable class, although this in turn lead to fresh capacity entering the market and a reduction in premium rates. For information on class size, growth and claims ratio... Key classes Australia has 7 territories: New South Wales (NSW), Northern Territory (NT), Queensland (Q), Southern Australia (SA), Tasmania (T), Victoria (V) and Western Australia (WA). Key territories in terms of DWP are NSW, Q and V, which together account for approximately 80% of total DWP. The following slide provides detailed information on classes of business by region. Information is given on DWP by region, DWP growth by region and claims ratio by region for the five business classes. REGIONAL DWP BREAKDOWN 2008 Regional analysis Market Intelligence data based on information from the APRA and ICA websites. Disclaimer

7. 120% Misc, 12% 80% Property, 30% Motor, 38% 40% Liability, 18% 0% MAT, 3% NSW NSW NSW NSW NSW NSW NSW NSW NSW NSW NT NT NT NT NT NT NT NT NT NT Q Q Q Q Q Q Q Q Q Q SA SA SA SA SA SA SA SA SA SA T T T T T T T T T T V V V V V V V V V V WA WA WA WA WA WA WA WA WA WA 200% 10% WA 7% 150% 5% V 20% NSW 44% 100% T 1% SA 5% 0% 50% Q 23% 0% -5% NT 0% Back To >Country Dashboard Australia: Class of Business by Region* Motor, property and liability account for 85% of DWP in 2008; claims ratios have been steadily increasing from an average of 60% in 2005 to 80% in 2008; the claims ratio for liability and MAT are below the Australian average over the last 4 yrs. DWP 2008 USD 21.3BN DWP GROWTH 2006-2008 CLAIMS RATIOS 2005-2008 CLASS OVERVIEW 80% of property DWP was written in NSW, Q and V in 2008; NT has demonstrated strong GWP growth; compared to Australian property average over last 4 yrs; Q exhibits a high claims ratio whilst NT exhibits a low claims ratio DWP 2008 USD 6.3BN DWP GROWTH 2006-2008 CLAIMS RATIOS 2005-2008 PROPERTY 75% of liability DWP was written in NSW, V and WA in 2008; GWP growth largely on the decrease or negative; erratic claims ratios; the claims ratio for Q and V are below Australian liability average over last 4 yrs CLAIMS RATIOS 2005-2008 DWP 2008 USD 3.9BN DWP GROWTH 2006-2008 LIABILITY DWP 2008 USD 0.56BN DWP GROWTH 2006-2008 CLAIMS RATIOS 2005-2008 70% of MAT DWP was written in NSW, Q and V in 2008; GWP growth largely small or negative; claims ratio for SA, T and WA are below Australian MAT average over last 4 yrs MAT 85% of motor DWP was written in NSW, Q and V in 2008; DWP growth has been positive in Q, SA and T but erratic in NSW and WA; claims ratio for Q, T and WA are below Australian motor average over the last 4 yrs DWP 2008 USD 8.0BN DWP GROWTH 2006-2008 CLAIMS RATIOS 2005-2008 MOTOR 80% of miscellaneous DWP was written in NSW, Q and V in 2008; other than in NT and SA, DWP is largely on the decrease; claims ratio for NT, SA and WA are below the Australian miscellaneous average over the last 4 yrs DWP 2008 USD 2.4BN DWP GROWTH 2006-2008 CLAIMS RATIOS 2005-2008 MISCELLANEOUS Market Intelligence data based on APRA General Insurance Bulletin. * NSW = New South Wales and Australian Capital Territory, NT = Northern Territory, Q = Queensland, SA = Southern Australia, T = Tasmania, V = Victoria, WA = Western Australia Disclaimer

8. LIABILITY PROPERTY MAT MOTOR MISC WA 9% V 18% NSW 49% T 0% SA 6% Q 18% NT 0% Back To >Country Dashboard Australia: Lloyd’s Position CLASS GWP AS % OF TOTAL DWP LLOYD’S GWP SIZE (USD M) AND GROWTH LLOYD’S TREND 2001-2008 Lloyd’s non-life GWP growth in Australia was very strong between 2001 and 2003 at approximately 25%, before slowing down in 2004. Since 2004, the average annual growth has been approximately 5%. This trend closely follows that exhibited by the Australian DWP over the same period. The graph on the right illustrates how the different classes have been fairing, as a percentage of total non-life GWP written by Lloyd’s, from 2001. In the last 8 years, the proportion of total GWP written in property and liability (Lloyd’s 2 key classes) has been on the rise, whilst the proportion of total GWP written in MAT, motor and miscellaneous has been on the decrease. Motor and miscellaneous in particular have practically disappeared. REGIONAL BREAKDOWN 2008 Lloyd’s operates 114 coverholders in Australia in 2008. The vast majority (approximately 85%) are located in NSW, Q and V, with half of them in NSW alone. The regional breakdown of coverholders closely follows that of the Australian DWP. coverholders The Lloyd’s market is fairly consolidated, with the top 10 managing agents writing approximately 30% of non-life GWP and the top 10 brokers placing approximately 40% of non-life GWP (2008). other Market Intelligence data based on information from Lloyd’s Xchanging and Lloyd’s coverholder directory. Disclaimer

9. 100% 80% Brokers 60% Other 40% 20% Direct 0% 99 00 01 02 03 04 05 06 07 08 Back To >Country Dashboard Australia: Distribution Channels PERSONAL LINES COMMERCIAL LINES 100% 80% 60% 40% 20% overview 0% 99 00 01 02 03 04 05 06 07 08 Personal and commercial lines differ considerably in their use of distribution channels. The majority of personal lines business is sold direct (~60%) whilst the majority of commercial lines business is placed by brokers (~80%). Over the last decade there has been no significant growth of one distribution channel (broker, other or direct) at the expense of another, both within personal and commercial lines. Brokers are estimated to control around 15% of personal lines business and 80% of commercial lines business. Overall, they place about half of the total Australian Insurance business every year. In 2008, driven by the increased cost of remaining competitive, the broking industry saw significant merger and acquisition activity. The broking industry is also dealing with shifts in consumer behaviour towards the internet and the impact of telemarketing and contact centres set up directly by insurers. In 2008 the top five brokers within Australia by income were (in alphabetical order): Aon, Jardine Lloyds Thompson, Marsh, OAMPS and Willis. brokers Direct business refers to that placed directly by the insurer through local branches, call centres and the internet. Over the last decade there has been a strong shift from branch networks to call centres as insurers attempt to cut costs. The volume of branch business now appears to be stable, with Suncorp Metaway emerging as the main branch distributor. Australia has one of the largest internet penetrations in the world. The role of internet in insurance is particularly strong in the vast interior. Some insurers note however, that the internet is used largely for insurance research and not insurance purchase. direct Other distribution channels include, for example, bancassurance. There is currently little cross-ownership between banks and non-life insurance companies in Australia. other Disclaimer

10. Appendix:Lloyd’s Data Limitations Back To >Regional Dashboard Please note the information contained in this document is based upon data collected from Xchanging and may be incomplete for some classes of business; for instance a substantial figure, which is missing from the REG 258 data set is comprised of UK Motor, which is not processed by Xchanging. Gross Premiums: Original and additional inward premiums, plus any amount in respect of administration fees or policy expenses remitted with a premium but before the deduction of outward reinsurance premiums. Lloyd’s figures are based on gross written premiums based on figures processed by Xchanging by processing year and country of origin. Country of Origin: denotes the country from where demand for the insurance / reinsurance emanates; i.e. the coverholder or policyholder, irrespective of the country to which the risk is classified for regulatory reporting purposes. Processing Year: relates to the calendar year in which the premium, additional or return premium is processed by Xchanging, irrespective of the actual underwriting year of account of the risks (which is determined by the inception date of each risk). Example: A policy holder in the UK insuring a holiday home in France would be classified as a UK risk by Country Of Origin, but French for regulatory reporting purposes. Similarly a risk incepting on 1st December 2007 would be classified at 2007 underwriting year of account but may not be processed by Xchanging until 2008 and so be allocated to the 2008 processing year Disclaimer

11. Disclaimer This document is intended for general information purposes only. Whilst all care has been taken to ensure the accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions. Lloyd's does not accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not limited to, any statement, fact, figure, expression of opinion or belief obtained in this document.