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Casualty Actuarial Society

Valuation of Insurance and Reinsurance Companies

June 16, 2000

James R. FisherManaging MemberFisher Capital Corp. LLC

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Valuation of Insurance and Reinsurance Companies

• In June of 1996 General Re acquired National Re for $1.2B, representing 2.5X GAAP book value, 19X trailing and 15.8X forward earnings

• In August of 1996, Munich Re acquired American Re for $3.8B, representing 3.8X GAAP book value, 19X trailing and 15.3X forward earnings

• In June of 1999 Trenwick Re acquired Chartwell Re for $367M, representing 0.8X GAAP book value, 10.1X trailing and 9.3X forward earnings

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Valuation of Insurance and Reinsurance Companies

• In December of 1999 Swiss Re acquired Underwriters Re for $725M, representing 1.6X GAAP book value and 18.0X forward earnings

• In December of 1999 Trenwick Re acquired LaSalle Re for $457M, representing 0.9X GAAP book value and 7.2X forward earnings

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Valuation of Insurance and Reinsurance Companies($ Millions) Price as a Multiple of GAAP EarningsBook Value 2000E 2001E

Munich Re 8,817 42.1X 38.3XSwiss Re 17,029 11.5X 10.5XSCOR 1,563 10.5X 9.2XHannover Re 237 12.7X 11.4XGerling 618 7.2X N/ATransatlantic 1,604 15.2X 14.2XPMA Capital 459 12.2X 10.9XXL Capital 5,671 9.7X 8.6XACE Ltd. 4,349 10.6X 9.5XPartner Re 2,015 8.0X 7.3XEverest Re 1,303 8.0X 7.3XWhite Mountains 628 N/A N/ARenaissance Re 595 6.4X 5.9XIPC Holdings 499 7.0X 5.9XTrenwick 472 6.3X 5.6XPXRE Group 287 8.4X 7.4X

Total Group Avg.1 2,884 11.7X 10.9XTotal Group Avg.2 1,450 9.4X 8.6X

1 with Munich & Swiss Re2 without Munich & Swiss Re

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Valuation of Insurance and Reinsurance CompaniesMarket Book Price to

Capitalization Value BookMunich Re* 67,008 8,817 7.6XSwiss Re* 22,138 17,029 1.3XSCOR 1,875 1,563 1.2XHannover Re 1,495 237 6.3XGerling 741 618 1.2XTransatlantic 2,887 1,604 1.8XPMA Capital 413 459 0.9XXL Capital 6,239 5,671 1.1XACE Ltd. 5,654 4,349 1.3XPartner Re 1,814 2,015 0.9XEverest Re 1,433 1,303 1.1XWhite Mountains 816 628 1.3XRenaissance Re 774 595 1.3XIPC Holdings 349 499 0.7XTrenwick 236 472 0.5XPXRE Group 172 287 0.6X

Total Group Avg. 1 6,336 2,884 2.47XTotal Group Avg. 2 1,778 1,450 1.23X

1 with Munich & Swiss Re2 without Munich & Swiss Re

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So why have valuations fallen?• The combined ratio* for the industry has

continually worsened

1996 103.5%

1997 102.3%

1998 104.4%

1999 113.8%

Valuation of Insurance and Reinsurance Companies

* Source: Reinsurance Association of America

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• Valuation models have not changed -- investor’s patience has been exhausted.

• How can the industry improve its perception on Wall Street?– Get some earnings

• So why insurance/reinsurance?

Valuation of Insurance and Reinsurance Companies

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So why reinsurance?

• Reinsurance continues to be a relationship business

• Reinsurance is a very talent-intensive business

• Capital adequacy is critical

• The market continues to consolidate

• It feels like 1984 though we are not yet there

• Need a long term view

• Must be able to withstand surprises

Valuation of Insurance and Reinsurance Companies