BERMUDA: AT THE CENTER OF CONVERGING REINSURANCE AND CAPITAL MARKETS

1. BERMUDA: AT THE CENTER OF CONVERGING REINSURANCE AND CAPITAL MARKETS Panel Kathleen Faries, Vice President Tokio Millenium Re Ltd. Jonathan Kim, General Counsel Neil Horner, Senior Counsel Montpelier Reinsurance Ltd. Attride-Stirling & Woloniecki

2. BERMUDA: AT THE CENTER OF CONVERGING REINSURANCE AND CAPITAL MARKETS • The amount of capital being contributed to the reinsurance marketplace has increased significantly since 2005 Cat Bonds Side Cars Equity in Reinsurer $7.5bn 2007 Less Prevalent Bermuda Start Ups $4.75bn 2006 in soft market ILS Dedicated Funds Collateralized Reinsurance Obligations (CRO’s) Estimated Capital $7bn ILW’s /Derivatives e.g. Gamut Re Transformers Not as attractive in present market Direct One Shot Collateralized Diversity for Investors

3. CATASTROPHE BONDS • Structured debt instrument providing protection for sponsor’s exposure to a particular catastrophic risk(s) • Interest and/or principal payments are delayed or lost in the event of loss due to specified covered event • Originated in early 1990s following Hurricane Andrew and Northridge Earthquake, which drained traditional capacity and raised prices • Covers specified perils (e.g., U.S. Earthquake – California, New Madrid, Japanese Earthquake; U.S. Hurricane – Gulf and Eastern Coastal Regions; European Windstorm; Far East Typhoon; UK Flood) • Multi-year coverage • Loss triggers may vary by transaction • Offers investors higher return than corporate bonds, risk diversification

4. BASIC CAT BOND STRUCTURE Premiums SPONSOR(CEDING INSURER OR REINSURER) ISSUER(SPECIAL PURPOSE REINSURER) INVESTORS(QUALIFIED INSTITUTIONAL BUYERS) Premiums LIBOR Return of Principal (at Maturity) Reinsurance Agreement or Financial Contract Note Proceeds Return of Funds at Maturity (if Bond not triggered) Total Return Swap Portion of Note Proceeds Note Proceeds LIBOR SWAP COUNTERPARTY TRUST ACCOUNT(PERMITTED INVESTMENTS) EXPENSE ACCOUNT (ISSUER’S OPERATING EXPENSES) LIBOR Investment Income

5. SIDECARS • Limited life single purpose reinsurer provides additional capital to existing insurer or reinsurer • Sidecar reinsures sponsoring insurer or reinsurer on quota share basis through negotiated retrocession agreement • Sidecar’s capital (typically equity and debt) provides collateral for covered losses • Short-term (1-2 year) underwriting period followed by rampdown, automatic commutation, providing investors with quick and certain exit mechanism • From sponsoring reinsurer standpoint, provides additional much needed capacity without having to issue debt or a dilutive stock offering • Allows sponsoring reinsurer to maintain management and underwriting control • From investor standpoint, provides entry into (and exit out of) market without incurring costs of start-up and assumption of legacy liabilities • Ability to focus on specific lines of business expected to offer highest returns

6. ILLUSTRATIVE SIDECAR STRUCTURE Equity Proceeds Equity Investors HoldCo (Bermuda) Shares Net Income/Dividends Quota Share Reinsurance Contract Debt Proceeds “Sidecar” OpCo (Licensed Bermuda Reinsurer) Sponsoring Insurer/ Reinsurer Debt Investors Notes Losses & Ceding Commissions Interest/Dividends Premiums Premiums Equity & Debt Proceeds Earnings on Trust Assets Swap Counterparty Collateral Trust Account LIBOR plus Spread

7. INDUSTRY LOSS WARRANTIES (ILW) • An accepted and growing from of Catastrophic Reinsurance • Provide investors with a relatively straightforward entrance into the Insurance/Reinsurance Linked Investment arena • Unlike traditional Cat Reinsurance, ILW’s are based on two triggers • Specific Loss to the Industry as a whole • Specific Loss to the Buyer (to allow the buyer to receive reinsurance accounting treatment) • Types of Triggers: Industry Index, Pure Parametric, Parametric Index • Term of contract typically one year with no reinstatements

8. TRANSFORMERS / ILS DEDICATED FUNDS Cedant Tokio Millennium sells reinsurance capacity to the Cedant Cedant Tokio Millennium sells reinsurance capacity to the Cedant Tokio Millennium Transformer/Investor provides collateral to Tokio Millennium Tokio Millennium Tokio Millennium cedes the risk to the Investor’s Class III Reinsurer (Transformer) Investor provides collateral to Tokio Millennium Transformer Tokio Millennium purchases a derivative contract from the investor that mirrors the reinsurance contract terms which transfers the risk to the investor Derivative Swap Contract with Investor Transformer transfers risk to the Investor through Indemnification Agreement Investor contributes assets to the Transformer Cedent Investor

9. INVESTING IN A BERMUDA REINSURER • Bermuda has become jurisdiction of choice to establish new “Class of” super cats to fill capacity crunch following natural (KRW, Andrew) and man-made (9/11) disasters • Investment will typically be into a holding company established in Bermuda (“Holdco”) in return for equity in Holdco. • Assuming investment into Holdco, Holdco will then contribute capital to licensed Bermuda Class 4 reinsurer and will be sole shareholder in the Class 4 reinsurer. Investment can also be directly into reinsurance company. • A number of the “Class of 2005” companies have listed on onshore exchanges such as NYSE or NASDAQ

10. INVESTING IN A BERMUDA REINSURER • Shareholder rights set out in constitutional documents (bye-laws) and shareholder agreement/subscription agreements • Investors may obtain special board representation rights or board appointment rights • Class of 2005 was heavily populated by hedge funds and private equity funds • Some hedge funds have even established their own Class 4 reinsurers in Bermuda

11. WHY SET UP A CLASS 4 REINSURER IN BERMUDA • Speed to market • Responsible but facilitative regulatory regime which is internationally respected • Recent regulatory enhancements affecting Class 4 reinsurers demonstrates Bermuda’s commitment to high regulatory standards -Class 4 reinsurers must provide audited GAAP/IFRS financials, which the BMA will make publicly available -new Bermuda Solvency Capital Requirement for Class 4 companies • Infrastructural strengths – intellectual talent • Stable legal and political structure