Presentation to

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HARRY L. PALUMBO VICE PRESIDENT
Presentation to Bankers Association for Finance
and Trade 20th Annual Midwinter Strategic
Conference
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POLITICAL RISK INSURANCE - CURRENT ENVIRONMENT

• Demand for Political Risk Insurance
• Market Capacity Reinsurance
• 2003 Underwriting - Risk Appetite

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DEMAND FOR POLITICAL RISK INSURANCE

• 2002 was relatively a strong year for AIG
• 2003 will be a flat to a down year for new
  business
• -Slump in foreign direct investment in the
  emerging markets
• -Sharp contraction in international lending by
  banks and capital markets
• -Difficult credit environment for emerging
  markets especially in Latin America
• -Increasing demand for PRI Insurance on existing
  uncovered investments

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MARKET CAPACITY REINSURANCE

• Market Capacity for PRI significantly reduced as
  a result of reduced reinsurance market. Further
  reduction in reinsurance capacity expected in
  2003
• Reinsurers have reduced capacity from PRI market
  and redirected to higher premium earning lines of
  business
• Reinsurers are also concerned about potential
  large losses from Argentina

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THIS HAS RESULTED IN

• Higher pricing - especialy for higher risk
  countries
• Limited capacity of deals with tenors over 7
  years
• Greater collaboration between private and
  public markets

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2003 - UNDERWRITING POLITICAL RISK

• Underwriters will be more risk adverse
• -Country aggregation issues
• (Brazil, Argentina, Turkey, Philippines)
• -Industry Aggregation levels
• (power and telecom)
• -Lower Market Capacity
• Review of policy wording
• -Making it more clear on exactly what risks are
  covered
• Individual policies (especially lender policies
  will be crafted to reflect transaction risks)

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HARRY L. PALUMBO VICE PRESIDENT
Presentation to Bankers Association for Finance
and Trade 20th Annual Midwinter Strategic
Conference