Assurant, Inc.: Management Discussion Section

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Lender-Placed Insurance
Update Call Nov. 10, 2010
Company Ticker Event Type Date

www. Cal l St reet . com 1- 877- FACTSET Copyr i ght 2001- 2010 Cal l St r eet

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MANAGEMENT DISCUSSION SECTION
Operator: Good morning/afternoon everyone. Thank you for holding and welcome to the Assurant
Conference Call sponsored by Sterne Agee with your host Melissa Kivett. Todays conference will
begin with a presentation followed by a question and answer session. Instructions on that feature
will follow later in the program. I would now like to turn the call over to Ms. Kivett, please go ahead.

Melissa Kivett, Senior Vice President, Investor Relations
Thank you so much operator. Thanks so much for joining us today. Weve gotten a bunch of calls
from our shareholders this morning and we thought this would be an effective way to address some
of the questions that you have about our Lender-Placed Insurance Business and Im pleased to
have Gene Mergelmeyer, who is our President and Chief Executive Officer, here today who will
start with some prepared remarks. And earlier today John Nadel, Managing Director of Sterne
Agee, had suggested the call. I thought it was a great idea and we appreciate his help in facilitating
the call today. The call is open to questions from all our sell-side analysts as well as investors. So,
with that Ill just pause for a moment and then turn the call over to Gene who has a few prepared
remarks.
Gene Mergelmeyer, President and Chief Executive Officer, Assurant Specialty Property
Thanks Melissa. I do appreciate this opportunity and I did want to make a few key points about our
Lender-Placed Insurance Business before we [inaudible] to open to questions. So you know the
Lender-Placed Hazard Insurance, it does protect the mortgage lenders, the investors and the
homeowners from loss whenever a homeowner fails to maintain the required insurance coverage in
accordance with the term of their loan document. Assurant has been in the Lender-Placed
Insurance Business for over 20 years and we are committed to it being a value-added and valuable
product for all its constituents. Lender-Placed Insurance is only issued after extensive efforts to
have the borrower obtain their own insurance coverage. This includes a series of letters to the
borrower, calls to the last known insurance carrier, as well as attempts to call the borrower
themselves in many cases. As a practice, and I think its important to note, that our lender clients do
not stop payment on an escrowed insurance policy in order to place a lender-placed coverage.
Voluntary insurance payments are advanced on behalf of the lender to the voluntary insurance
carrier even if the borrowers delinquent on their mortgage payment. Lapses in coverage that are
eligible for lender placement are due to the borrower non-payment, cancellation by the borrower or
other cancellation activity of the voluntary carrier. Lender-Placed Insurance is in force on only about
2% of the loans in our portfolio. The amount of coverage is based on the replacement cost to insure
that the insurance coverage protects the property and the ability to rebuild that structure. Since the
borrower is non-responsive in most cases, most lenders will place coverage at the last known
voluntary coverage amount, which is the best estimate of the replacement cost as its identified
been identified by the borrower when he obtained that insurance coverage.

By contract and to fulfill regulatory and investor requirements, lenders require us to insure every
uninsured property in their loan portfolio regardless of the condition or the location of that property
and our pricing reflects these unique risks, which results in many otherwise difficult to insure
properties. Many of the properties that we insure have a history of multiple losses, physical or
conditional hazards or are situated in coastal areas where wind storms are a constant threat or in
rural areas with limited fire protection.

Over 50% of our in force coverage is in hurricane prone states. A couple of large hurricanes in a
season could wipe out our profits for that year and cause significant increases in reinsurance costs
going forward. Our programs are regulated by state insurance departments and we comply with the
regulations in each of the states. It does vary by state, but in most states, there is a filing and

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approval process and certainly in 49 states, our rates are filed and approved or deemed to be
approved by the Department of Insurance. Our programs are filed with all states and we also
believe that our rates to be among the lowest in the industry.

Policies are backdated to cover lapses in coverage. This is required as the insurance verification
cycle has not even started until the lapse in coverage is identified and it takes time to go through
the cycle. However, claims are also covered during any backdating period. And in some cases,
policies are backdated to cover known claims for uninsured properties that had not even been
previously identified. Commissions can be and are sometimes paid on the program to licensed
agents, which can be owned by the lending institution.

Its important to note that such compensation is at rates that are generally comparable to the
voluntary homeowners insurance market. It is generally the lenders practice to disclose such
compensation in their correspondence with borrowers. While there is a minority of our clients,
certain lenders have chosen to participate in the underwriting risk of the lender-placed insurance
program. While these programs do allow them to participate in the potential underwriting profits of
the business, such that they are also at risk to the losses in the business, particularly in large
hurricane events.

I can also tell you that there is the same rigor and due care in the tracking procedures with these
clients and there are certainly no efforts or processes in place to modify them in any way to place
more policies or coverage and that they are using the same insurance programs as our other
clients.

I think, with that, I want to thank you guys for your time and Ill certainly turn the call back over to
John for any questions that you might have.

John Nadel, Analyst, Sterne, Agee & Leach, Inc.
Thanks, Gene. Thanks for the opening. That was really helpful. Ive got a number of questions
before we go to Q&A or open Q&A. And maybe just a couple of technical ones for you, Gene, first.
In those 49 states where you guys do file rates, are you in those filings, are you required to
include some of the assumptions for expense loads or commissions that you expect to pay and I
assume thats part of the filing requirement to get the states to approve your rates or disapprove?

Yeah. Thats true, John. It can vary by state, but thats certainly generally the case that all the
details are included in the filing.

Okay. And what is the average annual premium per policy currently on the books in your creditor-
placed business?

Just on average, its somewhere around $2,000, John.

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Okay. And the average insured value on the homes where those policies are placed?

I dont have that number off the top of my head.

Ive got it right here.

Okay.

The average insured value for the second quarter sorry, third quarter this year is $180,000 for
creditor-placed policies.

Okay. Okay. And then, can you help us understand the reinsurance aspect of this business, Gene,
and you sort of touched on it, Im not talking about the CAT risk. Im talking about the reinsurance
you have in place with your clients where you share the underwriting risk of this business. Maybe a
sense for how many of your clients participate alongside you? Im looking at some of your
disclosures that looks like specialty property, as a total segment, generated 2.1 billion in year-to-
date gross earned premiums, you have ceded about 22% of that or 475 million to your clients. Is
this just a matter of the clients realizing this is a profitable business and they want to participate as
well or is it something where you guys more proactively require the clients and have some skin in
the game?

No first of all, I think if youre looking at the financial statements, you have to take into account
that again, we have business other than just creditor-placed homeowners, you know...

Understood and it says, for instance, the government there, I assume thats on the flood insurance
too, right?

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Yes, thats exactly right. So we have the Write Your Own program and we have other insurance
products and we have other clients that can reinsure in those products. So, I think its safe to say
that its a very small minority of the clients in the creditor-placed homeowners that do participate. I
think it ultimately is something that they choose to do. And they do have the opportunity to
participate, like I said, in the underwriting income. But they also are on the risk for the underwriting
losses as well.

Okay. When we compare or when you guys think about comparing your creditor-placed or lender-
placed business to the couple of key competitors that are out there, is it your understanding that
they too file rates on a state-by-state basis like you do or do they conduct this business maybe in a
different manner like an excess and surplus line?

Again, that can vary by size of competitor. There are a number of different competitors in this
marketplace. Some of the more major competitors are typically using filed rates, but it can vary and
there are typically certain states where they may choose to do things on more of a surplus lines
basis and I think thats true particularly in Florida.

Okay. And I have two more for you; just on average what would you characterize, Gene, as the
overall difference in the cost between a typical voluntary policy and a force-placed policy? I mean, I
read the American Banker article just like I think everybody else has I mean, it suggests that the
force-placed policy can be 10 times as expensive. I have to believe that that was an individual case
that was extrapolated to mean that the whole business is like that and can you just give us a
sense?

Well, Sure. I think, I can. Let me try and give you a little bit of color on that. I think, by the very
nature of the fact that our average policy is around $2,000 or so would lend you to believe that
thats not the case. Let me talk a little bit about our Florida policy. Certainly, there is a Florida is a
very difficult state to insure in. So comparing our policy to a preferred policy in a very-easy-to-insure
area is different even than comparing to, obviously, something thats more coastal or in the State of
Florida.

Understood. Okay.

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I can tell you that our Florida program, and Ive said this in the past, was developed really taking
into consideration say the Citizens program. Now and its designed to be slightly, but not
significantly higher than Citizens, but were taking on further underwriting risk. Citizens doesnt
accept vacant properties, there is other there is some underwriting thats going on in that
program. So, Florida is a good example of a state where weve recently gone through a rate review
with the state and our rates were deemed acceptable. So -

Okay. I guess, final one for you, Gene, from me is, the article also mentioned Dodd-Frank and there
is an element within Dodd-Frank that specifically addresses the cost of force-placed coverage and I
guess, I have to assume as the leading provider of this in the U.S. that you guys were probably at
the table or at least helping to craft that or at least advise on it. Can you give us a sense for your
involvement there and what that process was entailed?

We do participate in a number of different organizations and were involved in looking at that
language and I think the final language does include provisions that, again, if its approved by the
states, that there is a deemed reasonableness associated with that. And we believe that our rates
are certainly reasonable.

Okay. Thank you, I guess, Betty, we can go ahead and open it up to the queue.

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QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] And our first guest is Mark Hughes [SunTrust
Robinson Humphrey]. Mark your line is open.

<A Melissa Kivett>: Mark, are you there?

Operator: Mark your line is open.

<A>: Go ahead and move on.

Operator: Okay, Mark.

<Q Mark Hughes>: Yes, Im here, can you hear me?

Operator: Okay, we can hear you now.

<Q Mark Hughes>: Thank you. Can you say whats the typical commission is that you pay to
your mortgage servicer clients?

<A Gene Mergelmeyer>: Again, I think that can vary by client. I think the guidance we tried to
give you and kind of my opening statements was that, its generally geared and quite frankly
designed to be something thats really not anything in excess of the standard commission rates that
would be available to the voluntary homeowners product.

<Q Mark Hughes>: And then under doubt Dodd-Frank, who is responsible for which office, what
entity for determining reasonableness on the rates?

<A Gene Mergelmeyer>: You know that I am not exactly sure of that. Im sorry at this point.

<Q Mark Hughes>: Thank you.

Operator: Thank you. [Operator Instructions] And our next guest is Ed Spehar [Bank of America
Merrill Lynch]. Ed, your line is open.

<Q Edward Spehar>: Thank you. Good afternoon, everyone. Two questions, Gene. First, could
you give us a sense for how many of your force-place policies occur because the borrower lapses
coverage versus the percentage of the time it occurs because the voluntary carrier drops the
borrower?

<A Gene Mergelmeyer>: Well, Ed, I understand your question. Thats not something that we
have disclosed and I certainly dont have that at my finger tips now. So, Im sorry, I just dont have
that answer.

<Q Edward Spehar>: Okay. But can you give us some sense, I guess the reason I ask and I
think its kind of important is that this all issue about the sort of the tone of the article being that the
servicers driving sort of sales of expensive products. It seemed to me an important point that wasnt
sort of mentioned is that, this product gets placed only after the action of a borrower, so its not a
its not driven by the distributor, its driven by the borrower. So I think it is kind of important if its like
50/50 or if its 90/10. I mean, any idea where we are in the spectrum?

<A Gene Mergelmeyer>: Well, let me just say, I think that is an important point. Let me start by
saying that there is just an extensive, extensive process and I can tell you in the situations where
were involved in the tracking of insurance, there are very strict service level agreements and they

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are all geared to ensuring and the people that are totally involved in the process are just absolutely
ensuring that were not placing policies on loans that are insured. And I would say in my belief, for
the most part, these are situations where the borrower has been involved in some way, shape or
form in the cancellation of this product.

So, like I said to begin, if its an escrowed account and there is the lender is going to advance that
premium to pay for the voluntary coverage. So there is situations in non-escrowed situations where
the borrowers doesnt pay. There are some underwriting situations that occur, many voluntary
insurance carriers are underwriting, certainly, more carefully in some of the coastal states but I can
tell you that, again our as we disclose very we certainly put all of our when we disclose in our
letters, we put our premium amounts in there. We encourage them to go out and get other
coverage. And even in situations where they have been cancelled by a voluntary carrier, there is
usually an opportunity if they look and do the work, there is an opportunity for them to get a
voluntary policy.

<Q>: And Gene, just maybe a point about thinking about when people lapse, sometimes people
can just lapse or not respond and drop their insurance. And as youre talking about, the other
reason may be a carrier may be, for example, pulling out of a state and they would lose their
coverage because a carrier decided not to cover policies in Vermont or something?

<A Gene Mergelmeyer>: Yeah. I mean that typically will occur and youll hear oftentimes within
the industry that there will be State Farm pulling out of a section of Florida or Allstate pulling out of
a section of Florida. I can tell you, in most cases, those policies are ultimately replaced by other
voluntary carriers. Thats our experience.

<Q>: Okay. Thats very helpful. Thanks.

Operator: Thank you. [Operator Instructions] And our next guest is Steven Shoots (sic) [Schwartz]
[Raymond James]. Steven your line is open.

<Q Steven Schwartz>: Hi, Gene, can you hear me? Its Steven Schwartz, Im going to assume
they meant me.

<A Melissa Kivett>: I think so.

<A Gene Mergelmeyer>: Yes, we can hear you. Thanks. Okay. How are you doing?

<Q Steven Schwartz>: Reading the article, like everybody else, I thought there were kind of four
main accusations if you would be. The first one that I would identify is the backdating, as you
pointed out, thats necessary and sometimes you wind up covering stuff that you wouldnt cover if
you hadnt backdated, thats understandable.

I think the second issue is one of reinsurance and whether there was something wrong there? Ill
just say, I didnt realize that you were reinsuring that business but it always surprises me that
lenders didnt want to reinsure that business given what they get in mortgage insurance and what
they do on the credit side. I think the issue that I would I guess, there is the issue of mortgage
servicers somehow doing dastardly deeds in getting people into this. You seem to categorically
deny that, is that correct?

<A Gene Mergelmeyer>: Yes.

<Q Steven Schwartz>: Okay. And then finally, the one thing, what do the servicers do the
article I mean, I know you do so much of this business and it is so much done by you even under
other peoples names. Is there a RESPA violation here? Thats what the article seemed to be
alleging.

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<A Gene Mergelmeyer>: I firmly its certainly my belief that we operate in a very compliant
manner. I know all of our lenders are very cognizant and also try and operate in a very compliant
manner. And so, I believe and again, weve been in this business for a long time. Im committed to it
being compliant, value add for all constituents and I believe our clients are in the exact same
position.

<Q Steven Schwartz>: Okay. Thats really the only issue that I was able to identify. I appreciate
the insight.

Operator: [Operator Instructions] And our next guest is Jay Leopold [Legg Mason Capital
Management]. Jay, your line is open.

<Q Jay Leopold>: Thank you. I was wondering, if you could describe for us how you compete for
business and win business? Is it price or are your prices relatively the same as others and youre
competing for business based on either commissions or reinsurance rates?

<A Gene Mergelmeyer>: Yeah, I think thats a really good question. And I going back to the
publication, I think there was an inference that the servicer clients are not sensitive to rates. And its
certainly my belief that thats not true at all. And one of the thing again, I think we believe that our
rates are some of the lowest in the industry. And I believe that thats certainly a factor in allowing us
to compete and win business. And it is a focal point, both our prospects and our clients. And then,
quite frankly, when I look at what really sells our product, its really around the treating of their
customers, the customer service level that were able to have with them, our ability to do the
tracking well, be proactive and not false place insurance policies.

And trust me, our whole process is built on making sure that we do whatever we can to get that
borrower to get their own coverage. And our lenders require it and we work with the investors,
certainly the Fannies and Freddies of the world, to make sure that the tracking procedures are
compliant and providing adequate coverage to the extent that the borrower needs to file a claim.
There are people spending lots and lots of time trying to make sure that these programs are
effective and that we are only placing insurance when there is no absolute other coverage.

<Q Jay Leopold>: Do you believe you have the lowest cost structure in the industry or is your
mousetrap any better than anyone elses?

<A Gene Mergelmeyer>: Well, I certainly do. I believe we have a very good again, I think
through our proprietary technology and a number of the other things that we have in place, we have
core capabilities around doing this administrative business and I think that provides us with
tremendous competitive advantages and cost-effectiveness.

<Q Jay Leopold>: And then final question, of all the servicers that youre dealing with, are they
do 100% of them receive either a commission or reinsurance or are some of them just straight?

<A Gene Mergelmeyer>: I would say never say never.

<Q Jay Leopold>: Okay, but...

<A Gene Mergelmeyer>: ... not 100%, no.

<Q Jay Leopold>: But most of them, as a rule, will receive one or the other and is one of them
more common than the other? It sounds like commissions are more common than reinsurance?

<A Gene Mergelmeyer>: Yeah, reinsurance is a very small minority.

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<Q Jay Leopold>: And then the commission rates vary depending on whatever you can
negotiate?

<A Gene Mergelmeyer>: Thats true.

<Q Jay Leopold>: Okay, thank you.

Operator: Thank you. [Operator Instructions]. And our next guest is Ryan Harkins [Chartwell
Investment Partners]. Brian your line is open.

<Q T. Ryan Harkins>: Hi, in situations where a servicer outsources the tracking and processing
of hazard insurance to Assurant, does Assurant in those situations get all of the insurance business
or is that bid out on a competitive basis for each individual borrower?

<A Gene Mergelmeyer>: Well, I would say, if we are signing up for and the lender servicer is
hiring us for the business, then we have the exclusive right to place the insurance in every one of
the uninsured borrowers and that is what we do by contract.

<Q T. Ryan Harkins>: And is the pricing in those situations, is it its negotiated upfront with the
servicer or is it priced again on an individual basis?

<A Gene Mergelmeyer>: Again, our rates and forms are regulated by the insurance departments
and we implement those across our lenders. There is some rate flexibility based on certain
underwriting criteria of the bank and deductibles and things of that sort, but generally our insurance
programs are the same across each of our lenders.

<Q T. Ryan Harkins>: Okay. And do you disclose how many of those outsourcing relationships
you have and with whom?

<A Gene Mergelmeyer>: No, we dont.

<Q T. Ryan Harkins>: Can you disclose what percentage of your business is through those
kinds of relationships?

<A Gene Mergelmeyer>: Well, when you say those kind of relationships, may I just better
understand that -

<Q T. Ryan Harkins>: Well, maybe, its 100%. Im not terribly familiar with your business. What
percentage of the written premium is through relationships with servicers where you essentially
control 100% of the tracking and the processing for their loan portfolios?

<A Gene Mergelmeyer>: Well, that would be the majority. It wouldnt be on 100%, but of the
creditor-placed homeowners business that we do and again, we do write other products other than
just this product. But, I would say the majority are we would also perform the tracking services.

<Q T. Ryan Harkins>: Got it. Okay, thanks very much.

Operator: Thank you. Our next guest is Jeff Schuman [Keefe, Bruyette & Woods]. Jeff, your line is
open.

<Q Jeffrey Schuman>: Thank you, good afternoon, thanks for doing the call. Gene, I was
wondering if you could talk a little bit more about another aspect of this, which is, I guess, to what
extent have the costs of the coverage been visible, I guess, to the ultimate investors in mortgage
securities? Do you think that awareness is changing and whats the risk that they may just seek to
require or incentivize the servicers to somehow search for more cost competitive solutions here?

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<A Gene Mergelmeyer>: Well, I can certainly appreciate that question. I dont know at this point
that I would be in the position to really speculate on what a lender may be thinking at this point in
time. What I can say is, we do work with them on a regular basis and we do work with the GSEs,
the Fannies and the Freddies of the world and we are constantly talking about them to try and
make sure that our programs are fitting everyones needs.

<Q Jeffrey Schuman>: Okay. And then to follow up on one of Johns initial questions, he was
asking about the filing process and you indicated that there is a lot data in the filings. But can you
give us any sense of kind of what key metrics or thresholds or standards some of the states might
look at? Because certainly, if we think about of sort of the typical minimum loss ratio requirements
that exist in other lines of business, I mean, this kind of wouldnt hold up well against that kind of
standard. So what exactly are do you think the regulators are looking at when they sort of assess
the reasonableness of the premiums?

<A Gene Mergelmeyer>: Well, again, there are many factors. It is a unique business, there are
catastrophic risks. So it does vary by state, so we, again, focus on each individual state. I dont
want to get into specific targets or anything associated with that in any particular filings. But it is
something that we work with each state based on the requirements of that state and based on the
nature of the business in that state in terms of developing our filings.

<Q Jeffrey Schuman>: And I think you mentioned 49 states. If thats the case, is there a different
scheme in New York or what is the outlier?

<A Gene Mergelmeyer>: The outlier would be Texas, which again, they have some mandated
forms that dont fit this specific program that such that it relies us requires us to file it on a
surplus basis, but we do file those forms and rates for the state, but it is on a surplus basis in
Texas.

<Q Jeffrey Schuman>: Okay. Thank you very much.

Operator: Thank you. Our next guest is John Nadel [Sterne, Agee & Leach]. John?

<Q John Nadel>: Thanks, Betty. Gene, Ive got a couple of follow-ups for you. I realize you guys
care about the opinions of all the other participants who are at the table and have a Im sure
sort of a vested interest in making sure that everybody who has got a seat at the table of this whole
process is I guess, that everybody is feeling like they are on equal footing. But more formally or
technically, do you have any fiduciary responsibility at all to the actual buyer of the mortgage, the
CMBS holder or whoever that might be? Do you have any fiduciary responsibility to them?

<A Gene Mergelmeyer>: In terms of our policies, our master policies that are issued to the
lenders, the borrower is an additional insured. So they have the ability to file claims and we
certainly service those claims.

<Q John Nadel>: Understood. But if there is okay. So if it goes so if a property is foreclosed
and the owner becomes the is the owner of the mortgage-backed security I guess, theyd have
the wherewithal to file claims if they needed to?

<A Gene Mergelmeyer>: Yeah...

<Q John Nadel>: Okay.

<A Gene Mergelmeyer>: ... its a separate program, but we do have the real estate owned
program that we do write for a number of our lenders and certainly, they have the ability to file
claims as well.

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<Q John Nadel>: Got it. Got it. Maybe this questions more for Melissa I dont know, is there
any reason that you guys can think of why an article in American Banker would have any impact
whatsoever on your ability to be buying back shares?

<A Melissa Kivett>: Yeah, obviously, we cant comment about ongoing or potential buy backing
buyback activity. I mean, I think I can only refer to what we said on our third quarter call.

<Q John Nadel>: Okay. Im not asking you to say whether you are or arent, Im just wondering if
an article in some industry paper were to could have an impact on that?

<A Melissa Kivett>: I guess, there is always ongoing viewpoints on the companies that are
stretched through the press or like through you guys through analyst reports. So...

<Q John Nadel>: Okay.

<A Melissa Kivett>: I cant speculate, I probably have to refer to the lawyers to ask that question.

<Q John Nadel>: Okay. And then the last one Ive got for you, Gene, is just aside from the rate
the filing of rates state-by-state, are there any regular or I dont know, somewhat regular, formal
regulatory reviews that are done or conducted by any of the insurance departments or other bodies
of your business?

<A Gene Mergelmeyer>: Yes, yes, there are. We are subject to certainly triannual audit for all
the various insurance companies. We have other states that are doing regular reviews of us on an
ongoing basis.

<Q John Nadel>: Okay. Thanks a lot. Betty, I think weve got, you guys have a couple of more
minutes. So you can go back.

Operator: Thank you. Our next guest is Mark Hughes [SunTrust Robinson Humphrey]. Mark your
line is open.

<Q Mark Hughes>: Thank you. In the foreclosure process, is does the repayment of these
insurance fees take precedence over other, I guess, contestants for whatever proceeds there are
from the sale?

<A Gene Mergelmeyer>: Run that by me one more time.

<Q Mark Hughes>: Just the force-placed insurance, if in a foreclosure process, do you have
precedence? Are you repaid first?

<A Gene Mergelmeyer>: Would that be before the ultimate investor?

<Q Mark Hughes>: Yes.

<A Gene Mergelmeyer>: Yes.

<Q Mark Hughes>: And then, do you ever get into situation where you negotiate that or is that
pretty rock solid?

<A Gene Mergelmeyer>: I really thats not I would refer you to the lending community. Thats
not really my expertise. So, I would just refer you to them for that question. Im sorry.

<Q Mark Hughes>: Thank you.

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Operator: Thank you. Our next guest is Ryan Burns. Ryan, your line is open.

<Q Mark Finkelstein>: Hello. Its, Mark Finkelstein actually from Macquarie. I guess a couple of
question. Firstly, when you talked about the comparison between premiums and the voluntary
versus the force-placed market, was that apples-to-apples thinking about the differences in the
actual coverage levels, because, as I understand it, your product doesnt actually cover contents?

<A Gene Mergelmeyer>: No. Thats correct. Our product does not cover contents or liability.

<Q Mark Finkelstein>: I guess if you so, if you adjusted for that, what would be the differential
in premium?

<A Gene Mergelmeyer>: Well, again its going to vary significantly by state and again by
where the individual property and the underwriting characteristics of that property. As I tried to
mention if you really look at our policies, I mean, theyre certainly not the most desirable from an
underwriting standpoint in most cases. So, we often deal with vacant properties or again, properties
in very CAT prone areas or in undesirable neighborhoods where the risks are certainly higher. So,
its difficult because each individual policy has its own characteristics.

<Q Mark Finkelstein>: Okay.

<A Melissa Kivett>: I think the key point, Mark, is that there as Genes saying, is theyre not
underwritten and that reflects the difference in the rate of the risks that were taking on because
we are not individually underwriting any of the policies and our commitment to our clients is that we
will track and ensure that all people in accordance with the law will maintain the insurance and if
they lapse on their coverage, well let them know. Theyll have 60 to 90 days period on average to
get a policy and if they dont, in accordance with the law, well actually place a policy. And thats the
difference thats reflected in the premium.

<Q Mark Finkelstein>: Okay. And then I guess just a broader question, I mean putting all the
accusations that were in the article to the side. I mean, I guess the broader question is, how do we
think about margins on this business going forward? I mean obviously the margins on this business
or materially higher than what you see in the voluntary market. Clearly, there is a certain
technology/kind of fee side of this that is part of that differential. But I mean, sometimes when you
have these kind of issues, you have to start to think about that margin and whether there is risks of
further margin compression just in the pricing of this business going forward.

And Im just curious, if you have any views on is this a change or in terms of how you have to
think about the product, how you have to think about margins and how you have to think about
pricing?

<A Gene Mergelmeyer>: Well, its certainly difficult to speculate all the ramifications of articles
and whatever else that are going to occur here . But think of oftentimes, when we think of our
business, think of the fact that it is very, very CAT prone. Think about how we would be similar to
let say our reinsurer, who quite frankly, has to have pretty low loss ratios in non-CAT periods,
because we are susceptible to volatility around CATs, we have to run it at lower loss ratios in non-
CAT times. Weve been lucky enough to have those situations occur in the last couple of years,
which has produced some of our lower loss experience, but again I think I pointed out, with 50% of
our in force coverage being in CAT prone states, we certainly have a CAT exposure to our
business model.

<A Melissa Kivett>: Yeah, and you could see from our reported results that since going public in
2004, weve had in excess of 500 million in gross CAT losses, to Genes point.

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<Q Mark Finkelstein>: Okay. Thank you.

Operator: Thank you. That concludes our Q&A session. Ill turn the call back over to the John
Nadel.
Thanks Betty. Gene and Melissa, thank you so much for spending the time with us today. Really
appreciate you taking the time out to do this. I think it was very helpful for all of us.
Great. And thanks so much John, we appreciate you facilitating the call and for everyone who was
able to call in and we will post a transcript on our call for people who want to reference that. Thank
you so much.
All right. Thank you.

Operator: That concludes todays conference. Thank you for participating. You may now
disconnect.

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