Willis Group Holdings Limited - Aggregation Risk - Conference Call - Part 1.

(From Fair Disclosure Wire)

OPERATOR: Welcome and thank you for standing by. [OPERATOR INSTRUCTIONS] I will now turn the meeting over to Mr. Gordon Prager with Willis Risk Solutions. You may begin. GORDON PRAGER, EVP, WILLIS RISK SOLUTIONS, WILLIS GROUP HOLDINGS LIMITED: Thank you, Deb. Welcome, everyone, to today's webcast. My name is Gordon Prager. I'm part of Risk Solutions, the large account practice at Willis. The Willis webcast is an ongoing series of thought leadership efforts by our product and industry practice directors. We've covered a broad spectrum of topics in past webcasts - Catastrophic Time Element Risk, How Global is your Global D&O Program, the China Insurance Experience, Our Marketplace Reality Series and many others. Today's webcast examines the multiple facets of aggregation risk, its nature, how it's manifested itself, today's marketplace conditions, our expectations for future behavior and risk management and funding strategies and mechanisms. Leading the webcast today is Sandy Vietor, Executive Vice President, Willis North America, joined by Rod Thaler, Executive Vice President and National Director of Willis Re. Before turning things over to Sandy, I'd like to set the table by addressing some of the basics of aggregation risk. Slide two, please. The October 2004 edition of the Willis Energy Market Review articulated the observation that aggregation risk was growing rapidly with a widening gap between the levels of such risk and the ability of the commercial insurance marketplace to provide risk transfer capacity for it. For the benefit of those who've called in and don't have access to a PC, aggregation risk includes concentrations of exposures - and that's people and physical assets - within a defined geographical area that may be subject to such nat-cat perils as flood, wind or earthquake or to an act of terrorism. It also includes accumulation over time of liability rising from specific perils, products or operations. Slide three, please. Forces and examples of aggregation risk are all too familiar, most of them having occurred within a relatively short and recent span of time. The events of 9-11 impacted multiple lines of insurance simultaneously and catastrophically. Pharmaceutical risk, asbestos and lots of new age environmental factors such as mold, silica, NTBE and others qualify as examples and potential examples of aggregation risk. There's even been attempts to position fast food as a form of societal products liability risk, with the allegation that levels of obesity, heart disease and other ills that have been elevated insidiously by burgers, fries and chocolate shakes. And, of course, the so-called nat cat for natural catastrophe - perils of wind, flood and earthquake. Now, our webcast will zero in on the aggregation risk of nat cat perils because of today's adverse marketplace conditions and what they portend for the future. Slide four, please. In 2004, in the midst of that year's hurricane season, one for the record books until the following year's hurricane season, we asked these questions. If the marketplace today were to sustain a new round of catastrophe losses, would it be able to stabilize? Would it be able to continue to cover aggregation exposures on the basis that it does today?

Slide five, please. Prior to 2005, the modern benchmark U.S. hurricane was 1992's Hurricane Andrew. It dwarfed the class of 2004 - Charlie, Frances, Ivan and Jean. Then came 2005 with Katrina and Rita and Wilma. And along with them was back-to-back record breaking hurricane seasons, with a double whammy of frequency and severity, comes a paradigm shift in the universe of expectations. Now, while we're on this slide, Sandy, you had an interesting observation this morning when we were gearing up for today's webcast. SANDY VIETOR, EVP, WILLIS NORTH AMERICA, WILLIS GROUP HOLDINGS LIMITED: Yes, thanks, Gordon. Good morning, everybody. It's interesting to note - a lot of people ask why didn't we have the severe reaction to capacity that we're going to talk about in a few minutes after '04 versus after '05? And it's ...