9 th Insurance Linked Securities Summit Drawing A Link: Catastrophe Bonds And Life Settlements Andrew Terrell Managing Partner Clermont Capital Partners LLC Brett Houghton Managing Principal Fermat Capital Management Kyle Shostak Director Rigi Capital Partners

A look at the similarities and differences between Life Settlements and Catastrophe Bonds from an investor’s perspective: Two sides of longevity risk, Macro (Cat bonds) vs Micro (Senior Life Settlements), differ in characteristics, underwriters of risk and distribution channels: Cat Bonds: - Short Duration, Binary (hit or miss) risk profile - Limited Number of Issuers - Index as a mark to market (mark to event) - Expected Loss based valuation is rather inadequate due to the event risk profile - Valuation is driven by attachment and detachment points and Probability of first dollar loss - Well-developed investor base (mostly hedge funds and specialized insurance funds), rating agencies have developed some expertise and rated cat vehicles, historical data are of limited use as each catastrophe bears unique characteristics and loss profile - Current Environment is conducive to a surge in issuance as credit spreads remain very tight and reinsurance relatively to market spreads is rather expensive

A look at the similarities and differences between Life Settlements and Catastrophe Bonds from an investor’s perspective (cont.): Life Settlements: - Long Duration, Large Volume of Risk Pools primarily through life insurance, annuities and pension liabilities. Granularity of risk bodes well for securitization as tail risk can be modeled with a greater level of precision - Trigger is death (unless also as a swap, and then also index with death events) -Investor base is very mixed and difficult to define as pensions have traditionally stayed away due to the perceived high correlation of asset risk with their perceived liabilities -Securitization has not become a viable alternative/exit strategy yet due to a number of systemic and asset specific reasons. This has limited participation by Hedge Funds and Private Equity to the Servicing or Financing aspects of this market rather than to principal investing (long duration, negative carry assets) will be a pivotal year as a number of transactions are brewing following two years of shrinking longevity markets.

Benchmarking best practices and analytical tools for successful investment decisions across the ILS landscape Cat Bonds: - Modeling risks through well tested cat packages by RMS and AIR that also track the performance of underlying bonds - Very powerful tools and very expensive to the owner. Not public, but in use Life Settlements: - Milliman/MAPS remains the primary tool to price life settlements while MoSes is the tool used by the Insurance Industry to price Life Policies and Annuities. Reverse Mortgage Analyst is the HUD sponsored tool to value all types of Reverse Mortgages. Concerns about accuracy of “adjustments” of the public databases, such as 21 st and AVS Developments in modeling that can be applied to both sides of the ILS food chain -Most of these efforts trend towards hybrid products that assess interest rate sensitivity across a variety of mortality/longevity and natural catastrophe scenarios -Someone would need to canvass the industry thoroughly to assess the current lay of the land

9 th Insurance Linked Securities Summit Drawing A Link: Catastrophe Bonds And Life Settlements Andrew Terrell Managing Partner Clermont Capital Partners LLC Brett Houghton Managing Principal Fermat Capital Management Kyle Shostak Director Rigi Capital Partners Q&A