World Market Watch 2010 01 by shuifanglj

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									January 2010




Alexander Forbes Risk Services


nowledge
 Centre
FOREWORD
Welcome to the 11th edition of our bi-annual World Market Watch publication.

It is important to keep in mind the reason for introducing this publication in the first place. The idea was to give our clients the
means to have a quick and easy reference document on the State of the Insurance Market generally and also to assist them to
review market developments by selected classes of insurance. We always showcase a specific area of insurance in our lead
article and this time it is written by Gari Dombo, who is the MD of Alexander Forbes Motor & Household Insurance. He provides
detailed insight into some of the more topical developments in this significant market.

Feedback on the publication from our clients has been positive. As in the past, we ask that you please let us know if there are any
suggestions you may have as to how we could structure the publication more effectively or include any other general information
you may need.

2009 was a turbulent year for Financial markets. It turns out that regulation of the international Banking sector was not as
effective as the world believed. It has been good to see that financial discipline in South Africa played a very positive role in
limiting a financial meltdown here, as occurred in the USA and European markets. The crisis will mean tighter regulation for the
Financial Services industry as a whole, including the Insurance sector. Locally, we are already seeing signs of tighter educational
requirements for participants in the industry as well as a much greater focus on compliance, which will lead to an even healthier
industry and also create more peace of mind for the consumer. We at Alexander Forbes are very supportive of these
developments and have spent considerable time and resources to ensure that we comply.

On the short-term insurance market front, the financial turmoil had the effect of focusing all insurance buyers on the cost of
programmes, as well as the effectiveness of physical Risk Management measures and Risk Finance structures. In a time of
turmoil, it is understandable that cost pressures become central but it is important that we as Brokers provide the right advice on
the long-term effects of reducing or even discontinuing cover. Insurance cover is a very important part of keeping the wheels of
industry turning. The consequences of reducing coverage in certain areas and the long-term damage that can be done to a
business by making the wrong calls, must never be underestimated. Our business is the business of advice based on our many
years of experience. It is critical that we harness the very considerable resource base we have at Alexander Forbes for the
benefit of all our clients.

The year ahead is going to require well thought-out and executed strategies at all levels by all businesses who want to thrive in
the current economic climate. Risk and Insurance strategies are two key considerations for clients to focus on. Alexander Forbes
looks forward to working with clients to address these challenges and add real value to their business in the near and long term.




                                   TUTU MADUNGANDABA                                  GUY JAMESON
                                   Managing Director                       Head of Sales & Marketing
                                   AF Risk Services                    AF Risk & Insurance Services
                                   Tel: +27 11 669 3573                         Tel : +27 21 401 9914
                                   Email: madungandaba@aforbes.co.za Email : jamesong@aforbes.co.za




Important Legal Notice
World Market Watch is intended to provide a summary review of recent developments in the insurance industry. The publication does not purport to be comprehensive or to offer legal or professional
advice, and should not be relied on as such. The information contained herein is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as
such. Please consult your insurance broker/advisor with respect to individual coverage issues.
Alexander Forbes does not warrant the accuracy of the information in the document and does not assume liability for any losses allegedly attributable to such information or reliance upon it.
This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Alexander Forbes Limited except for clients of Alexander Forbes
Limited who need not obtain such permission when using this report for their internal purposes.



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TABLE OF CONTENTS
Foreword - Tutu Madungandaba/Guy Jameson ..........................................................................................................02
Overview of Personal Lines - Gari Dombo ...................................................................................................................04

SOUTH AFRICA - MAJOR LINES
Property - Stuart Cox ..................................................................................................................................................06
Crime - Brian Gillespie ................................................................................................................................................06
Liability - Sheila Colman-Turner ..................................................................................................................................07
Motor - Ian Labram......................................................................................................................................................08

SPECIALIST AREAS
Construction Projects - Neal Helps..............................................................................................................................09
Construction Annual - Hugo du Plessis........................................................................................................................09
Guarantees - Cheryl Crick...........................................................................................................................................10
Food & Beverage - Jaco Smit ......................................................................................................................................11
Metals & Minerals - Debbie Geraghty ..........................................................................................................................11
Political Risks - Tracy de Kock.....................................................................................................................................12
Credit Risks - Bridgette Wood .....................................................................................................................................13
Financial Institutions - George Trollope .......................................................................................................................13
Directors & Officers Liability - Angela Jack...................................................................................................................14
Professions - Marnelle Ward .......................................................................................................................................15
Fund Trustees Indemnity - Brian Gillespie ...................................................................................................................16
Accident & Health - Dave Honeyman ..........................................................................................................................16
Kidnap & Ransom - Wally Thom ..................................................................................................................................17
Marine Hull - Grant Fugard..........................................................................................................................................18
Marine Liabilities - Julia Blain ......................................................................................................................................19
Marine Cargo - Kennedy Ntenjwa ...............................................................................................................................19
Private Transportation - Monika Uren..........................................................................................................................20
Aviation - Chris Readman ...........................................................................................................................................20
Energy Projects - James Shepherd.............................................................................................................................22
Risk Engineering - Lester Botha..................................................................................................................................22
Risk Finance - Liza Maré.............................................................................................................................................23
Loss Solutions - Peter Cook ........................................................................................................................................24

BLACK ECONOMIC EMPOWERMENT - Errol Masinga ............................................................................................24

COMPLIANCE - Bob Pitout ........................................................................................................................................25

SOUTH AFRICA - MARKET RESULTS
Table of Market Results - Tom Healy............................................................................................................................27

GLOBAL REVIEW
Global Practice - Michael Duncan ...............................................................................................................................29
AfriNet - Nomusa Ramushu ........................................................................................................................................30

LOCKTON OUTLOOK
Introduction - Paul Jack...............................................................................................................................................31
Property Risks - Garett Endenburg .............................................................................................................................31
Liability Risks - Edward Aspinall ..................................................................................................................................32
Financial Risks - Stephen Ambidge.............................................................................................................................33
Marine Risks - Peter Carew-Gibbs ..............................................................................................................................34

ALEXANDER FORBES GROUP ...............................................................................................................................35



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An Authorised Financial Services Provider
THE DOMESTIC (PERSONAL LINES) SHORT-TERM INSURANCE INDUSTRY
The economic meltdown in 2009 had a huge impact on the Financial Services sector in general.

The impact on the local Domestic (Personal Lines) insurance market has been significant and this will continue well into 2010.
The huge challenge presented by the recession calls upon competitors in the industry to review the way their products are
packaged and to attract business by offering consumers better choices.

Aggregators
In 2009, we saw a number of developments, both positive and negative.

Several Direct insurers have come to the market with cheaper products. While it is good to have cheaper options in the market,
the problem is that many Direct insurer products look similar to Traditional insurer products but, in reality, may have less cover.

Many unsuspecting buyers are making buying decisions based on price alone, without receiving sound advice or knowing the
cover pitfalls of the products that they buy. This buying behaviour is understandable in the difficult economic conditions we find
ourselves in. However, in a responsible industry, the challenge is to inform the insuring public about some of the critical features
of the insurance products they are buying.

Internet-based Selling
The rapid expansion of Internet-based insurance selling further compounds the above challenges.

The Financial Advisory & Intermediary Services Act calls for assessment of a client's needs. The Internet buyer must first be
properly informed in order to be able to differentiate insurance terms and conditions as well as different service protocols.
Warranties on the policy, optional extensions and pertinent exclusions must all be carefully drawn to the buyer's attention and
fully explained.

Buyers need to be informed to know that insurance is not a commodity but rather a strategic tool that protects their assets and,
ultimately, their well-being.

Challenges on Motor Insurance
In 2009, there was much resistance to Motor insurance premium growth.

The insuring public, generally, may not understand why their premiums increase at renewal while the values of their vehicles
have gone down.

The majority of Motor vehicle claims are for partial damage, where the average cost of repair is around R20 000 per vehicle. It
can cost as much to repair a high valued car as it does a lower valued car with similar damage. Factors used to rate a Motor
insurance risk, include -

Age
lof the driver.
Security of the vehicle.
l
Driver
l gender.
Years
l of driving experience.
The
lexcess each client is prepared to carry.
Value
l of the vehicle.

Value is not the most important factor, albeit a significant one. Again, this calls for properly informing the insuring public.

The insurance industry has now seen a decrease in the average values of vehicles on their books as, due to the economic
recession, clients have not been purchasing new vehicles.




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The organic growth of any insurance company is driven primarily by the acquisition of new and additional assets. In a buoyant
economy, clients will acquire more assets which, in turn, will produce organically increased premiums and an appropriate spread
of risks.

We have also noticed an increase in the frequency of motor vehicle accidents. Much of this is attributable to the deterioration of
roads and to the road infrastructure developments for the 2010 Soccer World Cup. This is adding pressure to increase Motor
insurance rates.

As some clients struggle to meet their financial obligations, due to the difficult economic environment, insurers may also tend to
find an increase in the level of fraudulent claims, which can be perpetrated from a number of angles such as inflated claims,
claiming for non-existing items and/or falsifying information in the claim form.

Changing Weather Patterns
Changing climate conditions are also presenting huge underwriting challenges for insurers. Both the frequency and severity of
weather events are becoming more and more difficult to predict. Good data needs to be gathered and analysed to help predict
which regions or areas are becoming more prone to storm damage and flooding.

The Uninsured Market
With only around 30% of South African households and motor vehicles being insured, the scope for growth is certainly high.

The currently Uninsured market is dominated by the lower-life-stage-models and the insurance industry needs to create relevant
products, priced at affordable premiums and service levels, to take best advantage of this.

On Motor risks, the insurance industry as a whole is working on how best to facilitate Compulsory third party property damage
cover. More premiums could be attracted to the industry, thereby providing an opportunity for people suffering damage to recover
losses where this was not possible before.

Conclusion
As we look to 2010, the winners in the Domestic insurance market will be those who identify a niche in the market to operate and
excel in.

Service levels and the ability to respond effectively to client needs, are the central drivers as insurers choose client retention as
the best form of sustainable growth for insurance portfolios.

Technology will continue to play a key strategic role, not only as an enabler but also as a communication and distribution tool.

The ability to respond to the Uninsured market, at the right service delivery levels, will add a competitive advantage and much
needed real growth.

Analysis of data alone is no longer enough, there is a real need for underwriters to thoroughly understand the environment and to
anticipate what is around the corner.




                                                                                       GARI DOMBO
                                                                                   Managing Director
                                                                 Alexander Forbes Insurance, Pretoria
                                                                                Tel: +27 12 452 7221
                                                                       Email: dombog@aforbes.co.za




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An Authorised Financial Services Provider
SOUTH AFRICA - MAJOR LINES
PROPERTY
The global recession has created a challenging underwriting environment for the short-term insurance industry.

Insurer books have seen subdued growth as clients deal with increasing financial pressure. Risk Management programmes
have also suffered from this pressure and underwriters have found it difficult to obtain the correct price to cover their underwriting
risks. The industry has also experienced considerable increases in the frequency and cost of Property claims, particularly
Property losses reported by Corporate clients. These losses, mainly large fires at heavy industrial risks, wrought havoc on
insurers’ and reinsurers’ underwriting results last year. The perception of insurers now is that Risk Management in the Corporate
sector of the market is becoming less effective and a deterioration in this has been noted over the past three years.

Looking ahead to 2010, the frequency and size of large losses over the last three years will drive home to reinsurers the fact that
they can no longer take a benign view of local Property business. Terms for proportional reinsurance capacity have come under
severe pressure and insurers can expect to pay much more for renewal capacity. This may, inevitably, find its way into premium
pricing terms except on better quality, claims-free risks.

Generally, however, Property rates have so far remained stable. Insurers can benefit from continued rate stability as reinsurers
look to alter the soft market of the last few years but, on larger Corporate business, there may be some hardening as prices
increase in line with scarcer and more expensive capacity for these risks. The merger of Santam and Emerald's corporate
Property books will mean reduced capacity to complete some placings. It will be necessary for Brokers to canvas support from
local and overseas insurers on both pricing and capacity. Brokers will need the skills to carefully structure Property insurance
programmes to optimise participation from these markets.

We can also expect insurers to invest more time and effort in critically examining Risk Management implementation to ensure
that the best risks receive the most capacity at the best available price. The industry is also likely to seek ways of improving the
standard of Risk Management among Commercial clients.




                                                                                                                                 STUART COX
                                                                                                                               Executive Leader
                                                                                                                        Risk Services, Sandton
                                                                                                                          Tel: +27 11 669 3881
                                                                                                                     Email: coxs@aforbes.co.za


CRIME
We reported in July last year that there had been a marked increase in the number and size of general Crime claims. This trend
has continued, resulting in the substantial firming of renewal terms on many risks, by all insurers.

There has been a noticeable turnaround in the loss experience on certain classes and sectors of business. Where, previously,
the more general risks were almost claim-free, these are now far from clean, with losses of all magnitudes being reported.

2009 saw substantial drops in company turnovers and profits in most sectors, resulting in employers having to take corrective
action. This included cutting back on salary and wage increases, with the inevitable hardship to employees, some of whom then
sought alternative methods of 'compensation' at the employer's expense. Labour unions have had much to say in the wage
negotiations, resulting in nation-wide strike action, which itself often leads to further dishonesty.

Insurers are, however, still prepared to negotiate suitable terms for acceptable risks, particularly those with higher retentions or
those in a more 'secure' sector.


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More and more risks are being written on the broader-form Commercial Crime wording, which includes Computer Fraud (as
opposed to the traditional Fidelity wording which is far narrower in scope). This extends now to far smaller risks, where the
insurers are prepared to consider a book of business within a particular range, at comparable rates.

We have seen a few losses recently that occurred over an extended period of time, in which there was collusion between varying
groups of people. Quite understandably, it has taken an inordinate amount of time and research to identify separately (or rather to
link by collusion) the various losses to the company concerned. Such claims are very seldom finalised quickly and insureds
should always be forewarned of this possibility. Insurers are, invariably, reluctant to open their cheque books before some
certainty is reached.




                                                                                     BRIAN GILLESPIE
                                                                                              Consultant
                                                                          Knowledge Centre, Sandton
                                                                                    Tel: +27 11 669 3197
                                                                        Email: gillespieb@aforbes.co.za



LIABILITY
The general Liability market in South Africa remains stable and premiums are still competitive.

As mentioned in our previous edition, a significant development in the Mining sector is the enactment of the new Mine Health &
Safety Act, which has imposed severe penalties (including imprisonment) on the management of a mine, should a blameworthy
accident occur. In line with this, Alexander Forbes has been able to negotiate specific cover in the way of Statutory Legal Defence
Costs that cover the costs of defending a prosecution (including the appeal costs), as well as the costs involved in
representation, investigation and preparation for the enquiry or inquest.

As a result of the amendments to the Road Accident Fund, the need for Motor Liability insurance has, to a large extent, been
removed in that the injured party's common law rights to sue the wrongdoer have been abolished. However, the amendments
are to be constitutionally challenged in the Pretoria High Court. The application is neutral about whether the order sought is to be
retrospective or not. It would, therefore, be prudent to retain generous levels of Motor Liability cover for personal injury to others,
until such time as the validity of the RAF Amendment Act is resolved.




                                                                          SHEILA COLMAN-TURNER
                                                                                        Senior Broker
                                                                              Technical Unit, Sandton
                                                                                 Tel: +27 11 669 3338
                                                                 Email: colman-turners@aforbes.co.za




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An Authorised Financial Services Provider
MOTOR
The insurance industry remains under pressure due to deteriorating loss ratios and, more particularly, very poor underwriting
results on Motor accounts. Even worse off are the Motor stand-alone or Motor-specific insurers, as they do not have the cross-
subsidy of premiums on their book of business from other insurance classes.

Interest rates have been falling and investment income is down, although there are some signs of recovery in these areas. Net
premium alone is not sufficient to generate corporate profits, without achieving underwriting profits on specific classes of
insurance. The main factors driving up Motor loss ratios remain (but are not limited to) as follows -

lInexperienced drivers, increasing new licences and fraudulent licences.
lUninsured    motorists i.e. where loss costs are not evenly spread across insurers and where legal recoveries become a
 fruitless and expensive exercise.
lInsurers are not getting the salvage recoveries due to them or are being paid late due to salvage dealers having cash-flow
 problems or closing down entirely.
 Sums
l insured are being reduced due to increasing levels of depreciation on new and used cars. Motor rates, however, do not
 offset the reduced values, thus insurers have less premium while claim costs increase due to inflationary pressure on labour
 and parts.
lImported vehicles lead to higher claims costs and this is fuelled by more expensive parts and increased down-time to wait for
 spares (involving interim vehicle hire costs).
 Most
l major roads in South Africa continue to have construction works while minor roads are being ignored, leading to higher
 accident frequencies due to inconsistent driving conditions and poor road markings.
 Motor
l industry labour rates and margins on spares are very high in order to offset the ongoing reduction in new vehicle sales.


Current Motor rates and insurance structures seem to be unsustainable going forward and various alternatives are being
explored to return this segment of the industry to break-even and/or profitability.




                                                                                                                               IAN LABRAM
                                                                                                                                    Manager
                                                                                                             Aura Motor, Guardrisk, Sandton
                                                                                                                        Tel: +27 11 669 3161
                                                                                                             Email: labrami@guardrisk.co.za




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SPECIALIST AREAS
CONSTRUCTION PROJECTS

The global financial crisis and economic downturn continue to impact on the plans for large projects in South Africa and
elsewhere. The economic and financial difficulties may last through 2010 and well into 2011.

On the African continent, several very large Projects continue to wait for finance from the World Bank and other Development
Banks.

The impact on South African underwriting managers and/or insurers is also significant in that both investment income and
Project insurance premiums are well down on last year's comparative levels.

This means that, in 2010, either higher premiums will be attempted to compensate or even lower premiums will be charged to
protect existing business from the intense competition for Project business that is still taking place.

For those clients who are able to proceed with their expansion projects, we continue to recommend the Principal Controlled
Insurances path as the best risk and insurance option for managing all Principal, Contractor and Sub-Contractor protection and
cover requirements. This can help ensure that the variety of policies needed will dovetail across Contract Works, Liability, Lateral
Support, Marine Cargo, Professional Indemnity, Performance Bonds and the like.

In the last few years, there have been a number of significant Project losses that have either not been insured or the insurance
has been sub-standard, resulting in the Principal either abandoning the Project or having to find additional funds to complete it.

There is now a worldwide trend of Principals taking charge of their destiny and arranging the required insurance(s) on behalf of all
parties to the contract. In this way, Principals can ensure that those covers arranged in terms of the Contract, provide adequate
levels and scope of cover for their own and other parties' protection.




                                                                                         NEAL HELPS
                                                                                              Manager
                                                                        Construction Projects, Sandton
                                                                                  Tel: +27 11 669 3896
                                                                         Email: helpsn@aforbes.co.za


CONSTRUCTION ANNUAL
The Engineering & Construction market is still soft, with adequate capacity for Construction projects and associated Liabilities.
Some underwriting agencies and insurers have recently concluded their re-insurance treaties and all indications are that
premiums will remain stable for 2010. Independent client claims history, together with a risk control programme, is still important
when insurers calculate renewal terms.

Government/Parastatal Tenders are taking longer to award. There is some focus on Water infrastructure as well as Road
upgrades.

For the duration of the 2010 World Cup, many airports and roads in the vicinity of the soccer stadiums will be “construction-free
zones” and Construction clients will likely need to re-deploy resources elsewhere or suspend them for this period. Despite
abnormally high rainfall in Gauteng, we have not yet seen any major storm-related losses.



                                                                 9
An Authorised Financial Services Provider
More clients with large Construction mobile plant fleets are considering self-insurance structures, where most of the premium is
paid into self-insurance facilities. The upside of this is that less premium is “paid away” to conventional markets. Effective Risk
Management contributes to fewer claims, with self-insurance capacity increasing in the long term, thus becoming less
dependent on conventional markets. Alexander Forbes Risk Finance can assist clients with proposed self-insurance
programmes based on statistical claims analysis models, thereby determining optimal deductible levels as well as adequate
self-insurance structures.




                                                                                                                      HUGO DU PLESSIS
                                                                                                                               Unit Leader
                                                                                                       Construction International, Sandton
                                                                                                                     Tel: +27 11 669 3009
                                                                                                        Email: duplessish@aforbes.co.za




GUARANTEES
The global economic crisis has had an impact on Guarantee insurers who are faced with limited capacity, as well as high costs of
securing reinsurance cover. Reinsurers are still being very selective as to how cover is placed, as the market has not stabilised
enough for additional capacity to become available.

We do, however, expect Construction and Guarantee business to increase during the first half of 2010 due to the stadiums being
finalised for the 2010 FIFA World Cup, specifically for the sub-contractors who will now be tendering for the “finishing touches” at
the stadiums i.e. seating, carpeting, security etc.

South African banks are still encouraging clients to approach insurers for their required Guarantees rather than using available
credit lines, as this will enable the banks to allocate available credit to other operational areas of business.

The moratorium on all new insurance Guarantees issued by the Department of Minerals & Energy still stands. The DME has
honoured and will continue to honour existing insurance Guarantees and will renew these going forward.




                                                                                                                               CHERYL CRICK
                                                                                                                                       Manager
                                                                                                                          Guarantees, Sandton
                                                                                                                          Tel: + 27 11 669 3749
                                                                                                                   Email: crickc@aforbes.co.za




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FOOD & BEVERAGE
The Food & Beverage industry has proven to be fairly resilient during the global economic meltdown.

Although adversely affected by higher input costs, pressure on margins, a strong local currency and pressure on household
disposable income, the industry has demonstrated its defensive nature in difficult trading conditions.

Locally, the industry will be facing a more litigious environment with promulgation of the Consumer Protection Act. Given the
purpose and scope of the Act, an enhanced emphasis on quality control and bio-security will be crucial. In addition, Crisis
Management and Recall plans will also require scrutiny.

2010 might also prove to be the year of consolidation, with significant mergers and acquisitions on the international horizon.

On the insurance market front, international markets appear to have softened marginally, with increased emphasis on Risk
Management.

Locally, markets remain competitive, with adequate capacity for well-managed risks having favourable loss records and formal
Risk Management programmes.




                                                                                            JACO SMIT
                                                                                             Unit Leader
                                                                            Food & Beverage, Sandton
                                                                                   Tel: +27 11 669 3541
                                                                           Email: smitja@aforbes.co.za



METALS & MINERALS
At present, the trading conditions for Mines are very difficult. Most commodity prices have recovered but many Mines are
struggling due to the strong rand. Most clients have reduced their Business Interruption values dramatically, which has resulted
in reduced premiums. Mines are still cutting costs and offering voluntary retrenchments.

Some Mining companies have decided not to purchase insurance, as their balance sheets are usually stronger than their
insurers’ balance sheets and, also, they are price-makers. In the event of a loss, the price of the commodity will increase and the
Mining company can benefit from the loss.

Generally, local insurance markets no longer have an appetite for writing Mining business. The major losses in 2007/2008 have
also seen the introduction of Time deductibles. Mines that have smelters are also facing additional exclusions due to the high
number of smelter losses e.g. no cover for 72 hours after repairs and maintenance have been carried out on a furnace.

Insurers are also more focused on Risk Management and will apply higher Time Deductibles to areas where Mines have not
carried out the necessary risk improvement recommendations. Insurers are also appointing their own surveyors to carry out Risk
Surveys.

With Santam purchasing Emerald Insurance Company, we have one less market to write Mining business. Mutual & Federal will
still provide lead-insurer terms for Mining risks. Chartis, Zurich, Guardrisk and Lion of Africa will usually only provide “follow”
capacity.




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An Authorised Financial Services Provider
IMIU, which is the leading international Mining insurer, can provide capacity but it is not a registered South African market. Clients
and their Brokers need to obtain Reserve Bank approval to place business with them. There are a few major international
insurers and reinsurers that will still write Mining business but we find that they are not as competitive as the local market.

Our challenge for 2010 is to keep existing insurers still interested in writing Mining business and attract new players to the
market.




                                                                                                                      DEBBIE GERAGHTY
                                                                                                                                 Unit Leader
                                                                                                               Metals & Minerals, Sandton
                                                                                                                       Tel: +27 11 669 3459
                                                                                                           Email: geraghtyd@aforbes.co.za




POLITICAL RISKS
Projects around the world remain hard hit by the global economic crisis. Africa particularly has been affected as the once
“hungry” developed nations have suspended and even cancelled projects in and around the Continent.

However, there is now a renewed interest in reviving these projects and underwriters are again being asked to re-examine their
appetite for Political Risks business around the world. Madagascar still remains a problem as markets adopt a wait-and-see
approach to the political unrest in the area.

Capacity for most other countries is proving to be no problem.

Cover is available for Political perils relating to confiscation, expropriation, nationalisation and a host of other acts by host country
governments.

We are pleased that we are now, on a limited basis, able to place Political Risks cover for Zimbabwe once again. It appears that
2010 may see significant growth on this front!




                                                                                                                            TRACY DE KOCK
                                                                                                                                      Manager
                                                                                                                      Political Risks, Sandton
                                                                                                                        Tel: + 27 11 669 3485
                                                                                                               Email: dekockt@aforbes.co.za




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CREDIT
Domestic
2009 was an incredibly difficult year for most businesses. Sadly, South Africa was not immune to the challenges faced globally
and this is evident by the increase in liquidations experienced during the year.

As far as 2010 is concerned, we are starting to see a slightly positive turn in business but are not expecting this to be stronger until
the middle to latter part of 2010. Businesses have started monitoring their Debtors management far closer than in the past and
reporting on accounts that are overdue is now often reviewed at executive level.

The cost of purchasing cover for Debtors insurance remains relatively high as insurers face tough challenges in securing
reinsurance at competitive terms. Claims remained high in 2009 but the number of overdue accounts seems to be subsiding to
an extent.

January and February are critical months in terms of Debtors being able to make payment for goods purchased in December.
The number of returns to suppliers will be closely monitored to provide a more accurate assessment of what the first and second
quarter of 2010 will bring.

Export
After a very tough first quarter in 2009, with many large claims being experienced, the export market has stabilised for the most
part, with many local clients having established business relationships and not being overly aggressive in trading with new
partners. Many foreign companies experienced issues with credit lines being withdrawn or downscaled to the point where
payment to their creditors became a struggle.

Obtaining Credit cover to trade abroad is still challenging, as many international credit rating agencies and information bureaux
struggle to update information on companies. Financial statements and business assessments on file for 2008, do little to
provide comfort or enough insight into whether these companies have weathered the global economic downtown and are still
considered a “blue chip” credit risk.

Credit insurance remains in high demand as companies remain cautious when dealing with both domestic and export trading
partners.




                                                                                    BRIDGETTE WOOD
                                                                                               Unit Leader
                                                                         Credit & Political Risks, Sandton
                                                                                    Tel: +27 11 669 3057
                                                                           Email: woodb@aforbes.co.za


FINANCIAL INSTITUTIONS

As predicted in our July 2009 edition of World Market Watch, we have now seen increases in rates across the board for
Financial Institutions insurance products. Hardest hit were Banks, where rates on the Bankers Blanket Bond product have
increased by up to 25%. The rate increases followed the catastrophe-type financial losses suffered by international Financial
Institutions during the latter part of 2008 into early 2009. Re-insurers increased their renewal terms for direct insurers and these
increases were passed on to consumers.

In addition to increases in rates, we have also seen major cuts in capacity, especially in the Lloyd's market. Securing available
capacity on major risks will add to the cost of insurance.

Terms for other Financial Institutions groups have not increased to the same extent as Banks but the general trend is for rates to
increase.
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An Authorised Financial Services Provider
Customers with poor claims experience are particularly penalised with increases (in addition to the overall market increases)
and, in many cases, clients have had no option but to increase the deductibles under their insurance programmes in order to
continue with acceptable policy limits.

There is no light at the end of the tunnel. Lloyd's discuss renewal terms on their catastrophe re-insurance programmes during
December each year but the extent of increased terms was not finalised at the time of going to print. We do expect, however, that
the reinsurance programmes will not increase to the same extent that they did in January 2009.

Risk Management is of major importance as Crime and Fidelity losses are definitely on the increase. These losses will not
escape the attention of insurers and will add to insurance costs over the long term.

Our short-term prediction on terms for Financial Institutions is that the RSA insurance market will follow international market
increases during 2010 and that rates will continue to rise.




                                                                                                                       GEORGE TROLLOPE
                                                                                                                                    Unit Leader
                                                                                                               Financial Institutions, Sandton
                                                                                                                          Tel: +27 11 669 3712
                                                                                                              Email: trollopeg@aforbes.co.za


DIRECTORS & OFFICERS LIABILITY
2009 was, without doubt, an exceptionally turbulent year in the D&O arena, with the following issues frequently dominating the
headlines -

lchanges in legislation.
lcontinuation of litigation related to the credit and sub-prime crises.
lincreases in class-action and securities law suits.
 new
l local and international Ponzi schemes.
ltightening of governance requirements.

The year was not all doom and gloom though. Locally, we had some favorable developments, the most notable being the launch
of new policy forms by two of the larger product suppliers. These new wordings reflect a move towards a cleaner look-and-feel,
with user-friendly language and numerous enhancements. It has become evident that, with all local forms being fairly generic
from a base coverage perspective, the value of enhancements and lessening of exclusion language are meaningful coverage
differentiators.

Price remains an important factor in this line of insurance. Local terms have been very resilient despite an anticipated hard
market cycle which has yet to develop. In terms of well-managed risks with favorable claims records, the predictions of nominal
increases across the board (with more notable cost increases in the Financial Institutions D&O arena), have been downgraded
to unaltered terms from a general commercial D&O perspective and to nominal increases in the FI D&O sector.

Actual D&O policy coverage is one area where the anticipated hardening did come through. Despite unaltered pricing, many
local and international insurers dealt with the tough market cycle by imposing policy restrictions, with additional premiums
required to reincorporate excluded coverage.

There was also a marked increase in the cost of Excess Layer insurance, in particular Side-A Difference in Conditions cover.
The claims results in the past 18 months have been substantial enough to drive up the costs of what were previously considered
“low cost, low risk” layers.


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2010 comes with its own set of challenges wide of normal price and coverage issues. We are already aware that attention will
need to be paid to those concerns surrounding promulgation of the new Companies Act and the increased burden of duty and
responsibility that this will place on Directors and Officers. King III will also come into play, highlighting the importance of
adequate and ethical control of businesses. Together, these factors will bring into sharp relief the importance of adequate
insurance protection for the individuals tasked with caretaking businesses on behalf of all affected stakeholders.




                                                                                           ANGELA JACK
                                                                                                Unit Leader
                                                                              Directors & Officers, Sandton
                                                                                      Tel: +27 11 669 3537
                                                                               Email: jacka@aforbes.co.za




PROFESSIONS
There have been many changes in the Professional Indemnity (PI) market over the last few years.

We now have nine local industry-specific or Excess Layer insurers, which has led to stiff competition. It has produced a rate war
in certain Professions and some clients continue to pay less premium for the same cover as last year and, in some instances, are
paying less for higher limits. The cover provided by the different insurers has also been enhanced, with many PI insurers
attempting to differentiate themselves through their policy wordings rather than by lower rates.

The basic principle of a PI policy remains to indemnify the insured against their legal liability to pay compensation for damages
(including costs and expenses), arising directly from any negligent act, error or omission in the performance of their professional
duties in the course of business. However, we continue to see more Extensions being offered, often at no additional cost e.g.
Breach of Confidentiality, Loss of Documents, Statutory Defence Costs, Rectification Costs, Defamation and Injuria, to name a
few.

A full comparison of cover versus cost is vital if the insured entity is to be provided with optimal cover for its particular needs.




                                                                                       MARNELLE WARD
                                                                                                Unit Leader
                                                                                      Professions, Sandton
                                                                                      Tel: +27 11 669 3382
                                                                              Email: wardm@aforbes.co.za




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An Authorised Financial Services Provider
FUND TRUSTEES INDEMNITY
During the last twelve months, there has been a marked increase in the number of claims lodged by Funds in terms of their
Fidelity and Trustees' Indemnity covers. As a result, some insurers have increased their renewal rates by up to 25%.

The claims are a consequence, in some measure, of the recent global economic downturn, which has caused many Funds'
assets to diminish. While some Funds' assets have shown growth, many have seen shrinkage of up to 20% over the past twelve
months. Trustees are also more aware of oversight by the Financial Services Board in the person of the Pension Fund
Adjudicator who, prior to her recent departure, had been firm in her adjudications, giving Trustees little sympathy.

Fidelity claims have accounted for many millions of the total frauds perpetrated by employees of the Funds and of their Service
Providers. Recovery processes are, of necessity, lengthy due to the sensitivity of the actions to be instituted under subrogation
and are complicated, in certain instances, by collusion between the guilty parties.In some cases, recovery is ultimately
impossible due to the persons involved having no recoverable assets, having squandered their ill-gotten gains by the time the
insurers are in a position to sequestrate. This, invariably, exacerbates the situation as insurers have by this time incurred not
inconsiderable costs, which merely adds to their loss. Insurers are being actively encouraged to institute subrogated recovery
action without delay, in order to improve their chances of a successful recovery.

Claims following Negligence (wrongful acts) have been many and varied, although are usually not as large as losses following
Fraud. These usually arise from less than efficient work by Service Providers in their registration of new members, withdrawal
benefits and payment of death claims without properly identifying all beneficiaries. These claims are, however, recoverable from
the Service Provider to the extent, of course, that their liability is not limited in some way and assuming they are still in operation.

There have been some failures of Administrators, leaving Funds in somewhat precarious positions due to their being unable to
reconcile or reconstruct records without incurring considerable cost. It is not uncommon for Funds to claim for these costs, not
being aware that indemnity following other than Dishonesty requires a claim to be made against the Fund. If no such claim is
made, the policy is not triggered and Funds are somewhat disillusioned when indemnity is refused.

A similar situation exists following Negligence losses. There have, in fact, been a few incidents notified following incorrect
distribution of Surplus Funds (not counting those that have been siphoned off dishonestly). If no member claims from the Fund or
from the Trustees, the policy is not triggered.

Very close contact is always necessary and is maintained with Funds that report any type of incident, whether following Fraud or
Negligence, as expert guidance is needed.




                                                                                                                      BRIAN GILLESPIE
                                                                                                                               Consultant
                                                                                                       Fund Trustees’ Indemnity, Sandton
                                                                                                                     Tel: +27 11 669 3197
                                                                                                         Email: gillespieb@aforbes.co.za

ACCIDENT & HEALTH
The Accident & Health market has continued to grow steadily over the past six months, with some specific elements contributing
to this, namely -

2010 World Cup
With the contentious issues surrounding Passenger Liability insurance, we have been asked by numerous Tour operating
companies to provide Personal Accident cover for visitors arriving on our shores for the 2010 Soccer World Cup.

There is also a host of local and foreign voluntary workers who will be involved in the organisation of the World Cup and we have
been asked to provide Personal Accident cover for these volunteers.

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Professional & Amateur Sports Insurance
There is a growing need for specialised insurance in respect of individuals who participate in sports on an amateur or
professional basis. The focus is on Permanent Disablement, ensuring that the benefits are in line with what the financial impact
could be for those individuals for the rest of their lives.

Road Accident Fund Amendment Act
The impact of the highly publicised amendments to the Road Accident Fund Act continue to have a positive impact on the
Accident & Health market with companies, individuals and families realising that they need to take out additional Personal
Accident cover to safeguard themselves against the cost of disabling injuries. There is a lot of focus on providing Disability
insurance for dependent children, as this is generally a consideration not taken into account when individuals do their financial
planning.

Low-cost Employee Benefit Structures
There has been substantial growth in the SME market segment, where companies are starting to provide short-term insurance
Employee Benefits to staff, where there is no Retirement Fund structure in place or where companies previously provided no
benefits to staff. Premiums are affordable in the A&H market and add tremendous value to the employer and their employees.

Travel Insurance
The corporate and individual Travel market is very active, with awareness of the necessity for this form of insurance growing day
by day. Last year, more than 5 000 South Africans travelling overseas required assistance getting home because of injuries or
illness suffered abroad. ACE Insurance Company has emerged as a new market in corporate Travel insurance and will have
online systems to provide comprehensive summaries of cover to Embassies, where a visa is required. Chartis, TIC and Regent
write most of the Travel insurance in the South African Market, with few variations in the comprehensive coverage they each
provide.




                                                                                DAVE HONEYMAN
                                                                                         Unit Leader
                                                              Accident & Health, Guardrisk, Sandton
                                                                               Tel: +27 11 669 3239
                                                               Email: HoneymanD@Guardrisk.co.za


KIDNAP & RANSOM
Kidnap for ransom remains a common occurrence in various parts of the world today and certain cities and countries are often
described as the “Kidnapping capital of the World”. Since 2008, that title has belonged to Baghdad but in 2004 it was Mexico and
in 2001 Colombia. Latin American countries, in general, have frequent kidnappings, as do certain parts of Africa (Nigeria).

Kidnap comes in many forms and shapes including -

Traditional Kidnap: taking hostage one or more persons to be released against payment of a ransom.

Express Kidnap: a method of abduction used in some countries (mainly Latin America and also South Africa) where a small
ransom is demanded that a company or a family can easily pay.

Tiger Kidnap: taking a hostage to order a loved one or an associate of the victim to do something criminal e.g. to force a
shopkeeper to open the safe. The term originates from the unusually long preceding observation, like a tiger on the prowl.

Piracy: taking control over a ship and its crew through criminal violence at sea and committed by private parties with the aim of
demanding a ransom for the release of the vessel and crew.



                                                              17
An Authorised Financial Services Provider
It is very difficult to come up with Kidnap statistics as it is estimated that more than 70% of all Kidnaps are never reported. There
is, however, a clear indication that the number of worldwide Kidnaps has increased again against previous years’ figures.

The increasing and more high-profile problems of Kidnap for ransom cause companies and individuals to be more pro-active in
trying to prevent incidents. In particular, our K&R policy could benefit companies if they -

loperate overseas.
 send
l executives and employees overseas on business.
lconduct business in high-risk areas such as Latin America, Asia and the Middle East.
 are
linvolved in reconstruction projects in Iraq and/or Afghanistan.




                                                                                                                        WALLY THOM
                                                                                                                            Consultant
                                                                                                 Accident & Health, Guardrisk, Sandton
                                                                                                                  Tel: +27 11 669 3089
                                                                                                      Email: ThomW@Guardrisk.co.za


MARINE HULL
The local Marine Commercial Hull market is stable at present. We have, however, seen underwriters rewarding certain claim-
free accounts with slight rate reductions. It has also been encouraging to see some underwriters expanding the scope of cover
they are prepared to provide.

As you would expect, clients with poor loss records are seeing their rates and/or their deductibles increase. In certain instances,
insurers are looking to reduce their risk by restricting the scope of cover e.g. excluding machinery breakdown or theft from
harbours where there is a lack of security.

As with other classes of insurance, there is a significant and growing focus on Risk Management. Clients with better overall Risk
Management in place (i.e. scheduled and recorded maintenance programmes, safety and security programmes etc) are seeing
the benefits by way of reduced rates.

Several insurers are also taking a more active role in understanding the risks they are underwriting by requesting and paying for
Condition Surveys on the risks they write. Previously, surveys were only requested on older vessels (over 10 years of age) and
the cost of the survey would be for the client's account.

As regards the Protection & Indemnity (P&I) market, general increases have been announced by the Mutual Clubs (insurers) that
make up the International Group of P&I Clubs. These increases range from no increase up to 12.5% with the majority of Clubs
opting for a 5% increase. In addition to the general premium increases, a number of Clubs are also intending to impose various
deductible increases at renewal, as part of their overall general increase.

Fixed premium P&I insurers, who do not form part of the International Group, will typically not impose a general increase but will
rather rate each client on its own merits.




                                                                                                                           GRANT FUGARD
                                                                                                                                  Unit Leader
                                                                                                                     Marine Hull, Cape Town
                                                                                                                        Tel: +27 21 401 9883
                                                                                                               Email: fugardg@aforbes.co.za
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MARINE LIABILITIES

The appetite for writing Marine Liabilities in South Africa is very limited. Those local insurers who do provide cover for this type of
risk either restrict the cover or provide negligible limits of indemnity or simply front for an overseas market. As a consequence,
most enquiries that are sent to Alexander Forbes are negotiated directly with the London market.

The types of business operator who have a need for this cover are mainly ports, terminals, shipyards, freight operators,
stevedores and shipping lines. Many of these businesses have been at the coal-face of the global economic recession and
turnover and throughput has decreased considerably.

With the decrease in overall revenue in this sector, along with a reduction in investment income, insurer profit margins have
decreased. Underwriters in this class of business are, therefore, restructuring underwriting practices by reducing their
exposures and reviewing their overall rating structures. In fact, in the United States, there have been some insurers who no
longer write this class of business as it has simply become unprofitable for them.

The consequence of this is that there is potential for US-based Liability accounts to look to the London and European markets to
underwrite their exposures. In the UK, the TT Club has made certain strategic realignments with regard to the risks that they are
prepared to write. Specifically, their strategy for the 2009-2011 underwriting years will be to reduce their exposures to property
catastrophe aggregations.

Handling equipment and bodily injury claims in ports and terminals have been increasing year on year. This is a trend linked to
human error through lack of training and expertise in this field of business. Of concern, over and above the Liability claims arising
from human error, are the significant claims caused by catastrophic weather conditions. Unfortunately, it appears there will be an
increasing trend in losses of this nature going into the future.

Swiss Re has estimated that 2008 was the second costliest year in insurance history (after 2005), with catastrophe losses alone
exceeding US $ 50 billion and the fourth worst since 1970 in terms of human casualties (Courtesy Annual Results 2008 -
Chairman's Review TT Club).

The consequence of these claims is that there has been a negative impact on the International Group's reinsurance programme.
No doubt, the result of this will be increases in reinsurance premiums going forward into 2010.

2010 will most likely see an overall firming in Marine Liability market conditions, with increases in rates and reductions in
indemnity limits. Regardless of this more conservative underwriting environment, the Marine Liability market in London remains
secure.




                                                                                           JULIA BLAIN
                                                                                                 Manager
                                                                              Marine Liabilities, Sandton
                                                                                    Tel: +27 11 669 3505
                                                                             Email: blainj@aforbes.co.za


MARINE CARGO
There were no major Marine Cargo losses in 2009 affecting South African clients e.g. large vessels sinking or declarations of
General Average.

The biggest Marine issue of late continues to be piracy in the Gulf of Aden producing delays in the delivery of some goods. While
this may not impact on the Marine Cargo insurance market as such (Delay is a Marine policy exclusion), it does affect the
importers of delayed goods who may experience Contract cancellations and/or fines or penalties for breach of Contract arising
from such delays. The counter to this, where possible, is to import earlier thus building in some provision for unscheduled delay
risks.
                                                                 19
An Authorised Financial Services Provider
There has also been a drop in the volume of South African imports and exports due to the global economic downturn, which
means a corresponding reduction in premium volume for the Marine Cargo insurance market. This situation is, however,
gradually changing for the better.

Additional competition from the London market has further increased the pressure and South African clients are, therefore, still
enjoying the benefits of somewhat competitive Marine market conditions.




                                                                                                                      KENNEDY NTENJWA
                                                                                                                                  Unit Leader
                                                                                                                     Marine Cargo, Sandton
                                                                                                                        Tel: +27 11 669 3056
                                                                                                             Email: ntenjwak@aforbes.co.za


PRIVATE TRANSPORTATION
Our Private Transportation Unit focuses on insurance for companies involved in Freight, Logistics, Haulage, Courier Services,
Fleet Management, Motor Trade and the like. We deal with all classes of insurance but with special emphasis on Vehicle
insurance.

The insurance market continues to levy higher premiums to insure vehicle fleets, especially trucks, buses and Motor Traders'
internal and external risks. Clients that implement good Risk Management and self-insurance, by way of aggregates and high
deductibles, still benefit from relatively low increases in their Vehicle insurance costs.

The deterioration of our national and provincial roads and the ever increasing number of vehicles on our roads continues to
produce more frequent and more expensive accident occurrences.

Our focus for the next twelve months is to strengthen our relationships with insurers and ensure that we offer the best insurance
solutions to our current and prospective clients.




                                                                                                                              MONIKA UREN
                                                                                                                                  Unit Leader
                                                                                                             Private Transportation, Sandton
                                                                                                                        Tel: +27 11 669 3479
                                                                                                                Email: urenm@aforbes.co.za


AVIATION
In July we reported that, following the losses posted in 2007 and 2008 and the wake-up call of some costly airline accidents in
2009 (including the unsolved mystery of Air France 447 and the Yemeni Airbus A 310 loss in the Comores), there were serious
and largely successful attempts by the market to drive rates up to profitable levels. Airline renewals in the first two quarters of
2009 were hit with modest rate increases of 5% to 10%.




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With hindsight, those airlines were fortunate because the market continued to harden and, in the second half of the year, “take it
or leave it” increases greater than 20% were becoming the norm even though, being applied to a low base, the premium levels
had not yet returned to where they were pre-2007. Still, this comes as bad news for carriers and air travellers alike in an already
depressed and recession-plagued industry, because the increase in insurance cost has to be passed on to passengers.

As 2009 ended, the problem was fuelled by more losses in the form of a wide-body Zimbabwean registered MD 11 freighter crash
in China, the American Airlines Boeing 737 runway excursion in Jamaica (a write-off but fortunately with no passenger
casualties) and, closer to home, SA Airlink suffering (in quick succession) the total loss of a Jetstream 41 in Durban, followed by
serious damage to one of their Embraer jets which over-ran a wet runway on landing at George in December. There is also the
recent Ethiopian Airlines flight 409 crash in the Mediterranean Sea.

Insurers breathed a collective sigh of relief at the news on Christmas Day 2009 of the unsuccessful terrorist attack on a
Northwest Airlines Airbus A 330 from Amsterdam on approach to Detroit, with 301 passengers and crew. The chilling reality,
however, is that there is no room for complacency because, in spite of the strict post 9/11 security measures employed these
days at airports worldwide (also paid for by the travelling public) and intelligence monitoring, terrorists still see commercial
airliners as attractive and feasible targets and will exploit any weakness in airport security to sabotage them.

The South African market carries only token shares of the Airline sector exposures, since the lack of capacity for the substantial
Liability limits (typically greater than US $ 500 m), means much of this business finds its way into international markets, mainly
London, directly or by way of reinsurance.

The remainder of SA-based business is “General Aviation” (GA) being light aircraft, private craft, training planes, small turbo
props and plenty of helicopters. A recently published analysis of SA aircraft accidents by Des Barker, revealed some alarming
statistics highlighting the unacceptable state of GA safety but, typically, there is no single thread. The problems are widespread
through ageing aircraft, inadequate maintenance, poor training, pilot attitudes, commercial pressure, failure to observe basic
regulations, weather and operating conditions.

Repair costs in SA continue to escalate but, while the phase of reckless underwriting witnessed in the past 2-3 years appears to
be over, GA premiums are for the time being remaining static except, perhaps, in traditional high-risk sectors like helicopters,
basic training and experimental (so called non-type certificated, vintage or “kit-planes”).

The reason is over-capacity. Two new local insurers entered the SA market in 2009 and can be expected to attempt to build up a
book of business which they hope, even if more by luck than judgment, will be profitable. If it is not, they will at least have a base to
work on for increasing income as the policies come up for renewal, if they can hang on to them. The irony is that these competing
SA markets have reinsurance treaties with much the same international reinsurers.

Several well-known underwriters in the SA market hopped companies as investors observed opportunities to grow marketshare
and improve service levels. Meanwhile, as there is hardly any new business, the over-traded local market will continue to ensure
that existing business will move around, generally ending up with the lowest bidder. Very different to London, which is in a more
cohesive survival mode and can afford to adopt the “take it or leave it” approach.

The danger of the lowest bidder approach is that, at these low premium levels, there may be subtle but important cut-backs in
coverage and, worse still, in the face of deteriorating loss statistics, a tendency for insurers to find ways out of paying claims. You
“get what you pay for” as the saying goes and GA operators would be wise to think twice about the cheapest deal.




                                                                                      CHRIS READMAN
                                                                                              Unit Leader
                                                                                     Aviation, Cape Town
                                                                                    Tel: +27 21 401 9878
                                                                         Email: readmanc@aforbes.co.za


                                                                  21
An Authorised Financial Services Provider
ENERGY
Prior expectations that the Energy market terms would harden going into 2010 have not materialised, following a mild claims
experience over the past year. Where markets were previously looking to push for increases of double figures, we have seen flat
or reducing terms with plenty of available capacity, provided a client's individual claims experience has been reasonable.

Investigations and pilot projects into alternative Energy sources are multiplying, despite the competitive oil price. This has been
assisted in South Africa by the National Energy Regulator of South Africa's approval (in October 2009) of the Renewable Energy
Feed-In Tariffs (REFIT) for the following technologies - wind, small hydro, landfill, gas, methane and concentrated solar plant
parabolic trough with storage.

The approval of the second phase of REFIT is a major milestone in creating an enabling environment for achieving the
Government's 10 000 GWh renewable energy target by 2013 and sustaining growth beyond the target. The basic economic
principle underpinning the feed-in tariffs, is the establishment of a tariff that covers the cost of generation plus a "reasonable
profit" to induce developers to invest.

Overall, the Energy insurance market remains challenging and diverse but, in the main, this is due to the diversity of new risks
that are being encountered, with alternative energies and processes being introduced.




                                                                                                                      JAMES SHEPHERD
                                                                                                                               Unit Leader
                                                                                                              Energy Projects, Cape Town
                                                                                                                     Tel: +27 21 401 9880
                                                                                                           Email: shepherdj@aforbes.co.za


RISK ENGINEERING
There is no doubt that, apart from minimising one's risks for the sake of the business itself, both local and overseas insurance
markets tend to further reward better-managed risks with lower premiums, lower deductibles, increased limits and/or enhanced
cover terms and conditions.

While Enterprise-Wide Risk Management is the more general application, some of our specialised services include
(alphabetically) -

      -      Business Continuity Management: Strategic plans for continuation after a major damage event.
      -      Contract Reviews: Prior review of the many risks inherent in new contracts.
      -      Corporate Compliance: Assistance in compliance with key Statutes and King III.
      -      IRIS Thermography: Thermographic inspections of structures for cracks or weaknesses.
      -      Maximum Loss Surveys: Material Damage and Business Interruption maximum loss exposures.
      -      Post Loss Surveys: Surveys to determine what went wrong, to help avoid any future losses.
      -      Risk Rating: Alpha-numeric classification of specific risks according to scientific criteria.
      -      Training Courses: We offer various Risk Management Training Courses for companies.
      -      Underwriting Surveys: Specific underwriting surveys for insurance markets.



                                                                                                  22
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When risk (inevitably) arises, disaster need not necessarily follow - particularly where precautionary measures have been put in
place and these continue to be well managed.




                                                                                      LESTER BOTHA
                                                                                        National Leader
                                                                            Risk Engineering, Sandton
                                                                                  Tel: +27 11 669 3601
                                                                          Email: bothale@aforbes.co.za



RISK FINANCE
The second half of 2009 saw a hardening of rates in South African and international insurance markets on some risks and
classes of insurance.

At renewal, several insurers imposed greatly increased deductible structures on particular insureds. This was the case even in
the absence of claims over a number of consecutive historic years, often combined with double-digit increases in rates. As a
result, specific clients have sought ways to reduce their dependence on conventional insurance structures, particularly those
clients with more favourable claims experiences.

As always, insureds who have prudently implemented Risk Financing structures over the years to build capacity for such an
event, have been much better placed to absorb the effects of this market development. Those who have not embarked on this
course of action in the past, may well now consider these options, subject to affordability constraints, given the current economic
environment.

As some market rates continue to increase, the opportunity exists for those with robust Risk Finance reserves to take a close look
at the possibility of participating on the lower levels of conventional risk transfer, thereby moving the conventional insurer further
away from the risk and thus facilitating negotiations for premium reductions. With a payback period of approximately five years,
the Risk Financing/Alternative Risk Transfer (ART) option creates a significant opportunity for those with available capacity in
their captives and cell captives, to absorb such potential losses and ride the current cycle to its conclusion.

A further increase in the growth of ART insurers and a further impetus in trends towards the placement of programmes via captive
type arrangements can be expected, as insureds seek cover for risks that were previously uninsurable, difficult to insure or did
not form a significant portion of their insurance programmes.




                                                                                            LIZA MARÉ
                                                                                             Unit Leader
                                                                                 Risk Finance, Sandton
                                                                                   Tel: +27 11 669 3800
                                                                            Email: marel@aforbes.co.za




                                                                 23
An Authorised Financial Services Provider
LOSS SOLUTIONS
A much harder line is being taken by many insurers when a major loss and claim is reported.

In some scenarios, there may be a significant delay in admission of liability while the insurer's investigation team carefully
evaluates the chain of causation producing the claim. The team could involve their loss adjuster, legal representative, forensic
investigator, forensic auditor, quantity surveyor, specialist engineer and so on. In addition, the insurer's Claims Department will
be examining policy conditions to make sure everything has been complied with by the insured entity prior to the loss taking
place (e.g. compliance with municipal by-laws and the like).

Reinsurers too may want to be independently represented and may appoint their own team to participate in the investigation.

Once liability is established and admitted, the aspect of quantum of the loss will most likely undergo similar rigorous
investigation. The various co-insurers or Lloyd's syndicates involved will also need to be brought on side and even they may
have some queries of their own to first be clarified.

Loss Solutions fits in to all this as the client's pro-active specialist representative, to ensure that liability is admitted timeously
and that loss quantum is concluded more favourably for our client.




                                                                                                                               PETER COOK
                                                                                                                                   Unit Leader
                                                                                                                     Loss Solutions, Sandton
                                                                                                                         Tel: +27 11 669 3818
                                                                                                                  Email: cookp@aforbes.co.za




BLACK ECONOMIC EMPOWERMENT
Based on our Level Three Contributor status as per the DTI Codes of Good Practice on Broad-Based Black Economic
Empowerment, we continue to invest the necessary resources to sustain and improve our B-BBEE rating of Level Three.

Transformation forms part of our business strategy and objectives to ensure that we realise growth and it promotes equal access
to opportunities within South Africa. The following areas highlight some of the pillars where priority is given to ensure that AFRS
achieves or stays on track in terms of retaining our B-BBEE Level Three rating -

Preferential Procurement
Measurement of this element is based on how we spend on BEE-compliant suppliers. The scorecard under this pillar requires
the company to procure from Qualified Small Enterprises, Exempted Micro Enterprises, Black-owned and Women-owned
Enterprises. To ensure that we spend appropriately and receive a good score, we have engaged in a process of verifying all our
suppliers B-BBEE status.

Enterprise Development
AFRS has contributed to the empowerment of disadvantaged black-owned Panelbeaters through its Adopt-A-Panel-Shop
initiative. We have reached our Enterprise Development target at 3% of our NPAT (Net Profit after Tax). The funds were spent to
upgrade two start-up panel shops in KwaZulu-Natal. Those are Umsunduzi Panelshop & Spray Painters and Scratch Mobile
Durban, increasing their service levels to conform to the Motor Body Repair standards and to be competitive.



                                                                                                  24
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We remain committed to transformation of our business and society. Dedicated teams are tasked to ensure that we remain in the
forefront with regard to meeting our targets and beyond.




                                                                                        ERROL MASINGA
                                                                              Transformation Co-ordinator
                                                                                   Risk Services, Sandton
                                                                                      Tel: +27 11 669 3450
                                                                           Email: masingae@aforbes.co.za




COMPLIANCE
With the enactment of the Financial Advisory & Intermediary Services Act (FAIS) in 2002, it was then (as it is now) the Minister's
intention for the Act to provide for consumer protection and for the Financial Services industry to evolve into a fully fledged
“profession”.

This was met with some scepticism by some members in the industry, with statements like “What are you worried about? FAIS is
like the mists of time, it will simply fade away” Another stated, “They have been trying for years to professionalise this industry, it
will never happen”.

As it transpired, while the Financial Services Board (FSB) has, in the intervening years, been quite active in auditing various
service providers and in taking action against delinquent members of the industry, the professionalisation of the same seemed to
have been left “simmering on the back burner”, with the accreditation date for Representatives and Key Individuals seemingly
being postponed each time the deadline was reached.

This was all until October 2008 when the new FAIS Fit & Proper Determination was issued. On its issue, the Registrar made it
absolutely clear that the new deadline dates in this Determination would not be extended again and that failure to meet the
requirements of the legislation would result in Representatives and Key Individuals having to be “de-listed” as such at the FSB.
This set off a flurry of activity in the industry with Representatives and Key Individuals who had neglected to attain formal
qualifications now taking “corrective action”.

The whole industry is now set on course to write new Regulatory Examinations from 2010 onwards (which I regard as akin to
Board examinations) in its professionalisation effort. For those working in the industry now, this is all to take place by the end of
2013, whereupon each person working in this industry as a Representative or Key Individual will have embarked on (or be
embarking on) a Continual Professional Development programme, to ensure that they keep up to date with new trends and
developments pertinent to the statutory Categories for which they are licensed.

2009 also saw the issue of the new King III Code of Governance. Those of us who have had an opportunity to work our way
through it, will tell you that there is a lot to do for those companies who may have paid scant regard to King II or other governance
codes of conduct.

Looming on the horizon too are the new Companies Act, Protection of Personal Information Act and Consumer Protection Act
(besides others). 2010 also sees the probable launch of a new Board Notice relating to “Treating Customers Fairly”, with which
all Financial Service Providers will have to comply.




                                                                 25
An Authorised Financial Services Provider
Perhaps (somewhat suddenly for some of us), the following section of the FAIS General Code of Conduct has new meaning
now -

             12 Specific Control Objectives. A provider excluding a Representative, must, without limiting the generality of Section
             11, structure the internal control procedures concerned so as to provide reasonable assurance that:

                          (c) all applicable laws are complied with

or, as our new Minister of Finance recently said in Parliament (when speaking about Compliance in business) -

                          “It is not business as usual..!”

There is absolutely no doubt that the role of the traditional FAIS Compliance Officer in 2002, has now expanded to one
encompassing various areas of Corporate Governance and Risk Management and it is true to say that what was “usual” or
acceptable in business then, will be very different in five years time - starting from this important “watershed” year.




                                                                                                                                             BOB PITOUT
                                                                                                                                   Unit Leader
                                                                                                          Compliance, Risk Services, Sandton
                                                                                                                         Tel: +27 11 669 3743
                                                                                                                Email: pitoutb@aforbes.co.za




                                                                                                  26
Alexander Forbes Ltd. Permission is given to Alexander Forbes clients to copy. No permission to modify the content or redistribute to third parties without prior written consent from Alexander Forbes.
SOUTH AFRICA - MARKET RESULTS

                                    RSA Market Results Stats - Summary as at 31 December 2009
                                          (Based on latest available annual STAR returns to the Registrar/FSB)

Year   Mth       Insurer            Gross              Net             Earned          U’writing      Net income       Claims incurred U’writing result       Total         Net Surplus     Solvency
                                   Premium          Premium           Premium           result         after tax        to premiums     to premiums          Assets           Assets         Margin
                                                                                                                          earned %        earned %

2008    12   Santam              12,172 11,135     11,136 10,115    10,895   9,818    567    318     1,529    2,537       68      69        5       3     11,335   11,481 3,932    3,982   35%    39%

2008    12   M&F                  7,400    7,721   6,874   7,288     6,855   7,262    -265   282         54   1,051       72      66       -4       4     5,125    6,089 1,236     1,797   41%    25%

2008    12   Zurich               4,834    3,964   4,040   3,364     3,973   3,347     -43   101      200      282        75      73       -1       3     3,496    2,990     910   1,030   43%    31%

2008    06   Hollard              4,385    4,478   3,591   3,176     3,518   3,105     64    174      321      244        60      50        2       6     4,900    4,795 1,972     1,795   45%    41%

2008    06   Outsurance           3,463    2,892   3,193   2,678     3,187   2,651    775    700      775      561        54      52       24      26     3,177    2,303 1,396      678    44%    25%

2008    03   Guardrisk            3,031    2,743   2,179   2,037     2,088   1,802     52     93         49     64        50      40        2       5     3,387    3,149     716    629    33%    31%

2008    12   ABSA                 2,729    2,301   2,406   2,061     2,344   1,998    140    231     1,340     383        70      62        6      12     3,318    3,203 1,357     1,454   56%    71%

2008    06   Auto & General       2,615    2,266   1,269   1,117     1,288   1,117    187    101      147      100        65      79       15       9     1,086       888    379    324    30%    29%

2008    12   Centriq              1,844    1,367   1,206    864      1,245    858      78     14      233      125        71      76        6       2     2,561    2,022     281    248    28%    29%

2008    06   Regent               1,719    1,885   1,449   1,516     1,258   1,323      -1    78       -74     111        79      66      -18       6     1,852    1,724     241    371    25%    25%

2008    11   Chartis (AIG)        1,531    1,280     371    312       343     297       -2     6         35     34        62      66       -1       2       660       641    186    154    50%    49%

2008    08   Constantia           1,312    1,641     205    261       211     222       9      5         14     15        71      82        4       2       265       246    106     68    41%    25%

2008    12   Compass               796      668      205    167       199     168      18     19         20     22        64      62        9      11       303       239     54     60    26%    36%

2008    03   AFIC                  651       85      105      84      104       87     26     15         29     12        51      54       25      17       135        52     49     22    47%    26%

2008    12   New National          638      547      200    186       202     184      20      7         34     15         7      87       10       4       262       208     76     54    38%    29%

2008    12   M&F Risk Fin          633      624      565    503       575     496     177    171      189      199        57      51       31      34       962       910    550    577    115%   115%

2008    12   Rand Mutual           605      493      593    478       593     478     183     -25     280      282        58      91       31       -5    2,250    2,286     675    765    114%   160%

2008    12   CGIC                  574      492      386    328       368     325     113    152      159      276        65      46       31      47       848       725    218    212    58%    64%

2008    03   Lion of Africa        573      770      281    353       290     348      -27    -22         0        0      64      64       -9       -6      443       473    128    112    36%    30%

2008    06   Sasria                556      488      341    226       321     214     204      ?      255      290        28       ?       64       ?     2,690    2,403 2,280     2,025   668%        ?

2008    12   Dial Direct           508      462      236    184       235     184      24     31         35     34        82      97       10      17       300       245    116     77    49%    42%

2008    06   Emerald               318      254      154    114       136     134       -1     4       -71      24       124      53      -77       3       411       378     62    171    40%    139%

2008    12   Zurich Risk Fin       300      248      265    234       345     200      65     47         86     50        72      53       19      23       454       472    190    163    72%    70%

2008    06   Lombard               295      119      155      51      134       34     47     27         48     24        19      26       35      80       425       268    179    177    115%   111%

2008    12   Allianz               265      217        8       0       16        0      2      9         10     15        59     n/a       10     n/a       200       168     22     23    98%     tba

2008    12   MUA                   248      223       79      73       78       71      6      -7         9      -2       54      64        8       -9       68        62     20     19    26%    27%

2008    12   ACE                   180      130       20      27       31       15      -3    -14         5     -14       56      21       -9     -94       142       100     31     24    119%   91%

2008    12   Etana                 176       n/a     114      n/a     109       n/a     -4    n/a         4     n/a       73     n/a       -3     n/a       477       n/a     63     n/a   56%     n/a

2008    03   Infiniti              135       58      135      58      101       14     10     -25        16     -17       34      71       10    -183       205        51     88     n/a   65%     n/a

2008    08   Natsure               115      112       41      46       38       64      -6    10         -4        8      43      38      -15      16        63        64     17     22    36%    49%

2008    08   RMB-SL                104       46       24       6       17        1      -6     -8         1      -2       69      81      -34    -544       109        80     47     46    199%   763%

2008    03   SaXum                  65       17       32       9       32        7     -14     -5      -13       -4       93      59      -42     -66        26        19      2      8     7%    89%

2008    12   Gerling General        44       29        1       1        -5       1     -19     -1      -14         2    -231      10     370      -79        59        45     13     26 2412% 2015%

2008    12   Sunderland Africa      14       10       13       7       11        7      -3     2          1        3      86      23      -29      24        36        33      9     10    64%    145%




                                          KEY
                                          Currency                     Rands
                                          Denominations                Millions
                                          Basis                        STAR returns submitted to the FSB
                                          Source                       Global Credit Rating Co                              Tel 011 784 1771
                                          Contact person               Melanie Brown                                        Brown@globalratings.net
                                          Shaded columns               Previous year
                                          This table prepared by       Knowledge Centre - Tom Healy                         Tel 011 669 3075




                                                                                                    27
An Authorised Financial Services Provider
CREDIT RATINGS
The large international credit rating agencies are Standard & Poor's, Moody's, AM Best and Fitch. In South Africa, Global Credit
Rating Company rates most of the local insurers. These entities rate the “claims-paying-ability” of insurers and the main rating
classifications are -

     AAA       -        Highest rating - failure risk negligible
     AA        -        Very high - strong protection - risk modest - may fluctuate over time
     A         -        High - above average protection - variability in risk
     BBB       -        Adequate - adequate protection factors - considerable variability in risk
     BB        -        Moderate ability - not well safeguarded
     B         -        Substantial risk that policyholders may not be paid
     CCC       -        Is or is likely to be under a court order

Most South African insurance companies enjoy ratings within the A groupings above. Some examples are -

     ABSA Insurance Company                                                   AAA
     Chartis Insurance Company (Fitch rating)                                 AAA
     Santam Insurance Company                                                 AAA

     Coface SA Insurance Company                                              AA +
     Mutual & Federal Insurance Company                                       AA +
     Zurich Insurance Company                                                 AA +

     Credit Guarantee Insurance Corp                                          AA
     Guardrisk Insurance Company                                              AA
     Hollard Insurance Company                                                AA

     Regent Insurance Company                                                 AA -

     ACE Insurance Company                                                    A+
     Centriq Insurance Company                                                A+
     Compass Insurance Company                                                A+
     Etana Insurance Company                                                  A+
     Lombard Insurance Company                                                A+
     RMB Structured Insurance (Fitch rating)                                  A+

     Constantia Insurance Company                                             A-
     Lion of Africa                                                           A-
     New National Insurance Company                                           A-

Lloyd's of London has an A + rating from both Fitch Ratings and Standard & Poor's UK.




                                                                                                                                 TOM HEALY
                                                                                                                 Chairman, Market Committee
                                                                                                                      Risk Services, Sandton
                                                                                                                         Tel: +27 11 669 3075
                                                                                                                 Email: healyt@aforbes.co.za




                                                                                                  28
Alexander Forbes Ltd. Permission is given to Alexander Forbes clients to copy. No permission to modify the content or redistribute to third parties without prior written consent from Alexander Forbes.
GLOBAL PRACTICE
Corporate governance codes, both in South Africa and elsewhere, require Boards of Directors to ensure that risks are effectively
identified and managed throughout an enterprise. It is becoming increasingly difficult to manage international exposures, with
the regulatory framework continuously changing around the world. It is not enough for a Group to rely on their Global Property &
Liability programmes and totally disregard local insurance legislation, which is applicable in most countries around the world.
The following “stories” depict only a few of the potential pitfalls, which can also involve premium tax, transfer pricing and
reputational implications -

      Indonesia
      Following a fire we had three weeks ago, the authorities have instituted criminal proceedings against us because we did not
      take out local cover. Our attorneys tell us that, at worst, this could result in a prison sentence of up to 15 years and a fine of
      over US $ 200,000. What are we going to do?

      Australia
      One of our directors lodged our Group Directors' & Officers' policy with the Court, which is hearing a wrongful dismissal case
      against us. When it was discovered that there was no local cover in force, the director was threatened with arrest for
      breaching the local insurance regulations. Fortunately, our legal representatives managed to placate the judge.

      Zambia
      Our new BMW was stolen last night. We forgot to take out cover locally. Please tell me that you have arranged some cover in
      South Africa? (The parent company had delegated responsibility to local management to arrange peripheral covers such as
      Motor but there was no central vetting of local brokers, insurers or even the covers which had been arranged, in order to
      ensure there were no gaps or duplications. In this instance, there was no cover in force for the BMW, which was a painful
      lesson for the Zambian business).

      Mexico
      Our factory has just been hit by a major windstorm. We spoke to our partners in Mexico. As you know, we are only minority
      shareholders and they are responsible for arranging the insurances. It now transpires that their insurance brokers
      deliberately failed to pay over the premiums and the insurers have informed us that they are not on risk. I reckon that the
      material damage loss alone will exceed upwards of US $ 50 million. How are we going to break this news to the MD?

      Eastern Europe
      We've just detected a major fraud in our East-European hub. One of our staff has been in collusion with a local insurance
      broker, who has been issuing fictitious invoices for the past three years. This could run into millions.

      South America
      We have a major problem. You will recall that we had flood damage to one of our warehouses. As you are aware, the loss is
      covered under the Global programme but the Authorities here will not permit us to bring in the claim proceeds because they
      say that cover should have been arranged locally. What are we going to do – we have to pay the main Contractors before
      Friday?

All the characters in these “stories” are fictitious and any resemblance to actual persons, living or dead, is purely coincidental.
They do, however, convey the message!

With access to leading-edge country research from AXCO and through our own and correspondent offices
in over 130 countries, Alexander Forbes Risk Services is well positioned to assist cients to manage the risks
associated with their international investments.


                                                                                        MICHAEL DUNCAN
                                                                                           Executive Leader
                                                                                    Global Practice, Sandton
                                                                                       Tel: +27 11 269 1667
                                                                             Email: duncanm@aforbes.co.za


                                                                   29
An Authorised Financial Services Provider
AFRINET
AfriNet is the name and registered trademark of Alexander Forbes' network of offices and correspondents throughout Africa.
It is managed and co-ordinated from South Africa by Alexander Forbes AfriNet Investments.

AfriNet now represents the most extensive network of its kind in Africa, providing local service to clients in more than 40 countries
across the Continent.

The realisation that many of our clients would be looking to expand into Africa resulted in the establishment of AfriNet.
Furthermore, we recognised that many African businesses were seeking professional risk and benefit-related solutions.

AfriNet employs more than 600 staff in various African territories. Each is an autonomous statutory company normally staffed
locally and is totally focused on clients who operate in specific African countries.

The key to success of the operation has been that every company, whether owned or a correspondent, has access to the
intellectual property of the Alexander Forbes Group.

From the outset, our principal objective has been to provide our clients with fast and efficient local service, facilitated by the
empowerment of local management at each operating company and, with access to the Group's extensive range of expertise
and resources in South Africa, to respond to an increasingly complex risk environment in Africa.

Our pragmatic, collaborative approach requires our senior executives to have direct client involvement. This means that clients
have face-to-face contact with people who understand the local environment and can ensure that their requirements are met
quickly and effectively. It also means that we have the opportunity, first hand, to understand our clients, their businesses and their
requirements.

It is our intention to focus strongly on the development of our African business going forward and we are confident that we will
continue to build on the firm foundations we have already laid.




                                                                                                                              NOMUSA RAMUSHU
                                                                                                                     Technical Support Manager
                                                                                                                                 AfriNet, Sandton
                                                                                                                            Tel: +27 11 269 1682
                                                                                                                 Email: ramushun@aforbes.co.za




                                                                                                  30
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LOCKTON OUTLOOK
INTRODUCTION
By the time the next edition of World Market Watch is published, South Africa will have hosted the FIFA World Cup and will have
had an opportunity to showcase the social and cultural impact that Sport can have on a nation.

At Lockton, we are building on our Lockton Sport initiative as leisure becomes an increasingly important ingredient of life. In
addition to our partnership with Soccerex, we are proud to act for those directly involved in Sport and the sectors that provide vital
support services. This includes professional and amateur levels, accident & health coverages, contingency/cancellation and all
insurance classes required by clubs and agents.

With our Associates in South Africa, we will continue to design new products to meet the growing needs of the Sport industry.

As 2010 begins, the outlook in the international insurance and reinsurance markets is generally stable. A few sectors, such as
Aviation, are experiencing some increases and some discounts are to be found in general Property and Liability classes, as
detailed further below.

With very best wishes for a very prosperous 2010!




                                                                                               PAUL JACK
                                                             Executive Chairman, Lockton Risk Solutions
                                                                                 Chairman, Lockton Re
                                                        Lockton Companies International Limited, London
                                                                                 Tel: +44 207 933 2869
                                                                       Email: paul.jack@uk.lockton.com




PROPERTY

Twelve months ago, the world was in the grip of the worst financial crisis in recent memory. While the global Banking industry took
the brunt of the impact, there was considerable uncertainty surrounding the impact on liquidity and balance sheets of the global
insurance and reinsurance markets. There was also uncertainty regarding AIG and the impact this would have on the insurance
market. As a result, underwriters pushed for increases in rates starting at 5% and eventually peaking during the middle of 2009 at
circa 15% for catastrophe exposures.

Underwriters suffered a marked increase in natural catastrophe losses for the first six months of 2009. However, due to a calm
US hurricane season, insured losses are expected at US $ 24 billion for 2009, significantly down from US $ 50 billion in 2008.

The latter part of 2009 saw a great deal more stability, with many of the earlier increases in rates being moderated due to
competition for marketshare from local markets and “start-up operations”. Improving economic data and below-average
catastrophe losses, together with increased global competition, have tempered the predicted hardening of the market.

A new catastrophe model has been introduced which has resulted in markets being able to increase their catastrophe
exposures. Even with a relatively benign 2009 hurricane season, catastrophe aggregates continue to remain tightly controlled.

Critical catastrophe capacity for 2010 is unlikely to change significantly, with underwriters looking to balance their portfolio as
opposed to offering larger individual risk participations.



                                                                 31
An Authorised Financial Services Provider
Insurers have been preparing for the treaty renewal season with more optimism and expect the reinsurance market to offer
minimum flat renewals. Predictions continue to be cautious although most are resigned to the fact that they will still have to carry
a larger net retention. Underwriters also remain very cautious about their business plans for 2010, having to balance the
pressures of trying to maintain renewal rates while still being aggressive in attracting new business into the market.

We believe clients should be looking at 2010 with cautious optimism. Although battered and bruised, markets have traded
through the crisis remarkably well and pragmatism, together with additional capacity, should result in competition for both new
and renewal business.

Clients with comprehensive underwriting information, good Risk Management practices and no significant losses in the recent
past, should expect to achieve savings provided that adequate time is given to cover the markets.




                                                                                                     GARETT ENDENBURG
                                                                                                      Director, Property Risks
                                                                             Lockton Companies International Limited, London
                                                                                                       Tel: +44 207 933 2236
                                                                                    Email: garett.endenburg@uk.lockton.com




LIABILITY
The market is steady and is playing a game of “who blinks first”. Underwriters remain under pressure to increase premiums but
no-one wants to be the “first to move” as there is a lot of capacity waiting to snap up any clients who may feel unjustly treated.

Renewal rates are flat with premium reductions still possible, especially where risk indicators such as turnover continue to
reduce as a result of the volatile economic environment. Coverage enhancements and reduced deductibles are possible as
underwriters are being asked to demonstrate the continued competitiveness of their product offerings.

New markets (such as Arch) add to the competitive environment. Mike Lay (ex-Catlin) started in the new year and is keen to write
South African business again, having been out of the market for several months.

AFRS and Lockton continue to work well together and client retention is very high, reflecting the effectiveness of the team effort.
We are working on major new business opportunities and have high hopes for 2010.




                                                                                                       EDWARD ASPINALL
                                                                                         Executive Director, Global Casualty
                                                                             Lockton Companies International Limited, London
                                                                                                      Tel: +44 207 933 2129
                                                                                      Email: edward.aspinall@uk.lockton.com




                                                                                                  32
Alexander Forbes Ltd. Permission is given to Alexander Forbes clients to copy. No permission to modify the content or redistribute to third parties without prior written consent from Alexander Forbes.
FINANCIAL RISKS
As we emerge from one of the worst economic downturns on record, it is increasingly clear that, despite a good deal of
uncertainty in the world, we are seeing the green shoots of recovery as more confidence flows back to the business world.

The financial crisis has driven the beginning of yet more change in the Financial Services industry across a number of world
regions, starting with regulators and advisors who are re-evaluating their roles and responsibilities. They want to avoid a
recurrence of recent events and also ensure that business leaders are held more accountable for their actions.

Laws and local regulations will invariably change. With change, we anticipate more litigation which will drive companies to be
more focused on their Management Team and their ability to navigate through these turbulent times.

In all our product areas, claims notifications have increased in the last twelve months. Class-action suit activity is at a high and
Crime statistics from a range of companies show large increases, due primarily to the recession.

The Financial Lines markets continue to experience troubled times, due to factors that emanate from the financial crisis and the
global recession. This is reflected in claims notification increases that have led many underwriters to focus much more on in-
depth underwriting and risk due diligence, across their portfolios.

There continues to be pressure to obtain rate increases as returns on investment portfolios decline and as underwriting loss
ratios increase. This has resulted in a greater focus on cost of capital and allocation of capital to product areas that provide the
best returns. These factors, together with increased reinsurance costs, are driving the need for greater underwriting profit.

Financial Institutions

The Financial Institutions sector is still experiencing tough times with continuing claims notifications (mainly in the USA and
Europe) especially in the Directors' & Officers', Professional Indemnity and Crime product areas. Some examples of publicised
cases that have led to insured losses include Sub-prime, Madoff, Stanford, Petters and others.

These factors, along with hardening reinsurance treaty conditions, have made insurers more risk selective, frequently leading to
more restrictive terms, lower limits and increased deductibles. A large number of accounts (especially in the lending arena)
experienced major changes to their terms and conditions in 2008/2009 and we continue to see rate increases ranging from 0% to
25% as we commence the new decade.

There are, nevertheless, a few insurers who are being 'opportunistic' by offering insurance, albeit on a restrictive and costly
basis, for those risks that have challenges or are distressed. Terms are usually on a Retro basis and Conditions can be quite
restrictive.

Commercial Risks

The story is somewhat different in the Commercial D&O and Crime markets. In fact, we have started to see downward rate
movement in this sector and, on a number of occasions, a broadening of terms and conditions. There is, however, greater
scrutiny of risks and financial conditions in the underwriting due diligence process, with a focus on investment portfolios, debt
and volatility of the industry sector.

Capacity is abundant and competition is rife for D&O and Crime products in this sector. Since the Financial Institutions market
opportunities are challenging, the potential loss of revenue is being made up by more aggressive pricing in the Commercial
sector.




                                                                33
An Authorised Financial Services Provider
General

On a more general note, we continue to see the need to partner with carriers that can service global clients who require the
issuance of admitted and local policies. In 2010, we will continue to monitor, on behalf of our customers, local requirements for
admitted policies.




                                                                                                      STEPHEN AMBIDGE
                                                                                           Managing Director, Financial Risks
                                                                             Lockton Companies International Limited, London
                                                                                                      Tel: +44 207 933 2466
                                                                                    Email: stephen.ambidge@uk.lockton.com


MARINE RISKS
After trying to achieve increases for all Hull renewals at the start of 2009, the market settled down in the middle of the year and
pricing was relatively stable.

Then, at the IUMI Conference in September 2009, underwriters were again “talking up” the market on the back of continued poor
technical underwriting results and a recent surge in claims. This was despite the claw-back of considerable investment income
due to the dramatic recovery of stock markets around the world. Looking at their pure Hull underwriting result, underwriters were
claiming that this was the 12th year in a row that underwriters would lose money, after taking their expenses into account.

However, in reality, the January 2010 renewals have largely been flat, with the better business achieving renewals "as before"
and only the poorer performing owners seeing increases in premium.

One of the reasons that underwriters cite for not being able to achieve the increases they require, is the increase in capacity of the
Hull market (both in London and overseas) and the inevitable pressure that this brings. An example of how capacity has grown
recently, is the successful placement of a new US $ 1.45 billion cruise ship for Royal Caribbean Cruise Lines at US $ 400 million
higher than the previous top value placed in the Hull market.

The P&I Clubs have also had a good year, partly helped by reasonably benign claims experience in 2008/9 and also by the
bounce-back of the investment markets. As a result, the majority of the Clubs are calling for general increases in the 5% to 7.5%
range with Gard going for a zero increase this year. With only small increases being called for, it is anticipated that there will be
little room to negotiate with the Clubs as at 20th February this year and that Club underwriters will be less flexible than they have
been in previous years. Pooled claims in 2009 are running high, so time will tell if the Clubs have asked for enough this year or if
larger increases are needed in February 2011.

The Marine Liability and Ports & Terminals Liability markets are also relatively stable but underwriters have a strong appetite for
new business, on which they are prepared to be very competitive.

The Property side of the Ports & Terminals market is a bit tougher than the Liability side, with no reductions being given and some
small increases appearing for certain areas.




                                                                                                     PETER CAREW-GIBBS
                                                                                  Senior Executive Director, Marine Hull Risks
                                                                             Lockton Companies International Limited, London
                                                                                                       Tel: +44 207 933 2337
                                                                                    Email: peter.carew-gibbs@uk.lockton.com

                                                                                                  34
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ALEXANDER FORBES GROUP
Alexander Forbes Group is a leading independent provider of financial and risk services, delivering financial and risk services
to small, medium and large organisations, specialist groups and individual clients.

A network of correspondents extends our reach to other regions beyond South Africa, while our partner broking operations
overseas serve to provide us with excellent international services.

Alexander Forbes Risk Services is the short-term                                      Alexander Forbes Financial Services is the
insurance, corporate broking and advisory division of the                             long-term insurance and financial services division of the
Alexander Forbes Group.                                                               Alexander Forbes Group.

Activities include -                                                                  Activities include -

    Risk
    l and insurance programme management.                                               lRetirement fund administration and consulting.
    Retail
    l and wholesale insurance and reinsurance                                           lActuarial services.
          broking.                                                                      lHealthcare consulting.
    Risk
    l management consulting.                                                             Asset
                                                                                        l consulting.
    Enterprise-wide risk management
    l                                   using our zero-                                 lPersonal financial planning.
     based risk management methodology.                                                 lDirect marketing of financial products.
    Alternative risk finance consulting and facilities.
    l                                                                                   lInvestment products and services through
    Broking and risk management services in specialist,
    l                                                                                        Investment Solutions.
     professional and niche markets.
    Claims management.
    l
    Insurance products and services for individuals.
    l




                                                         AFRS OFFICES                                AFRS CORRESPONDENTS
                                                         Botswana                                    Algeria                  Ghana
                                                         Kenya                                       Angola                   Guinea (Conakry)
                                                         Malawi                                      Benin                    Lesotho
                                                         Mauritius (Guardrisk)                       Burkina Faso             Libya
                                                         Mozambique                                  Burundi                  Madagascar
                                                         Namibia                                     Cameroon                 Mali
                                                         Nigeria                                     Cape Verde               Mauritania
                                                         South Africa                                Central African Republic Mauritius
                                                         Swaziland                                   Chad                     Morocco
                                                         Tanzania                                    Congo (Brazzaville)      Niger
                                                         Uganda                                      Cote D’Ivoire            Reunion
                                                         Zambia                                      DRC                      Senegal
                                                         Zimbabwe                                    Egypt                    Seychelles
                                                                                                     Equatorial Guinea        Sudan
                                                                                                     Gabon                    Togo
                                                                                                     Gambia                   Tunisia


      AFRS Offices
      AFRS Correspondents
      EOS RISQ Offices & Correspondents

AF Financial Services also have offices in Belgium, Brazil, Ireland, Nigeria, Switzerland and UK



                                                                                 35
An Authorised Financial Services Provider

								
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