CEO Panel I: Regulators’ Perspective: Consumer Issues and Natural Disasters

1. International Insurance Society 44th Annual Seminar CEO Panel I: Regulators’ Perspective: Consumer Issues and Natural Disasters By Connie Wong, Senior Director Team Leader for Insurance Ratings, Asia, Financial Insitutions Ratings Standard & Poor’s 14 July 2008

2. Standard & Poor’s Ratings for Insurers Financial Strength Rating (FSR) • An Insurer Financial Strength Rating is an current opinion of the financial security characteristics of an insurance organization with respect to its ability to pay under its insurance policies and contracts in accordance with their terms. Counterparty Credit Rating (CCR) • A counterparty credit rating is a current opinion of an obligator’s overall capacity and willingness to meet its financial commitments as they come due.

3. Standard & Poor’s Credit Rating Scale AAA ‘Exceptionally Strong’ AA ‘Very Strong’ A ‘Strong’ BBB‘Good’ • ----------------------- Investment grade cut-offbetween BBB-Minus and BB- Plus BB ‘Marginal’ B ‘Weak’ CCC ‘Very Weak’ CC ‘Extremely Weak’ R formally ‘Under Regulatory Supervision’ D ‘In default’ NOTE: Interactive ratings can be further qualified through use of ‘+’ and ‘-’ suffixes There is also a short-term scale: ‘A-1+; ‘A-1’; ‘’A-2’, ‘A-3’, etc.

4. Standard & Poor’s Insurance Ratings Methodology • Industry Analysis • Competitive Position • Management and Corporate Strategy • Enterprise Risk Management • Operating Performance • Investments, Asset-Liability Management and Liquidity • Capitalization, Reinsurance and Reserving • Financial Flexibility Major Analytical Categories

5. Strategic Risk Management Risk & Economic Capital Models Risk Control Processes Emerging Risks Mgmt Risk Management Culture ERM Evaluation Components

6. Insurance Ratings Perspective: Consumer Issues

7. Insurance Ratings: Consumer Issues policyholders’ interest protection, sophistication of consumers, loss of consumers’ confidence, mis-selling • Industry Analysis • Competitive Position • Management and Corporate Strategy • Enterprise Risk Management • Operating Performance • Investments, Asset-Liability Management and Liquidity • Capitalization and Reserving • Financial Flexibility and Reinsurance customer satisfaction and loyalty, product profile and distribution channel shareholders focus vs customer focus operational risks potential impact to performance potential impact to financial profile (e.g. liquidity, capitalization & financial flexibility)

8. Insurance Ratings Perspective: Natural Disasters

9. Insurance Ratings: Natural Disasters Issues catastrophe risks prone markets, insurance policies with natural catastrophe risks coverage, market data availability • Industry Analysis • Competitive Position • Management and Corporate Strategy • Enterprise Risk Management • Operating Performance • Investments, Asset-Liability Management and Liquidity • Capitalization and Reserving • Financial Flexibility and Reinsurance company’s natural catastrophe risks exposure, technical know-how strategy/policy on catastrophe risks exposure risk control over catastrophe risks (1/250 year return period basis) , emerging risks control, modeling potential impact to performance reinsurance usage, potential impact to financial profile

10. Appendix

11. ERM Evaluation on 274 Insurance Entities – 2007

12. ERM Quality Classifications

13. Conclusion: the Evolution of ERM and the Role of ECM Link with strategy Return optimization Strategic integration High Risk measurement Risk management Medium Risk models: Economic capital models Other models Loss minimization Compliance Low Risk control Balance sheet protection Risk/return optimization Value creation Today Industry standard in the last 5-10 years Industry standard in the next 5-10 years

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