IIS 45 th Annual Seminar

1. IIS 45th Annual Seminar The Changing Insurance Landscape – What Survives? Insurance-linked securities Ms. Alison McKie, Managing Director, Swiss Re, United Kingdom June 7-10, 2009 Amman, Jordan

2. Why securitise? • Securitisation is one of many tools available for risk or capital management purposes • use of capital markets increases available capital to support risks taken by (re)insurers • leads to greater capacity and a more efficient market • Packaging insurance risks into insurance-linked securities (ILS) enables sponsors to access a wider source of capital • investors value the ability to diversify risks and the opportunity to invest in instruments with a range of durations at attractive spreads • Life ILS typically fall into three broad categories: • catastrophe cover to manage peak risks, ie, pandemic protection • embedded value (EV or VIF) securitizations to help firms manage their capital more efficiently • financing transactions, such as redundant reserve financing, ie, ”Regulation XXX” • Non-life ILS are typically nat cat covers to manage peak risks

3. ILS market capacity Total non-life bonds outstanding, by year Total non-life bonds outstanding are approximately USD 13 billion Total ILS outstanding, by year Total bonds outstanding exceed USD 35 billion As of May 5, 2009 Source: Swiss Re Capital Markets

4. XXX 18% ($8,880mm) Multiperil 19% ($9,328mm) Embedded Value 19% ($9,320mm) US Wind 13% ($6,550mm) Other – Life 5% ($2,617mm) CA EQ 6% ($3,208mm) JA EQ 3% ($1,529mm) Euro Wind 4% ($2,056mm) Extreme Mortality 4% ($2,159mm) Industrial Accident 1% ($405mm) AXXX 1% ($590mm) Credit Reinsurance <1% ($305mm) Event Cancellation <1% ($256mm) JA Typhoon 1% ($400mm) Auto 2% ($847mm) Risks securitised since 1997 Pacific NW EQ 1% ($600mm) New Madrid <1% ($226mm) Mexico EQ <1% ($190mm) As of May 5, 2009 Source: Swiss Re Capital Markets Taiwan EQ <1% ($100mm)

5. Evolution of the ILS investor landscape for cat bond new issuance The ILS investor base has expanded from the early days when it was dominated by traditional (re)insurers Dedicated funds currently dominate the sector and continue to raise capital despite the turmoil in the broader financial markets Money managers and pension funds continue to see value in the diversifying aspects of ILS Multi-strategy hedge fund participation has fallen back to historic levels as these institutions have come under pressure Source: Swiss Re Capital Markets

6. Cumulative Return High Yield Performance from 1 January 2007 – 5 May 2009 20% -1% Index Values -38% Swiss Re Cat Bond Index Total Return”, calculated by Swiss Re Capital Markets ("SRCM"), is a market value-weighted basket of nat cat bonds tracked by SRCM, calculated on a weekly basis; past performance is no guarantee of future results. Underlying data for “Swiss Re Cat Bond Index Total Return” is based on indicative prices only. Underlying data for S&P 500 Index is provided by Standard & Poors. The S&P index is the property of Standard & Poors, a division of the McGraw-Hill Companies, Inc. Underlying data for Barclays Capital High Yield Index provided by Barclays Capital. The Barclays Capital index is the property of Barclays Capital, a division of Barclays Bank Plc. The Cat Indices are provided for informational purposes only, and not intended as an offer or solicitation, nor as the basis for any contract for the purchase, of any security or other instrument, nor as a promotion or recommendation of any security, financial product or other investment vehicle or any trading strategy. None of SRCM nor its affiliates endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies.

7. Impact of economic crisis on ILS market • Historically, many life deals included monoline wrap • monolines suffered significant losses and downgrades; future role in life deals unclear • Some investors became forced sellers after facing redemptions, unwinding of liquidity facilities or losses in other asset classes • future investor profile could look very different • Rating from rating agencies generally under challenge • Lehman’s default as swap counterparty on some deals has caused losses otherwise unanticipated at deal inception • failure of Lehman’s resulted in greater scrutiny of collateral and collateral structures • Improvements in liquidity have caused spreads to begin to tighten • Liquidity in many sectors had become scarce and caused a widening of ILS spreads in late 2008 • These factors resulted in a significant slowdown in issuance for 4Q 2008. However, $1.2bn in new issue 2009YTD is quite strong with a robust pipeline behind it

8. Growing from the crisis • Changes are already being introduced in a number of areas: • with the absence of monolines, investors are engaging insurance specialists to analyse risks or undertaking own diligence in return for higher yields offered • many sponsors are seeking to increase frequency and detail of regular reporting to address investor frustration with lack of information • a number of new collateral solutions are being put forward; both sponsors and investors are motivated to find sensible solutions • development of risk transfer in new risk classes (longevity) • New issuance in the nat cat sector is very strong for 2009 YTD • Other areas where more could be done to grow market include: • continued investor education to expand and deepen investor base • rating agencies improving transparency of ratings and restoring confidence to make ILS market more accessible to non-specialist investors • sponsors opting for transparent, scalable solutions to grow market and liquidity (and reverse current trend towards private deals)

9. Outlook for ILS The drivers of long term growth in the ILS market are still very much in place investors’ appetite for high yielding assets which are generally not correlated to other financial instruments sponsors’ demand for capital and additional capacity (especially after the economic crisis depleted many (re)insurers’ capital bases) In addition, many factors encouraging (re)insurers to focus on economic capital Solvency II and other regulatory changes developments in risk management and rating agency models shareholder pressure to improve capital management So, all indications are that the ILS market will not only survive but prosper in the changing insurance landscape Slide 9

10. Questions?

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