The Hales Report

THE HALES REPORT

1270 Avenue of the Americas, Suite 930, New York, NY, 10020 | [email protected] Issue #11, Vol: 4 May 26, 2020

Inside This Issue Hales Top 100 U.S. Agents & Brokers 2019 Update. Revenues $47B (+13% YOY) pg 1 A Closer Look At Top 100 Trends Incl. Size Thresholds & The $1B Broker Club pg 5 Retro, The “Tip Of The Spear,” And Reinsurance Driving Top Down Hard Market pg 9 Lloyd’s Sees COVID-19 Industry Loss Of ~$50B; Total Q1 Loss Tally ~$6-7.5B pg 13 CIAB Survey Shows Pricing +9.3% In Q1, Tracks COVID Impact Across Lines pg 14 Market Pressures + COVID Drive Acceleration In D&O Pricing In Q1 pg 16 BRP Keeping An Eye On M&A & Producer Opportunities Amidst COVID Volatility pg 18 NJ Joins CA In Mandating Premium Refunds; CA Extends Mandate Incl. No Cancels pg 19 Insurtech Q1 Stat Review: Strong Premium Growth, U/Wing Profits Still Elusive pg 21 Auto CPI Observes Sharp Decline (-6.2%) Reflecting Premium Giveback Programs pg 24 Hales Hits, Q2 Deal Diary & Broker Valuations pg 25

Hales Top 100: Largest Commercial Focused Agents & Brokers In The U.S. Based On 2019 Revenue ($47B Total, +13% YOY).

This week we release the full “Hales Top 100” U.S. agents & brokers based on 2019 revenue. The list ranges from #1 Marsh & McLennan with $7.2B of U.S. revenue to the #100 agency with $30M (High Street Insurance Partners). A few points of interest:

1) The entire Top 100 represents $47B of aggregate revenue, an increase of 13% year-on-year, which includes not only organic growth but significant revenue from acquisitions. Notably, only 5 agencies reported lower 2019 revenue. 2) The top 6 brokers by revenue are all publicly traded and represent $25.9B of revenue, an increase of 10% in 2019, or 55% of the Hales Top 100 (56% in 2018). 3) Within the top 25 there are 13 private equity backed “aggregators” which represent $13.2B of revenue (~28% of total), with growth of ~21% in 2019. Across the entire Top 100, and including companies that have a hybrid PE/ Management ownership, Private Equity firms are invested in 21 of the Top 100 agents representing 29% of total revenue (vs. 27% in 2018). Revenues for this group grew 22% in 2019. 4) Three of the Top 100 have been acquired so far in 2020 and are highlighted in red: #35 Assurance Agency (Marsh Agency), #40 Associated Benefits (USI) and #58 LMC Ins & Risk Mgmt (AssuredPartners). Additionally, #2 Aon is expected to acquire #3 Willis Towers Watson in H1 2021. 5) The threshold to be a “Top 10” broker continued to increase, now >$1.5B vs. $1.35B last year. See additional considerations in the subsequent article.

The Hales Report Contact: [email protected] Page 1

Exhibit 1 Hales Top 50 U.S. Agents & Brokers Rank U.S. Revenue ($,M) 2018 2019 Company 2018 2019 % Change Type 1 1 Marsh & McLennan $7,219 $7,840 8.6% Public 2 2 Aon PLC $4,677 $5,016 7.2% Public 3 3 Willis Towers Watson $3,970 $4,370 10.1% Public 4 4 Arthur J. Gallagher $3,631 $4,063 11.9% Public 5 5 Brown & Brown $1,999 $2,385 19.3% Public 6 6 Truist $1,958 $2,215 13.1% Public 7 7 USI Insurance Svcs $1,795 $1,894 5.5% Private Equity 8 8 Hub International $1,685 $1,855 10.1% Private Equity 10 9 Acrisure LLC $1,336 $1,782 33.4% PE/ Management 9 10 Alliant Insurance Svcs $1,351 $1,585 17.3% Private Equity 11 11 Lockton $1,300 $1,437 10.5% Private 12 12 AssuredPartners $1,223 $1,429 16.9% Private Equity 13 13 NFP Corp. $1,175 $1,335 13.6% Private Equity 14 14 BroadStreet Partners $607 $747 23.1% Private Equity 15 15 Edgewood Partners / EPIC $437 $744 70.2% Private Equity 16 16 Risk Strategies $321 $530 64.9% Private Equity 19 17 Alera Group $283 $404 42.7% Private Equity 17 18 OneDigital $313 $403 28.6% Private Equity 18 19 CBIZ Benefits & Insurance Svcs $290 $298 2.7% Public 20 20 Leavitt Group $255 $286 12.4% Private 23 21 Higginbotham $200 $236 17.8% PE/ Management 21 22 Paychex Insurance Agency $226 $232 2.4% Public 24 23 Holmes Murphy & Associates $195 $229 17.6% Private 22 24 Insurance Office of America $209 $225 7.6% Private 28 25 Foundation Risk Partners $155 $220 41.9% Private Equity 25 26 Cottingham & Butler $189 $217 15.0% Private 29 27 The Hilb Group $141 $194 37.1% Private Equity 27 28 Cross Insurance $167 $186 11.3% Private 26 29 The IMA Financial Group $168 $183 9.4% Private 31 30 Woodruff-Sawyer $139 $159 14.4% Private 30 31 Hylant Group $141 $145 2.5% Private 44 32 Baldwin Risk Partners $80 $138 72.8% Public 32 33 PayneWest Insurance $130 $138 5.8% Private 33 34 Heffernan Group $128 $137 6.9% Private 35 35 Assurance Agency $116 $130 12.1% Private 34 36 BXS Insurance formerly BancorpSouth Insurance Svcs $118 $125 5.8% Public 37 37 INSURICA $104 $119 14.7% Private 38 38 Relation Insurance Services $99 $110 11.0% Private Equity 36 39 Meadowbrook / AmeriTrust $116 $110 -5.2% Private 39 40 Associated Benefits & Risk Consulting $96 $96 0.4% Public 42 41 Oswald Cos. $89 $95 7.5% Private 45 42 ABD Insurance & Financial Svcs $80 $93 17.4% Private 43 43 Propel Insurance $85 $93 10.0% Private Equity 40 44 Eastern Insurance $94 $93 -1.6% Private 49 45 TrueNorth Cos. $75 $86 15.0% Private 46 46 Lawley Service $76 $84 9.9% Private 47 47 Horton Group $76 $77 2.5% Private 51 48 Towne Insurance Agency $66 $76 15.9% Public 48 49 Marshall & Sterling Enterprises $75 $76 1.6% Private 52 50 Huntington Insurance $66 $71 7.8% Public

The Hales Report Contact: [email protected] Page 2

Exhibit 2 Hales Top 51-100 U.S. Agents & Brokers Rank U.S. Revenue ($,M) 2018 2019 Company 2018 2019 % Change Type 50 51 M3 Insurance Solutions Inc.* $67 $71 5.0% Private 53 52 Houchens Insurance Group $64 $70 8.6% Private 55 53 Parker, Smith & Feek $61 $68 12.5% Private New 54 Patriot Growth Insurance Services LLC $0 $67 NA Private Equity 54 55 Scott Insurance $62 $66 8.0% Private 56 56 The Graham Co. $59 $61 3.9% Private 57 57 Starkweather & Shepley Insurance Brokerage* $57 $60 5.0% Private 58 58 LMC Insurance & Risk Mgmt $57 $54 -5.2% Private 96 59 World Insurance Associates LLC $30 $54 82.1% PE/ Management 59 60 Bowen, Miclette & Britt $52 $54 3.3% Private 60 61 Frost Insurance Agency $50 $53 7.1% Public 64 62 Moreton $47 $52 11.9% Private 63 63 Bolton & Company $48 $52 8.5% Private 107 64 PCF Insurance Services $18 $51 181.1% Private Equity 62 65 Rose & Kiernan Inc. $48 $51 5.1% Private 70 66 Sunstar Insurance $44 $50 13.6% Private 61 67 Poms & Associates Insurance Brokers $49 $49 0.2% Private 71 68 The Loomis Co. $43 $49 13.4% Private 69 69 Armfield, Harrison & Thomas $45 $48 7.1% Private 67 70 The Mahoney Group $46 $48 3.7% Private 68 71 Riggs, Counselman, Michaels & Downes $45 $46 3.0% Private 78 72 Robertson Ryan & Associates $39 $46 19.0% Private 76 73 Sterling Seacrest Partners $40 $46 15.1% Private 87 74 Cobbs Allen $33 $45 35.8% Private 73 75 HMS Insurance Associates Inc. $41 $43 5.5% Private 79 76 The Partners Group $38 $43 12.9% Private 75 77 Fisher Brown Bottrell Insurance $40 $43 5.4% Public 72 78 Ansay & Associates $42 $42 -0.1% Private 77 79 First Insurance Group LLC $39 $42 6.8% Public 74 80 Charles L. Crane $41 $41 1.1% Private 91 81 Bukaty & Company $33 $38 15.2% Private 85 82 Rich & Cartmill $34 $38 12.6% Private 80 83 James G. Parker $37 $38 2.0% Private 81 84 M&T Insurance Agency $36 $37 3.0% Public 83 85 People’s United Insurance Agency $35 $37 6.9% Public 84 86 Christensen Group $34 $37 8.2% Private 88 87 MJ Insurance $33 $37 10.2% Private 99 88 InsGroup $28 $35 24.6% Private 88 89 R&R Insurance Svcs $33 $35 5.4% Private 92 90 Haylor, Freyer & Coon Inc.* $33 $34 5.0% Private 95 91 Kapnick Insurance Group $31 $34 10.6% Private 82 92 Sullivan, Curtis, Monroe $35 $34 -2.6% Private 90 93 Wood Gutmann & Bogart $33 $34 2.7% Private 94 94 Murray Securus $31 $33 4.8% Private 93 95 PSA Financial Services $32 $33 1.8% Private 97 96 Tompkins Insurance Agencies $29 $31 5.8% Public 106 97 The Liberty Company Insurance Brokers $21 $30 42.9% Private 103 98 HM Risk $28 $30 8.0% Private 100 99 The Buckner Co. $28 $30 6.3% Private Equity 108 100 High Street Insurance Partners $10 $30 200.0% Private Equity Source: The Hales Report survey *Preliminary 2019 estimate (Hales assumed +5% growth YOY)

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A Closer Look At The Hales Top 100. Revenue Thresholds Continue To Move Higher. $1B Brokers Reach $37B of Revenue, Stable 79% “Share.”

Within the Top 100, our “$1B broker club” now represents $37B of revenue (vs. $33B YOY) or a consistent ~79% of total Top 100 revenues. This “bakers’ dozen” has totaled 13 since 2018, up from a count of 12 in 2017 and just 5 as of 2008. Conceptually, we believe it makes sense to include the distinct middle market strategy of Marsh Agency (>$2B of run-rate revenues) which increases the total $1B+ tally to 14.

We continue to view agency consolidation / growth of the major brokers as a key negative secular trend for underwriters. These $1B+ firms, each with circa $10B+ of premium volume, have the market clout to push for better terms/pricing for customers and higher commissions for themselves. He Who Controls The Customer Wins!

As of 2019, the next $1B broker candidate is unclear, with a notable drop from #13 NFP ($1.3B) to #14 BroadStreet ($747M, +23%), #15 EPIC ($744M, +70%) and #16 Risk Strategies ($530M, +65%). Subject to the current economic slowdown impacting the pace of M&A transactions, at current growth rates, each could reach the $1B threshold within the next 2 years. Exhibit 3

Rising "Share" For $1B+ Brokers ($, B)

Sub-$1B $1B+ Share Share of Top 100

$47 100%

$39 $42 95% $10 $40 $38 $37 $9 90% $32 $9 85% $29 $12 $30 $28 $13 79% 79% $26 77% 80% $12 $23 $9 $10 75% $9 $20 $8 70% 68% 65% 66% 67% 67% 66% $10 63% 64% 60%

55% $15 $17 $19 $19 $20 $24 $26 $30 $33 $37 $0 50% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Hales Top 100, Business Insurance: Dowling Hales Analysis

The Hales Report Contact: [email protected] Page 5

As previously noted, the #1 broker of U.S. business (Marsh & McLennan) has grown from $3.5B of domestic revenue in 1999 to $7.8B of revenue as of 2019. Note, the #1 position declined from 2004 to 2009 due to the impact Eliot Spitzer had on the industry in 2005 and the financial crisis following after. The hurdle to be “the #1 broker” has grown the least, albeit still up ~121% over the past 2 decades. By comparison, the hurdle to be in the “Top 10” has grown >9-fold in 20 years: from $147M in 1999 to $1.6B as of 2019.

While the threshold for Top 25, 75 and 100 each increased in 2019 to $220 (vs $200M), $43M (vs. 41M) and $30M (vs. $28M), respectively, the threshold for Top 50 actually decreased to $71M vs. $76M (reflecting several top 50 deals in recent years: JLT, Hays, Integro and Wortham).

The exhibits on the following page provide additional insights.

Exhibit 4 Historical Range of Top 100 Agents & Brokers $9,000 #1 Ranked Broker #100 Ranked Broker $8,000 $7.8B $7,000 $6.4B $6,000 $5.8B $5,000 $4.4B $4,000 $3.5B $3,000 $2,000 $1,000 $0 $12M $18M $19M $27M $30M 1999 2004 2009 2014 2019

Source: Business Insurance, Hales Report Analysis

The Hales Report Contact: [email protected] Page 6

Individual Rank Thresholds:

Exhibits 5 – 10

#1 Ranked Broker #10 Ranked Broker Revenue Change ($M) Revenue Change ($M)

$9,000 $1,800 $1,585 $7,840 $1,600 $8,000 $1,400 $7,000 $1,200 +121% $6,000 $1,000 +975% $5,000 $800 $600 $4,000 $400 $3,000 $3,540 $200 $147 $2,000 $0 2019 2014 2009 2019 2014 2009 2004 1999 2004 1999 Sour ce: Business Insur ance, Hales Repor t Analysis Sour ce: Business Insur ance, Hales Repor t Analysis

#25 Ranked Broker #50 Ranked Broker Revenue Change ($M) Revenue Change ($M)

$250 $80 $220 $71 $70 $200 $60 +299% +191% $150 $50 $40 $100 $30 $20 $50 $24 $55 $10 $0 $0 2019 2014 2009 2019 2014 2009 2004 1999 2004 1999 Sour ce: Business Insur ance, Hales Repor t Analysis Sour ce: Business Insur ance, Hales Repor t Analysis

#75 Ranked Broker #100 Ranked Broker Revenue Change ($M) Revenue Change ($M)

$50 $35 $45 $43 $30 $30 $40 +138% $35 +163% $25 $30 $20 $25 $20 $15 $15 $10 $16 $12 $10 $5 $5 $0 $0 2019 2014 2009 2019 2014 2009 2004 1999 2004 1999 Sour ce: Business Insur ance, Hales Repor t Analysis Sour ce: Business Insur ance, Hales Repor t Analysis The Hales Report Contact: [email protected] Page 7

A Closer Look At Rankings By Ownership –

Public Companies: The top 6 brokers are publicly traded (included bank Truist) with growth of 10% in 2019 led by Brown & Brown which was +19.3% (Hays acquisition). Further extending the list to all brokers with public ownership (typically within a larger publicly traded group) the composite’s $27.1B of revenue was up 10% YOY. Note, the ranking includes U.S. only revenue.

Exhibit 11 Top Brokers - Public Ownership Rank U.S. Revenue ($,M) '18 '19 Company 2018 2019 % Change Type 1 1 Marsh & McLennan $7,219 $7,840 9% Public 2 2 Aon PLC $4,677 $5,016 7% Public 3 3 Willis Towers Watson $3,970 $4,370 10% Public 4 4 Arthur J. Gallagher $3,631 $4,063 12% Public 5 5 Brown & Brown $1,999 $2,385 19% Public 6 6 Truist $1,958 $2,215 13% Public 18 19 CBIZ Benefits & Insurance Svcs $290 $298 3% Public 21 22 Paychex Insurance Agency $226 $232 2% Public 44 32 Baldwin Risk Partners $80 $138 73% Public 34 36 BXS Insurance formerly BancorpSouth Insurance Svcs $118 $125 6% Public 39 40 Associated Benefits & Risk Consulting $96 $96 0% Public 51 48 Towne Insurance Agency $66 $76 16% Public 52 50 Huntington Insurance $66 $71 8% Public 60 61 Frost Insurance Agency $50 $53 7% Public 75 77 Fisher Brown Bottrell Insurance $40 $43 5% Public 81 84 M&T Insurance Agency $36 $37 3% Public 83 85 People’s United Insurance Agency $35 $37 7% Public 97 96 Tompkins Insurance Agencies $29 $31 6% Public Total $24,586 $27,126 10% Source: Dowling Hales Proprietary survey, Company Reports.

Private Equity Backed: Within the Top 100 there are 21 firms with private equity ownership. This composite, dominated by “aggregators,” represents $13.8B of revenue which increase 22% during 2019 (and represents 29% of the total 100 vs. 27% in 2018).

Exhibit 12 Top Brokers - Private Equity Ownership Rank U.S. Revenue ($,M) '18 '19 Company 2018 2019 % Change Type 7 7 USI Insurance Svcs $1,795 $1,894 6% Private Equity 8 8 Hub International $1,685 $1,855 10% Private Equity 10 9 Acrisure LLC $1,336 $1,782 33% PE/ Management 9 10 Alliant Insurance Svcs $1,351 $1,585 17% Private Equity 12 12 AssuredPartners $1,223 $1,429 17% Private Equity 13 13 NFP Corp. $1,175 $1,335 14% Private Equity 14 14 BroadStreet Partners $607 $747 23% Private Equity 15 15 Edgewood Partners / EPIC $437 $744 70% Private Equity 16 16 Risk Strategies $321 $530 65% Private Equity 19 17 Alera Group $283 $404 43% Private Equity 17 18 OneDigital $313 $403 29% Private Equity 23 21 Higginbotham $200 $236 18% PE/ Management 28 25 Foundation Risk Partners $155 $220 42% Private Equity 29 27 The Hilb Group $141 $194 37% Private Equity 38 38 Relation Insurance Services $99 $110 11% Private Equity 43 43 Propel Insurance $85 $93 10% Private Equity New 54 Patriot Growth Insurance Services LLC $0 $67 NA Private Equity 96 59 World Insurance Associates LLC $30 $54 82% PE/ Management 107 64 PCF Insurance Services $18 $51 181% Private Equity 100 99 The Buckner Co. $28 $30 6% Private Equity 108 100 High Street Insurance Partners $10 $30 200% Private Equity Total $11,293 $13,793 22% Source: Dowling Hales Proprietary survey, Company Reports. The Hales Report Contact: [email protected] Page 8

Retro, The “Tip Of The Spear,” And Reinsurance Driving Top Down Hard Market. Significant Rate Increases Likely To Continue With Trickle Down To Primary Market Into 2021.

What were already “firming” or “hardening” areas across the P&C (re)insurance market pre-COVID have transitioned to truly “hard” markets, with scarce capacity and substantial rate increases. The change has been most significant in the property catastrophe reinsurance markets in recent weeks, leading up to the important June 1 renewal date where many U.S. programs (and nearly all of Florida) renew. Again, the trajectory was already in play prior to COVID, but there has been a substantial change in recent days / weeks both in terms of capital availability and perceptions of risk (i.e. rate level required for reinsurers to participate).

Importantly, we view the hard(ening) reinsurance market at June (both in rates and terms & conditions, including stricter pandemic exclusions) as a precursor of what’s to come at the more significant January 1 renewals. Higher reinsurance costs will ultimately make their way into higher primary rates. While the magnitude of primary rate increases already took a step higher in 2019, particularly in larger account / “specialty” markets, we expect a broader upward movement in back ½ 2020 and into 2021.

Exhibit 13 GUY CARPENTER WORLD PROPERTY CAT REINSURANCE ROL INDEX* *1990 = 100 *2012 = 100 450 100 400 90 350 80 300 70 250 60 200 50 150 40 30 100 20 50 10 0

P/Cat Reinsurance ROLIndex 0

1990 1992 1994 1997 1999 2001 2003 2005 2008 2010 2012 2014 2016 2017 2019 1991 1993 1995 1996 1998 2000 2002 2004 2006 2007 2009 2011 2013 2015 2018 2020

2012 2016 2017 2020 2013 2014 2015 2018 2019 2021E Source: Guy Carpenter; D&P Analysis

The drivers are threefold: (i) lower capacity/supply, given COVID-19 losses and financial market impacts, (ii) less prevalence / willingness / ability from “alternative” markets to participate, and (iii) reaction and changing “psychology” around risk given what is likely to be the largest “shock” loss ever to the P&C industry (see COVID loss updates / our tally in the subsequent article). Primary insurance companies must also price in the higher cost of their own risk transfer (reinsurance).

The Hales Report Contact: [email protected] Page 9

While we continue to view Berkshire Hathaway / Ajit Jain, with ~20% of U.S. statutory capital, as the “ceiling” on the market, listening to Warren Buffett’s annual meeting, it’s likely the amount of capital they’re willing to put on the line is less today than in a “normal” environment.

RenRe’s Kevin O’Donnell summed it up well on the reinsurer’s recent earnings call: “Over the years, I have speculated that market dislocations would look and feel different with decreased amplitude of rate increases, shorter temperable persistence and more narrow geographic distribution. I'm pleased to report that I was wrong. We will now find ourselves in a traditional hard market... In sum, in the market, capital is now scarce and risk is now abundant.”

Additional Perspective On The Retro / Reinsurance Markets …

Over the past several years, continued catastrophe losses coupled with lower capital from “alternative” markets has reduced the size of the retro market from ~$25-30B in deployable limits to likely <$20B today. Recall, we have previously described the retro market as the “tip of the spear” in the property catastrophe (re)insurance markets. The implication is that if retro reinsurance capacity is not available (or substantially higher priced) many (re)insurers will be forced to change their gross / net strategies

(likely deploying less limit) and charging higher prices for risks assumed. The immediate impact has been on traditional property reinsurance with primary property rates also expected to be pressed higher by the alternative capital dominated retro market.

Exhibit 14

The Property-Cat Pricing Spear The Retro Market "Direct" Retro / ILW Limits = <$20B Collection of Smaller Global P/Cat Players Reinsurance Collateralized Limits = ~$425B Rated Retro Retro = Handful of 70-75% Players Have a Significant Global Insurance Sector Share Capital (Including Life) = $2.5-3T

Source: Company Reports, Hales Analysis

The Hales Report Contact: [email protected] Page 10

Lloyd’s Sees COVID-19 Industry Loss Of ~$50B Or >$200B Incl. Lost Premium & Asset Valuations. Updated COVID Loss Tally: = ~$6-7.5B Of Losses Recorded In Q1.

Lloyd’s has added to the industry loss tally for COVID-19 estimating a loss to the Lloyd’s market of $3-4.3B (£2.5-3.5B) with an industry incurred loss estimate of ~$50B. Lloyd’s agrees with others that COVID-19 is likely to represent the largest ever loss for the P&C industry, and could exceed $100B including other factors (such as lost premium) while the total economic impact will be ~$203B (including asset hits).

Exhibit 15 COVID Industry Insured Loss Estimates

Dowling & Partners $40B to $80B $11B (“Optimistic”) to Willis Towers $32B (“Moderate”) to $80B (“Most Severe”) Lloyd’s ~$50B

Source: Company Reports

Given the magnitude of the loss, Lloyd’s CEO John Neal now expects the P&C industry to enter a “hard” market rather than a “hardening” market, with a post- event experience similar to 9/11 and 2005 following Hurricanes Katrina, Rita and Wilma. See above article for more thoughts on the hard market.

Exhibit 16

The Hales Report Contact: [email protected] Page 11

For Lloyd’s, its estimated net COVID losses are in-line with payouts from 9/11 and the combined impact of Hurricanes Harvey, Irma and Maria. That said, Lloyd’s anticipates its share of the loss will be underweight relative to the broader industry, and with ~52% being ceded to reinsurers. Roughly 70% of the loss is coming from 4 classes: (1) Accident & Health / Contingency (31% of losses), (2) Property Direct/Fac (17%); (3) Property Treaty (12%); and (4) Political Risks, Credit and Financial Guarantee (11%). The remaining 30% includes exposure to long-tail/ casualty lines including D&O.

Exhibit 17

Our COVID-19 reported insured loss tally, shown on the following page, now stands in the range of ~$6-7.5B of insured losses booked in the first quarter. Clearly this is just a “drop in the bucket” relative to the “ultimate” industry loss expected. Note, the Lloyd’s loss estimate is shown separately to avoid double counting (many of the other companies shown have Lloyd’s operations that would feed into the Lloyd’s figure).

The Hales Report Contact: [email protected] Page 12

Q1 Reported COVID-19 Loss Tally, ~$6-7.5B …

Exhibit 18 COVID-19 Loss Tracker: Pre-Tax P/C (Re)Insurance Losses Reported In Q1:20 Total Q1 Industry Loss Range = ~$6-7.5B Reported p/t Reported p/t Company P/C ($, M) Company P/C ($, M) Global (Re)Insurers U.S. Centric Primaries Munich Re ~€800 Travelers $86 Allianz ~€500 W.R. Berkley $67 AXA XL "Mid-Triple Digit" € Hartford $34 Swiss Re $476 Selective $24 Markel $325 CNA $15 Zurich $280 Hanover $13 AIG $272 American Finc'l $10 AXIS $235 RLI $5 Berkshire $230 ProSight ND Hannover Re € 220 Sub-Total $0.3B Aviva £200 Beazley $170 Total Q1 Industry Tally $5.9B Alleghany $153 Lloyd's Q1 Market Loss* £500M-1.0B Hiscox ~$150 Total Q1 Industry Loss Range = ~$6-7.5B Everest Re $150 Source: Company Reports, D&P Analysis, FactSet. Sirius Int'l $140 Note: *Some losses are included in individual company RenaissanceRe $104 estimates above. Talanx € 93

Arch $87 Fairfax $84 Intact C$83 Enstar $40 Tokio Marine $37 Lancashire $35 Argo $26 PartnerRe $18 Chubb $13 Third Point Re $10 IGI $2 SCOR ND Liberty Mutual ND Sub-Total $5.6B

The Hales Report Contact: [email protected] Page 13

CIAB Survey Shows Pricing +9.3% Across All Lines, Business Interruption Seeing the Most Claims Activity from COVID-19; Carriers Ability To Collect Premium The Most Pressing Issue.

CIAB released the results of their Q1:20 pricing survey, which showed pricing momentum continued into Q1:20. Perhaps the more interesting part of the survey is it included a COVID-19 supplemental which looked to provide a baseline on how commercial lines were being impacted by the pandemic.

Unsurprisingly, according to respondents the line seeing the most claims activity is Exhibit 19 Business interruption, with 45% of the Respondents Reporting Increased increased activity related to the line of COVID-related Claims Activity business. The next highest was Workers’ Comp at 20%. One respondent noted that Business Interuption claims were being reported regardless of Workers' Comp what the outcome might be to avoid late reporting / loss of coverage. The survey Commercial Property notes that its still to early to know what the outcome will be on these claims. D&O Respondents noted that viral exclusions were common and for most BI policies Other property damage is the trigger. 75% of Employment Practices respondent’s clients had some form of Business interruption. 0% 10% 20% 30% 40% 50%

Exhibit 20 Impact on the Industry: For respondents, the Have the Following Been Impacted by biggest issue facing the industry was COVID-19? carriers’ ability to collect premium, with 72% of respondents noting this has been Carriers ability to collect premium affected. In particular, small businesses were noted to be struggling to pay premiums Availability of coverage and needed forbearance in Q1. “The major impact in the near term is collecting Accuracy of exposire data premiums. The waterfall June 1 renewals will be very telling”, one respondent noted. Pricing Additionally several respondents mentioned having clients go out of business due to the pandemic. Other

0% 20% 40% 60% 80%

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Respondents also noted the ability to obtain coverage was becoming an issue. “COVID- 19 has made availability of coverage and current limits at risk. Businesses that have essential workers are being underwritten with greater scrutiny”. Carriers were also noted to be reluctant to offer Civil Authority coverage and have been adding virus exclusions and lowering pandemic limits, some were even noted to have a moratorium on writing Business Income policies.

Survey Results: The Q1-20 CIAB pricing survey showed commercial premium rates increased +9.3% across all account sizes = highest since 2003.

Details By Account Size … CIAB notes commercial premium pricing accelerated in Q1 across all account sizes, led by Large accounts (+12.6% vs. +9.4% in Q4:19), followed by Medium accounts (+9.8% vs. +8.0%) and Small accounts (+5.5% vs. +5.2%).

Exhibit 21

14% CIAB: AVERAGE PREMIUM RATE CHANGES BY ACCOUNT SIZE 12% Ttl. Cml Small Mid-sized Large 10% 8% 6% 4% 2% 0% -2% -4%

-6%

-8%

Q2:11 Q3:11 Q1:12 Q4:12 Q2:13 Q1:14 Q3:14 Q4:14 Q2:15 Q1:16 Q3:16 Q4-16 Q2:17 Q1:18 Q3:18 Q4:18 Q2:19 Q4:19 Q1:20 Q1:11 Q4:11 Q2:12 Q3:12 Q1:13 Q3:13 Q4:13 Q2:14 Q1:15 Q3:15 Q4:15 Q2:16 Q1:17 Q3:17 Q4:17 Q2:18 Q1:19 Q3:19 Source: CIAB, Hales Analysis

Details By Line Of Business … Average premium increases were led by Umbrella (+17.3% vs. +13.6% in Q4) and Commercial Property (+12.0% vs. +9.7%). In addition, Commercial Property increases were just under double digits (+9.6% vs. 10.5%). General Liability was ~stable at +5.8%. While Workers’ Comp rates continue to decrease, the rate of decline improved in Q1 to the best it has been since Q1:17 (-1.2%).

Exhibit 22 CIAB: AVERAGE PREMIUM RATE CHANGES BY MAJOR LINE OF BUSINESS Ttl. Cml Cml Auto Cml Property Umbrella Gen. Liab. Workers Comp

17% 12%

2% -3%

-8%

Q2:11 Q4:11 Q3:12 Q1:13 Q2:13 Q4:13 Q3:14 Q1:15 Q2:15 Q4:15 Q3:16 Q1:17 Q2:17 Q4:17 Q2:18 Q3:18 Q1:19 Q4:19 Q1:11 Q3:11 Q1:12 Q2:12 Q4:12 Q3:13 Q1:14 Q2:14 Q4:14 Q3:15 Q1:16 Q2:16 Q4:16 Q3:17 Q1:18 Q4:18 Q2:19 Q3:19 Q1:20 Source: CIAB, Hales Analysis

The Hales Report Contact: [email protected] Page 15

COVID-19 & Pre-Existing Market Pressures Drive Acceleration In D&O Pricing. Aon Sees ALL Companies Getting Higher Rates In Q1.

The Directors & Officers (D&O) market has been under pressure for several quarters, largely driven by the often-discussed “social inflation”, including an uptick in the number of securities class actions (see exhibit 23), as well as bigger players like AIG dropping limits and reducing capacity. Pressure is likely to only grow amidst / following COVID-19, given the potential for company bankruptcies, and for lawsuits to come out of false / misleading statements made by management teams and in financial statements as to both the company’s response to the virus and its effect on the company’s financials. At a minimum, it’s reasonable to expect there will be material defense costs associated with D&O claims related to COVID, and further substantial rate pressure (upwards) is likely.

Exhibit 23 Federal Securities Class Actions 450 411 402 404 403* 400 88 Q4 350 106 94 94* 300 271 100 250 91 113 113* Q3 208 77 200 165 168 151 54 99 91 150 43 42 74 103 103* Q2 25 57 100 39 47 48 56 45 53 124 50 41 41 114 94 Q1 64 93 42 34 37 44 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Stanford Law School's Securities Class Action Clearinghouse; *Projected filings based on TTM actual filings

Both Aon and Marsh provided updates on D&O pricing as of Q1, with Marsh reporting D&O pricing up +44%, with 95% of clients facing price increases as a result of the overall litigation environment. In addition, 37% of Marsh’s public D&O clients increased their retentions in Q1. The Q1 CIAB survey noted D&O increases of +8.9% compared to +7.0% in Q4, … “the highest increase in premium pricing aside from Commercial Property, Commercial Auto, and Umbrella, suggesting that social inflation, identified as a possible cause for D&O troubles last year, may be continuing to affect this line. Respondents also noted D&O and EPL limits are getting reduced and carriers are underwriting D&O more strictly.”

Aon found similar results in Q1 as their Public Company D&O Quarterly Pricing Index revealed an acceleration in price increases to +26.2% YOY compared to +14.8% and in prior quarter. Note, these increases are based on primary policies renewing in both Q1:20 and Q1:19 with the same limit and deductible (See Exhibit 24 on the next page).

The Hales Report Contact: [email protected] Page 16

Additionally, using 2001 as a base year, the average price per $1M in limit came in at 1.51 in Q1, substantially higher than 0.74 YOY (+104.1%). While quarterly results can be volatile, excluding three unique clients, the Q1 pricing index would have increased +73.0%, marking the 9th straight quarter of YOY price increases. Note, the stretch of positive rate momentum was preceded by 18 consecutive quarterly price decreases.

Exhibit 24 Aon Quarterly D&O Pricing Index YOY % Change 104.1%

100% %

80% 69.7

60%

% %

40% %

64.9%

17.1

13.8% 11.6

20% 9.9

6.1

3.1

3.7% 3.2%

% %

-20% %

1.2

0.0

4.8%

3.8%

3.7

2.9

2.0%

4.4

5.0

2.3

5.9

7.0

2.4 8.7%

4.2

7.0%

9.2%

7.0%

- -

9.2% -

10.3

12.2 16.5

-40% -

- - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2- Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2012 2013 2014 2015 2016 2017 2018 2019 '20 Source: Aon Risk Solutions

Like Marsh, Aon found that an overwhelming majority of its clients faced pricing increases in the first quarter. In fact, for the first time since the Index began in 2012, 100% of companies received a pricing increase in Q1.

Exhibit 25

Primary Price Chgs - # Of Companies

% %

19%

21%

% %

25 25

26% 26

27 27%

% %

34% Increased

36%

41 41

53%

54%

64 36%

% %

69%

72%

76 24%

31 33

35% 45%

38 90%

% %

100% Flat

% %

48%

35%

% % %

27 45

56%

39%

21 27 51

23%

18% 44

43%

42%

19%

35% 35%

19%

26%

21%

15 18

16 Decreased

Q4-12 Q1-13 Q4-13 Q1-14 Q2-14 Q1-15 Q2-15 Q2-16 Q3-16 Q3-17 Q4-17 Q4-18 Q1-19 Q4-19 Q1-20 Q1-12 Q2-12 Q3-12 Q2-13 Q3-13 Q3-14 Q4-14 Q3-15 Q4-15 Q1-16 Q4-16 Q1-17 Q2-17 Q1-18 Q2-18 Q3-18 Q2-19 Q3-19 Source: Aon Risk Solutions

All in, COVID-19 has been affecting recent D&O policy renewals as, “…many insurers have sought to impose COVID-19-related exclusions on D&O policies. These exclusions will likely reduce the potential future exposure to COVID-19-related claims. Some sectors, including retail, manufacturing, travel/leisure/hospitality, and real estate, have experienced increased rates. The overall market is continuing to see rate increases; however, with the hardening of the London D&O market, it is hard to determine the direct impact COVID-19 has had on premium increases.” ~Angus Duncan (Willis Towers Watson)

The Hales Report Contact: [email protected] Page 17

BRP Group Keeping An Eye On M&A And Producer Opportunities Amidst COVID-19 Volatility. Personal Mix Adds Revenue Stability.

BRP Group, the #32 broker in the Hales Top 100 (publicly traded as of October 2019), reported Q1 organic growth of 5%, below 12% in Q4:19 and 10% in 2019. Lower contingents and Medicare marketing income were a drag, and growth would have been ~10% adjusting for this. BRP also expects their “MGA of the Future” (renters program) to augment growth going forward (was +12% in Q1 including this recent acquisition).

BRP expects organic growth to remain in positive territory (personal lines mix of ~47% adds stability) but they not it’s a very fluid environment. In their Middle Market (Commercial) business they saw a drag from rate & exposure of -1pt in April, but this increased to +5% as of Mid-May (volatility will likely continue). The Q1 result included a 1pt drag on growth related to a COVID-19 accounting adjustment, with BRP doubling its annual bad debt provision due to the uncertainty re: clients’ exposures / ability to pay.

BRP also signaled further margin pressure (Q1 was 26% vs. 34% YOY) as investments will continue despite the revenue pressure, including a desire to grow the producer count.

“…as you see some of our peers taking more broad brush action that may be needed or warranted in their businesses, we think that's going to create opportunities for high performers that may have gotten swept up and cost saving actions that aren't necessarily as surgical as they could have been.”

BRP also remains active in M&A, but their appetite will be sensitive to broader economic trends. “We have ample capacity to be nimble with respect to our operations and acquiring new partnerships. And as we continue to take the temperature of the economy, we can either continue to move forward and allocate capitals in new high quality partnerships or keep our powder dry should the economy not show signs of recovery. This is a fluid situation.” During Q1 BRP completed 4 acquisitions with >$30M of annual revenue and so far in Q2 closed 3 with ~$9.5M of revenue.

Exhibit 26 Brokerage Organic Growth 2017 2018 2019 Q1:19 Q2:19 Q3:19 Q4:19 Q1:20 A.J. Gallagher 4.4% 5.6% 5.8% 5.7% 5.8% 5.8% 6.1% 3.1% Aon 4.0% 5.0% 6.0% 6.0% 6.0% 5.0% 7.0% 5.0% Brown & Brown 4.4% 2.4% 3.6% 2.0% 3.9% 3.4% 5.2% 5.6% Marsh & McLennan 3.0% 5.0% 4.0% 5.0% 3.0% 6.0% 3.0% 5.0% Willis Towers Watson* 4.0% 4.7% 6.4% 4.4% 6.1% 5.6% 9.8% 4.4% BRP Group 17.0% 18.0% 10.0% 12.4% 12.0% 5.0% Public Composite 4.1% 4.9% 5.3% 5.2% 5.0% 5.4% 6.1% 4.7% Other notable / non-public Hub 4.0% 3.6% 4.5% 1.8% 3.8% 6.8% 5.6% 6.2% BB&T 1.7% 6.0% 8.8% 6.7% 11.6% 8.7% 7.9% 7.2% Total Composite 3.7% 4.9% 5.5% 5.1% 5.3% 5.7% 6.2% 4.8% Source: Company Reports, D&P Analysis; *WLTW brokerage proxy = combined corp. risk & broking + inv. Risk & reins, historical is WSH; Aon total co. 2017 forward

The Hales Report Contact: [email protected] Page 18

NJ Joins CA In Mandating Both Personal & Commercial Premium Refunds / Givebacks; CA Extends Order Related To Premiums & No Cancellations.

States continue to “press the issue” on premium returns / right sizing relative to the new (lower) exposure base amidst COVID-19, including (i) New Jersey’s Department of Banking and Insurance issuing a bulletin mandating premium refunds to policyholders through the form of a premium credit, reduction, return of premium, dividend or other adjustments (similar to CA’s earlier move); and (ii) California’s insurance commissioner extending the order for insurance companies to partially refund premiums to the month of May (previously was March & April).

More importantly (in our view, given premium givebacks are already occurring) the California commissioner also requested that insurers extend the non-cancellation provision by an additional 60-days, to July 14th. This exacerbates the premium collectability and agency bill issues previously highlighted in Hales#8. We expect the second and third quarters of 2020 will bring an increased occurrence of “bad debt” and related negative revenue true-ups. The risk for underwriters also includes effectively providing “free insurance” in the interim. See our updated CA timeline in Exhibit 27.

Exhibit 27

California COVID-19 2020 Sequence of Events Q1:20 Q2:20 Q3:20 Q4:20 April 13 Premium Refund Order Issued August 12 Refunds / Notifications Must March 17 May 15 Be Issued Bars/Clubs Close, Premium Refund (120 days post refund order) Restaurants open for Order Extended takeout/delivery

March 4 June 12 July 14 State of Insurers must report Expiration of non- Emergency refunds given or planned cancellation order Announced (60 days post refund order)

March 19 Stay at home order issued Source: Dowling Hales Analysis

The Hales Report Contact: [email protected] Page 19

Note, the NJ Department ordered the “initial premium refund or other adjustment to all adversely impacted NJ policyholders, and for each month that the public health emergency is in effect [declared 3/9]… as quickly as practicable, but in any event no later than June 15, 2020.”

The premium givebacks /right sizing relate to the following lines (for both CA & NJ): personal and commercial auto, workers’ comp, commercial multi-peril, commercial liability, med mal and any others were risk of loss has fallen substantially.

“With the vast majority of Californians still under ‘stay at home’ orders, the risk of accident and loss remains low for many lines of insurance and their premiums should reflect that … While I appreciate companies that have already taken action to return premiums, the Department of Insurance will be checking that the reductions are adequate and consumers and businesses are not shortchanged.”

- CA Insurance Commissioner, Ricardo Lara

The Hales Report Contact: [email protected] Page 20

InsurTech Q1-20 Statutory Review: Double Digit Sequential Premium Growth Reported In Q1, But No Signs of Moving to Underwriting Profit.

Each quarter, we track the “insurtech” statutory entities that file quarterly statements with the NAIC. Below we look at the 3 biggest writers (all are VC backed insurtechs). Beyond the statutory data, we also observed a few notable trends in Q1 including;

Insurtechs announced premium credits…In total we observed several insurtechs announced COVID-19 related premium credits across personal and commercial lines, which we summarize below. Earlier this month, Next Insurance announced an extension to its 25% premium reduction through May for GL, prof. liability, and cml auto policyholders. Recall, Next had previously offered a 25% reduction to premiums for April. For Root, the company expects premium credits to range from 3% to 10% of April and May monthly premium. In its stat filing, the company expected its premium credits to total at more than $1.5M to qualifying policyholders.

Exhibit 28 Premium Refund Announcements Company Lines of Business / Account Size Eligible Details General Liability, Prof Liability & 25% credit for 1 month (April). Later NEXT Commercial Auto extended through May. Workers' Comp, General Liability, BOP, biBERK / THREE 20% credit for 2 months Cml Auto, Umbrella, Prof. Liability Stay Home Driving Bonus, whereby, customers that reduce their driving by Root Personal Auto 20% (or more) in April and May can earn up to a 10% credit on premiums paid during those 2 months. Source: Co Reports

AIG places Blackboard into run-off…As part of its Q1-20 earnings release, AIG announced intentions to place Blackboard U.S. Holdings, Inc. (Blackboard), AIG’s technology-driven subsidiary, into run-off. Recall, in May 2017 and in coordination with AIG’s appointment of Brian Duperreault as CEO, AIG agreed to acquire Hamilton U.S. Holdings, which was later renamed Blackboard, for book value plus $30M, which at the time was estimated at $110M. Blackboard wrote ~$34M of DPW in Q1-20 and ~$85M in 2019. Blackboard’s management has entered into discussions with potential investors to try and arrange a potential sale.

Munich Re closes investment in Next Insurance…First quarter statutory filings show that Munich Re, through Ergo Group, closed its previously announced $250M investment in Next Insurance in March 2020. This latest (and sizeable) investment highlights Munich Re’s evolving approach to insurtechs by taking a more targeted investment approach. In many respects, Next can be viewed as an extensions to Munich Re and acts as the company’s U.S. small commercial platform. The Hales Report Contact: [email protected] Page 21

Summary of statutory results…

Direct premiums written at Lemonade increased 15% sequentially to $38.0M from $33.1M in Q4 and compares to $25.3M YOY. The growth this quarter fully offset a sequential decline in Q4 as DPW also totaled $38M in Q3. Each of the company’s top 5 states reported double digit sequential growth in Q1 and growth among the 10 largest states totaled 15.3% in Q1.

While strong growth continues, the company reported an underwriting loss of $2.5M in Q1-20 (in line with Q1-19). On the positive side, the direct loss ratio saw consistent improvement throughout 2019 and into Q1-20, declining to 68.4% from 70.1% in Q4:19.

Lemonade added only 1 reinsurance relationships in Q1, Catlin, although the company has listed XL as a reinsurer in the past. Overall, the company’s largest reinsurance relationships (per YE2019 financials) include Hiscox and Nephila (including Allianz Risk Transfer), with ceded premium of ~$2.0M/each.

Exhibits 29 & 30 Lemonade Quarterly Direct Lemonade Quarterly Net Premium Written Underwriting Gains (Losses)

$0 $38.0

$40 $38.0 33.1

$35 $ ($1)

$30 )

$25.3 ($2)

$25

1.5

$19.3

)

($1.4)

($1.4) ($

$20 ($3) ($1.5)

$15.5

$14.0 2.5

$15 ($2.3)

($2.5) ($2.5)

($4) ($

$9.9 $7.5

$10 4.6 ($3.3)

$ ($5) $2.5

$5 $1.3 ($3.9)

$0.6 ($5.0) ($4.8)

$0 ($6) ($4.6)

Q4-17 Q1-18 Q3-19 Q4-19 Q1-20 Q1-17 Q2-17 Q3-17 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19

Q1-17 Q3-17 Q2-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Source: Statutory Filings Source: Statutory Filings

Similar to Lemonade, Root reported a double digit sequential increase (+14%) in direct premiums in Q1-20 to $164.1M vs. $143.7M in Q4-19. The overwhelming majority of premium comes from personal auto as the company’s entrance into renters’ insurance (entered in Q3-19) produced total premium of $0.22M in Q1. The company continues to produce a sizeable underwriting loss at $35.7M, but down from a loss of $60M in Q4. With Q1 results, the company reported adverse development driven by higher than expected bodily injury and property damage on accidents occurring in H2-19.

The company’s direct loss ratio remains elevated at 103.2% in Q1-20 vs. 105.5% in Q4- 19. Q2:19 is still the only quarter in 2019 where Root reported a direct loss ratio below 100%. Root disclosed one new reinsurance relationship, Peak Re, in Q1.

The Hales Report Contact: [email protected] Page 22

Exhibits 31 & 32 Root Quarterly Direct Root Quarterly Net Premium Written Underwriting Gains (Losses) $0

$180 $164.1 ($10)

$160 $143.7

$140 )

($1.9)

($3.9) ($2.3)

$119.5 ($20) ($7.7)

$120 ($8.0) $99.2

($30) 13.9 $88.7

$100 ($12.8) ($

$80 ($40)

($22.5) $50.8

$60 ($26.0) 32.8

($50) ($29.7)

$40 $ ($49.7) ($35.7)

$14.9 ($60)

$20 $7.9

$2.6

$0.9 $0.4 $0.1 ($60.2)

$0 ($70)

Q1-17 Q2-17 Q3-18 Q4-18 Q1-19 Q2-19 Q1-17 Q3-17 Q1-18 Q3-18 Q1-19 Q3-19 Q1-20 Q3-17 Q4-17 Q1-18 Q2-18 Q3-19 Q4-19 Q1-20 Q2-17 Q4-17 Q2-18 Q4-18 Q2-19 Q4-19 Source: Statutory Filings Source: Statutory Filings

Following a sequential decline in quarterly direct premiums in Q4, Metromile rebounded back to ~$27M of DPW in Q1:20, up ~20% sequentially but down -0.5% YOY. The company reported an underwriting loss in Q1 (-$4.4M). Recall, while Metromile did report a modest underwriting profit in Q4 of $0.1M, the quarter had benefited from negative underwriting expenses. The company reported a notable improvement in the direct loss ratio down to 66.0% compared to 74.2% in Q4. In management news, Jeff Briglia, Metromile’s Chief Insurance Officer and COO, was recently appointed as President and CEO of Plymouth Rock Management Company of New Jersey.

Exhibits 33 & 34 Metromile Quarterly Direct Metromile Quarterly Net Premium Written Underwriting Gains (Losses) $2

$0.1 $28.6

$30 25.9 $26.7

$26.5 $0

$24.5

$23.4 )

$25 $22.2 ($2)

$20.2 $19.1

$20 ($4) 1.2

$15.4

$14.9

($1.6)

12.2 $

$15 ($6) ($2.5)

($3.1)

$10.4

($3.5)

($4.1) ($4.3)

$10 ($8) ($4.4)

($5.5) ($5.6) $5 ($10) ($5.8) ($10.2)

$0 ($12)

The Hales Report Contact: [email protected] Page 23

Personal Auto CPI Sees Sharp Decline In April (-6.2%) Reflecting Reduction From Premium Giveback Programs.

The Personal Auto Premium CPI (proxy for insurance rates) came in at -6.2% in April, a sharp decrease from +1.1% in March. The CPI is clearly capturing some of the premium givebacks, most commonly 15% for 2 months (would equate to 5% on a 6-month policy). With ~14% market share, GEICO by itself would account for ~2pts of the decline, all else equal.

We assume this impact will continue in May-June, likely moderating as frequency recovers and the givebacks run their course. Although data indicates miles driven are increasing in May, it is still running at very low levels vs. last year. Recently, Allstate extended their giveback another month and State Farm has uniquely taken more “permanent” action, announcing it will be reducing rates by a national average of 11% (although the company has generally been uncompetitive prior to this action). These recent actions suggest that frequency continues to run at extremely low levels, beyond what was assumed with the first round of giveback actions. Exhibit 35 Personal Auto Premium CPI (YOY % Change) 15.0% Feb-18: Recent peak (+9.7%) 10.0%

5.0%

0.0%

-5.0% April-20: Source: Bureau of Labor Statistics All-time low (-6.2%) -10.0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Severity trends will be important to watch as traffic volume and frequency returns to normal = Q1 commentary suggested increasing severity. Dowling & Partners’ CPI “Loss Cost Index” began rising in late 2018 and continued to drift higher through 2020 to 4.0% vs. 2.3% YOY. Given the sharp decline in premium and increased severity trend, the spread between premium and loss costs widened further to -10.3% (vs. -2.8% in March).

Exhibit 36 2019 2019 2019 2019 2019 2019 2019 2019 2019 2020 2020 2020 2020 CPI - Auto Related Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr Motor Vehicle Ins. Premium 1.4% 0.7% 0.7% 0.6% 0.7% 0.2% -0.2% -0.2% 0.0% 0.0% 0.3% 1.1% -6.2% Medical Care (Bodily Injury - 50%) 1.9% 2.1% 2.0% 2.6% 3.5% 3.5% 4.3% 4.2% 4.6% 4.5% 4.6% 4.7% 4.8% Auto. Body Work (PD - 40%) 3.2% 3.0% 3.9% 4.0% 3.9% 4.5% 4.1% 4.0% 4.4% 4.1% 3.8% 3.8% 4.3% Used Cars & Trucks (PD - 10%) 0.8% 0.3% 1.2% 1.5% 2.1% 2.6% 1.4% -0.4% -0.7% -2.0% -1.3% 0.1% -0.7% Weighted Avg. Phys. Dam. 2.7% 2.5% 3.4% 3.5% 3.5% 4.1% 3.6% 3.1% 3.4% 2.8% 2.8% 3.1% 3.3% D&P Loss Cost Index 2.3% 2.3% 2.7% 3.0% 3.5% 3.8% 3.9% 3.7% 4.0% 3.7% 3.7% 3.9% 4.0% Premium-Loss Severity Gap -0.9% -1.6% -2.0% -2.4% -2.8% -3.6% -4.1% -3.9% -3.9% -3.7% -3.4% -2.8% -10.3% Other Auto Related Motor Vehicle Main. & Repair 3.8% 3.4% 3.5% 3.3% 3.8% 3.5% 3.4% 3.2% 3.4% 3.2% 3.5% 3.4% 3.1% Motor Vehicle Parts & Equip. ex Tires 2.5% 3.1% 1.7% 0.5% 0.9% 1.7% 2.3% 1.8% 2.6% 3.7% 4.1% 3.5% 3.1% Prof. Medical Services 0.4% 0.7% 0.9% 1.1% 1.4% 1.5% 1.6% 1.7% 1.6% 1.2% 1.2% 1.6% 1.7% Hospital & Related Services 1.4% 1.5% 0.8% 1.0% 2.2% 2.1% 3.4% 3.2% 2.9% 3.7% 4.1% 4.2% 5.0% New Vehicles 1.2% 0.9% 0.6% 0.3% 0.2% 0.1% 0.1% -0.1% 0.1% 0.1% 0.4% -0.4% -0.6% Source: Bureau of Labor Statistics, Dowling & Partners Analysis The Hales Report Contact: [email protected] Page 24

Hales Hits

 In an interview with the New York Times, Chubb CEO Evan Greenberg put the industry losses from COVID-19 at “$100 billion or greater” while adding Chubb’s payouts will be “quite visible” in Q2. Recall, Greenberg previously suggested in the Q1 conference call that COVID-19 is “more than very likely to be the largest event insurance history when you add it all up, both the asset side and the liability side of the balance sheet.”

 A.M. Best’s initial stress testing related to COVID-19 revealed that most insurers’ capital levels provided an adequate buffer against a possible shock to their balance sheets. Sensitivity to the pandemic was greater for those with material exposures to mortgage loans, carriers operating in domiciles in higher country-risk tiers, and companies with smaller capital bases. “Insurers are likely to see a significant hit to earnings in 2020, rather than a material decline in risk-adjusted capitalization.”

 S&P revised its outlook on the global reinsurance sector to negative, expecting a combined ratio of 101-105% for the year, or even higher if COVID-19 losses accelerate (exceed >$30B for the (re)insurance sector). “We expect to take negative ratings actions on reinsurers whose COVID-19 losses wipe out their earnings and become a capital event and that in our view won’t be able to sufficiently rebuilt capitalization over the next 12 to 24 months, as well as for those reinsurers that entered 2020 with an already historical weaker operating performance.”

 Bold Penguin, the Ohio-based tech provider operating a commercial exchange, and Mylo, a digital broker launched by Lockton (the #12 U.S. broker with $1.4B of revenues), expanded their partnership to give Mylo agents multi-product quoting capabilities through a single interface built by Bold Penguin. Note, the partnership began ~2 years ago following Lockton’s decision to focus on small businesses through the creation of Mylo and a funding round led by Guggenheim Partners.

 London market specialist Brit received approval from Lloyd’s to launch Ki, a new fully digital syndicate that will provide following capacity to broker placements in a more efficient / “no touch” manner. The new syndicate will only trade electronically through a Google Cloud developed platform and will use algorithms (i.e. no underwriters) developed by Brit & data analysts at University College of London, to provide following capacity quotes / line share to brokers on every risk placed by “nominated” lead syndicates in selected classes of business. While beneficial to overhead expenses and Lloyd’s overall goal to improve efficiency, the initiative does not address the elevated / rising acquisition costs in at Lloyd’s (i.e. brokers commissions will not be impacted).

 The UK will temporarily guarantee business-to-business transactions currently supported by trade credit insurance through a reinsurance agreement with insurers (details TBD). These backstops, now in place in Germany, France, the Netherlands and the U.K., allow trade credit insurers to continue to offer capacity without taking any significant underwriting risk (tempering the loss trade credit (re)insurers otherwise would face amidst the COVID-19 pandemic).

The Hales Report Contact: [email protected] Page 25

 The Pennsylvania Supreme Court denied a petition to roll up all PA COVID-19 related cases into 1 judicial process, a big “win” for the (re)insurance industry. The Petition sought the Court to use its powers to assume control / expedite the case so other similar complaints could be quickly resolved. Several P&C Insurance trade groups filed an Amicus Brief opposing the Petition arguing that the courts of PA will need to work through myriad claim specific coverage issues on an individual, case-by-case basis.

 The Wisconsin Supreme Court overturned the state’s stay-at-home order, ruling “Emergency Order 28 is declared unlawful, invalid and unenforceable.” This is a topic to watch (if orders are deemed unconstitutional) as some policyholders seek business interruption coverage related to civil authority.

The Hales Report Contact: [email protected] Page 26

U.S. Deal Diary – Q2 Updates: The 12 deals over the past 2 weeks put the total Q2 count of deals at 52 (vs. 163 total in Q2 2019). So far this year, the deal tally of 210 is lower than 300 at this time last year.

Exhibit 37 U.S. Middle Market Agency Transactions By Quarter / Year

Q1 Q2 Q3 Q4 693 700 591 601 600 140 142 500 464 149 439 388 184 400 354 366 119 331 348 338 104 127 170 289 277 106 300 268 95 86 106 144 95 108 163 59 91 220 236 71 101 160 210 200 75 86 94 80 150 67 61 85 72 68 79 118 130 72 69 75 42 60 77 60 83 100 57 89 80 48 52 155 206 158 109 49 98 122 107 139 91 88 66 91 58 62 91 74 48 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: SNL(Preliminary), Factset, other public sources

Exhibit 38 Most Active Acquiring Brokers - Monthly (Domestic Deals) 2019 Jan-20 Feb-20 Mar-20 Apr-20 May-20 2020

National Brokers Acrisure, LLC 98 6 10 2 1 8 27 Broadstreet Partners 36 11 4 2 3 - 20 AssuredPartners, Inc. 35 3 3 3 3 - 12 Hub International 37 2 2 4 - 4 12 Hilb Group, LLC 24 3 2 2 1 - 8 Arthur J. Gallagher & Co. 30 2 1 3 - - 6 Brown & Brown 23 1 - 4 1 - 6 Alera Group 24 - - 3 2 - 5 USI, Inc. 10 - 2 1 1 1 5 BRP Group 8 - 2 - 1 2 5 RSC Insurance Brokerage, Inc. 17 3 - 1 - - 4 Marsh & McLennan Companies 4 2 - - 1 - 3 NFP Corp. 15 1 - - 1 1 3 Patriot Growth 23 - 1 1 - - 2 Seeman Holtz 6 - - - - - 0 Sub-Total 390 34 27 26 15 16 118 Other 303 26 14 31 12 9 92 Total Broker Deals 693 60 41 57 27 25 210 Source: SNL, Factset, and other public sources through YTD

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Exhibit 39 2020 U.S. Middle Market Brokerage M&A Since April Acquiree Date Acquirer Acquiree State 1-Apr BRP Group, Inc. Insurance Risk Partners OK 1-Apr Marsh & McLennan Companies, Inc. Assurance Holdings Inc. IL 1-Apr NFP Corp. Fiduciary Investment Advisors LLC (FIA) CT 1-Apr BroadStreet Partners, Inc. Book of Business CA 1-Apr BroadStreet Partners, Inc. Book of Business VT 1-Apr BroadStreet Partners, Inc. Certain Insurance Assets IN 2-Apr Brown & Brown, Inc. Dealer Financial Services of NC, Inc. NC 6-Apr AssuredPartners, Inc. Early, Cassidy & Schilling, Inc. MD 7-Apr Aon plc Farmington Company CT 7-Apr One80 Intermediaries, LLC International Excess Program Managers Agency OH 9-Apr DOXA Insurance Holdings LLC Lawrence E. Smith & Associates Inc./Scholastic Insurance of Florida LLC MO 13-Apr Integrity Marketing Group, LLC Brokerage Resource, Inc. NC 14-Apr Simplicity Group Holdings, Inc. Fidelity Financial Group Inc. TX 15-Apr AssuredPartners, Inc. GIGA Solutions, Inc. FL 17-Apr TWFG Holding Company, LLC Panoptic Insurance TX 20-Apr Alera Group, Inc. Cambridge Benefit Solutions AZ 21-Apr Alera Group, Inc. Barkley Risk Management & Insurance CA 21-Apr AssuredPartners, Inc. Transportation Insurance Advisors LLC FL 21-Apr Hilb Group LLC Books of business RI 22-Apr XPT Group LLC LP Risk, Inc. TX 27-Apr Spotts Insurance Group, Inc. Hugh J. McGinley Insurance Agency PA 28-Apr Norman-Spencer Agency, Inc. Assets of Intercorp Inc. N/A 28-Apr Norman-Spencer Agency, Inc. BNK Insurance Services, LLC TX 30-Apr Ameritas Mutual Holding Company Dental Select, Inc. UT 30-Apr High Street Insurance Partners, Inc. Ayres-Rice Insurance Agency, Inc. MI 30-Apr Trustmark Corporation Boyles Moak Insurance Services MS 1-May BRP Group, Inc. Assets of Southern Protective Group, LLC GA 1-May Heffernan Insurance Brokers, Inc. Assets of Contractors Insurance NW WA 1-May IMA Financial Group, Inc. ESS NexTier Insurance Group, LLC PA 1-May Heffernan Insurance Brokers, Inc. Assets of TWIS CA 2-May Trustmark Corporation Creative Benefit Solutions, LLC AL

4-May Crest Insurance Group, LLC John Creps Insurance Agency, LLC AZ 4-May High Street Insurance Partners, Inc. Ken Bleeker Insurance Agency MI 4-May High Street Insurance Partners, Inc Gates-Cole Associates, Inc. NY 4-May USI Insurance Services, LLC Associated Benefits and Risk Consulting, LLC MN 11-May Hub International B & G Group Inc NY 11-May XPT Group LLC Houston Surplus Lines, Inc. TX 12-May Hub International Division of Healy Group, Inc. IN 13-May Higginbotham Insurance Agency, Inc. Amerman Insurance Services LLC TX 14-May Hub International Hatchett Insurance Agency, LLC TN 15-May Hub International Lashua-Lachance & Polik Insurance Agency, Inc. MA 18-May NFP Corp. Team Scotti PA 19-May Integrity Marketing Group, LLC Equis Financial, Inc. NC Source: SNL, Factset, other public sources; Note: Does not include deals where target was not disclosed; Excl. Acrisure deals.

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Public Broker Valuations:

Exhibit 40, 41 & 42

Broker Price Performance vs. S&P 500 (Since YE'18) 60.0% S&P 500 (17.9%) Broker Composite (31.4%) 50.0% 40.0% 31.4% 30.0% 20.0% 17.9% 10.0% 0.0% -10.0% Source: Factset

-20.0%

2/28/19 4/30/19 6/30/19 7/31/19 9/30/19 2/29/20 3/31/20 1/31/19 3/31/19 5/31/19 8/31/19 1/31/20 4/30/20

12/31/18 10/31/19 12/31/19 11/30/19

Public Broker P/E vs. S&P 500 - Since YE '16 25.0 Brokers S&P 500 21.8x 22.5 20.0 21.7x

17.5 15.0 12.5 Source: Company Reports, Factset

10.0

3/17 5/17 7/17 9/17 1/18 3/18 5/18 7/18 9/18 1/19 3/19 5/19 7/19 9/19 1/20 3/20 5/20

11/17 11/18 11/19

Historical Public Broker EV/EBITDA Public Brokers Middle Market Composite 16.0 14.4x 14.0 14.3x 12.0

10.0

8.0 Source: Company Reports, Factset

6.0

Q1-14 Q2-14 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-19 Q4-19 Q1-20

Current

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Important Disclosures

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This report is not an offer to buy or sell any security or to participate in any investment. The firm has no obligation to tell you when the opinions or information in this report change. The information and statistics contained herein are based upon sources which we believe to be reliable, but have not been independently verified by us. The firm makes every effort to use reliable comprehensive information, but makes no representation that it is accurate or complete. The firm may, at any time, hold a position in the public shares or private equity of any companies discussed in this report.

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