February 8th, 2011 eb ua y 0

Earthquake Risk: Chile

RENSURANCE ASSOCIATION OF AMERICA FEBRUARY , 2011

Catastrophe Modeling Perspective

Francisco J. Perez, Ph.D. ,

Head of Portfolio Management
Francisco.J.Perez-Caballero@Guycarp.com
www.guycarp.com

Agenda
Overview ( ) (Re)Insurance Market and Regulation g Seismic Hazard Earthquake Exposure and Design Code M8.8 Feb 27 Maule Earthquake Catastrophe M d li C t t h Modeling Pacific Northwest: Cascadia Subduction Zone Conclusions

Guy Carpenter

CHILE (CHL) Overview

Population Area Currency Monetary Unit for Financial o eta y U t o a ca Transactions Gross Domestic Product GDP per Capita GDP Agriculture GDP Industry GDP Services 16,746,491 (July 2010) 748,800 sq km (289,111 sq. miles) Chilean Peso (CLP) U Unidad UF- U dad de Fomento = 43.53 US o e to 3 53 USD (Jan 2011) $260bn USD (2010) $15,500 USD (2010) 5.6% 40.5% 40 5% 53.9%
Villa del Mar Puente Alto

Chilean Econom ( since 1990s) Economy (~ Market-oriented economy High level of foreign trade Strong financial institutions Strongest sovereign bond rating in South America.

SOURCE: https://www.cia.gov/library/publications/the-worldfactbook/geos/ci.html
Guy Carpenter 2

DIRECT WRITTEN PREMIUM (in millions)

(as of September, 2010)

2009 Amount Percent 43 35.8% 78 64.2% 121 100.0% 1,458 2,618 4,076 4 076 2010 2009-10 Amount Percent Variation 48 33.3% 97 66.7% 146 100.0% 2,133 4,272 6,404 6 404 12.1% 25.0% 20.4%

Insurance Market
Insurance Penetration in bn USD (2007)

Line of Business P&C (Non Life) Life Insurance Insurance Market P&C (Non Life) Life Insurance Insurance Market I M k t

Currency UF UF UF USD USD USD

REPORTED PROFIT (in millions) Line of Business P&C (Non Life) Life Insurance Insurance Market P&C (Non Life) Life Insurance Insurance Market Currency UF UF UF USD USD USD 2009 Amount Percent .58 3.6% 15.26 96.4% 15.83 100.0% 19.40 513.97 513 97 533.37

(as of September, 2010)

2010 2009-10 Amount Percent Variation .24 1.4% 17.56 98.6% 17.80 100.0% 10.65 772.07 772 07 782.72 -57.9% 15.1% 12.4%

DISASTER LOSSES (in millions)

(as of September, 2010)

2009 Amount Percent 20.22 21.1% 75.37 78.9% 95.59 100.0% 681.12 2,539.37 3,220.49 2010 2009-10 Amount Percent Variation 184.78 67.6% 88.60 32.4% 273.38 100.0% 8,126.64 3,896.45 12,023.09 814.0% 17.5% 186.0%

Chilean Insurance Market is (2010): P&C (Non-Life): Life: $ 2.1bn USD $ 4.3bn USD

Line of Business P&C (Non Life) Life Insurance Insurance Market P&C (Non Life) Life Insurance Insurance Market

Currency UF UF UF USD USD USD

SOURCES: FALSECOLDA, RMS, Asociacion de Aseguradores de Chile. ACCH

SVS: Superintendencia de Valores y Seguros Guy Carpenter

380% of P&C DWP

3

Insurance Market
P&C Gross Premium Distribution
Premium rates for earthquake cover have increased by an average of 14% since the event This can be explained by a much more selective local market, emphasizing quality data, loss records, and deductible levels Insurers are especially selective in their appetite for machinery breakdown and contingent business interruption exposures Many insurers are watching their accumulations in high-risk areas very carefully, which could influence supply and demand aspects for capacity and pricing (as of March, 2010)

(as of March, 2010)

Santander 5,1%

P&C INSURANCE MARKET

Magallanes 7,2% Chartis 6,6% Renta R t 1,5% HDI 1,4% Continental Crdito 1,2% Chubb 1,0%

Cardif 7,9% Liberty 8,2%

ACE 4,3% Consorcio Nac. 2,0%

Chilena 8,3%

| Other 6,6%

Coface 0,6% Mapfre Garanta 0,5% Cesce 0,1% Mut. Carabineros 0,1% Orin 0,1% Hueln 0,0% Zenit 0,0%

BCI 8,6% RSA 14,0% Penta 12,4% %

PROPERTY INSURANCE MARKET

Chilena (Zurich) 11% Santander 5% BCI 5% ACE 4% Other 5% Penta 13% Mapfre 15% Magallanes 2,6% Consorcio Nac. 1,4% Chubb 0,4% 0 4% HDI 0,4% Renta 0,4% M. Carabineros 0,3%

Mapfre 8,8%

Liberty 12%

GROSS PREMIUM $1,732m USD

FAF 0,0%

Chartis (AIG) 12%

The Chilean insurance market has experienced a significant consolidation of insurers, challenging a competitively p , g g p y priced marketplace. These changes are also affecting the attention paid to solvency margins of insurers. The insurance superintendent is monitoring this. Deductible levels remain low except for machinery breakdown, earthquake, and business interruption coverage

RSA 19%

GROSS PREMIUM $506m USD ~30% of P&C

SVS: Superintendencia de Valores y Seguros; Guy Carpenter; Marsh Guy Carpenter 4

Insurance Market
P&C Net Retained Premium Distribution (September, 2009) p )
The financial services regulator, the SVS will make changes to insurance contract law: property insurances and life and health insurances
(as of March, 2010)
Mapfre 6% Magallanes 9% Penta 9% ACE 3% Other 6% Santander S t d 4%

P&C INSURANCE MARKET

Chilena (Zurich) 3% Chartis (AIG) 3% Consorcio Nac. 3%

Renta 2,2% HDI 2,0% Coface 0,6% Continental 0,5% Mapfre G M f Gar. 0,2% Chubb 0,2% Mutual Carab. 0,1%

The Insurance Companies' Association (AACH) has announced its intention of submitting to the SVS a new uniform earthquake policy for registration

Liberty 10%

(as of March, 2010)

PROPERTY INSURANCE MARKET

Mapfre 10% BCI 12% Penta 7% Santander 4% Magallanes 3% ACE 2,4%

BCI 14% Cardif 14%

RSA 16% Hueln 0,0%

NET RETAINED PREMIUM $813m USD (47% of Gross)

Chilena (Zurich) 12% Other 8%

Consorcio Nac. 2,1% HDI 1,0% Chartis (AIG) 0,8% Mutual Carab. 0,6%

Banks are continuing to increase dramatically their share of the non-life insurance market to the detriment in non life market, particular of the traditional agent and broker channels

Liberty 18% RSA 26% Chubb 0,2% 0 2% Cardif 0,1%

Renta 0,6%

NET RETAINED PREMIUM $154m USD (30%) of Gross Guy Carpenter

SVS: Superintendencia de Valores y Seguros 5

Insurance Market
Residential Insured Exposure
Mass marketing of personal lines covers through banks and department stores has stimulated demand o It is estimated that 100% of property policies covering loans carry earthquake cover o About 25% of private homeowners have coverage The basic fire policy covers: o fire o lightning o domestic explosion Earthquake, fire following earthquake, Windstorm and Flood are not covered as part of the standard fire policy but under the extended coverage clause Separate earthquake policies are not normally issued but it may be done infrequently as part of an international p og a o if e cess layer co e is e a o a program or excess aye cover s required Fire following is covered under the g earthquake extension A deductible of 1% of the insured values The rate for flood coverage may be quoted as 5% of the fire rate Deductibles a e not usua y app ed to flood educ b es are o usually applied o ood risk the pre-2010 earthquake rate of about 0.80 to 1.20 was barely sufficient to pay for the reinsurance cost

Guy Carpenter

Insurance Market
Commercial/Industrial Insured Exposure

Industrial all risk policies are available, but usually only for major insureds Commercial and industrial risks are usually covered on an all-risk basis Extended coverage includes windstorm boiler windstorm, explosion, explosion of gas, falling aircraft, vehicle impact, earthquake, flood and Strike-Riot and Civil Commotion (SRCC) The risks of hail, vandalism, malicious damage, sonic boom, sprinkler leakage and other water damage can be covered by endorsement A deductible of 2% of the sum insured applies to commercial and industrial risks, subject to a minimum of UF 50 (USD 2,088) and a maximum of UF 10,000 (USD 417,600) though the concept of a maximum is disappearing Business I t B i Interruption ti A standard Chilean form is widely used The American gross earnings form is sometimes used The normal maximum indemnity period is six months for medium size companies Deductible of 48/72 hours, although significantly higher deductibles are required for the major energy, mining, etc. exposures.

Guy Carpenter

Reinsurance Market
Reinsurance Participation
The two key renewal dates influencing rate cycles in this region are January and July; the dates in which local insurers renew their reinsurance treaties. Reinsurance rates for Chile have increased, with catastrophe rates up by as much as 80% p y CAT rates continue to challenge insurers, which affects pricing levels for buyers in heavily exposed earthquake regions.

Reinsurers are insisting on a minimum average rate for earthquake of 1.8, about 50% of the maximum rate previously charged in the market Local reinsurance companies are required a minimum capital of 5m USD for each life and non-life Mapre Re and Partner have local reinsurance offices in Santiago While the proportional contracts are placed directly with reinsurance companies, the XOL programs are placed through brokers .

XOL CONTRACTS

QUOTA-SHARE CONTRACTS Reinsurance Company Royal & Sunalliance Swiss Re Zurich Munich Re Mapfre R M f Re Lloyd's Everest Stein Insurance Company Allianz XL Re New Hampshire Partner Re Scor R + V Versicherung AG Hannover Liberty Mutual Insurance Odyssey Re Paris Re Federal Insurance Transatlantic Re Other Reinsurance Companies (66) Percent Participation 18.0% 11.5% 10.5% 9.6% 8.1% 8 1% 6.3% 5.8% 4.3% 3.2% 3.1% 2.6% 2.1% 1.5% 1.4% 1.3% 1.3% 1.2% 1.0% 0.9% 0.9% 5.4% Rating A A A AAAA A+ A+ A AAA A+ A AA A A+ A A+ AA A+

Reinsurance Company Munich Re Swiss Re Ace Tempest Re Mapfre Re Lloyd's Hannover QBE Everest Re Liberty Mutual Insurance Validus Sirius Partner Re White Mountain Allianz Aspen Re New Hampshire Axis Reinsurance Company Federal Insurance Houston Casualty Insurance Company Allied World Assurance Company UK Other R i Oth Reinsurance C Companies (27) i

Percent Participation 31.4% 10.8% 8.9% 8.7% 8.4% 5.4% 3.1% 3 1% 2.7% 2.6% 2.5% 2.4% 2.0% 1.3% 1.1% 1 1% 1.0% 0.9% 0.9% 0.8% 0.5% 0.4% 4.2% 4 2%

Rating AAA A+ AA A+ A A A+ A+ A A A+ AAAAA A+ A+ A+ AA AA A-

SVS: Superintendencia de Valores y Seguros

8

Guy Carpenter

Regulation and Solvency Earthquake Insurance Reserve

SVS: Superintendencia de Valores y Seguros

IFRS (International Financial Reporting Standards) reporting will be introduced in parallel with current norms from first quarter 2012 and independently from first quarter 2013 The Chilean Securities and Insurance Commission (SVS) requires that Direct and Reinsurance Non-Life Companies set up the earthquake technical reserves Premium equalization reserves must be set up to meet obligations for risks whose level of potential disaster is unknown, or varies irregularly, is cyclical or catastrophic (rules for establishing the reserve are set by the SVS) The characteristics of the Earthquake Reserve are: o It is based on the actual exposure of the in-force contracts and business structure o It is not a long term aggregated reserve. Once the exposures expire, the reserve is released There is no catastrophe fund for earthquake risks f nd earthq ake

Guy Carpenter

Regulation and Solvency Earthquake Insurance Reserve (Circular N1126)

Earthquake Catastrophe Reserve (Current exposure up to the reserve calculation date)
5 ZONES

RCT = [ P + MAX { (PML * MTE - CXL), 0} ] * 1.10 where: RCT P PML Earthquake Catastrophe Reserve Retention 10% Building and Contents 15% Other Risks (BI and Engineering) MTE PML CXL Total Exposure (largest accumulation zone ) Probable Maximum L P b bl M i Loss XOL Reinsurance Contract

SOURCE: Regulation to Establish Insurance Reserves (circular N 1126) SVS: Superintendencia de Valores y Seguros (The Chilean Securities and Insurance Commission)
Guy Carpenter 10

Political and Administrative Division

Zones, Regions, Provinces and Comunas
5 ZONES
ZONE 1 XV 1 1 1 1 2 3 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 IX IX XIV X X X X XI XII XII XII 9 9 14 10 10 10 10 11 12 12 12 ARAUCANIA ARAUCANIA LOS RIOS LOS LAGOS LOS LAGOS LOS LAGOS LOS LAGOS AISEN MAGALLANES Y ANTARTICA MAGALLANES Y ANTARTICA MAGALLANES Y ANTARTICA FLOTANTES VI VI VII VII VII VII VIII VIII VIII VIII 6 6 7 7 7 7 8 8 8 8 O'HIGGINS O'HIGGINS MAULE MAULE MAULE MAULE BIOBIO BIOBIO BIOBIO BIOBIO I II III IV V XIII 15 1 2 3 4 5 13 ARICA AND PARINACOTA TARAPCA ANTOFAGASTA ATACAMA C0QUIMBO VALPARAISO METROPOLITANA REGION (STATE) REGION ID REGION NAME

States

Counties

15 REGIONS

51 PROVINCES

342 COMUNAS

Guy Carpenter

11

Political and Administrative Division

Regions, Provinces and Comunas

Comuna of Santiago (County) PROVINCE OF SANTIAGO

REGION (STATE) XV I II III IV V XIII VI VI VII VII VII VII VIII VIII VIII VIII IX IX XIV X X X X XI XII XII XII

REGION ID

REGION NAME

PROVINCES

COMUNAS (COUNTIES) 4 7 9 9 15 38 52 33 30

15 1 2 3 4 5 13 6 6 7 7 7 7 8 8 8 8 9 9 14 10 10 10 10 11 12 12 12

ARICA AND PARINACOTA TARAPCA ANTOFAGASTA ATACAMA C0QUIMBO VALPARAISO METROPOLITANA O'HIGGINS O'HIGGINS MAULE MAULE MAULE MAULE BIOBIO BIOBIO BIOBIO BIOBIO ARAUCANIA ARAUCANIA LOS RIOS LOS LAGOS LOS LAGOS LOS LAGOS LOS LAGOS AISEN MAGALLANES Y ANTARTICA MAGALLANES Y ANTARTICA MAGALLANES Y ANTARTICA FLOTANTES

2 2 3 3 3 7 6 3 4

54

2 2 4

32 12 30

METROPOLITANREGION (State)

4 4

10 11

51

342

Source: 2007 Instituto Nacional de Estadisticas de Chile

Guy Carpenter 12

Earthquake Hazard: Seismic Intensity Exposure Accumulation Zones

CRESTA and Sub CRESTA Zones
Seismic Intensity Map PGA
10 % Exceedance in 50 years

CRESTA ID CHL.1 CHL 1 CHL.1.1 CHL.1.2 CHL.1.3 CHL.1.4 CHL.2 CHL.3 CHL 3 CHL.4 CHL.4.1 CHL.4.2 CHL.4.3 CHL.4.4 CHL.4.5 CHL.4.6 CHL 4 6 CHL.4.7 CHL.4.8 CHL.4.9 CHL.4.10 CHL.5 CHL.5.1 CHL.5.2 CHL 5 2 CHL.5.3 CHL.5.4 CHL.5.5 CHL.5.6 CHL.5.7 CHL.5.8 CHL 5 8 CHL.5.9 CHL.5.10 Norte

CRESTA NAME

RMS v10.0 1 1.1 1.2 1.3 1.4 2 3 4 4.1 4.2 4.3 4.4 4.5 4.6 46 4.7 4.8 4.9 4.10 5 5.1 5.2 52 5.3 5.4 5.5 5.6 5.7 5.8 58 5.9 5.10

EQE v3.13 CHL-001-000 CHL 001 000 CHL-001-001 CHL-001-002 CHL-001-003 CHL-001-004 CHL-002-000 CHL-003-000 CHL 003 000 CHL-004-000 CHL-004-001 CHL-004-002 CHL-004-003 CHL-004-004 CHL-004-005 CHL-004-006 CHL-004-007 CHL-004-008 CHL-004-009 CHL-004-010 CHL-005-000 CHL-005-001 CHL 005 002 CHL-005-002 CHL-005-003 CHL-005-004 CHL-005-005 CHL-005-006 CHL-005-007 CHL 005 008 CHL-005-008 CHL-005-009 CHL-005-010

AIR v12.0 Z1.0 Z1 0 Z1.1 Z1.2 Z1.3 Z1.4 Z2.0 Z3.0 Z3 0 Z4.0 Z4. 1 Z4. 2 Z4. 3 Z4. 4 Z4. 5 Z4. Z4 6 Z4. 7 Z4. 8 Z4. 9 Z4.10 Z5.0 Z5. 1
2

Tarapac Antofagasta Atacama Coquimbo Valparaso/Aconcagua Santiago Centrales OHiggins Colchagua Curic Talca Maule Linares Nuble Concepcin Bio-Bio Arauco Australes Malleco Cautn Valdivia Osorno Llanquihue Chilo Aisn Magallanes Tierra del Fuego Antrctica Chilena Flotantes

Z5. Z5 2

Z5. 3 Z5. 4 Z5. 5 Z5. 6 Z5. 7 Z5. Z5 8 Z5. 9 Z5.10 Z6

m/s2

Guy Carpenter

13

Thrust

Earthquake Hazard
Subduction Zone and Seismic Sources
1

Seismic Source 1 Active Faults 2 Subduction Zone 3 Intermediate to Deep Events

Source Type Crustal Interface Intraslab

Max. Magnitude 7.0 8.5 8.0

Nazca Plate, 9cm/year y

C
2 (50-60 km)

Southamerican Plate Antartic Plate Scotia Plate

A
3 (60-200 km)

Seismic slip Mega thrust Earthquakes

Seismicity Map 1990 - 2006

Guy Carpenter 14

Historical Mega-Earthquakes
Global Earthquake with M>=8 since 1900

TOP 10 LARGEST EARTHQUAKES SINCE 1900

Source: National Earthquake Information Center

Guy Carpenter 15

Largest Earthquakes in Chile

Rupture Lengths since 1500
Time

Year

Time

Magnitude M8.7 M8.2 M9.0 M8.3 M8.2 M8.5 M7.6 M7.8 M8.2 M8 2 M7.9 M9.5 M7.0 M7.4 M7.5 M7.8 M7.1 M6.6 M6.8 M6.6 M7.8 M7.7 M6.7 M6 7 M6.3 M6.5 M8.8 Valparasio Concepcion

Earthquake

Fatalities na 500 25,000 34 3,882 na 225 28,000 25 1,655 1 400 90 177 na na na na 11 2 na na na 577 na

1730 1835 835 1868 1877 1906 1922 1928 1939 1943 1960 1960 1965 1965 1971 1985 1998 2002 2003 2004 2005 2007 2007 2008 2009 2010

7:08 2:20 : 0 8:13 5:10 8:17 11:11 12:01 1:25 4:06 4 06 5:21 5:22 2:23 3:28 7:09 3:03 1:30 6:18 6:20 5:03 6:13 11:14 12:16 2:04 11:13 2:27

Arica, Peru (now Chile) Offshore Tarapaca Valparaiso Chile Argentina Border Talca Chillan Illapel S l Ill l Salamanca Arauco Peninsula Chile Taltal La Ligua Valparaiso region offshore Valparaiso Near Coast of Northern Chile Argentina Border Region Near the Coast of Central Chile Bio Bio, Chile Tarapaca Antofagasta Antofagasta Tarapaca Offshore Tarapaca Offshore Bio Bio

Arica Gap Ai G

SEISMIC GAP

Rupture lengths of large earthquake in Chile

Rupture zone of most recent events

Rupture Length: 500 km

Quaternary Volcanoes

Guy Carpenter

16

Earthquake Hazard
Recurrence Rates
Annual Event Frequency Chilean Catalog Martin (1906 -1985) Magnitude [Ms] > 8.00 7.50 - 8.00 7.00 - 7.50 6.50 - 7.00 6.00 - 6.50 5.50 - 6.00 5.00 - 5.50 Chile 0.08 0.35 0.95 2.60 6.95 18.70 51.40 Santiago Region 0.06 0.34 0.95 1.82 3.33 7.30 22.00

EARTHQUAKE DENSITY MAP Average Number of Earthquakes per year Magnitude 5 and greater

Source: Kate Stillwell of EQECAT; USGS

Guy Carpenter 17

Regional Earthquake Exposure

Housing and Population Density
Region Region Name HOUSES URBANA RURAL Percent

Population Density

XV I II III IV V XIII VI VII VIII IX X XI XII XIV

COUNTRY De ARICA Tarapaca Antofagasta Atacama Coquimbo Valparaiso Region Metropolitana O'Higgins Maule Bio-Bio Araucania Los Lagos Aisen Magallanes Los Rios

4,399,952 52,396 71,326 126,882 79,012 192,587 532,641 1,643,892 232,930 278,192 531,385 259,939 259 939 212,550 30,012 48,335 107,873

3,739,148 47,339 64,395 122,086 70,190 143,885 489,120 1,589,636 162,545 181,067 424,615 170,577 170 577 138,566 21,594 43,090 70,443

660,804 5,057 6,931 4,796 8,822 48,702 43,521 54,256 70,385 97,125 106,770 89,362 89 362 73,984 8,418 5,245 37,430

100.00% 1.19% 1.62% 2.88% 1.80% 4.38% 12.11% 37.36% 5.29% 6.32% 12.08% 5.91% 5 91% 4.83% 0.68% 1.10% 2.45%

Region

Region Name

Population Density

POPULATION

URBANA

RURAL

Percent

XV I II III IV V XIII VI VII VIII IX X XI XII XIV

COUNTRY De ARICA Tarapaca Antofagasta Atacama Coquimbo Valparaiso Region Metropolitana O'Higgins Maule Bio-Bio Araucania Los Lagos Aisen Magallanes Los Rios

5.9 11.2 5.7 3.9 0.3 14.9 93.9 393.5 47.6 30.0 50.2 27.3 14.8 6.6 0.1 19.3

15,741,682 189,644 238,950 493,984 254,336 603,210 1,539,852 6,061,185 780,627 908,097 1,861,562 869,535 716,739 716,739 150,826 356,396

13,507,546 176,676 226,462 482,546 232,619 470,922 1,409,902 5,875,013 548,584 603,020 1,528,306 588,408 491,040 491,040 139,669 243,339

2,234,136 12,968 12,488 11,438 21,717 132,288 129,950 186,172 232,043 305,077 333,256 281,127 225,699 225,699 11,157 113,057

100.00% 1.20% 1.52% 3.14% 1.62% 3.83% 9.78% 38.50% 4.96% 5.77% 11.83% 5.52% 4.55% 4.55% 0.96% 2.26%

Guy Carpenter

18

Earthquake Exposure Major Cities

SANTIAGO

CONCEPCION

VINA DEL MAR

Principal Cities
CITIES
XV I

II III

IV V

Principal Agglomerations
XIV VIII

XIII VI VII

IX X XI

XII

REGIONS

(1992) (2002) Instituto Nacional de Estadsticas (web).

Guy Carpenter 19

Ground Motion
Soil Site Amplification
the ROCK units have a less pronounced amplitude dependency The amplification for the soil sites decreases with increasing g g ground-motion levels

SOIL FACTORS

(NEHRP CLASSIFICATION)

SOILS CLASSIFICATION: SANTIAGO BASIN (XIII) HAZARD INTENSITY ON SOIL A B C Hard Rock Rock Very dense soil/Soft rock BC CD Gravel/Sandy Gravel Sandy Silt/Sandy Clay

CD BC

Guy Carpenter

20

Exposure Characteristics
Construction, Year Built and Number of Stories
The Chilean Building Code is one of the most stringent in the world The effectiveness of the Code enforcement is reflected by the limited number of new buildings collapsed during extremely large earthquakes The capital of Santiago has a large number of residential and commercial high-rise buildings ~ more then 2000 Construction outside of urban areas is less robust Decree 369 of the Ministry of Economy mandates portable fire extinguishers in industries, banks, stores, supermarkets, and customer service offices A department of the Fire Brigade Super-Intendency inspects fire prevention systems in buildings Fire hydrants are installed in many parts of Santiago and other major cities Smoke detectors exist in many office buildings and hotels Sprinkler systems are increasingly installed in industrial and commercial facilities

DISTRIBUTION OF BUILDING CONSTRUCTION Line of busines Residential Commercial C i l Industrial Wood 11% 3% 0% Reinforced Masonry 81% 47% 13% Reinforced Concrete 8% 49% 38% Steel 0% 1% 49%

EXPOSURE DISTRIBUTION BY YEAR BUILT Year Built Pre 1950 1950 - 1972 1973 - 1993 Post 1993 Residential 36.0% 21.0% 12.0% 31.0% Multi-family 36.0% 21.0% 11.5% 31.5% Commercial 36.0% 21.0% 11.0% 32.0% Industrial 30.0% 40.0% 20.0% 10.0%

DISTRIBUTION OF NUMBER OF STORIES Line of busines Residential Commercial Industrial 1-3 Stories 100% 48% 97% 4-7 stories 0% 37% 3% 8-14 stories 0% 12% 0% 15+ 0% 3% 0%

Guy Carpenter

21

Chilean Building Design Code

Seismic Zones (NCh433-1996; -2003)
Design Spectrum: RM Hospital Sotero del Rio Station

Chile Official Building code first approved in 1935 Modified in: 1949, 1972, 1989, and 1996, 2003

LIFE SAFETY y 10% Probability of being exceeded in 50 years

2 3 1

Seismic Zone Low Mod High 1 2 3

Effective PGA (g's) 0.20 g 0.30 g 0.40 0 40 g

Source: Official Chilean Code NCh433.Of96; John Wallace June 2010

Guy Carpenter 22

Building Code
Design Seismic Zones
3 Valparaiso Santiago 2

VIII Bio-Bio Region

Comuna Antuco Arauco Bulnes Cabrero Canete Chillan Cobquecura Coelemu Coihueco Concepcion Contulmo Coronel Cualqui Curanilahue El Carmen Florida Laja Los Alamos Los Angeles Lota Mulchen Nacimiento Nebu Negrete Ninhue Zone 2 3 3 3 3 3 3 3 2 3 3 3 3 3 2 3 3 3 2 3 2 3 3 3 3 Comuna Niquen Pemuco Penco Pinto Portezuelo Quilaco Quilleco Quillon Quirihue Ranquil San Carlos San Fabian San Ignacio San Nicolas San Rosendo Santa Barba Santa Juana Talcahuano Tirua Tome Treguaco Tucapel Yumbel Yungay Zone 2 2 3 2 3 2 2 3 3 3 3 2 2 3 3 2 3 3 3 3 3 2 3 2

1 XIII - Santiago Metropolitan Region

Comuna Alhue Buin Calera de Tango Cerrillos Cerro Navia Colina Conchali Curacavi El Bosque El Monte Estacion Central Huechuraba Independencia Isla de Maipo La Cisterna La Florida La Granja La Pintana La Reyna Lampa Las Condes Lo Barnechea Lo Espejo Lo Prado Macul Zone 3 2 2 2 2 2 2 3 2 3 2 2 2 2 2 2 2 2 2 3 2 2 2 2 2 Comuna Maipu Maria Pinto Melipilla Nunoa Paine Pedro Aguirre Cerda Penaflor Penalolen Pirque Providencia Pudahuel Puente Alto Quilicura Quinta Normal Recolecta Renca San Bernardo San Joaquin San Jose de Maipo San Miguel San Pedro San Ramon Santiago Talagante Tiltil Vitacura Zone 2 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 2 2 2 3 2

3 Concepcion

2 1

Source: Official Chilean Code NCh433.Of96

23

Guy Carpenter

M8.8 Feb27, 2010 Maule Earthquake Losses by Sector

M8.8 Feb 27, 2010 Earthquake losses ( in millions of USD as March 2010 )
Sector Housing Education Health Energy Public Works P bli W k Agriculture Transportation Infrastructure Other Municipalities Other (Industry, Fishery and Commerce) Total Damage Minor Economic Growth Debris Removal and Other Costs Total Cost Insured Losses Net Cost 10,582 -1,252 9,330 10,357 3,669 6,688 267 96 1,238 10,582 1,458 1 458 9 Public Sector 3,258 1,536 2,720 Private Sector 685 1,479 1,601 592 523 5,477 10,357 Total 3,943 3,015 2,720 1,601 1,458 1 458 601 523 267 96 6,715 20,939 7,606 , 1,117 29,662 -4,921 24,741 Percent 13.3% 10.2% 9.2% 5.4% 4.9% 4 9% 2.0% 1.8% 0.9% 0.3% 22.6% 70.6% 25.6% 3.8% 100.0% 16.6%

~6.8 bn USD Insured losses

Source : www.svs.cl (webpage of Chilean Superintendence) Pictures extracted from RMS event Inspection presentation Guy Carpenter

~30 bn USD Total

(September 2010)
24

M8.8 Feb27, 2010 Maule Earthquake (Re) Insured Losses

ECONOMICAL LOSSES: TOP TEN NATURAL DISASTERS IN CHILE Disaster Earthquake (seismic activity) Earthquake (seismic activity) Earthquake (seismic activity) Earthquake (seismic activity) Earthquake (seismic activity) Wildfire Earthquake (seismic activity) Earthquake (seismic activity) Flood Drought Date February 27, 2010 March 3, 1985 January 24,1939 May 21, 1960 June 5, 1953 February 1, 1999 August 7, 1971 March 1, 1963 May 22, 2002 January 1, 1991 Damage (million USD) 30,000 1,500 920 550 500 280 236 235 200 200

Earthquake Insured Losses: $6,759 m USD M8 Feb 27 2010 Maule EQ

(as of September 2010)
Chilena (Zurich) 10.7% Chartis 12.1% Penta 7.1% BCI 3.4% Magallanes 2.8% Santander 2.4% Chubb 1.5% ACE 1.1% Other 4.2% Consorcio 0.8% Renta 0.5% HDI 0.3% RSA 28.8% Other 0.02%

Liberty 13.0%

PRE-TAX NET LOSS ESTIMATES FOR THE CHILEAN EARTHQUAKE AND WINDSTORM XYNTHIA (March 2010) (in millions of UDS) Moody' Insurance Financial Strength Rating Aa3 STA A1 STA Aa3 STA Aa3 STA NR A3 STA A2 STA A2 STA NR A2 STA A1 STA NR NR A2 STA A3 STA A3 STA Best Estimate 681 600 325 313 306 245 214 195 149 108 94 93 89 65 55 15 3,547 4Q-2009 Percent of 4QShareholders' 2009 Equity Equity 32,056 2.10% 25,247 7,646 6,102 6,121 4,031 5,613 9,430 1,818 5,500 4,034 1,729 2,078 2,787 1,211 1,565 116,968 2.40% 4.30% 5.10% 5.00% 6.10% 3.80% 2.10% 8.20% 2.00% 2.30% 5.30% 4.30% 2.30% 4.50% 1.00% 3.00%

Mapfre 15.6%

COMPANY Munich Reinsurance Company [3][4] Swiss Reinsurance Company [5] PartnerRe Ltd. Everest Re Group, Ltd. [6] Hannover Re [4] Validus Holdings, Ltd. SCOR [4][7] XL Capital Ltd Hiscox Ltd [8] AXIS Capital Holdings Limited Transatlantic Holdings, Inc. [9] Montpelier Re Holdings Ltd. Platinum Underwriters Holdings, Ltd. [10] Endurance Specialty Holdings Ltd. Flagstone Reinsurance Holdings Limited Max Capital Group Ltd.

Accumulations are kept on the basis of the Cresta C t zones reinsurers report that the insurance companies were able to provide the detailed information following the 2010 earthquake

Source : www.svs.cl (webpage of Chilean Superintendence)

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Costliest World Earthquakes As of March 29, 2010

in millions USD 5th Costliest Earthquake Event

Insured losses from large catastrophes typically are around 5% of the Direct Market premiums The losses from the M8.8 Feb 27, 2010 Earthquake correspond to the accumulated premium from 2007 to 2009 About one third of the total losses will be paid by the Insurance Industry 7 to 8 bn of USD
Event Insured Losses Percent of Direct Premium (Non Life)

350.0% 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0%

330.0%

11.4%

5.9%

2.2%

1.5%

4.4%

Source: Insurance Information Institute; Munich Re

Guy Carpenter

Source: AACH Jorge Claude

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M8.8 Feb27, 2010 Maule Earthquake Regional Impact Hazard Intensity

POPULATION AFFECTED BY THE EARTHQUAKE
Disaster Earthquake (seismic activity) Earthquake (seismic activity) Earthquake (seismic activity) E th k ( i i ti it ) Earthquake (seismic activity) Flood Storm Flood Flood Drought Flood Fl d Date February 27, 2010 March 3, 1985 January 24 1939 J 24,1939 May 21, 1960 June 5, 1953 February 1, 1999 August 7, 1971 March 1, 1963 May 22, 2002 January 1 1991 J 1, No Total Affected 2,671,556 2,348,973 2,003,000 2 003 000 1,482,275 375,000 242,345 221,842 139,667 120,000 116,364 116 364

(1) February 27 2010 M8.8 Offshore Maule

DIRECT SHAKING

Fatalities:

577

REGION AFFECTED BY THE EARTHQUAKE

ZONE 1 2 3 4 REGION (STATE) IV V XIII VI VII VIII REGION NAME COQUIMBO VALPARAISO METROPOLITANA O'HIGGINS MAULE BIOBIO Elqui, Limari, Choapa Vina del Mar, Valparaiso, San Antonio, Petorca, Los Andes, Quillota, Isla de Pascua Santiago, Cordillera, malpilla, Talagante, Maipo, Chacabuco Cacahapoal, Colchagua, Cardenal Caro Curico, Talca, Linares, Cauquenes Nuble, Bio Bio, Concepcion, Arauco PROVINCES MAIN CITIES La Serena, Coquimbo

Valparaiso, Vina del Mar Santiago Rancagua Curico, Talca, maule Concepcion, Talcahuano, Arauco, Chillan

Source:"EM-DAT: The OFDA/CRED International Disaster Database, www.emdat.be - Universit catholique de Louvain - Brussels - Belgium"

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M8.8 Feb27, 2010 Maule Earthquake Hazard Intensity and aftershocks

Magnitude: Time: Depth; Duration: 8.8 3.34 am 35 km 90 secs

Rupture Lengh: 500 km Max Slip: 12 meters

Average Slip: 6 meters Max PGA: Concepcion 0.65 0 65 g at

(1) February 27 2010 M8.8 Offshore Maule

Ground Uplift: 2m in Arauco

(3) January 2011 M7.1 Araucania

(2) March 2010 M6.9 Libertador OHiggins

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M8.8 Feb27, 2010 Maule Earthquake

Maximum Tsunami Amplitude in cm (24hr wave propagation)
JAPAN M8.8 Maule, 2010

Tsunami

Sudden Uplift

A tsunami travels slow in shallow water and fast in deep water: o o o In 1000 m of water would travel at 350 km/hour In 4500 m of water would travel at 760 km/hour In 6000 m of water would travel at 870km/hour

M8.8 Maule, 2010

M9.4 Valdivia, 1960 3 hrs

3 hrs 2 hrs 1 hr 1 hr 2h hr

The tsunami produced wave heights of: o o o o o o o o 2.61 m at Valparaiso 1.81 m at Talcahuano 1.17 m at Gisborne (New Zealand) 0.95 m at Hanasaki (Japan) 0.91 m at Santa Barbara (California) 0.65 m at Acapulco (Mexico) 0.36 m at Kodiak (Alaska) 0.26 m at Honolulu, and small waves were observed on Lake Pontchartrain in Louisiana in the

JAPAN M9.4 Valdivia, 1960 SOURCE: NOAA Tsunami Center

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M8.8 Feb27, 2010 Maule Earthquake Tsunami Effects: Talcahuano

Talcahuano

Talcahuan o Concepcion
COASTAL HOUSING

Talcahuano T l h

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M8.8 Feb27, 2010 Earthquake Housing Damage

CONDOMINIUMS

ADOBE HOUSING

Housing Damage Classification (Units as of March 2010)

Type Costal Housing Adobe Urban Adobe Rural Condominiums SERVIU Condominiums Private TOTALES Destroyed 7,931 26,038 24,538 5,489 17,449 81,445 Major Damage 8,607 28,153 19,783 15,015 37,356 108,914 Minor Damage 15,384 14,869 22,052 50,955 76,433 179,693 Total 31,922 69,060 66,373 71,459 131,238 370,052 Percent 8.6% 18.7% 17.9% 19.3% 35.5% 100.0%

HOUSING INSURANCE EXPOSURE M8.8 Feb27, 2010 Earthquake TOTAL EXPOSURE Units Mortgage M t Others Total 901,098 901 098 3,098,902 4,000,000 % Total 23% 77% 100% FIRE INSURANCE Units 901,098 901 098 523,711 1,424,809 % Book 100% 17% 36% FIRE + EARTHQUAKE Units 862,980 862 980 101,080 964,060 % Book 96% 3% 24%

Portfolio

SOURCE: http://siit2.bcn.cl/actualidad-territorial/terremoto_chile/document_view2

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M8.8 Feb27, 2010 Maule Earthquake Confined Masonry Buildings

Housing construction: Low-rise single family dwellings (up to two-storey high) medium-rise apartment buildings (three- to four-storey high)
Guy Carpenter 32

M8.8 Feb27, 2010 Earthquake Mid and High rise Buildings Damage
Buildings in Santiago / Valparaiso constructed from 1985 to 2009*: , 10,000 three stories or more 2,000 of those are nine stories or more 4 collapses 50 damaged beyond repair 0.5% of total, 2.8% of high-rise

Buildings Damaged (Units as of March 2010)

City Concepcin Talca Santiago 1 Collapsed 1 Demolished 7 1 6 14 13 13 7 7 Inhabitable Evacuated Total 8 1 26 35

SOURCE: http://siit2.bcn.cl/actualidad-territorial/terremoto_chile/document * EQECAT: Kate Stillwell Guy Carpenter 33

M8.8 Feb27, 2010 Maule Earthquake Structural Wall Buildings (Shear Wall)

WALL SHEAR AND AXIAL STRESSES

WALL BOUNDARY DETAILING

SOURCE: John Wallace EERI Presentation

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Catastrophe Modeling
Modeling M d li Firm RMS RMS EQE EQE AIR AIR ERN Version V i v10.0 v10.0 v3.13 v3.13 3 13 v12.0 v12.0 v2.1.5 Peril P il Earthquake Shake Earthquake Shake Earthquake Shake Wind Storm Wi d St Earthquake Shake Earthquake Shake RS-Chile Analysis A l i Type Detailed Aggregate Aggregate/detail Aggregate A t Detailed Aggregate Geocoding Resolution G di R l i CRESTA Zone Region Comuna City x x x x x x x x x x x x x x x x x x Coordinates x x x x

The models mainly estimate direct ground shaking but do not include losses from other collateral hazards such as Tsunami or fire following earthquake, or the impact of Loss Amplification (e.g., demand surge) Geocoding resolution has a direct effect and may be the strongest influence on modeled losses (i.e., in many areas, site characteristics and hazard intensities vary dramatically over short distances) y , y y ) Detailed Models Provide the most accurate assessment of catastrophe loss potential Rely on detailed information of individual risk characteristics, insurance terms and reinsurance programs

Aggregate Models Rely on estimated average distributions of insurable/insured exposure across the industry Make use of loss profiles for specific peril, region and lines of business developed by using detailed models
Guy Carpenter 35

DETAILED MODEL

Catastrophe Modeling Aggregate versus Detailed Models

CLIENT DATA

Geography data (i.e., region, CRESTA, sub CRESTA or Region, Comuna, City, and latitude/longitude) Replacement values (i.e., building, contents and business interruption) Building data (i.e., building construction system, occupancy, number of stories, year of construction) Insurance specific terms at coverage, coverage location and policy levels (i.e., deductibles, attachment levels, limits, coinsurance) Reinsurance Programs (i.e., facultative contracts, surplus share, quota share, working excess, catastrophe and excess catastrophe, corporate CAT treaties with assigned inuring priorities, and Stop Loss Treaties) Reinsurance Programs attachment levels (i.e., attached at the location, policy, account, or portfolio levels) by the line of business, business cedant ID and date criteria of ID, the treaty
Return Period Losses Aggregate versus Detail Model
GEO-Region 14.0%
Ground Up Loss (% TIV)

CAT EXPOSURES there is an increased focus on modeling throughout the region has become mandatory by many multinational insurers and foreign reinsurers local underwriters are now employing p y g these tools more frequently in determining terms and conditions. GC CHILE MASTER DATABASES

GC ANALYTICS BEST PRACTICES Testing and Understanding the Models

AGGREGATED MODEL
Industry format data (i.e., UNICED/2, CRESTA plus formats) Industry Exposure Values (i.e., sums insured, number of risks and/or premiums by personal lines, commercial, industrial, auto) Typical Industry Profiles of Insurance Terms of coverage, location and policy levels (i.e., deductibles, limits, coinsurance) are selected for the analysis Reinsurance Program (i.e., catastrophe excess of loss, aggregate excess of loss, quota share, surplus share, and per risk)

GEO-Comuna

12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 0 0% 100 250 Return Period (years) 500

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36

Catastrophe Modeling M8.8 Feb27, 2010 Maule Earthquake

Model Estimated Losses: Portfolio A
Portfolio Estimated Incurred vs Modeled Losses Mw 8.8 Feb 27 2010 EQ
Model Estimated 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0 00 0.00 0.00 10 20 30 40 50 60 70 80 90 100 Incurred Client
(1) February 27 2010 M8.8 Offshore Maule

Gross Insured Losses (mUF)

Portfolio E i P f li Estimated Incurred vs Modeled Losses dI d M d l d L Mw 8.8 Feb 27 2010 EQ

Model Estimated 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 20 40 60 80 100 Incurred Client

Gross Insured Losses (mUF)

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Catastrophe Modeling M8.8 Feb27, 2010 Maule Earthquake

Model Estimated Losses by Region: Portfolio A y g
(1) February 27 2010 M8.8 Offshore Maule

Portfolio Incurred vs Modeled Losses by Region M8 Feb 27 2010 EQ

Estimated Incurred
120.00% 120 00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00%

Modeled Loss

Percent of Total Incurred o

Santiago (XIII)

Bernardo O'higgins (VI)

Maule (VII) Biobio (VIII) Araucania (IX)

(Others)

Country

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Catastrophe Modeling M8.8 Feb27, 2010 Maule Earthquake Model Estimated Losses by LOB: Portfolio A
Residential
Portfolio Estimated Incurred Losses by Line of Business Mw8.8 Feb 27 2010 EQ
Office 10% Auto 0.0%

Incurred

Modeled

10% 40% 10% 40%

20% 50% 5% 25%

Commercial Office Industrial

Commercial 40% Industrial 40% Residential 10%

Portfolio Modeled Losses by Line of Business M8.8 Feb 27 EQ

Office 5% Engineering

Industrial 25%

Commercial 50%

Residential 20%

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Catastrophe Modeling Model Losses: Portfolio A

Portfolio Return Period Losses
% of Countrywide TIV 25% % of Santiago Region TIV

PORTFOLIO AAL = 3.24 3 24

% of TIV

20% 15% 10% 5% 0% 100 250 500

Portfolio (X,Y)

Portfolio TIV

Portfolio AAL

Portfolio AAL/TIV

Return Period (years)

NET RETAINED EXPOSURE Cresta Zone 0 1.1 1.2 1.3 1.4 2 3 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 5.1 5.2 5.3 5.4 5.5 5.6 56 5.7 5.8 Net Retained R t i d% of Total Net 0% 2% 2% 1% 2% 11% 60% 3% 1% 1% 1% 0% 1% 1% 2% 4% 0% 0% 2% 1% 1% 1% 0% 0% 0% 3% Percent Ceded 80% 80% 81% 75% 68% 66% 71% 83% 77% 83% 60% 52% 65% 69% 73% 63% 66% 69% 71% 69% 72% 58% 85% 60% 43% 84%

Cresta N C t Name

Unknown Tarapac Antofagasta Atacama Coquimbo Valparaso Santiago OHiggins Colchagua Curic Talca Maule Linares Nuble Concepcin Bio-Bio Arauco Malleco Cautn Valdivia Osorno Llanquihue Chilo Aisn Magallanes Chilean Flotantes

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Catastrophe Modeling: Model Comparison Return Period Losses

Ground Up Loss (% TIV V)

COUNTRYWIDE
Model A 20.0% 15.0% 10.0% 5.0% 0.0% 100 250 Return Period (years) 500 Model B

Uniform Risk Portfolio by Comuna

Reinforced Masonry- SFD Ground Up Losses (% TIV)

CITIES
VALPARAISO V
Model A Model B

XV I
METROPOLITANA XIII
Model A Model B

Ground Up Loss (% TIV)

15.0% 10.0% 5.0% 0.0% 100 250 Return Period (years) i d( ) 500

III

Ground Up Loss (% TIV)

20.0%

II

20.0% 15.0% 10.0% 5.0% 0.0% 100 250 Return Period (years) 500

I V V XIII VI VII XIV VIII

O'HIGGINS VI
Model A Model B

MAULE VII
Model A Model B

Ground Up Loss (% TIV) (

20.0% 15.0%
10.0% 5.0% 0.0% 100 250 500

Ground Up Lo (% TIV) oss

IX X XI

20.0% 15.0% 10.0% 5.0% 0.0% 100 250 Return Period (years) 500

XII

Return Period (years)

REGIONS

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Catastrophe Modeling: Damage Relativity Return Period Losses Model B

Uniform Risk Portfolio by Comuna

Return Period Losses by LOB

9.00% 9 00% 8.00% 7.00%
12.00% 10.00%

Return Period Losses Commercial by Year Built

Loss % of TIV

Loss % of TIV

6.00% 5.00% 4.00%

3.00% 2.00% 1.00% 0.00% 100 250 500

8.00% 1940 6.00% 4.00% 2.00% 0.00% 100 250 500 1960 Unknown 1980 2000

Commercial Condominum
Residential Industrial

Return Period (years)

Return Period (years)

DAMAGE RELATIVITY - Residential Reference LOB Commercial Condominum Industrial Residential AAL 16.74% 12.56% -31.11% 0.00% 100 10.34% 11.37% -35.69% 0.00% 250 11.76% 9.67% -33.46% 0.00% 500 12.79% 9.04% -31.94% 0.00%

DAMAGE RELATIVITY - Year Built 2000 Reference YEAR BUILT 1940 1960 Unknown 1980 2000 AAL 50.53% 33.48% 17.29% 17.29% 0.00% 100 58.98% 38.72% 19.82% 19.82% 0.00% 250 51.98% 34.35% 17.87% 17.87% 0.00% 500 48.07% 31.81% 16.69% 16.69% 0.00%

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Pacific Northwest Earthquake Exposure Plate Tectonics Cascadia Subduction Zone

PORTLAND, OREGON SEATTLE, WASHINGTON

M9 J January 26 1700 Last Cascadia E th 26, L tC di Earthquake k (from written records in Japan and geology studies)
Guy Carpenter 43

Pacific Northwest Earthquake Scenario

A future earthquake in the Pacific Northwest U.S., rupturing the entire Cascadia subduction zone (average recurrence of 500 years), may have similar rupture characteristics to the 2010 Chile

Guy Carpenter

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Disclaimer

The data and analysis provided by Guy Carpenter herein or in connection herewith are provided as is, without warranty of as is any kind whether express or implied. Neither Guy Carpenter, its affiliates nor their officers, directors, agents, modelers, or subcontractors (collectively, Providers) guarantee or warrant the correctness, completeness, correctness, merchantability, or fitness for a particular purpose of such data and analysis. In no event will any Provider be liable for loss of profits or any other indirect, special, incidental and/or consequential damage of any kind howsoever incurred or designated, arising from any use of the data and analysis provided herein or in connection herewith. y p

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