PIAA ANNUAL MEETING Medical Malpractice Insurance Market Update

PIAA ANNUAL MEETING Medical Malpractice Insurance Market Update May 28, 2005 Presented by: Hope Maxwell Senior Vice President 1

2000 Top 20 Med Mal Carriers Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

2003 Top 20 Med Mal Carriers Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

Med Mal Financial Issues n Premium Growth/Capitalization § Key financial issue facing many specialty carriers § Rate increases vs. exposure growth § Surplus growth vehicles (Surplus Notes, Trust Preferreds) n Unfavorable Loss Cost Trends - Severity n Historically Low Interest Rate Environment § Book yields drop significantly § No reliance on future investment income to offset underwriting Prime Advisors, Inc. ®

Peer Group Definitions n PIAA Excl MLMIC § Includes data for all PIAA Members, excluding MLMIC and its subsidiaries n Specialty Med Mal § Includes all PIAA Members, MLMIC, and other companies that specialize in med mal, including Med Pro. 54 companies total. n All Med Mal § Represents all med mal written in the US. Commercial carriers’ results for their med mal book only are included. Prime Advisors, Inc. ®

Capitalization n Capacity and capitalization are one of the most significant financial issues facing specialty med mal carriers § Leverage ratios are traditional measure of capitalization § Leverage ratios must be analyzed with profitability measures § For rating agency purposes, leverage ratios should also stay close to peer group averages Net written premiums/surplus Net Premium Leverage + All Liabilities/Surplus Data per National Underwriter Insurance Data Services and AM Best’s Aggregates and Averages Prime Advisors, Inc. ®

Capitalization Data per National Underwriter Insurance Data Services. AM Best rating levels as of 4/15/05. Prime Advisors, Inc. ®

What is Driving Leverage? n Surplus growth has not kept pace with premium growth Data per National Underwriter Insurance Data Services and AM Best’s Aggregates and Averages Prime Advisors, Inc. ®

What Has Happened to Surplus? Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

Will Surplus Improve from Operations? n Underwriting results are key to success in the future § Improvements in 2004 combined ratio must be sustainable § Investment income margins continue to decline for most med mal companies, increasing the pressure on underwriting results Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

Combined Ratio Components Data per National Underwriter Insurance Data Services and AM Best’s 2004 Aggregates and Averages Prime Advisors, Inc. ®

Combined Ratio Components Data per National Underwriter Insurance Data Services and AM Best’s Aggregates & Averages. Note 2004 All Med Mal Combined Ratio is an estimate per AM Best. Prime Advisors, Inc. ®

Operating Ratio Components n What is driving improved investment income? § Significant improvement in underwriting cash flow Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

Invested Assets n Where are companies investing the cash? Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®

The Future Challenges to Future Underwriting Results n AM Best expects a combined ratio of about 133 in 2004 & 130 in 2005 n Breakeven combined per AM Best is 114 n Loss cost trends – have frequency and severity stabilized? n Adverse reserve development – are we done yet? Data per National Underwriter Insurance Data Services Prime Advisors, Inc. ®