Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: Presi

1. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010

2. Reinsurance as a Strategic Capital Management Solution • Reinsurance has a long history as a capital management tool • Use of reinsurance in this capacity has increased steadily and will likely continue to climb • Virtually every reinsurance treaty contains some degree of capital leveraging

3. Capital • Different levels of capital: • Economic capital, what you think you should hold to support your risks • Regulatory capital, what regulators believe you should hold • Rating agency capital, what the agencies think you should hold • Accounting statement capital, how much capital shows up on your official returns • Too much capital may be much better than too little; optimal capital levels balance safety and efficiency

4. How much capital? Inefficient use of capital Optimal Capital Difficulty Attracting Customers Suggested Minimum Regulator Supervision Statutory Minimum Regulator Intervention Insolvency Source: Alex Thomson, Capital costs of Insurance – some empirical analysis

5. Capital • Capital flows to best risk-adjusted returns • Sources of capital: • Capital markets for equity, debt, hybrid • Sell assets • Reinsurance • Embedded value securitization (essentially reinsurance through public markets)

6. II. Comparison

7. Capital • Value of a company may depend upon how it is financed if financing affects • Taxes • Borrowing rates • Cost of capital • “Flight to quality” environments reward strong capital positions • Capital markets have not been open during much of the recent crisis • Do not overly rely on any single form of capital • To determine optimal capitalization • Must know what capital you target • Must determine the most important metrics: ROE, embedded value, profit per share, etc. • Risk adjusted returns have taken on increased prominence

8. Reinsurance as a Capital Tool • Like any type of capital tool, reinsurance has positive and negative features • Negatives: introduces large counterparty limited size compared with vastness of public markets may be more expensive may “shrink” the company • Positives: speed no prospectus no bankers, lawyers affects both numerator, denominator of capital ratio shows up as retained earnings (equity) cost private (usually) flexibility involves reinsurance of a block of business, but can be structured to fit needs

9. Reinsurance Flexibility in a Capital Solution • Small or large amounts • In force or new business • Duration • Cash or cashless • Beneficial tax effects • Quick, dependable • Range of risk transfer from full to minimal • Slope of effects • Can be perfect hedge • recapture

10. ReinsuranceMotivations • New business financing • Eliminate redundant capital • Increase liquidity • Monetize embedded value to recycle capital • Contingent capital • Merges & Acquisitions • Overall capital planning / management

11. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010