Industry Opportunities, Obstacles, and Perspective:

Taking Stock of the Claims Industry

Michel Finschi

Chief Operating Officer – Claims

XL Group

Insurance

Key Areas of Presentation

The Claims Value Proposition

Claims Moving The Industry Forward

(Re)Insurance Industry Relevance

Disruptive Technologies

Resource View

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The Claims Value Proposition

Clear Insight to Risk Management

Uncover New & Emerging Risks

Pinpoint New business Opportunities For (Re)Insurers

Customer Retention

Claims Tell Stories

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Claims Moving the Industry Forward

Balance external & internal challenges with limited resources

Master these challenges and move the industry forward, with Claims

as a key value proposition

Use of Technology is Paramount

Data turned into information and resulting in better decision making

Claims – better service, outcome, vendor management and resource allocation

Underwriting – discipline and opportunities

Brokers – powerful partnerships

Clients – by giving customers what they want, when they want it, costs reduce

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Global GDP

P&C Premiums as % of GDP

Industry Relevance

Source: see Appendix, reference no. 1. 6

Relevance

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Succeed to reverse this trend and we will see our value in the

economy grow.

Fail to reclaim our space, maintaining insurance relevance and we

will see continue decline.

(Re)Insurers must address emerging risks, innovate, create

new products, and provide insurance buyers with the coverage they

want, the services they want and when they want it.

Source: see Appendix, reference no. 2.

$5 million vs. $400 • Price of the fastest supercomputer in 1975 and an iPhone 4 with equal performance

300,000 miles driven • by Google„s autonomous cars with only one accident (human error)

85 % drop in cost per watts • of a solar photovoltaic cell since 2000

16 % potential share • of solar and wind in global electricity generation by 2025

2-3 bn more people • with access to the internet

8 Based on ‘Disruptive technologies: Advances that will transform life, business, and the global economy’ by McKinsey Global Institute, May 2013

Disruptive technologies will transform life, business

and the global economy

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2010

2020

International Data Corporation, http://www.statista.com/statistics/224384/installed-base-forecast-of-3g-wireless-subscribers/

= 165 Million Users

Disruptive technologies will transform…

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INDUSTRY FACTS

1998 1st Cyber Liability policy issued

>$1 Billion Current Cyber Liability coverage (Est. 2012 GWP)

31 Carriers offering Cyber Liability coverage, up from only 12 in 2008

72% Exposed companies that do not purchase Cyber Liability policies

Cyber Liability

Source: see Appendix, reference no. 1. 10

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JPN US EU

Supply Chain / Linkage

Source: see Appendix, reference no. 1. 11

Market View Summary

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New industries, new technologies, and businesses reveal new risks

New opportunities for insurers for new products and new services

Claims is at the center of customer value

We are challenged by technology to modernize claims processes,

and to innovate: innovation does not need to be a new Product

Industry relevance is at risk; this is also an opportunity

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U.S. P&C Capitalization

U.S. Energy Sector Capitalization

Based on total shareholder equity Russell 1000 Energy Index vs. Russell 1000 Insurance P&C Index, December 2011

5x

Capital – Strength

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Lower investment earnings

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*Based on 2008 Invested Assets and Earned Premiums / **US domestic reinsurance only Source: A.M. Best; Insurance Information Institute. Robert Hartwig, Ph.D., CPCU President & Economist Insurance Information Institute

Capital – Exit of undisciplined capacity

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Underperformers: exited the U.S. P&C market or been acquired

Interest Returns: low yields eliminated inefficient competitors

Threat: sheer capitalization of other industries

Industry Outlook: profitability to remain strong; however, growth

levels to remain sluggish

Based on Journey III: The Next Frontier in Property and Casualty Insurance, McKinsey & Company

Capital

Regulation

• USA • Continued encroachment of federal regulations and/or laws upon the state regulatory system

(e.g. Medicare).

• Regulators are increasing resources, and sophistication in audit and regulatory compliance.

• Medicare has forced insurers and service providers to adapt to the new regulations (i.e. systems,

collaboration, training).

• European Union: • Moving toward unified rules for financial services, including but not limited to Solvency II,

• Directives on insurance mediation,

• Review of pension funds, and an insurance guarantee framework.

• Insurance companies do the right thing, and must remain proud of the industry„s

positive impact to society.

• Increased regulation: ultimately, it will likely drive our industry to produce less return,

which will result in fewer companies that the world depends on.

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Industry is disciplined, efficient and innovative

OR

Continues to “hope“ that the invisible hand of market economics will

offer all reasonable measures of self-correction and continued

prosperity for the industry for years to come.

Dynamic Environment – conclusion

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Invention: the creation of an idea or method or product

Improvement: a betterment to the above

Innovation: doing something different

Innovation demands a temporary surrender of comfort / security

Risk is essential

There is no growth or inspiration in staying within what is safe and

comfortable

Innovation is not about the $ you have…

… it is about the talent and

… how they are led

… and how much they GET IT.

Innovation

IT costs of complex systems often outweighed the benefits

Acquisitions, leading to different processes on different systems

Localized resolution of infrastructure and processing problems

IT enabled innovation starts to impact commercial / specialty lines

Integrated information management and analytics use information

from and improve decision making in various functions (UW, Claims,

Risk Management)

Predictive modeling tools will drive better outcomes

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Information Technology

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Underwriting : which risks to write, which to avoid, strategy, structuring of transactions, rate adequacy

Human Resources: skills required (functions & levels), develop and reward people; make or buy decisions

Capital Management – buy back stock or keep extra capital for new businesses or future catastrophic losses, what is the most efficient use of reinsurance

Claims – settle or litigate, TPAs or in-house; reserve adequacy, predicted vs acutal claim outcome; outcome vs speed to closure; triage (no / low / high touch)

Analytics (insights and foresights)

Results Will Improve When Decision Making Improves

Use of Analytics Will Improve Decision Making

• Effectiveness of decisions improves

• Consistency in decision making improves

• Creates a framework for assessing effectiveness of decisions

• Provides feedback for further improvement

The development and use of analytics will require us to do things

differently

Analytics

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Talent Management

Deemed a foundational pillar of top performing companies*

Former underperformers have turned to strong results by adding

talent*

Technology and capital have the ability to level the playing field for

entrants; however, only people truly create the advantages

P&C business is far more complex than most casual observers

realize

The industry struggles to attract top-tier talent, and should strengthen

the talent pool*

We need to make the insurance industry “cool.”

23 *source: Journey III: McKinsey&Company

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XL’s response: Fast Fast Forward

Rebuilt our claims systems, built a global claims platform, a very

powerful body of information and insight that lowers the costs of

claims handling

New technology so that risk managers have a constant view of claims

on a real time basis with us.

Big value added and creates super-sticky relationships between XL,

our clients, brokers and partners

Won awards along the way…

Recruiting specialized expertise to build upon these capabilities

Deeply embedding analytics in every underwriting business

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RECLAIM

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Appendix 1. Speech by Mike McGavick, CEO XL Group at International Rendez-Vous of Insurers, Reinsurers, Brokers and Reinsurance Consultants in

Monte-Carlo, 2012. See also Insurance Journal, September 17 2012, “Re/insurers Increasingly Less Relevant to Global Economy: XL CEO

McGavick.”

2. Keynote speech by Mike McGavick, 2012, European Insurance Forum, Dublin. See also Insurance Journal, May 29, 2012, “How Relevant Is

Insurance? Asks XL CEO McGavick.”

3. Cyber Liabilities: Advisen Productivity & Insight for Insurance Professionals: “Cyber Liabilities, Insights Conference October 18, 2011.“

4. McKinsey & Company: “Disruptive Technologies: Advances that will transform life, business and the global economy.“ May 2013

5. Most Costly World Insurance Losses: sources: Swiss Re Sigma 1/2011; AIR Worldwide, RMS, Eqecat; Insurance Information Institute.

6. Journey III: McKinsey&Company, “Journey III: The Next Frontier in Property and Casualty Insurance, The Challenge of Profitable Growth.“

January 2011.

7. Capitalization US P&C. See reference 1, above.

8. Celent: “Perceptions and Misconceptions of Big Data in Insurance.“ April 24, 2013.

9. XL to Politicians: See video „XL to Politicians: Don„t Tread on Us.“ January 7, 2013. http://www.propertycasualty360.com/2013/01/07/xl-

ceo-to-politicians-dont-tread-on-us

10. Smartphones: International Data Corporation, http://www.statista.com/statistics/224384/installed-base-forecast-of-3g-wireless-subscribers/

11. A.M. Best; Insurance Information Institute. Robert Hartwig, Ph.D., CPCU President & Economist Insurance Information Institute

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Legal Disclaimer

In the US, the insurance companies of XL Group plc are: Greenwich Insurance Company, Indian Harbor Insurance

Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., XL Select Insurance Company,

and

XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in

all jurisdictions.

The information contained herein is intended for informational purposes only. Insurance coverage in any particular

case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the

facts of each unique situation. No representation is made that any specific insurance coverage would apply in the

circumstances outlined herein. Please refer to the individual policy forms for specific coverage details.

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