A crisis, what’s the use, what’s the purpose?

1. A crisis, what’s the use,what’s the purpose? Impact of the Crisison Risk Management and Regulation Raj SinghMember of the Executive Committee, Swiss Re Monte Carlo, 8 September 09

2. Agenda • Risk management lessons learned • Evolving regulatory landscape • Looking forward RVS Monte Carlo 2009 Raj Singh Slide 2

3. Massive asset write-downs resulting in realised and unrealised losses Ratings downgrades Liquidity risk surprises Complex products left unhedged Back-up funds tapped Dilutive capital raised Government bailouts Insurance industry withstood the crisis, but was not unscathed Balance sheets adversely affected… …last-resort solutions relied upon RVS Monte Carlo 2009 Raj Singh Crisis revealed important deficiencies with respect to current risk management practices Slide 3

4. Score-card calls for independent and pre-emptive risk management Slide 4

5. Agenda • Risk management lessons learned • Evolving regulatory landscape • Looking forward RVS Monte Carlo 2009 Raj Singh Slide 5

6. Regulatory risks accelerate and new ones emerge as the crisis unfolds Short term governments actions… …Longer term regulatory initiatives • Providing capital and market liquidity • Nationalisation • Support to troubled institutions • Set-up of troubled asset funds • Pumping liquidity into markets • Encouragement of reduction in leverage and increases in capital • Short-selling rules • Stricter rules on capital requirements • Liquidity risk management standards • Restricted compensation structures • Group supervision and colleges • Systemic risk regulation • OTC derivative structures • Hedge fund regulation • Relaunch securitisation markets • Changes in “fair value” accounting Source: Swiss Re, Oliver Wyman RVS Monte Carlo 2009 Raj Singh Regulatory costs will increase as the industry undergoes structural changes Slide 6

7. Crisis reinforces the case for Solvency II • Principles of approved Directive framework are appropriately economic and risk-based • Challenges foreseen in implementation as national interests surface Industry general concerns Reinsurance specific issues • Treatment of non-proportional • Counterparty credit risk • NatCat scenarios • Geographic diversification • Market consistent valuation • Treatment of own funds • Group supervision • SCR calibration and calculation RVS Monte Carlo 2009 Raj Singh Key imperative for insurers and reinsurers alike to secure appropriate recognition of risk mitigation techniques Slide 7

8. Insurance industry to raise its voice, as regulatory environment evolves Key objectives for the industry Emphasise (re)insurance specificities • Differentiate the business model of (re)insurance from banks • Establish economic and risk-based regulatory framework Promote sound risk and capital management Maintain market access and level playing field • Secure governments’ commitments to open trade and fair competition Achieve accounting convergence • Enforce market-consistent valuation and avoid pro-cyclicality RVS Monte Carlo 2009 Raj Singh Insurance and reinsurance are part of the solution, and not sources of the crisis Slide 8

9. Agenda • Risk management lessons learned • Evolving regulatory landscape • Looking forward RVS Monte Carlo 2009 Raj Singh Slide 9

10. Key areas of focus going forward • Ensure independence of risk management function • Rethink risk governance framework to be more pre-emptive • Enhance group supervision and role of supervisory colleges • Encourage economic and risk-based solvency regimes • Avert protectionist and isolated government behaviour • Make the case for insurance, as it is part of the solution RVS Monte Carlo 2009 Raj Singh Slide 10