Farmers – Strategy Update by ps94506

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									Farmers – Strategy Update


Investors’ Day

London, May 20, 2009
Disclaimer and cautionary statement

By attending this meeting where this presentation is made you agree to be bound by the following limitiations.
Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predications of or
indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our targeted profit
improvement, return on equity targets, expense reductions, pricing conditions, dividend policy and underwriting claims improvements, as
well as statements regarding our understanding of general economic, financial and insurance market conditions and expected
developments. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown
risks and uncertainties and can be affected by other factors that could cause actual results and plans and objectives of Zurich Financial
Services Ltd or the Zurich Financial Services Group (the “Group”) to differ materially from those expressed or implied in the forward looking
statements (or from past results). Factors such as (i) general economic conditions and competitive factors, particularly in our key markets; (ii)
the risk of the global economic downturn and a downturn in the financial services industries in particular; (iii) performance of financial
markets; (iv) levels of interest rates and currency exchange rates; (v) frequency, severity and development of insured claims events; (vi)
mortality and morbidity experience; (vii) policy renewal and lapse rates; and (viii) changes in laws and regulations and in the policies of
regulators may have a direct bearing on the results of operations of Zurich Financial Services Ltd and its Group and on whether the targets
will be achieved. Zurich Financial Services Ltd undertakes no obligation to publicly update or revise any of these forward-looking statements,
whether to reflect new information, future events or circumstances or otherwise.

Farmers is a trade name and may refer to Farmers Group, Inc. or the Farmers Exchanges, as the case may be. Farmers Group, Inc., a
management and holding company, along with its subsidiaries, is wholly owned by Zurich Financial Services Group. The Farmers Exchanges
are three reciprocal insurers, Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance Exchange, including their subsidiaries
and affiliates, owned by their policyholders, and managed by Farmers Group, Inc. and its subsidiaries.

It should be noted that past performance is not a guide to future performance. Please also note that interim results are not necessarily
indicative of the full year results.
Persons requiring advice should consult an independent adviser.

This communication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction.

THIS COMMUNICATION DOES NOT CONTAIN AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES; SECURITIES MAY NOT BE OFFERED
OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR EXEMPTION FROM REGISTRATION, AND ANY PUBLIC OFFERING OF SECURITIES
TO BE MADE IN THE UNITED STATES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE ISSUER AND THAT
WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT, AS WELL AS FINANCIAL STATEMENTS.

May 20, 2009                                                                                                      Farmers Strategy Update           2
Farmers:
Strategy is working –
Positioned for growth
Paul Hopkins
Chief Executive Officer of Americas
Chairman of Farmers Group, Inc.

May 20, 2009
Agenda



 Strategy is working – positioned for growth   Paul Hopkins

 Financial update                              Scott Lindquist

 Strategy update                               Mark B Smith

 Personal lines transformation                 Jeff Dailey

 Wrap-up and close                             Paul Hopkins

 Q&A




May 20, 2009                                     Farmers Strategy Update   4
US market: vehicle and home sales decline -
lower sales in a tough economy
                                    Total Vehicle Sales
Units (‘000s)
2000

1800

1600

1400                                                                                                            Total unit sales have
1200                                                                                                            declined 34.2% YoY…
1000
                                                Significant drop in
 800
                                                 the last 7 months
 600

         1999    2000    2001      2002    2003     2004   2005     2006     2007     2008 2009
Source: Bureau of Economic Analysis. And Ward’s 12-month moving average displayed by thick solid line.

                                                                                                           Regional Existing Home Sales
                                                                                                   NE                 MW                    South              West
                                                                                   Index (Q1-2002) = 100
                                                                                   140                                                                   Forecast of
                                                                                                                                                         continued
   All US regions experiencing                                                     130

                                                                                   120                                                                    declines
   low sales volumes but the                                                       110
                                                                                                                                                           in 2009
   West is seeing monthly                                                          100

                                                                                    90
   improvement                                                                      80

                                                                                    70

                                                                                    60


                                                                                            2002         2003        2004        2005           2006    2007     2008

                                                                                   Source: National Association of Realtors (www.realtor.org)
May 20, 2009                                                                                                                         Farmers Strategy Update          5
The US P&C market landscape is
challenging - negative growth
forecasted through 2009
 Premium growth rate in the market
 Total US P&C Industry Premium Growth
 9.0%
                                                                                                 Global financial crisis
           5.2%                                                           4.7%
                                                                                                 affecting exposure
                      2.2%      2.2%
                                                                                                 growth
                                          -0.5% -1.2% -0.6%

 2003      2004       2005      2006       2007     2008F      2009F 2010F
 Source: Conning estimate (NWP) as of Apr ’09 P&C forecasts (F) by LOB (weighted
 for Farmers’ LOBs)

                                                                                   Combined ratio in the market
                                                                                   Total US P&C Industry Combined Ratio Incl CAT
                                                                                                                                        104.1%
                                                                                                                                              103.0% 103.7%
                                                                                   100.2%               101.0%
         Slow industry growth and                                                            98.4%
                                                                                                                               96.4%
         increased weather losses                                                                                  94.0%
         raising combined ratios
                                                                                   2003       2004       2005        2006       2007      2008F      2009F         2010F

                                                                                   Source: Conning estimate as of Apr ’09 P&C forecasts (F) by LOB (weighted for
                                                                                   Farmers’ LOBs)

May 20, 2009                                                                                                                       Farmers Strategy Update             6
Our strategy is working as Farmers
continues to outperform key competitors
 Growth vs. GAAP Combined Ratio – Overall P&C1, 6                                                      With a long history of strong performance
Growth NPW %                                                            4                              GWP growth
                                                            Industry                                                                                           Industry Growth Rate1
10.0                                                                                                   8%                                                       2008:          -1.2%
                                                             103.0%                                                                                             2009 Forecast: -0.6%                                    2
                                                                                                                                                                                                              6.5%
  8.0                                   GEICO6                                                                                                                                                                              6.1%2                2
                                                                                                       6%                                                                                           5.7%                               5.7%
                                                                                                                                                                                         5.4%
  6.0                                                                                                                                                     5.0%                5.1%
                                                                                                                                                                     4.6%

  4.0                                                                                                  4%
                                                                                                                                     3.2% 3.3%
                                        Farmers 2, 3                                                                                                                                                                                                 3.1%
  2.0                                                                                                                      2.2%
             Progressive                                                                           4   2%
                                Travelers                                           Industry                     1.4%
  0.0                                                      State Farm5
                                                                                      -0.6%
 -2.0                                          Nationwide7                   American                  0%
                                                                             Family7




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                                            Allstate
 -4.0




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                                                                                                                                                                                                                                       3
 -6.0                                                                                    Combined      1   Source of FY09 estimate: Conning Property-Casualty Forecast & Analysis By Line Of
                                                                                         ratio             Insurance Q109 released 04/07/09 (weighted for Farmers’ LOBs).
 -8.0                       Mercury
                                                                                         (% NPE)       2   Excluding USD 425m portfolio transfer of Zurich Small Business unearned premiums in
-10.0                                                                                                      2008 and USD 322m of Bristol West premiums (pre-acquisition, Jan to July) in 2007.

        80       85        90      95        100 105 110 115 120

                                                       Liberty Mutual 7 :
     March 2009
                                                       2008 YTD NPW growth = +29.4%
     December 2008                                     (reflects the Q308 acquisition of Safeco)
     FY09 Industry Estimate                            2008 YTD CR (STAT) = 102.2




 For footnote references, please refer to the full slide in the
 section “Financial Update”.




May 20, 2009                                                                                                                                                                                  Farmers Strategy Update                                       7
Farmers is positioned to continue to
outperform the industry’s growth rates
Farmers has been outpacing the                                      Met first three targets to USD 21bn
industry                                                            Farmers Future 2010 Aspirations
 %
  7                                                                                         22
  6




                                                                     Farmers GWP (USD bn)
  5                                                                                         20
  4
                                                                                            18
  3
  2
                                                                                            16
  1
  0                                                                                         14
 -1
                                                                                            12
 -2
          2005         2006          2007         2008
                                                                                                 2005    2006     2007     2008        2009         2010
                                                                                             Growth at market rates illustration
      Total US P&C insurance industry growth rate
                                                                                             Farmers actual results
      Farmers Group growth rate
                                                                                             Farmers Future 2010 Aspirations
                                                                                             Farmers Future 2010 Aspirations
                                                                                             At industry performance
Source: Conning estimate as of Apr ’09 P&C forecasts by LOB (weighted for Farmers’ LOBs )


May 20, 2009                                                                                                              Farmers Strategy Update          8
Announced AIG PAG acquisition1 is a
strong strategic and cultural fit

     AIG Personal Auto Group (AIG PAG) is a great strategic fit
     Structure of the acquisition maximizes the efficient use of capital
     Post acquisition, the Exchanges’ capital projections are conservative
     to allow a safe margin
     Quota Share structure is flexible allowing for annual changes to the
     participation as surplus grows
     AIG PAG acquisition to leverage significant cost and growth strategy
     synergies



                 …a “win, win, win, win” for Farmers, Farmers agents,
                           Zurich and insurance consumers

1   Announced acquisition of AIG’s US Personal Auto Group (PAG), closing subject to regulatory and other approvals.

May 20, 2009                                                                                                 Farmers Strategy Update   9
Farmers is financially strong and well
positioned for future growth &
continued out-performance
       Maintain core expense management, underwriting and pricing
       discipline

       Continuing laser focus for strong strategy execution

       Optimize our customer reach

       AIG PAG is a strong strategic fit and a “Game Changing” move

       Leverage AIG PAG direct capabilities and scale

       Accelerate our stress-tested strategic initiatives to continue to
       out-perform the industry

       Farmers is financially and competitively strong and well positioned
       to emerge from this economic crisis stronger

May 20, 2009                                                  Farmers Strategy Update   10
Agenda



 Strategy is working – positioned for growth   Paul Hopkins

 Financial update                              Scott Lindquist

 Strategy update                               Mark B Smith

 Personal lines transformation                 Jeff Dailey

 Wrap-up and close                             Paul Hopkins

 Q&A




May 20, 2009                                     Farmers Strategy Update   11
Financial update


Scott Lindquist
EVP & Chief Financial Officer of Farmers

May 20, 2009
Farmers’ unique structure

… insulates the management company earnings from volatility of underwriting results.
This structure is also unique when compared to the industry.

Simplified Structure & Premium Distribution
                                                                                             Illustrative example


                                                                                       100 Premiums                  100



                          Premium                                                       70 Losses & LAE                70       Adjusted
                                                                     Reported                                                   combined
                   12%                  88%                          combined                                                   ratio: 92.0%
                                                                     ratio: 98%            Commissions &
    Management                                    Farmers
    Company (FMS)                               Exchanges1                              16 Taxes                       16
    Administration                  Underwriting risk
    and management                                                                            Management                6
                                                                                              fee
                                                                                       *12                                     6.0%
                                                                                              Profit portion
        Zurich owned                    Policyholders owned                                                                    Adjustment
                                                                                       *illustrative example

1    Zurich Financial Services has no ownership interest in the Farmers Exchanges. Farmers Group, Inc., a wholly owned subsidiary of the Group,
     provides management services to the Farmers Exchanges and receives fees for its services.

May 20, 2009                                                                                                    Farmers Strategy Update      13
Farmers’ unique structure has created a
history of reliable & steady earnings
growth
US P&C Income                                                                       Farmers Management Services
                                                                                    Business Operating Profit
                  Industry                   Farmers Exchanges
In USD millions                                                  In USD billions    in USD millions
 800                                                                          100   1'400
 600                                                                                1'200
                                                                              80
 400                                                                                1'000
                                                                              60     800
 200
                                                                                     600
    0                                                                         40
                                                                                     400
-200
                                                                              20     200
-400                                                                                    0
                                                                              0



                                                                                            1990
                                                                                            1991
                                                                                            1992
                                                                                            1993
                                                                                            1994
                                                                                            1995
                                                                                            1996
                                                                                            1997
                                                                                            1998
                                                                                            1999
                                                                                            2000
                                                                                            2001
                                                                                            2002
                                                                                            2003
                                                                                            2004
                                                                                            2005
                                                                                            2006
                                                                                            2007
                                                                                            2008
-600
-800                                                                          -20
                                                                2006
                                                                       2008
        1990
               1992
                      1994
                             1996
                                    1998
                                           2000
                                                  2002
                                                         2004




Industry income source: ISO, 2007 estimate: AM Best                                                   >7% CAGR since 1990

May 20, 2009                                                                                                  Farmers Strategy Update   14
Farmers Management Services has been a
reliable source of cash flow to Zurich

  2'100        in USD millions                         1'940
  1'800
  1'500

  1'200
                                   1'026      964                 977
     900
     600                  450
               444
     300
               2003       2004     2005       2006      2007      2008
               Cash remittances from Farmers Management Services (FMS)

    Capital management actions in 2005 – 2008 has resulted in significant
    repatriation of capital to Zurich
    Business model continues to produce reliable cashflow from operations to
    Zurich
May 20, 2009                                                             Farmers Strategy Update   15
Farmers Exchanges – premium growth
outperforming industry
GWP growth                                              Industry growth rate1
8%                                                       2008:          -1.2%
                                                         2009 Forecast: -0.6%                                2
                                                                                                      6.5%
                                                                                                                 6.1%2                 2
6%                                                                                          5.7%                            5.7%
                                                                                  5.4%
                                                   5.0%                5.1%
                                                              4.6%

4%
                               3.2% 3.3%                                                                                                   3.1%
                     2.2%
2%         1.4%


0%
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                                                                                                                            3
1   Source of FY09 estimate: Conning Property-Casualty Forecast & Analysis By Line Of Insurance Q109 released 04/07/09 (weighted for Farmers’
    LOBs).
2   Excluding USD 425m portfolio transfer of Zurich Small Business unearned premiums in 2008 and USD 322m of Bristol West premiums
    (pre-acquisition, Jan to July) in 2007.
May 20, 2009                                                                                                     Farmers Strategy Update      16
Farmers Exchanges –
development of the combined ratio
Quarterly combined ratio

120%

                                                     Target combined ratio:                   Other Cats
115%                                                 98% through the cycle

                                                                                Midwest       Gustav
110%
                                                                                 Cats
                           California
                           wildfires                                                          Ike
105%
                                                                           California
                                                      Rita                 wildfires
100%                                  Florida
                                     hurricanes       Katrina
 95%

 90%
           Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1


               2002      2003        2004         2005       2006        2007           2008        2009


May 20, 2009                                                                       Farmers Strategy Update   17
Farmers Exchanges –
Q1-09 financial highlights

in USD millions                                    6'000                                             42.0%
                                   Q1-09 Q1-08
for the three months to March 31
                                                   5'000                                             40.0%
Gross written premiums             4,152   4,027

Net underwriting result              -80     -11   4'000                                             38.0%


Net surplus growth                   -34     30    3'000                                             36.0%

Ending surplus                     5,000   5,749   2'000                                             34.0%

Surplus ratio                      37.3% 40.1%
                                                   1'000                                             32.0%


                                                      0                                              30.0%
                                                           2004 2005 2006 2007 2008 Q1-09
                                                                Surplus Notes    As of the end of the period
                                                                Surplus Ratio            Paid in Capital &
                                                                                         Unassigned Surplus




May 20, 2009                                                               Farmers Strategy Update       18
Competitor snapshot - overall

     March 2009
                                            Growth vs. GAAP combined ratio – overall P&C1, 6
     December 2008
                                                                                                                Industry4
                                            Growth 10.0                                                          103.0%
     FY09 industry estimate
                                            NPW % 8.0
                                                                                               GEICO6
Liberty Mutual 7:
                                                         6.0
2008 YTD NPW growth = +29%
(reflects the Q308 acquisition of Safeco)
2008 YTD CR (STAT) = 102.2%
                                                         4.0                                                  2, 3
                                                                                               Farmers
                                                         2.0
                                                                    Progressive
                                                                                       Travelers
                                                         0.0                                                   State Farm5                  Industry4
                                                                                                                                              -0.6%
                                                        -2.0                                          Nationwide7             American
                                                                                                                              Family7
                                                                                                   Allstate
                                                        -4.0
                                                                       Hartford
                                                        -6.0
                                                        -8.0                        Mercury
                                                                                                                                             Combined ratio
                                                      -10.0
                                                                                                                                             (% NPE)
                                                               80       85        90      95        100 105 110 115 120
1   Source: Press releases and investor supplements, except for Farmers and non-public competitors.
2   Reflects GWP before APD and Quota Share treaties. Combined ratio excludes Quota Share and APD treaties and was adjusted for Farmers Management Services’ profit portion
    of management fees.
3   Farmers results include Zurich SBS. Zurich SBS results exclude the portfolio transfer.
4   Source of FY09 estimate: Conning P&C Forecast & Analysis By Line of Insurance Q109 released 4/7/2009 (weighted for Farmers’ LOBs). CR on STAT basis.
5   Source: State Farm press release on 2/27/09. Based on NPE. NPW not available. CR on STAT basis.
6   Based on NPE. NPW not available on a quarterly basis.
7   Source for non-public competitor data: AM Best database. CRs on STAT basis. Liberty Mutual’s CY results reflect acquisition of Safeco.

May 20, 2009                                                                                                                        Farmers Strategy Update           19
Exchanges’ capital managed
conservatively through the cycle
Exchanges’ surplus ratio well within historical range
                                                                                      Capital sources and uses
Combined US regulatory risk-based capital target: 350%1                               vary through the cycle
                                                                                        Capital uses
                       Exchanges’ target surplus ratio                                     GWP growth
                                                                                           M&A
                                                                               ~40%        Underwriting
    Surplus %




                                                                                           losses / cats
                                                              Target= 36%+/- 4 pts
                                                                                           Investment losses
                                                                               ~32%     Capital sources
                                                                                           Underwriting
                                                                   Industry cycle          gains
                                                                                           Investment gains
                         Long-term average of surplus ratio: ~33%                          Reinsurance
                                                                                           Surplus notes

                                           Time
1   350% target includes Farmers Re. Target = 300% excluding Farmers Re
May 20, 2009                                                                                Farmers Strategy Update   20
Exchanges and Zurich allocate capital to
allow Exchanges and FMS to grow at
attractive returns
                                                                   Multiple capital management
                                                                   levers allow for flexibility in
                                                                   support of profitable growth of
   Divi-        Capital                                            Exchanges and FMS/Zurich
  dends         facility             Capital
                                     contribu-
                    Dividends        tions                       Surplus notes
                                                   Capital
                                                 Optimization                                     3rd Party
                                                                                             surplus notes

          FMS              Farmers Re
                                                                Exchanges’ surplus
                                                                   Policy acquisition
                                     Quota Share / APD
                                                                   Claims settlement
                      Fee revenues                                 Underwriting results
                                                                   Investing
                      Management activities
                                                                                                  3rd Party
                                                                                               reinsurance
May 20, 2009                                                                     Farmers Strategy Update   21
Exchanges’ capital is balanced with
conservative maturity profile
Total surplus USD 5,035m
As of December 31, 2008
    in USD millions

                                                                             Schedule of maturities of
    Surplus of Farmers                                                       External surplus notes
    Reinsurance                                  External                    600
    Company                                      surplus                                                                            500
             990                    1,050        notes
                                                                             400
                                                                                                                             300
                                                                                             None
                                                                             200                                                           150
                                                                                                                      100
                                           9301 Zurich
                                                surplus                        0
                   2,065                        notes                              2009   2010   2011   2012   2013   2014   2024   2028   2048


       Organic
       surplus


1    Zurich surplus notes of USD 930m excludes USD 300m of surplus notes with Farmers Reinsurance Company as such notes eliminate
     when combined with the Exchanges.
May 20, 2009                                                                                                   Farmers Strategy Update            22
Exchanges’ debt securities are of
consistently high quality
(98% investment grade)
As of March 31, 2009
Exchanges’ investments:                                  Debt securities:
USD 16.0bn1                                              USD 13.6bn1,2

                                                                            credit rating: AAA
                                                                                         45.4%

                                                                                 credit rating: AA
                                 Debt             97.9%                                     19.7%
                                 securities     investment
                                 84.5%             grade
 Cash
12.9%                                                                             credit rating: A
                                                                                            21.4%
     Equity
     2.6%                                                                credit rating: BBB
                                                                                    11.3%
                                                             Unrated/below inv. grade
1
    Market value                                                               2.1%
2
    Book value of debt securities: USD 13.7bn

May 20, 2009                                                                      Farmers Strategy Update   23
 Exchanges’ debt securities are well
 balanced
 Exchanges’ investments - USD 16bn (100%)
 As of March 31, 2009
                                 U.S. Government and Agency bonds : USD 1.3bn (7.8%)

                                                 Municipal bonds : USD 3.4bn (21.3%)
                                                    of which:   39% General Obligation
                                                                38% Revenue
                                                                23% Other

                                                  Corporate bonds: USD 4.4bn (27.1%)
                                                    of which:   38% Finance
                                                                50% Industrial
         Debt securities 84.5%                                  12% Utility

                                                   MBS/ABS/CMBS : USD 4.5bn (28.3%)
                                                    of which:   50% MBS – Agency
                                                                 7% MBS – Non-Agency
                                                                17% ABS
                                                                of which: 33% Credit Cards
                                                                           6% Home Equity
                                                                              Loans
Cash                                                                      42% Automobile
12.9% Equity                                                              19% Other
                                                                 8% CMBS – Agency
       2.6%                                                     18% CMBS – Non-Agency

 May 20, 2009                                                         Farmers Strategy Update   24
Debt securities portfolio in a modest and
improving net unrealized loss position
Exchanges’ debt securities                  Unrealized gain (loss) development
in USD millions        Market Unrealized    300
as of March 31          Value Gain (loss)
                                            200                      137                 Dec-08    Mar-09
                                                               100
US Govt & Agency        1,250         50    100     53   50

                                              0
Municipals              3,425        137
                                            -100
Corporates              4,360       -182    -200                                                  -131          -126
                                                                                  -182
                                                                           -220
                                            -300                                           -250
MBS/ABS/CMBS            4,543       -131                                                                 -317
                                            -400
   MBS – Agency          2,259         85
                                            -500
   MBS – Non-Agency       322         -94          US Govt &    Muni         Corp          MBS/ABS/         Total
                                                    Agency                                  CMBS
   ABS                    788         -54

   CMBS – Agency          371          15

   CMBS – Non-Agency      803         -83

           Total       13,577        -126



May 20, 2009                                                                         Farmers Strategy Update           25
    Exchanges’ 2009 CAT reinsurance cover is
    comprehensive and designed for 1:250y
                                            California1         Texas Hurricane1 Gulf Hurricane1                         Other1                   Comprehensive CAT
                                         in USD millions
                                                                                                                                                  cover designed to
                                                                  Contingent Surplus
                                                                  Notes (500m excess                                                              mitigating 250 year
                                                                       1,500m)                                                                    events to tolerable net
                                                                                                                                                  position
                                                                       300m                                                                       USD 250m retention
                                                                                                                                                  Portfolio of highly
                                                                       500m                                                                       rated reinsurers with
Reinsurance excess of loss CAT covers




                                                                                                                                                  long-term relation-
                                                                                                                                                  ships with the
                                                           500m                                                                                   Exchanges
                                                                                               300m                                               – 23% “A+”
                                                                                                                                                  – 59% “A”
                                                                                   550m                                                           – 17% “A-”
                                                                                                                                                  – 1% “NR”
                                                                                   200m
                                                                         Retention 250m
    1                                   Simplified illustration of main treaties which are on a risk occurrence basis. Percentage covered varies by stack layers (91% to 100%).


    May 20, 2009                                                                                                                                      Farmers Strategy Update     26
Exchanges’ surplus improvement
program continues

    Product management
    – Initiatives focused on tightening underwriting and improving segmentation
    Rate / exposure management
    – Pursuing rates and managing coastal property exposures
    Loss Adjustment Expense
    – Actively managing headcount to take into account lower auto frequency trend
    De-risk investments
    – Reduced equity exposure from ~7% as of Dec. 31, 07 to
         ~4% as of Sep 30, 08 and projected 2% as of June 30, 09
    Cost culture
    – See next slide




May 20, 2009                                                       Farmers Strategy Update   27
Farmers leads the market in expense
management
 2008 Statutory                35%
                                                                                               32.2%
                                                                                       30.8%
 Expense Ratio1                30%
                                                                 25.4%      25.4%
                                        24.0%        24.8%
                               25%

                               20%

                               15%

                               10%

                                5%

                                0%

                                            Farmers-adj.             American Family     State Farm
                                            Allstate                 Travelers           Nationwide

    Expense efficiency driven by scale and low-cost culture
    –    National scale drives operational cost efficiencies
    –    ServicePoint initiative has driven down cost while enhancing customer experience
    –    Shared Services efficiencies across North America
    –    Budgets and headcounts aggressively managed real-time

Source: AM Best
1 Farmers expense ratio adjusted for profit portion of management fee.


May 20, 2009                                                                                      Farmers Strategy Update   28
Exchanges’ balance sheet is strong and
positioned to support profitable growth

       The Exchanges are well capitalized with multiple sources of capital
       resulting in optimization of returns

       Investment portfolio conservatively positioned and well matched
       to liabilities

       Exchanges well reserved with comprehensive catastrophe
       protection

       Exchanges’ surplus improvement initiatives continuing




May 20, 2009                                               Farmers Strategy Update   29
Overview of announced AIG PAG
transaction1
     Zurich and the Farmers Exchanges have agreed to purchase AIG’s US
     Personal Auto Group (PAG) for USD 1.9bn plus the assumption of USD 0.1bn
     of debt.
     – PAG comprises 21st Century, including AIG Direct, and their auto independent
       agency business.
     – At an attractive price:
       – Price-to-equity: 0.85x
       – Price-to-tangible equity: 1.0x
     The Exchanges will pay USD 1.4bn and assumes USD 0.1bn of debt while
     Zurich will pay USD 0.5bn.
     The Exchanges will increase the existing All Lines Quota Share reinsurance
     treaty to 40% from 25% ceding additional approx. USD 2.8bn annualized
     GWP to Zurich to remain capital neutral.
     Zurich has issued USD 1.1bn of equity and will issue USD 0.4bn of hybrid
     securities2 to fully cover the capital requirements of the transaction and the
     related increase in reinsurance.

1   Announced acquisition of AIG’s US Personal Auto Group (PAG), closing subject to regulatory and other approvals.
2   Deeply subordinated debt instrument (Capital Note)

May 20, 2009                                                                                                 Farmers Strategy Update   30
Deal structure and financing – USD 1.1bn
equity and USD 0.4bn hybrid security
M&A transaction                                                      Financing transaction
                                                                                                             USD 1.1bn*
                                                                                                             cash
                Transfer of PAG(1)                                                                                     Accelerated
                                                                                      ZFS                              book build
                                                                                                             USD 1.1bn*
                USD 0.4bn hybrid(1)
    Seller                                  FGI                                       USD 1.1bn*
                                                                                                             in shares

                 USD 1.5bn cash      (1)                                              cash injection


                                                                                      ZIC
                                                                                      USD 0.4bn cash


                                                      USD 0.4bn hybrid(1)
                     USD 1.4bn cash(2)
                                                                               3rd party SPV
   Farmers Exch.            USD 1.4bn PAG      (2)   USD 0.4bn cash



                               Reinsurance transaction(3)                                                              Hybrid
                                                                                     Farmers Re
                                                                                                                      Flow of target shares
Step 1: Acquisition by FGI of AIG’s US Personal Auto Group (PAG)
Step 2: Sale of PAG from FGI to Farmers Exchanges                                                                     Cash Flow
Step 3: Increase of All Lines Quota Share reinsurance treaty between Farmers Exchanges and Farmers Re from
                                                                                                                 *   USD equivalent of issue in CHF
       25% to approx. 40% under existing terms.

May 20, 2009                                                                                                  Farmers Strategy Update       31
Impact on Exchanges’ capital position
                                                                                                Estimated                Estimated
    in USD millions                               Exchanges               AIG PAG              transaction               Pro-forma
    approximated and rounded                       12/31/08               12/31/08            adjustments1                12/31/08
    Cash and Investments                               18,222                  4,057                      -1,500              20,779
    Insurance balances rec.                                 2,619                   628                            -               3,247
    Other assets                                            1,174                   474                            -               1,648
                Total Assets                              22,015                  5,159                   -1,500                 25,674
    Reserves                                              14,692                  2,984                            -             17,676
    Other liabilities                                       2,288                   485                            -               2,773
               Total Liabilities                          16,980                  3,469                            -             20,449
    Capital and Surplus                                     5,035                 1,690                   -1,500                   5,225
    Total Liabilities and Surplus                         22,015                  5,159                   -1,500                 25,674



                     Exchanges’ capital position well within target range
1Estimated transaction adjustments include both a) USD 1.4bn purchase price and b) the impact of the increase in the All Lines Quota Share
(Q/S) reinsurance treaty from 25% to 40%. Actual transaction adjustment will depend on magnitude of actual purchase price adjustments and
actual portfolio transfer amounts to 40% Q/S. Excess of book value over purchase price is non-admitted and subsequently amortized to surplus
over 10 years.
May 20, 2009                                                                                                 Farmers Strategy Update     32
Impact on Exchanges’ capital position

    ~USD 1.4b acquisition financed from cash on-hand
    – Cash position has been accumulated since September 2008
    Acquire AIG PAG statutory surplus of ~USD 1.7b
    – Excess of book value over purchase price to be amortized to surplus over 10 years
    – 40% Q/S ceding commission benefit of approx. USD 150-200m
    AIG PAG balance sheet to be acquired is strong
    – Surplus ratio of ~42% as of Dec. 31, 08
    – USD 4b of cash and investments as of March 31, 09
      – Highly rated, well diversified, liquid holdings:
           average duration of <4 years
         – >75% of fixed income securities in municipals
         – No meaningful holdings in US sub-prime backed RMBS, CDOs or CDSs
         – Fixed income portfolio unrealized gain of USD 54m as of March 31, 09




May 20, 2009                                                          Farmers Strategy Update   33
Summary of financial update


       Farmers continues to perform well despite difficult operating
       environment

       Unique business model with multiple capital levers positions
       Farmers well for future profitable growth

       The Exchanges’ balance sheet is resilient and well capitalized

       AIG PAG acquisition demonstrates strength of business model as
       an enabler for profitable growth




May 20, 2009                                                Farmers Strategy Update   34
Break
Agenda



 Strategy is working – positioned for growth   Paul Hopkins

 Financial update                              Scott Lindquist

 Strategy update                               Mark B Smith

 Personal lines transformation                 Jeff Dailey

 Wrap-up and close                             Paul Hopkins

 Q&A




May 20, 2009                                     Farmers Strategy Update   36
Strategy update


Mark B. Smith
SVP & Chief Strategy Officer of Farmers

May 20, 2009
                    Strategic Framework



                  Customer        Product         Distribution
                 Experience       Manage-          Excellence
                 Excellence        ment
                                 Excellence




                 Infrastructure and Technology Innovation
                              Talent Excellence
                 The Zurich Way and Operational Excellence


Achieve market leadership by driving innovation and operational
excellence to provide the best value and experience for every
customer.
May 20, 2009                                                     Farmers Strategy Update   38
We have experienced significant, above
industry average, organic growth

    Farmers growth
                                    18
                                                                                                 Total CAGR of 5.7% from 2005-
    Farmers GWP (in USD billions)




                                                                                                 2008
                                                                                                 3.1% CAGR from acquisitions
                                    16
                                                                                                 Organic growth 2.6% CAGR
                                                                                                 Industry has had negative
                                    14
                                                                                                 -2.8pts1 growth since 2005



                                    12
                                            2005           2006        2007          2008
                                                                                             We have out-performed the
                                         Farmers 2005 Baseline    Organic     Acquisitions   industry even without the help
                                                                                             of acquisitions


1               Source: Conning estimate as of Apr ’09 P&C Forecasts by LOB Weighted for Farmers’ LOB – Industry growth 2.2% in 2005 and
                –0.6% forecasted for 2009
May 20, 2009                                                                                                            Farmers Strategy Update   39
As a result, we have been gaining market
share which is to be accelerated with
AIG PAG
Top 10 US Personal Lines Insurers1
    Company
                                                                                Of the top 3 personal lines carriers we
                                             Market       Δ ‘05-
                                             Share         ’07
                                                                                are the only one profitably growing
                                                                                market share
    State Farm Group                             18.9 %
    Allstate Insurance Group                     11.0 %
                                                                                Our strong growth and AIG PAG have
    Farmers Insurance Group/AIG      PAG2        7.6 %
                                                                                resulted in separating us from the
     Farmers Insurance Group                     5.8 %
                                                                                pack
    Progressive Insurance Group                   5.1 %
    Berkshire Hathaway Ins (GEICO)                5.1 %                         AIG PAG is a strong strategic fit
    Nationwide Group                              4.6 %
    Liberty Mutual Ins. Companies3                4.5 %
                                                                                While we have had strong
    USAA Group                                    3.7 %
                                                                                performance the world is changing
    Travelers Insurance Companies                 2.7 %
                                                                                fast
    American Family Insurance                     1.8 %

    Total Top 101,2                           65.6%

1    Source: 2008 data not yet available - AM Best 2007 Direct Written Premiums, Market Share Report - Personal Lines includes Private
     Passenger Auto and Homeowners Multi-Peril Premiums
2    Pro-forma; excludes AIG’s Private Client Group
3    Includes pro-forma data with Liberty Mutual acquisition of Safeco
May 20, 2009                                                                                                    Farmers Strategy Update   40
Consumer shopping and purchasing
behaviors are changing dramatically
     Online shopping has nearly doubled in the past 2 years.
     Significant change in consumer insurance shopping behavior with the number of online quotes
     almost doubling 2004 – 2007.
     75% of people that purchased insurance in 2007 shopped for it first on the Web, and over 46%
     also got a quote on the Web.
     Celent estimates that nearly 30% of auto insurance sales will take place online by 2011.
     The direct channel is the only channel growing and gaining market share
     Personal lines direct channel is expected to grow 8% to over USD 37bn by 2010.

 Internet shopping1                           Online Auto Quotes2                       Personal Lines Direct                          37.5
                                              (USD m)                            +15%   Distribution, DPW2                      34.8
                                                                                        (USD bn)                        32.1
                                 55%                                 +15%                                  29.8
                                                           +30%                                           26.6
                                                  Y/Y %                                            24.5                         +8%
                                                                                            23.0
                                                  Change

                    30%                            18.7     24.4     28.1        32.4



       10%


       1998         2005         2007             2004     2005      2006        2007
                                                                                         2004 2005 2006 2007 2008F 2009F 2010F
                                                                                              Actual             Assuming 8% growth
 1                                            2                                         1
     Source: IIA BA (2006), AM Best (2007),       Source: comScore 2008 Online               Source: IIA BA (2006), AM Best (2007), Credit
     Credit Suisse sector report (2006)           Automobile Insurance Report                Suisse sector report (2006)

May 20, 2009                                                                                                Farmers Strategy Update       41
Adding the direct channel expands
Farmers’ customer reach

    Customers have distinct                 Adding direct
    preferences on
    choosing how to
    purchase insurance
                              128 million
    Our natural reach of       total US
    customers is limited      households                              Our
                                today                              increased
    Our primary channel                                             market
    market share is                           78 million          opportunity
    declining                                   Farmers           with direct
    Integrating direct                         household
                                              reach with            50 million
    channel with exclusive                   current agent           Farmers
    agents provides direct                    distribution       forecasted reach
                                                                    based on
    customers what they                          model            current trends
    desire                                                       and distribution
                                                                      model

May 20, 2009                                                 Farmers Strategy Update   42
While more customers are purchasing
direct they also still value an agent and
bundled products...
    Customers who want an agent1
                      8%                     While customers are shopping and
                     Not
                                             buying online:
                13%valuable
               Neutral
                                               Customers value having an agent
                            79%
                           Value
                         having an             Customers prefer to bundle products
                           agent               and services

    Customers who prefer to bundle             Customers want multi-line discounts
    products and services1
       2%
     three or                                  Almost 20% of customers that defect
      more                                     from direct carriers want a multi-
                 22%
                  two
               companies
                                               channel, bundled proposition
                           76%
                           want
                         only one
                         company


1   Source: ComScore Auto Study, Gfk Study
May 20, 2009                                                           Farmers Strategy Update   43
Direct by itself is not the answer…
Customers want more…BOTH!
These changing preferences are creating challenges for both agent-based and direct
sellers. As a result, competitors are converging towards a hybrid distribution model.
On one hand                                                                    On the other hand
 Internet Shopping1             55%                                            Customers who want an agent3
                                                                                              8%
                    30%                                                                      Not
                                                                                       13% valuable
          10%                                                                          Neutral
          1998       2005       2007
                                                      “Changing The Game”                         79%
                                                                                                 Value
 Annual Online quotes submitted                                                                having an
 (millions)2         51.4                                    Farmers hybrid                      agent

              32.4                                           model – a truly
        18.4
                                                               integrated      Customers who prefer to
          2004       2007       2010                         multi-channel     bundle products and services3
                                                                                   2%
 Direct channel share of market (%)1                          distribution       three or
                                                                                  more 22%
                  22% 25%                                        model
      17% 20%                                                                             two
                                                                                       companies
                                                                                                    76%
        2003 2005 2007 2010                                                                         want
                                                                                                  only one
                                                                                                  company
 1 Source: IIA BA (2006), AM Best (2007), Credit Suisse sector report (2006)
 2 Source: comScore 2008 Online Automobile Insurance Report
 3 Source: ComScore Auto Study, Gfk Study


May 20, 2009                                                                             Farmers Strategy Update   44
Creating a “Game Changing” winning
model … making a real difference in the
market




 Consumer Life Cycle & Purchasing Preferences
  Direct            Multi-channel    Agency         Multi-channel


      An integrated multi-channel model to attract & retain customers
                         through their life stages
May 20, 2009                                             Farmers Strategy Update   45
We have significantly expanded
our customer reach

                                                            Reach in all 50 States
                         Broader reach
                                                            All channels
                                                            Scale in all channels
                                                            Fastest growing customer
Product             Customer    Channel       Geographic    segments
expansion           segment     expansion     expansion
                    expansion                               Largest product breadth
                                                            expanded to include:
      Bristol West acquisition – product, IA1 and
      geographic                                            – Commercial Auto
      Zurich Small Business acquisition – product and IA1
                                                            – Non-Standard Auto
      AIG PAG acquisition – Direct and IA1
      Emerging Market s initiative – customer segment
                                                            – Expanded Small Business
                                                              product breadth
      IA1 East Expansion initiative – geographic
      expansion

1   Independent Agents
May 20, 2009                                                               Farmers Strategy Update   46
Strategic priorities

Our strategy is working –                                 Leverage distribution channels and brand
with more opportunities for                                        to expand customer reach
growth
                                                          Cross-sell – multi-line and multi-channel

           Customer        Product         Distribution
          Experience       Manage-          Excellence        Sustain Emerging Market growth
          Excellence        ment
                          Excellence



                                                              Become #1 Small Business carrier
           Infrastructure and Technology Innovation
                       Talent Excellence

          The Zurich Way and Operational Excellence
                                                          The Farmers Way (agency success model)




May 20, 2009                                                                      Farmers Strategy Update   47
Large distribution footprint with
significant scale and reach in all                                                                      Leverage distribution

distribution channels                                                                                    channels and brand
                                                                                                              Cross-sell
                                                                                                          Sustain Emerging
                                                                                                           Market growth
                  2008 GWP by channel – Prior AIG             GWP by channel – Post AIG PAG/           #1 Small Business carrier
                  PAG/21st Century       2% Direct            21st Century (pro-forma)
                                                                                                          The Farmers Way

                                                                            14%
                                     9% IA
                                                                           Direct
                                    Channel
                                                                   13% IA
                                                                   Channel

                                               89% EA                      73% EA
                                               Channel                     Channel




    Exclusive Agents (EA)                       Independent Agents (IA)             Direct Distribution
      15,000 Farmers EA in 29                      45,000+ Farmers IA in              21st Century
      core states                                  50 states
                                                                                      49 states
      Average 310 net gain                         Grown nearly 10,000
                                                                                      2.9bn GWP
      since 2004                                   agents YoY 2008
                                                                                      #3 Direct1 carrier
      14.8bn in GWP                                2.8bn in GWP

1    Not including USAA and Hartford business models
May 20, 2009                                                                                Farmers Strategy Update           48
Managing potential channel conflict
through brand & channel alignment                                            Leverage distribution
                                                                              channels and brand
                                                                                   Cross-sell
                                                                               Sustain Emerging
                                                                                Market growth
                                                                            #1 Small Business carrier
                               Small      Specialties &                        The Farmers Way
                   Auto/Home   Business   Non-Standard Auto   Life

       Exclusive
         Agents



Independent
     Agents



   Full Direct




May 20, 2009                                                     Farmers Strategy Update           49
Consolidation of IA units into one
brand strengthens our competitive                    Leverage distribution

position                                              channels and brand
                                                           Cross-sell
                                                       Sustain Emerging
                                                        Market growth
                                                    #1 Small Business carrier
    Acquired numerous medium                           The Farmers Way

    sized companies
    – Consolidated, they total USD
       2.8bn in GWP (pro-forma)
    Increased IA distribution
    footprint
    – Bigger piece of each agency
       results in greater agency focus
    Increased geographical footprint
    – 45,000 + IA relationships
       across 50 states




May 20, 2009                             Farmers Strategy Update           50
Consolidation of IA units into one
brand is more attractive to agents                 Leverage distribution
                                                    channels and brand
                                                         Cross-sell
                                                     Sustain Emerging
                                                      Market growth
                                                  #1 Small Business carrier
    More robust product offerings                    The Farmers Way

    under one brand
    Best in group technology and
    process makes it easier to drive
    and support future growth
    Increased efficiency
    – Combined quoting platform
    – Systems are easier to use




May 20, 2009                           Farmers Strategy Update           51
Cross-sell initiative through Value
Insurance Package (VIP)                                                             Leverage distribution
                                                                                     channels and brand
Our success in improving our new business (NB) cross-sell and                             Cross-sell
                                                                                      Sustain Emerging
product density prepares us for the AIG PAG cross-sell opportunity                     Market growth
                                                                                   #1 Small Business carrier

                                                                                      The Farmers Way


               NB cross-sell rate            Product density

                       +17.0pts                        +8.9%
                     improvement                      increase
                              64.1%                              2.46

                   47.1%


                                                   2.26




                  Q1 2005    Q1 2009             Q1 2005     Q1 2009


                        52% of households have 2 or more lines

May 20, 2009                                                            Farmers Strategy Update           52
… Because multi-line bundling is where
the long-term value is                                                                                         Leverage distribution
                                                                                                                channels and brand
    Consumers with bundled                                                                                           Cross-sell
                                     National customer retention study                                           Sustain Emerging
    products with a single                                                                                        Market growth
                                                                                                              #1 Small Business carrier
    carrier have a 12pts higher         95%                                 12pts
                                                           92%           difference                              The Farmers Way
    retention
    Farmers Agents are using                                               85%
                                                                                          83%
    bundled offers with Value
    Insurance Package focused
    on Cross-selling to current
                                       Auto/Home          Auto/Rental    Non-bundled   Auto mono-line
    and new customers                                                     Auto/Home

    Significant opportunities        Source: JP Powers 2009 Special Retention report

    for additional growth from       Farmers customer
    cross-sell:                      life-time value
    - We have over 390,000           analysis
                                     in USD                  7,670
       Small Business customers
       to cross-sell Personal
       Lines                               2,942
    - Small Business / Personal
       Lines cross-sell is a USD 1
       billion opportunity                    Auto only      Auto/Home



May 20, 2009                                                                                       Farmers Strategy Update           53
Our emerging markets initiative is on
track…                                                                       Leverage distribution
                                                                              channels and brand
      189% CAGR since 2006                                                         Cross-sell
                                                                               Sustain Emerging
                                                                                Market growth
      We have become the #1                                                 #1 Small Business carrier
      recognized brand in the                                                  The Farmers Way
      Emerging Market (EM)
      segment                        EM gross written premiums
      Increased the number of        (in USD millions)
                                                                  241
      Farmers EM agents by 25%                           189%
                                                         CAGR
      since 2005
      In-language advertising in 8                       81
      languages                            10

      First major US insurance            2006           2007    2008
      carrier with websites in
      Spanish, Chinese, Korean and
      Vietnamese
      The Emerging Market
      Personal Lines segment
      represents a 20 billion GWP
      market

May 20, 2009                                                     Farmers Strategy Update           54
Emerging Market Small Business
customers are our next opportunity                                  Leverage distribution
                                                                     channels and brand
                                                                          Cross-sell
                                                                      Sustain Emerging
                                                                       Market growth
                                                                   #1 Small Business carrier
    There are an estimated 2.0 million Hispanic businesses            The Farmers Way

    and another 1.5 million Asian businesses in the US,
    growing at 9.1% and 5.0%, respectively.
    According to US Census records, Hispanic and Asian Small Business
    Owners are growing three times faster than other business start ups
    in the US.
    Insurance carrier decision heavily determined by recommendation
    from industry peers, friends, and family.
    The Small Business Emerging Markets segment represents a 4.2
    billion GWP opportunity
    No clear insurance market leader in the minority-owned small
    business sector



May 20, 2009                                            Farmers Strategy Update           55
Farmers Small Business strategy is
working delivering strong and                                                                        Leverage distribution

sustainable performance                                                                               channels and brand
                                                                                                            Cross-sell
                                                                                                       Sustain Emerging
Accomplishments                                                                                         Market growth
                                                                                                    #1 Small Business carrier
      Top 6 player in small business market     Policies in force                                      The Farmers Way
      and top 3 in Core 29 states
      Significantly increased agency                                                  392'132
                                                                        366'204
      participation (+1,700)
      Grown policies in force 8% CAGR                       334'491
      Excellent underwriting profits
                                                 310'904
      Industry leading premium and new
      business growth in second half of 2008
                                                   2005       2006          2007       2008
Looking Forward
New initiatives to drive increased agent        Combined ratio (calendar year)
participation and productivity fueling future
growth:                                          110.0%

      Business Insurance Express
                                                           99.0%     98.8%
      Expanded underwriting appetite                                          94.7%     95.8%       95.9%
      Enhanced Commercial Auto proposition
      New bundled package offer
      More sophisticated pricing                 2003      2004      2005     2006       2007       2008
      segmentation

May 20, 2009                                                                             Farmers Strategy Update           56
FarmersFuture strategy is to build
bigger, stronger, and more productive                                                          Leverage distribution

exclusive agencies                                                                              channels and brand
                                                                                                     Cross-sell
                                                                                                 Sustain Emerging
      New agent appointments -        Exclusive Agent new appointments                            Market growth
                                                                                              #1 Small Business carrier
      four strongest years in
                                                                                                 The Farmers Way
      company history                          2'043               2'004      2'064
                                                         1'951
      Grown our Farmers Exclusive
                                                                 Avg 2,000+ per
      Agency force by 10%              1'770                     year since 2005

      Increased productivity and
      growth in number of agents
      has contributed almost 2         2004    2005      2006      2007       2008
      billion in incremental GWP
                                                       Agents doing business the
      over the last 5 years (2004 -                    Farmers Way have experienced:
      2008)
                                               NB increase in Auto
      Launch of new Exclusive
      Agency development
      program                                  NB increase in Fire
      Launch The Farmers Way
      Sales & Marketing System
                                               NB increase in Life

                                               NB increase in Umbrella
May 20, 2009                                                                       Farmers Strategy Update           57
Strategy summary


       Farmers is the broadest scale, multi-line, all channel US P&C
       insurer

       We have experienced significant, above industry average growth
       even without acquisitions

       We have gained market share and closed the gap on key
       competitors

       AIG PAG is a strong strategic fit and a “Game Changer” with
       unique opportunity to capture and retain customers for life

       Our strategy is working, building sustainable growth capabilities,
       with significant opportunities for future growth



May 20, 2009                                                Farmers Strategy Update   58
Agenda


 Strategy is working – positioned for growth        Paul Hopkins

 Financial update                                   Scott Lindquist

 Strategy update                                    Mark B Smith

 Personal lines transformation                      Jeff Dailey

          2009 projects supporting transformation

          AIG PAG integration

          A closer look at Bristol West

 Wrap-up and close                                  Paul Hopkins

 Q&A

May 20, 2009                                          Farmers Strategy Update   59
Personal lines transformation


Jeff Dailey
EVP & President, Personal Lines of Farmers



May 20, 2009
Personal lines operational transformation

Design propositions that maximize customer value &
minimize costs through the life cycle of a policy

                                 Ease of doing
                                 business




           Customize product                                        Competitive
                                           Better
                                          Better
           offerings                   customer
                                        Customer Cost
                                                  Cost              pricing
                                      Experiences Efficiency
                                     experiences efficiency




                Superior analytics                             Speed to market



May 20, 2009                                                                Farmers Strategy Update   61
2009 projects supporting transformation

 Billing


 Multi-car

                               Better
 Express                    customer    Cost
                          experiences   efficiency
 ServicePoint


 MyFieldPoint


 New Auto &
 Home Product

                           Competitive advantage

May 20, 2009                               Farmers Strategy Update   62
Improved billing experience means
better customer retention and cost
efficiency
                                Interaction-billing
                                component
 Retention improvement          7%                       Interaction other
 JD Power states that high       Billing                              32%
 customer satisfaction would     19%
 result in a 91.5% retention
 rate


 Customer satisfaction
 factors
 Billing accounts for as much                                         Purchase
 as 26% of the overall                                               experience
 customer experience per                                                   18%
 JD Power                        Cost
                                 14%                  Claims
                                                        10%

May 20, 2009                                              Farmers Strategy Update   63
Billing Operational Transformation -
Our vision is to create a world class
common billing customer experience

                                            Farmers All
                                            Lines Billing
Policyholders           Agents                              Goals:
                                                            • More options
                             Voice            Policy        • More
Identify
                             of the         Processing
                                                              dependable
issues
                             customer                       • Ease of use
               Pain points                     Agent        • Convenience
               Customer experience issues
               Missed opportunities           Service
                                               Point
               Billing option/choice

                                               Web

May 20, 2009                                                  Farmers Strategy Update   64
Multi-car capable policies


 Improved customer experience
       Eliminate multiple mailings to customers when a sister policy is changed
       Consistent coverages, limits and terms for customers

 Lower cost model
       Lower overall processing costs including reduced mail, confusion and phone calls

 Foundation for personal line transformation
       Express - need uniform limit rules
       New Auto Product - need multi-car policy structural rules for household setup and
       discounts

Rollout plan (by US states)
  Dec-08         Feb-09        Apr-09       Jun-09        Aug-09       Oct-09
  UT, IN, IL     CO, OK, NM    CA           +7 states     + 7 states   + 7 states
                                                                       fully launched



May 20, 2009                                                           Farmers Strategy Update   65
       It’s fast (less than 12 minutes to a fully underwritten policy)
       It’s easy (one screen, three tabs: quote, validate, buy)
       It’s accurate (at point of sale)

 Now available in three US states (CO, NM & OK)
   Private Passenger Auto
   Next Generation Home
   VIP Proposals

 Coming in Express 2.0
   Change transactions and other lines of business to start in
   3rd quarter 2009


May 20, 2009                                            Farmers Strategy Update   66
Personal Insurance Express –
Early results
 “It was so easy, I thought: Is that it?”
 Leanna Boyles, NM Agency Customer Service Rep.

 Average Web Pages Visited
                                                          Core goal: Increase quote volume 2.5%
 Express vs. eAuto                  27.2                  over pre-Express levels
                                              Express     Actual early results: Quote level up 82%
                15.6                          eAuto

         4.0                 3.5                        Process improvements (Express vs eAuto)

           Quote            Application
                                                        Quote       Pages eliminated          11.6         75%
                                                                    Time saved              8 min          57%
 Average Time Spent                                     Application Pages eliminated          23.7         87%
 Express vs. eAuto                                                  Time saved            11 min           72%
                                   15:52
                14:02                        Express
        06:03                                eAuto
                           04:46
                                                         Total time saved: 100 years annually

           Quote           Application



May 20, 2009                                                                     Farmers Strategy Update     67
Customers want convenience…
And so do our agents…

                                                  Hillsboro, Oregon


      Tighter control and improved
      technology resulting in more
      accurate and consistent customer                           Olathe, Kansas
      service experience
      100% of exclusive agency force
      serviced by ServicePoint
                                          Austin, Texas
      Consolidation of eleven service
      centers to three ServicePoints
      On track to achieve a 5-year cost
      avoidance of about USD 200m
      from inception

May 20, 2009                                                  Farmers Strategy Update   68
MyFieldPoint – Consolidation of data
and functionality improves our ability
to compete
 Distribution management
       Agent prioritization
       Optimal contact sequence for new agents
       Contact results

 More robust analytics & forecasting
       Cross business unit performance
       Drill down based on responsibility
       Ad-hoc analysis on the fly


 More focused campaign management planning & coaching
       Targeted campaigns by geography and/or line of business
       Performance review at agent, district and state levels
       More quickly react to challenges in the field


May 20, 2009                                                     Farmers Strategy Update   69
New Auto & Home Product features

 Simple                                       Best-in-class products require pricing
       Aligned product structure in core 28   sophistication…
       states                                 Interaction among variables is key!
       One company, one set of rules (Auto)
       No manual tiering
       Built on multi-car platform (Auto)

 Automated
       Underwriting and validation at Point   Segmented pricing
       of Sale
       Leverages the power of “Express”                                          Points
                                                                                  POP
                                                Limits/                                          Violation
 Segmented pricing                              Deducts
                                                                   Age POP
                                                                                                   aging
                                                           Rate
                                                                                 Points
       New proprietary auto & home specific               Matrix
                                                                    Driver
       credit models (housed internally)         Core               Class
                                               Discount                           Age-
       More sophisticated loss models built                HHS
                                                                                 points
       on interactions among variables
       New environmental territory models

May 20, 2009                                                           Farmers Strategy Update         70
New Auto & Home Product –
More sophisticated segmentation

Current state                              Advanced state
      Credit                                  Credit by coverage
      Symbol                                  Year, make & model
      Loss ratio modeling for                 Environmental territory by
      territory                               coverage
      Driver vehicle assignment               Driver class averaging
      Loss ratio-based analysis               Multivariate analysis



                 Increasing interaction amongst variables




May 20, 2009                                                Farmers Strategy Update   71
Agenda


 Strategy is working – positioned for growth        Paul Hopkins

 Financial update                                   Scott Lindquist

 Strategy update                                    Mark B Smith

 Personal lines transformation                      Jeff Dailey

          2009 projects supporting transformation

          AIG PAG integration

          A closer look at Bristol West

 Wrap-up and close                                  Paul Hopkins

 Q&A

May 20, 2009                                          Farmers Strategy Update   72
Company overview - AIG Personal Auto
Group (AIG PAG)

    GWP by distribution channel (Direct vs. Agency)                                    Offers insurance in 49 states
                   5000                                                                PAG comprises the following two distinct
                                  4’116            4’093
    GWP in USD m




                   4000                                        3’578                   business segments:
                                  1'181            1'117
                   3000                                          873           24%
                                                                                       – The Direct business, which is a product
                   2000                                                                   of the integration of
                                  2'935            2'976        2'705
                   1000                                                        76%
                                                                                          21st Century and AIG Direct.
                      0                                                                   This was rebranded as 21st Century at
                                  2006             2007       2008                        the beginning of 2009.
                                          Direct       Agency
                                                                                       – AIG Agency Auto, which provides
    Combined ratio analysis                                                               predominately non-standard auto
    140                                                                                   insurance through a network of over
    130
                                                                                          24’000 independent agents/brokers
                                                                                          across 38 states.
    120
    110                                                                                Ranked as 3rd player1 in direct insurance
    100                                                                                sales in the US, behind GEICO & Progressive
          90                                                                           Direct historically recorded excellent
          80                                                                           combined ratios; Agency division has been
           1Q 07          2Q 07    3Q 07      4Q 07   1Q 08   2Q 08    3Q 08   4Q 08   unprofitable but rapid improvement in 2nd
                             Agency                             Direct                 half 2008
1         Not including USAA and Hartford business models
May 20, 2009                                                                                                   Farmers Strategy Update   73
Strategic rationale – AIG PAG to leverage
significant cost & growth synergies

                                       Farmers is the broadest scale, multi-line, all channel US P&C insurer
    Market
                                       Offers unique value proposition
    leader                             Position Farmers as the 3rd largest1 direct auto writer in the US


    Accelerate                         Achieve immediate scale in fastest-growing channel
                                       Eliminates execution risk and potential operating losses by starting
    direct market                      and growing a direct book, investment in organic growth estimated at
    entry                              10+ years

Target specific                        Internet shopping grew 5x over the last decade & more than doubled
                                       the last 2 years
market                                 4x increases in East Coast Auto business, 2x increase in Spanish
segment                                speaking customer segment

    Strengthen                         Significant cross-sell opportunity for Homeowners, Specialty Products,
                                       Life, Investment Products & Small Business
    our agency                         Provides over 1.5 million customers with 500,000 new customers per
    force                              year in our Exclusive Agency states


1   Not including USAA and Hartford business models

May 20, 2009                                                                              Farmers Strategy Update   74
AIG PAG helps balance our product and
geographic mix
                                                                Product mix shift to Auto          Geography mix shift to East
2007 DWP, All-lines                                                     Farmers Farmers +PAG       Farmers             Farmers + PAG
(in USD millions)                                              Auto      55.5%     64.4%     West   82.3%                 77.0%
                                                               Home      27.4%     22.0%     East   17.7%                 23.0%
                                                               Other     17.1%     13.6%     Total 100.0%                100.0%
                827 /                                          Total    100.0%     100.0%
                                                                                                                           29/
                889
                                    125 /                                                                                  41
                                                     20 / 22
                                    132                             444 /
       569 /                                                        482          118 /
       598              145 /                                                    143
                                                     41 / 42                               363 /           95 / 303
                        160
                                     70 / 74                                               406
                                                                       52 /                          130 / 293
                                                                                              161 /
               398 /                                 95 / 97           59        578 / 158/   208
               435         293 /                                                 629   194
                           305              656 /                                                 8/32 128/
    4,445 /                                                                                             188                VT        7 / 14
                                            716        244 /            301 /           30 / 59
     5,791                                             254                                                                 NH        24 / 31
                                                                        336                          87 / 107
                                                                                    153 / 189                              MA          7/7
                        750 / 828                         521 /                                   78 / 129
                                      281 /                             174 /                                              RI          2/9
                                                          537
                                      299                               191        66 /   199 /                            CT 18 / 120
HI 0 / 117                                                                                      81 / 119
                                                                                   94     233                              NJ 28 / 293
AK 3 / 13                                           2,639 / 2,844        112 /
                                                                                                                           DE         3 / 18
                                                                         215
                                                                                                      244 /                MD 42 / 62
                                                                                                      676                  DC          0/4
Legend:
Farmers / Farmers + AIG PAG (pro-forma)
May 20, 2009                                                                                               Farmers Strategy Update            75
We will create an integrated multi-
channel model creating a growth engine
for Farmers and Farmers Exclusive Agents

                 Leads will be provided to   2.5 million1 Auto prospects
                 our Exclusive Agents (EA)   annually
                                             1.5 million1 existing direct
                                             Auto customers in EA states
               Auto prospects                500,0001 new direct Auto
                                             customers annually



               X-sell prospects              Over 3 million qualified
                                             leads expected annually


1   Expected
May 20, 2009                                            Farmers Strategy Update   76
Creating a unique integrating multi-
channel model optimizing future
growth opportunities
 “Largest multi-        AIG PAG direct benefits
 channel distribution   for Exclusive Agents (EA)
 footprint & greatest
 customer reach”           Expanded “Customer Reach”
                           allowing customers to do
                           business with us the way they
                           want to
                           Leads to larger and more
                           productive agencies
                           Retain customers through their
                           lifecycle and changing
                           preferences
 “Broad product            Bundling AIG PAG direct policies
 portfolio, multi-         optimizes customer lifetime
 product discounts,        value
 and bundled offers”

May 20, 2009                                          Farmers Strategy Update   77
Farmers has a demonstrated track
record of effective post-M&A
integration and growth
 Foremost - 2.6x Growth since joining Farmers                                     Over the last 10 years Farmers has
 Written premiums 1999-2008 (in USD millions)                                     successfully integrated two major
 1'800                                                                            acquisitions:
 1'600
                                                                                  – Foremost Insurance (specialty
 1'400

 1'200
                                                                                     line)
 1'000                                                                            – Bristol West (non-standard
   800                                                                               auto)
   600

   400
                                                                                  Currently, Farmers is also
   200
                                                                                  integrating Zurich North
     0                                                                            America’s Small Business book
           1999   2000   2001   2002   2003   2004   2005   2006   2007   2008
                                                                                  into Exchanges’ overall US Small
 Farmers EA - Bristol West total sales (units)
                                                                                  Business insurance operation
 Business is ramping up                                                           Results of these acquisitions have
  60'000
                                                                                  been outstanding as the cross
  50'000                                                                          channel integration and synergy
  40'000
  30'000                                                                          of introducing new products into
  20'000
  10'000                                                                          the existing exclusive agent
       0                                                                          channel have driven impressive
            Jul Sep Nov Jan Mar May Jul Sep                        Dec      Mar   premium growth of both new
                                                                                  product lines
May 20, 2009                                                                                     Farmers Strategy Update   78
Agenda


 Strategy is working – positioned for growth        Paul Hopkins

 Financial update                                   Scott Lindquist

 Strategy update                                    Mark B Smith

 Personal lines transformation                      Jeff Dailey

          2009 projects supporting transformation

          AIG PAG integration

          A closer look at Bristol West

 Wrap-up and close                                  Paul Hopkins

 Q&A

May 20, 2009                                          Farmers Strategy Update   79
The Bristol West acquisition has been a
success, exceeding our initial estimates

Combined Bristol West: combined ratio
         in %
ratio               101.3
                                      99.9


                             94.1                                                       Bristol West has
                                                             92.0
                                                                                        delivered solid
                                     1
                                                                                        results
                         FY08 adjusted   FY08 reported Q1-09 adjusted1 Q1-09 reported

                                                                                        Growth and
Gross    Bristol West GWP (in USD millions)
         +25% growth
                                                                                        profitability
written   over FY072                                                                    have been
premiums      786                                                                       strong
                                                              +23% growth
                                                               over 3m08

                                                    234                237

                            FY08 Actual          3m09 Plan          3m09 Actual

1   Adjusted for profit portion of management fees
2   Pro-forma
May 20, 2009                                                                              Farmers Strategy Update   80
Exclusive Agent rollout -
driver of Bristol West premium growth
    Rapid roll-out of Bristol West product
    - Installed and trained over 14,000 agents in 29 states in 13 months, including 13 states
       Bristol West did not do business In
    - Started in Colorado in July of 2007, when the acquisition closed, and completed in New
       Mexico in August 2008
     Added 13 new states to the Bristol West footprint in 13 months

               Bristol West EA - Gross written premiums
                                   40'000
                in USD Thousands




                                   35'000
                                   30'000
                                   25'000
                                   20'000
                                   15'000
                                   10'000
                                    5'000
                                        0
                                            Jul-07

                                                     Aug-07
                                                              Sep-07

                                                                       Oct-07

                                                                                Nov-07
                                                                                         Dec-07

                                                                                                  Jan-08
                                                                                                           Feb-08

                                                                                                                    Mar-08

                                                                                                                             Apr-08
                                                                                                                                      May-08
                                                                                                                                               Jun-08
                                                                                                                                                        Jul-08

                                                                                                                                                                 Aug-08

                                                                                                                                                                          Sep-08
                                                                                                                                                                                   Oct-08

                                                                                                                                                                                            Nov-08

                                                                                                                                                                                                     Dec-08
                                                                                                                                                                                                               Jan-09

                                                                                                                                                                                                                        Feb-09

                                                                                                                                                                                                                                 Mar-09
Agents quickly began selling the Bristol West product. While the number of quoting producers has
leveled off as the roll-out was completed, we continue to see steady growth in both the number of
agents selling our product and the number of policies sold.

May 20, 2009                                                                                                                                                                                                  Farmers Strategy Update     81
Summary of personal lines transformation


       Leverage our data resource to create broadly competitive
       products with superior agent and customer experience
       at lower costs

       Key initiatives are in place to meet our strategy and are on track

       Integration of AIG PAG to create a unique business model
       offering significant competitive advantage

       AIG PAG transaction to leverage on Farmers’ proven integration
       capabilities




May 20, 2009                                                Farmers Strategy Update   82
Agenda



 Strategy is working – positioned for growth   Paul Hopkins

 Financial update                              Scott Lindquist

 Strategy update                               Mark B Smith

 Personal lines transformation                 Jeff Dailey

 Wrap-up and close                             Paul Hopkins

 Q&A




May 20, 2009                                     Farmers Strategy Update   83
We have reinvented the Farmers business
model, repositioning us in the market, and
we’re now poised for increased growth
Farmers re-invented business model
                 Brand alignment by channel & new brand campaign launch
    Exclusive Agents (EA)           Independent Agents (IA)                     Direct
                                       Customer segments
       Kaitlyn          Sean         Robertsons       Ron & Jan       Tom & Wendy          Mary Anne



                                           New products
     Multi Car      Next Gen Auto     New Billing   Value Insurance   Non Standard       Small Business
      Policy        Next Gen Home      Product        Package 2          Auto             Commercial
                                                                                             Auto

       More sophisticated predictive modeling, credit models, and competitive pricing
                                    New processing platforms
   Business Insurance          Personal Lines       New Billing System
        Express                   Express


May 20, 2009                                                                   Farmers Strategy Update    84
        Financially strong
        Building off 13 quarters of growth momentum
        Significant opportunities for continued growth
        Broader & stronger distribution footprint
        Expanded customer reach
        New products, platforms, pricing
        Experienced & tested leadership team

                   & well positioned for growth
May 20, 2009                                        Farmers Strategy Update   85
Q&A

								
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