2020 Property Market Dynamics Q3 2020 Update Table of Contents

03 Executive Summary

04 Property Market as of Q2 2020

06 Current Market Conditions

07 About Aon

2 | 2020 Property Market Dynamics – Q3 Update Executive Summary

For the second quarter of 2020 (Q2 2020), the heavy manufacturing. These segments are witnessing property insurance market continued to see upward the greatest rate and terms and conditions pressure. rate pressure and more cautious underwriting by most During this period, in addition to seeking rate increases, insurers. Q2 2020 represents the 11th consecutive underwriters are working to reduce their exposure quarter of increasing property rates. More pointedly, to maximum foreseeable loss events (MFL), as well as Q2 2020 is the first time since 9/11 that we have probable maximum loss (PML) events. There is a renewed witnessed five consecutive quarters with property focus on the implementation of Risk Improvement rates averaging above 20%. Plans, including the completion of open or outstanding The average property rate increased to 26.3% for “mandatory” loss improvement recommendations. Q2 2020 from an average rate of 20.2% in Q1 2020. We recommend that any outstanding loss control Based on Aon’s proprietary data, we are now in the recommendations be addressed when possible, and most prolonged period of increased property rates if not resolved, establish a proactive approach and since Aon began officially tracking property market sound narrative around a Risk Improvement Plan. analytics in 2001. Clients with single carrier programs, where more Over 98% of clients that renewed programs in Q2 emphasis is placed on loss control efforts, are now 2020 realized a property rate increase. Most clients, facing challenging renewals, as well as limited approximately 81%, continued to purchase the same options in the market for 100% limits. Alternative limits and 84% the same deductibles/retentions. Broad shared and layered programs are more expensive coverage is still available in the insurance market, options for these clients, but they are often deemed however, more underwriter scrutiny is being placed necessary to address shortages in critical capacity. on manuscript forms, pandemic/COVID-19 exclusions, As we approach year end, market capacity is convective storm deductibles/retentions and business beginning to tighten. Many insurers have met interruption coverage extensions. Complex shared and 2020 budget goals or exhausted their aggregates layered programs are struggling with more coverage for critical catastrophe perils. Consequently, many non-concurrencies as many underwriters are pushing insurers are very judicious in extending available their own wordings, particularly with regard to capacity on new business opportunities. pandemic/COVID-19. Consequently, complex shared and layered global property programs that utilize a global With the ongoing uncertainty related to the COVID-19 fronting carrier have the potential for non-concurrent pandemic and continued, higher than expected risk/ terms and conditions if agreement on COVID-19 and attritional losses, we expect the challenging market other non-physical damage coverages can’t be reached conditions to persist through 2020. The Atlantic between the reinsurance panel and fronting carrier. Hurricane season continues to produce a record number of named storms and storms have already begun to Clients with a favorable loss experience are not immune revert to Greek Alphabet names after exhausting the to the challenging market and have experienced an list of named storms for 2020. Insured losses from average rate increase of 26%. This increase represents Hurricane Laura are estimated at USD10 Billion and with not only a broad approach by the market but a Atlantic Hurricane Season not officially scheduled to downstream impact of increased pricing emanating end until November 1, we expect market pressure to from the reinsurance market. Clients with loss ratios continue into 2021. eroding insurer profitability – generally those with loss ratios greater than 49% – are experiencing rate increases As you move forward to program renewal, sound greater than 30%. Clients that are coming out of long- advice for clients that are looking to obtain term agreements (LTA’s) – many of whom are renewing competitive pricing and terms and conditions is to for the first time in three years – are witnessing severe ensure that your risk and loss data is accurate and pricing and capacity pressure. The occupancies facing up-to-date, your risk story is sound and aligned to the greatest challenges continue to be segments of current and market-sensitive continuity plans and habitational real estate, hospitality, pulp and paper and you are committed to starting the process early.

3 | 2020 Property Market Dynamics – Q3 Update 35%

30%

25%

20%

15%

10%

5%

0%

Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

Property Market as of Q2 2020

Rate Changes

Exhibit 1 35% Average and Median Rate Changes – Last Eight Quarters Average Median 30%

30% 25%28.61% 26.33% 20% 24.50% 25% 21.39% 21.10% 15% 20.21% 20% 17.00% 16.20% 16.77% 15.00% 10% 15% 5% 10% 7.92% 0% 4.34% 4.48% 5.17% 1st Quartile Average Median 3rd Quartile 5% 3.00% 3.06%

0% Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20

Source: Aon Data

Exhibit 2 Exhibit 3 Year-Over-Year Rate Change – Q2 2020 Distribution of Rate Change by % of Programs – Q2 2020

35% 31.08% Over -10% -5% to -9.9%

30% 0.1% to 4.9% 26.33% 5% to 9.9% 25% 0.6% 1.8% 21.10% Over 25% 0.6% 5.3% 20%

15.56% 40.6% 15%

10%

51.2% 10% to 24.9% 5%

0% 1st Quartile Average Median 3rd Quartile

Source: Aon Data Source: Aon Data

4 | 2020 Property Market Dynamics – Q3 Update 100.0%

87.5% 100.0% 75.0% 87.5% 62.5% 75.0% 50.0% 62.5% 37.5% 50.0% 25.0% 37.5% 12.5% 25.0% 0.0% 12.5%Q1 19 Q2 19 Q3 19 Q4 19

0.0% Q1 19 Q2 19 Q3 19 Q4 19

No Loss

No Loss

Loss Ratio 1% to 49% Loss Ratio 1% to 49%

Loss Ratio 50% to 100% Loss Ratio 50% to 100%

Loss Ratio Over 100% Loss Ratio Over 100% Property Market as ofAll Q2 Accounts 2020 All Accounts 0% 5% 10% 15% 20% 25% 30% 35% 0% 5% 10% 15% 20% 25% 30% 35% Pricing

Exhibit 4 Exhibit 5 Year-Over-Year Rate Change CAT vs Non-CAT – Q2 2020 Year-Over-Year Rate Change by Program Type – Q2 2020 100.0%

87.5% Non-CAT Non-CAT 26.16% SharedShared 30.62% 75.0% CAT CAT 26.87% 62.5%

50.0% CA EQ CA EQ 25.23% SingleSingle Carrier Carrier 21.28% 37.5% Tier I Wind 25.0% Tier I Wind 27.29% All Accounts 26.33% 12.5% All Accounts All Accounts All Accounts 26.33% 0.0% Q1 19 Q2 19 Q3 19 Q4 19 24.0% 24.5% 25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 0% 5% 10% 15% 20% 25% 30% 35% 24.0% 24.5% 25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 0% 5% 10% 15% 20% 25% 30% 35%

Source: Aon Data Source: Aon Data

Exhibit 6

Year-Over-Year Rate Change by Loss Ratio – Q2 2020

No Loss 26.38%

Loss Ratio 1% to 49% 23.31%

Loss Ratio 50% to 100% 31.77%

Loss Ratio Over 100% 34.70%

All Accounts 26.33%

0% 5% 10% 15% 20% 25% 30% 35%

Source: Aon Data

Non-CAT Shared

CAT

CA EQ Single Carrier

5 | 2020 Property Market Dynamics – Q3 Update Tier I Wind

All Accounts All Accounts

24.0% 24.5% 25.0% 25.5% 26.0% 26.5% 27.0% 27.5% 0% 5% 10% 15% 20% 25% 30% 35% Current Market Conditions

Category Q2 2020 Comment 2020 Comment Pricing Larger and more complex accounts Accounts with poor experience will continue to experienced increased rates on average for experience significant rate pressure. Many insurers the quarter of 26.3%. This represents an are continuing to push rates higher toward what increase compared to the prior quarter of they believe are sustainable levels to address 20.2%. Shared & Layered and Quota-Share increased risk and natural catastrophe losses. Programs experienced an average rate Increased Treaty and Facultative reinsur