January 1st 2014 Renewals Bring Downward Pressure on Pricing, reports Guy Carpenter

Strong capital levels and continued influx of convergence capital spurs innovation and competition in traditional market

New York, NY (Dec. 30, 2013) – Guy Carpenter & Company, LLC, the leading global risk and
reinsurance specialist and member of Marsh & McLennan Companies, reports that
reinsurance rates-on-line fell at the January 1, 2014 renewal in nearly all classes and regions.
According to Guy Carpenter’s 2014 global renewal report, strong balance sheets, relatively low loss
experiences and an unprecedented influx of convergence capital spurred competition and innovation
at renewal. These factors led in turn to surplus capacity across most business segments as
competition spilled beyond property catastrophe lines.

2014 Renewal

The Guy Carpenter Global Property Catastrophe Reinsurance Rate-on-Line Index fell by 11 percent
at the renewal. Much of this was driven by a 15 percent decline in the United States. Property
catastrophe pricing also came under pressure in Continental Europe and the United Kingdom at
January 1, 2014, where prices fell by 10 percent and 15 percent respectively, with risk-adjusted
reductions of up to 20 percent achievable in some cases. Indeed, it is the first renewal in over a
decade where all major territories saw pricing move in the same direction, with some isolated
exceptions. Germany and some parts of the Nordic region suffered significant catastrophe losses
during 2013, causing catastrophe rates for loss-affected programs to rise. Canada also saw pricing
increase as severe flood events meant the country experienced its most expensive insured
catastrophe loss year on record.

“It is difficult to think of another time in recent history where multiple factors have come together to
support a market so focused on individual client need. There is tremendous innovation driving
tailored solutions at reduced pricing to the benefit of our clients,” said Lara Mowery, Global Head of
Property Specialty at Guy Carpenter.

Softening market conditions spilled beyond property catastrophe lines at January 1, 2014 as pricing
fell in most other business segments. Although the impact was less dramatic outside of property
catastrophe lines, price movements across non-catastrophe business showed a general trend of
decline as reinsurers deployed more capacity into these lines. Casualty pricing was generally flat to
down, despite low investment yields due to historically low interest rates and adverse development
for some U.S. workers compensation writers.

Maximizing Client Value

In a year which saw record amounts of new capital entering the market, Guy Carpenter’s clientcentric
approach and deep industry relationships have helped clients pursue specific coverage and
pricing goals by maximizing the use of both traditional reinsurance and diversified capital market
products. This was clearly evident during this year’s U.S. property catastrophe renewal where the
broadening of coverage terms was prevalent. While a wide range of options were considered based
on specific priorities, clients most commonly sought an extension of hours clauses, improved
reinstatement provisions and expanded coverage for terror exposures. This was achieved on a caseby-
case basis, with clients weighing the benefits specific to the composition of their portfolios and
corporate goals against the relative cost savings. Multi-year coverage was also more widely available,
with enhanced features such as price adjustment caps. Many clients took advantage of this

Guy Carpenter’s commitment to deliver innovative solutions while closely collaborating with markets
was demonstrated in 2013 with the launch of a new property catastrophe reinsurance facility for
mutual companies. The creation of this facility began in July and included significant analysis specific
to terms requested. Coverage within the facility focused on enhancements important to clients and
pricing was provided by the market independent of the core renewal. Many of these coverages were
often additionally incorporated more broadly into the renewals.

At Guy Carpenter, year-round work with each client enables the creation of customized programs
based on a thorough understanding of the market and of clients’ unique business objectives. This
ensures the broadest and most effective coverage on each client’s behalf. Clients place value on
many different priorities which, in this innovative market, has led to a less standardized, more tailored
reinsurance product. Guy Carpenter has always believed that an open and transparent dialog with all
counterparties enables clients to make the most informed decisions regarding their reinsurance

Market Drivers

The continued expansion of accessible capital, strong balance sheets and relatively low catastrophe
losses were all drivers of the January 1, 2014 renewal outcome. Guy Carpenter estimates dedicated
sector capital remained at near record levels having risen marginally to USD322 billion at year-end
2013. Significantly, global insured losses totaled approximately USD40 billion in 2013, lower than the
ten-year average loss of USD60 billion, contributing to ample capital available in the reinsurance
market at January 1, 2014. This meant reinsurance supply often outstripped insurer demand.

“We have seen a surge in capital, through both alternative and traditional vehicles, over the last two
years, which has transformed the nature of the reinsurance sector’s capital structure,” said David
Flandro, Head of Business Intelligence at Guy Carpenter. “Today’s market conditions present both
challenges and opportunities for all market constituents.”

Push to Innovate for Traditional Reinsurers

Virtually all traditional reinsurers responded to this competitive environment by embracing the call for
innovation in an effort to meet client needs. In doing so, many reinsurers offered more tailored
coverage utilizing options such as aggregate and quota share cover, multi-year arrangements and
early signing opportunities at reduced pricing. New product offerings for terror and cyber risks were
also developed.

Such accommodative actions by the traditional market served as a reminder of its ability and
willingness to adapt to changing circumstances. In addition, insurers also continue to value the
understanding traditional reinsurers bring to the transaction and their strong record in making swift
claims payments. Many insurers also view reinstatement provisions offered by traditional reinsurers,
something convergence players have not typically provided, as essential coverage in their
reinsurance programs.

Buying Behavior

As a result, many buyers retained the bulk of their traditional coverage at January 1, 2014. Some
large buyers focused their programs on a smaller group of key counter-party relationships that were
meaningful in relation to the overall size of the program. Carriers outside of these strategic partner
groups were aggressively seeking to secure shares by offering competitive prices and supplemental
coverages and products.

“Buyers continue to place a high value on historical relationships with traditional reinsurers,” said
Nick Frankland, CEO of EMEA at Guy Carpenter. “With pricing significantly lower in most lines,
reinsurers are offering increased flexibility on reinstatement provisions and other terms and
conditions, which is helping clients to obtain more from core partners.”

2014 Outlook

The excess capacity that now exists in the marketplace, combined with the sustained challenges of
subdued economic and premium growth, persistently low investment returns, statistically higher longterm
catastrophe loss trends and reduced reserve releases, are forcing (re)insurers to rethink old
ways of doing business and to seek new opportunities through innovation. The potential emergence
of reserve deficiencies in particular is likely to be a more important factor over the next five years. As
highlighted by Guy Carpenter research, it is becoming increasingly apparent that the reserving cycle
is approaching, or in some cases passing, an inflection point where accident year deficiencies may
become more common than redundancies. This is particularly apparent in long-tail lines at present
and emphasizes the need to explore new and prudent growth avenues.

Guy Carpenter will hold a U.K.-based press briefing on January 6, 2014, where the full report will be
released to clients.

About Guy Carpenter

Guy Carpenter & Company, LLC is a global leader in providing risk and reinsurance intermediary services. With
over 50 offices worldwide, Guy Carpenter creates and executes reinsurance solutions and delivers capital
market solutions* for clients across the globe. The firm’s full breadth of services includes line-of-business
expertise in agriculture; aviation; casualty clash; construction and engineering; excess and umbrella; life,
accident and health; marine and energy; medical professional liability; political risk and trade credit;
professional liability; property; retrocessional reinsurance; surety; terrorism and workers compensation. GC
Fac® is Guy Carpenter’s dedicated global facultative reinsurance unit that provides placement strategies,
timely market access and centralized management of facultative reinsurance solutions. In addition, GC
Analytics®** utilizes industry-leading quantitative skills and modeling tools that optimize the reinsurance
decision-making process and help make the firm’s clients more successful. For more information, visit

Guy Carpenter is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of
professional services companies offering clients advice and solutions in the areas of risk, strategy and human
capital. With 54,000 employees worldwide and annual revenue of $12 billion, Marsh & McLennan
Companies is also the parent company of Marsh, a global leader in insurance broking and risk management;
Mercer, a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a global
leader in management consulting.

*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US
registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000.
Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe)
Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of
Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates
owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any
security, financial instrument, reinsurance or insurance product.

**GC Analytics is a registered mark with the U.S. Patent and Trademark Office.