June 8 th , 2010

1. Reinsuranceas aStrategic Capital Management SolutionDiscussion Materials For IIS 46th Annual SeminarNigel SedgwickWillis Capital Markets & Advisory June 8th, 2010

2. Reinsurance as aStrategic Capital Management Solution • Reinsurance buyers would seem to fall into two distinct categories • Partnership buyers • Historical basis of reinsurance • It gave insurance companies access to greater diversification than would have been available from their own risk pool • Made the principle of insurance more effective • Long term consistent buying patterns that are relationship driven • Strategic buyers who access the market to buy tailored risk management products • Modern approach • Buy to meet strategic objectives, such as rating or solvency criteria • Access the market periodically depending on pricing of both reinsurance and primary markets • Vary their buying patterns • It is the strategic buyers who are of the greatest interest from a capital markets perspective

3. Reinsurance as aStrategic Capital Management Solution • Reinsurance is interesting from a banking perspective and observations include • Off balance sheet capital • Essentially a derivative • Finite market fundamentally closed • Converts insurance risk into counterparty risk • Significant parallels to financial markets, where most risks can be hedged • Very much a short term market • Risk bearing period is predominantly one year • Illiquid private market • Frictional costs can be high • All attempts to create a more liquid standardised market have failed • Offsetting benefit is excellent flexibility

4. Reinsurance as aStrategic Capital Management Solution PROPERTY RATES AS OF 31-12-2009 RENEWALS • Insurance and reinsurance fared better than the banks in the credit crisis • Relatively low asset losses due to conservative investment philosophy • Pricing has remained relatively stable throughout the financial crisis and continues so • Pricing not driven by normal capital market forces • Affected more by loss experience

5. Reinsurance as aStrategic Capital Management Solution • Extremely effective capital management tool • Significant capital relief for solvency and rating • Despite the short term nature of the capital • Very flexible, capable of meeting many objectives • Diversifying source of capital • There are many similarities between reinsurance and more traditional capital market products • Catastrophe excess of loss covers behave like debt • Rationale for the Insurance Linked Securities market • Quota share covers behave like equity • Rationale for the Sidecar market • Increasingly we see reinsurance being judged alongside alternative capital solutions • Greater pressure on the reinsurance industry to deliver • Greater sophistication required on the part of the buyer

6. Reinsurance as aStrategic Capital Management Solution • The utilisation of reinsurance by many buyers still differs when compared to their use of other forms of capital • The buying decision seems to be driven by • Maintaining market share • Internal risk controls • Managing short term solvency and ratings issues • How often do buyers explicitly evaluate the impact on capital market metrics? • Impact on stock valuation • Given that reinsurance involves significant counterparty risk the market differs from the capital markets in one material respect • Rarely observe any pricing differential for credit risk • It will be interesting to see if Solvency II changes this • Relationships very important buying criteria

7. Reinsurance as aStrategic Capital Management Solution • Conclusion • Reinsurance remains an indispensible capital management solutions for most insurance companies • Cost effective • Efficient • Flexible • We see a continued convergence between traditional capital market solutions and reinsurance • In attitudes and evaluation • In the products and markets • The Insurance Linked Securities market continues to evolve • Growing extension to the life insurance sector • Reason that most brokers now invest in a capital markets capability