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TEXAS WINDSTORMINSURANCE ASSOCIATIONTWIA – 0006 Actuarial Services – Catastrophe ModelingJanuary 19, 2022A business of Marsh McLennan

Guy Carpenter OverviewGuy Carpenter is a leading global solutions provider to the (re)insurance industry, delivering a powerful combination of analytics, reinsurance broking expertise, and strategic advisoryservices to help our clients manage risk and capital. We use a host of proprietary tools to analyze risk, model portfolios, and preview potential outcomes regarding reinsurance andcapital management strategies. In addition, we provide guidance on a broader range of issues such as catastrophe exposure management, capital allocation, reserve risk estimation,Enterprise Risk Management, and economic capital modeling.Guy Carpenter has deep experience working with risk-bearing entities of all types and sizes, including several residual coastal markets. Guy Carpenter does not disclose detailsregarding the programs placed for clients. That said, with respect to property catastrophe reinsurance, our overall scale – more than 900 programs annually with a total limitplaced in excess of 75 billion – is an advantage for our clients. Guy Carpenter has been providing reinsurance brokerage services for nearly 100 years.Key StatisticsPlaced 46 billionin ceded premiumin 2020Our 3,100 employeessit in over 60locations worldwideDeliver a powerfulcombination of brokingexpertise, strategicadvisory services, andindustry-leading analyticsPart of Marsh McLennan,a 17.2 billionprofessional servicesfirm, since 19232

Guy Carpenter Analytics TeamNorth American Catastrophe AdvisoryNorth AmericanAnalyticsA group of almost 200 actuaries and catastropheanalysts throughout the US and Canada focused onproviding advisory services and delivering insights toGuy Carpenter’s clients. A rating advisory teamspecializes in assisting clients in navigating ratingagency interactions and meeting rating goals. Over 100 catastrophe analysts in North America in 14 locations,including Dallas With an average team tenure of over ten years, the catastropheadvisory team offers unparalleled bench depth Extensive experience in GC’s four US hurricane licensed catastrophemodels: AIR, CoreLogic, RMS, and KatRisk On an annual basis, over 400 US clients in the insurance industry arereceiving catastrophe modeling output from Guy CarpenterModel Solutionsand AdvisoryNorth AmericanStrategic AdvisoryA global team of 50 model developers andscientists who evaluate licensed models through theMSA framework; provide deep peril, climatechange, and event response insights; and developproprietary models and views of risk whenwarranted. A dozen scientists are dedicatedspecifically to North American perils. Specialized portfolio management, event response and reinsurancestrategy teams have a reputation for offering best in class solutionsThe North American Strategic Advisory teamsengage clients in economic capital modeling, portfoliooptimization, predictive analytics, growth strategies,and enterprise risk management using a suite ofproprietary, cutting-edge GC tools.3

Catastrophe Advisory FrameworkDefining TWIA's 100-year Probable Maximum LossStandard OutputView of Risk Detailed review to understand current data,exposure and changes over time Documentation of model codes and settings Catastrophe modeling results for hurricane andsevere convective storm, including PMLs for variousmodel scenarios and a final TWIA view of risk Support for TWIA Board of Directors presentationCrafting a bespoke view of risk goes well beyond a simple model selection. Guy Carpenterhas a holistic framework beginning with the data collection process that assesses the fourmajor components that influence catastrophe loss estimates. This framework will helpdetermine the 100-year probable maximum loss for TWIA.Visualization PlatformData StrategyReview, coding andinclusion of policy terms,primary riskcharacteristics andsecondary modifiersModel VendorEvaluate vendor options,single or multiple modelview, which may differ byperil and line of business Exposure accumulations, event response, exposureand loss visualization, etc.Portfolio Optimization Identification of impactful data enhancements,key loss drivers and average annual lossesby the desired resolutionRisk Transfer OptimizationPost Model AdjustmentsAdjust output for modeldeficiencies, non-modeledlosses, model blending, lossadjustment expense, climatechange, etc.Model Options / VersionsSelection of options for eachperil to be modeled such asdemand surge, eventcatalog (10k, 50k, 100k),and view of the frequency Layer losses and reinsurance cost allocationRisk Transfer Execution Model files and documentation as needed forreinsurance placement(s)4

Model Suitability Analysis (MSA)Keeping TWIA Ahead of the CurveCalculated losses in a catastrophe model depend on numerous factors, includingbuilding characteristics, model catalog parameters and modeled hazards. Reveals hidden modelassumptions Improves data collection Enhances underwritingstrategies Compares modeled loss toreal loss experience Customizes assessment ofmodel performance toportfolioModelA Studies catalog, hazard, and vulnerability Uncovers opportunities for adjustmentGuy Carpenter’s MSA framework allows foraccurate quantification of model performance viathree main types of inquiries:Sensitivity TestingThe representation of exposure within themodel can significantly influence the lossexperienced at a location. Sensitivity testingquantifies the influence of various exposureattributes on loss calculationsLoss ValidationComparing model performance to historicalobservations identifies structure types, regions,and events resulting in over-orunderestimating lossesScientific BenchmarkingAt the heart of catastrophe models lies a perilhazard model. Scientific benchmarkinganswers questions regarding the accuracy ofthe underlying hazard modeling within acatastrophe model5

Understanding Impacts of 100-Year PML SelectionDetermining TWIA's Risk ToleranceThere is no one “correct” view of risk, rather a range of estimates encompassing the most likely potential of risk. GuyCarpenter’s Catastrophe Advisory Framework helps develop the narrowest range with an acceptable confidence level.Range of Reasonable Estimates for 100-year PMLLow EstimateCentral EstimateHigh EstimateRisks:Risks: Potentially unprotected from what other views mayconsider within the 100-year PML Increased potential for post-event funding– Debt-issuance– TWIA / Private policyholder assessments– Request for taxpayer assistance Must secure additional reinsurance funding Potential to over-reinsure due to uncertainty inmodeled outcomes Must recoup increased reinsurance expenses fromTWIA policyholders or member companies Reduced ability to trade-forward should a catastropheevent approaching 100-year PML occurTWIA must determine risk preference ranging from a relative certainty of marginally increased expenses or apossibility (however remote) of significant post-event expense and reduced claims-paying ability.6

Proposed ScheduleThe schedule and content delivered is reliant on TWIA obtaining the appropriate model vendor licenses.Coordination TWIA data is requested with 24 hours ifthe RFP is awarded to Guy Carpenter Strategic planning meeting with yourGuy Carpenter team TWIA confirms that necessary vendorlicenses have been or will be securedbefore delivery of the requested outputStartWeek 1Catastrophe ModelingPre and Post Renewal Prior year model view is delivered as a baseline Baseline results are reviewed and approved by TWIA Additional views of risk are discussed, modeled inAIR & RMS and portfolio-level results are delivered TWIA selects final custom view of risk Location level loss detail Files to support reinsurance renewal Additional views of loss: sensitivitytesting, other vendor models, etc. Event response Bi-annual data and model updateWeek 2Week 3March –DecData StrategyOutput and Board Presentation Data is received, reviewed and assumptions are provided Adjustments made as needed TWIA approves data totals and assumptions Catastrophe model output, based on the final view of risk and asoutlined in section 3.1 Catastrophe Modeling Services, is delivered Content and preparation for the TWIA Board of Directors meetingscheduled for February 22, 20227

A business of Marsh McLennanCopyright 2022 Guy Carpenter & Company, LLC. All rights reserved.

Texas WindstormInsurance AssociationCatastrophe and Actuarial ServicesProposalJanuary 19, 2022

Why Aon is the Ideal Analytics Partner for TWIAAbout Aon’sProposal Aon’s scale, market experience and insight uniquely positions us to bring greateranalytics value and insight to TWIA – Aon is the largest global intermediary Analytics partnership proposal is based on our assessment of what Aon can bestprovide to TWIA, and pricing has been developed around our experience withsimilar projectsAon’s UniqueQualifications Aon contracts with multiple modeling firms, lending greater expertise andexperience in support of reinsurance transactions and capital stress testing Model access will allow Aon to support TWIA beyond the reinsuranceplacement, giving greater insight into model behaviour Aon will be TWIA’s independent analytics advocateTWIA View ofRisk Establishing a TWIA View of Risk will be an important differentiator for the future Customized view will feature a bespoke model built on Aon’s Impact Forecastingplatform An independent View of Risk will allow TWIA to improve benchmarking againstboth historical and future events, better capture building code impacts andgeneral structure performance, and reduce uncertaintyRecognition of keymilestones will be vital tosuccess when partneringwith Aon:Stage 1:Appointment ofAnalyticsPartnerStage 2:Confirmation ofAnalyticsoutputsStage 3:Establishment ofstructurefundingStage 4:Commence withestablishingTWIA View ofRisk Creating a customized View of Risk will reduce the potential for reinsurancepurchase level requirement changes caused by 3rd party vendor model updates TWIA will increase confidence in making critical decisions based on modeledresults. It is important to recognize that a bespoke model may not lead to lowerPML estimates. We hope that it does.Proprietary and Confidential2

Your Aon Team Brings Analytics Scale and Expertise to TWIAAon’s scale and breadth provide TWIA uniquecatastrophe analytics insightsAon Re models 70%of US HO marketPlace 2B of annualpremium for publicsector clientsPartnering with the Public Sector to Promote ResiliencyFor over 40 years, Aon has supported public entities globally, creating a globalnetwork consistently working together with governments to meet the most timelyand challenging issues.The PSP team is comprised of colleagues with broad experience serving ingovernment, insurance, reinsurance, consulting, and the capital markets.Aon’s PSP by the Numbers3,500 Public Sector Clients Globally 400M annualinvestment inanalyticsModel Evaluationengagements for100 clients annually500 Colleagues ServingPublic Sector Globally 100B Public Sector Risk Transferred inthe Last 5 YearsProprietary and Confidential3

Partnership to Support TWIA’s Mission through AnalyticsWe work together through CollaborativePartnership Develop an evidence-driven, customized viewof catastrophe risk Work to increase communications andtransparency with various stakeholdersIn order to achieve Placement AnalyticsReinsuranceSupportingAnalytics Execute on catastrophe modeling with requiredmodels to support the reinsurance transaction,determine purchase level of reinsurance and totalfunding Visualize exposures Support in presentation of modelling results tostakeholdersAdvancedAnalyticsIndependentOpinion Manage portfolio risk and support rate filings Industry-leading analytics team to support TWIA Provide real-time cat event reporting Collaborate to capitalize on a well-tested suite ofmodels, industry experts, tools and services Utilize an independent opinion Aon is TWIA’s advocateTWIA View of RiskCustomized andindependentsolutionIn addition to items under Placement Analytics: Create a custom view of risk through anindependent, transparent, and customizablemodeling solutions Arm TWIA with knowledge that drives efficiency andfinancial stability for all stakeholders Make more informed funding and risk managementdecisionsProprietary and Confidential4

Placement Analytics – Option 1Suite of Analytics to Support Reinsurance Placement and Rate MakingCat modeling year-round engagement with TWIACatastrophe modeling GeographicInformationSystemsModelingAssumptions Generate exposure outputs aimed at providing TWIA accurate and transparentunderstanding of their portfolio using multiple modelsProvide accurate and detailed modeling results to TWIA for the development ofreinsurance structureLeverage Aon’s expertise with the inner-workings of models to ensure TWIA isrepresenting their exposure as accurately as possibleSupport TWIA’s discussions with reinsurers and stakeholders by providing necessarymodeling detailReinsurance cost tropheAnalytics Support ExposureChange &Loss ReviewData visualization ePurchase &Rate MakingProvide detailed allocation of reinsurance costs, tailored to TWIA’s management view ofrisk in support of rate filingsGrant TWIA access to Aon’s geographic information system, ImpactOnDemand, to assistwith exposure mapping and accumulation managementPlatform provides TWIA with the ability visualize portfolio against a comprehensive suiteof hazard data in real timeAnalytics Dashboards Interact with exposure management modeled loss dashboards, providing flexibility withreporting abilitiesCatastrophe response and real-time monitoring of eventsHurricane Viewing Guides can be made available on the platform and will providemanagement level insight of exposure to varying event scenariosProprietary and Confidential5

TWIA View of Risk – Option 2Additional Analytics SupportModel Evaluation and Climate Risk ModelEvaluation &Climate Risk ResidualMarketsPractice GroupTWIA View of Risk:Customized andIndependentView of RiskImpactForecastingPlatformImpact Forecasting Platform CatastropheActuarialSupportAccess the open modeling framework and take advantage of a full suite of peril models and theknowledge gained through key industry partnershipsImpact Forecasting is approved by the FL Commission and due for release to the broader US in 2022Catastrophe Alert/Model Performance CatastropheAlert/CatastrophePerformanceBring a deep understanding of the underlying science and assumptions within each catastrophe modeland provide insight into performance specific to TWIA’s portfolioLeverage Aon’s expertise in the areas of model education, model deep dives, and understanding of lossimpact from model adjustmentsWork with Aon to better understand the science behind climate change and the impact in both the shortand long term that it can have on the performance of your portfolioTake advantage of Aon’s deep knowledge of historical events to better understand model performancerelative to actual eventsGain better insight into actual loss experience by collaborating with Aon to review historical loss data aspart of a claims analysis to better address model missCat Actuarial Support Leverage Aon’s expertise in rate filing and risk pricing through the use of Cat Scoring analyticsEvaluate profitability of your portfolio and gain insight into key loss drivers to help inform betterstrategic decision-makingAon’s Residual Markets Practice Group Follow trends, better understand exposure and loss trends, and access peer data by partnering withAon’s residual markets teamProprietary and Confidential6

TWIA View of Risk – Option 2Informed Decisions with Custom View of RiskA custom View of Risk (VoR) affords TWIA a platform to better understand why TWIA’s exposures are unique and tomake more informed funding and risk management decisions that ultimately protect policyholders and membercompanies, and increases the resiliency of the AssociationOur value driven approach to View of RiskConduct Model SuitabilityAnalysisDetermineAppropriate VoRSolutionEducatestakeholders,regulators, RIsLeverage ClaimsDataIntegrate VoRInsightsImpact of Recommended SolutionDeeper knowledge of existing vendormodel methodologies and potentialmodel miss1Comprehensive understanding of theimpact of the TWIA portfolio’s uniqueportfolio characteristics on potential lossoutcomes2Increased post event resiliency throughmore informed funding and reinsurancepurchasing decisions3Our proposal addresses TWIA’s core mission of protecting policyholders and member companiesthrough a more informed View of RiskProprietary and Confidential7

Establishing a New Partnership with AonConcluding commentsNext stepsQuestionsThank youProprietary and Confidential8

ContactsJames ConroyAonExecutive Managing DirectorOne Liberty Plaza165 BroadwayNew York, NY 10006Aon Reinsurance SolutionsDan DickExecutive Managing DirectorAon Reinsurance SolutionsDan Schwietz 1 212 441 2821www.aon.com Aon 2021. All rights reserved.This document is intended for general information purposes only and should not be construed asadvice or opinions on any specific facts or circumstances. The comments in this summary are basedupon Aon’s preliminary analysis of publicly available information. The content of this document ismade available on an “as is” basis, without warranty of any kind. Aon disclaims any legal liability to anyperson or organization for loss or damage caused by or resulting from any reliance placed on thatcontent. Aon reserves all rights to the content of this document.DirectorAon Reinsurance SolutionsLegal Copy Helvetica Regular 8/9.6 Black9

In addition, we provide guidance on a broader range of issues such as catastrophe exposure management, capital allocation, reserve risk estimation, Enterprise Risk Management, and economic capital modeling. Guy Carpenter has deep experience working with risk-bearing entities of all types and sizes, including several residual coastal markets .