A conscious uncoupling … Should your model go its separate ways?

The disclaimers This is certainly not a Solvency II presentation. It needs to be tempered, where required, by the need to fulfil regulatory requirements. Do not follow me blindly.

Goal of this presentation To have you think more broadly than the “Capital Model” (and to have no more bullet points)

Uses of a capital business model Portfolio optimisation Reinsurance optimisation Capital calculation Business planning Risk appetites Scenario testing Investment optimisation Pricing M&A assessments

Use quadrants Run often Embedded Secret sauce Simple Complex Opportunity cost Cumbersome and dusty Run seldom

Use scale Run often Embedded Secret sauce Pricing Investment optimisation Business planning Reinsurance optimisation Risk appetites Portfolio optimisation Scenario testing Simple Complex M&A assessments Capital calculation Opportunity cost Dusty Run seldom

Reporting scale Implications based Results based Risk appetites Portfolio optimisation Reinsurance optimisation Scenario testing Capital calculation Business planning Investment optimisation Pricing M&A assessments   Motor & Liab 1 Motor & Liab 2 Motor & Liab 3 Motor & Liab 4 1 391.85 383.37 189.78 901.31 2 965.64 478.08 23.06 25.06 3 224.41 839.41 883.74 469.80 4 918.73 490.62 51.14 959.05 5 9.91 821.93 776.17 427.06 6 777.24 968.44 690.63 216.45 7 620.87 289.75 170.00 505.31 8 109.67 875.46 875.49 201.24 9 563.98 179.93 210.66 655.31 10 915.34 81.85 70.79 457.67 11 578.82 788.00 447.92 171.49 12 991.25 932.46 334.87 277.01 13 434.69 530.43 251.88 44.08 14 180.08 420.14 889.36 496.22 15 131.94 986.28 376.79 996.65 16 877.13 606.76 751.70 403.07 17 358.70 121.45 624.93 12.17 18 986.21 58.99 300.12 863.97 19 572.55 958.79 95.25 351.89

Reinsurance optimisation Maturity scale Reinsurance optimisation Early stage “The capital gross and net of reinsurance is assessed, with the difference attributed to "reinsurance".” Mid “The impact of each of the layers in the reinsurance programme on the capital and volatility position of the business is calculated. Metrics by layer and by programme are calculated, such as the probability of vertical and horizontal exhaustion, and the utilisation of the layer at various return periods.” Mature stage “The model is used to evaluate a "more optimal" reinsurance programme taking into account the key metrics and restrictions. The utilisation of the reinsurance within each reinsurance contract or layer is assessed, and is used to evaluate the extent to which the contract or layer is useful. A statistical methodology is used to identify the key layers contributing to the reduction in capital, which become the "core" layers or programmes, with the non-core layers being rigorously tested for value add and potentially being discarded.”

Maturity scale Early Mid Mature Risk appetites Portfolio optimisation Reinsurance optimisation Scenario testing Business planning Investment optimisation Pricing M&A assessments Capital calculation

Implications of “use test” in Solvency II Capital calculation Solvency II internal model Capital calculation Pricing M&A assessments Pricing M&A assessments Business planning Reinsurance optimisation Business planning Reinsurance optimisation Scenario testing Investment optimisation Scenario testing Investment optimisation Risk appetites Portfolio optimisation Risk appetites Portfolio optimisation

An alternative (I): Risk components M&A assessments Business planning Pricing Scenario testing Capital calculation Investment optimisation Risk appetites Reinsurance optimisation Portfolio optimisation

An alternative (II): Risk principles M&A assessments Business planning Pricing Capital calculation Well defined, comprehensive, detailed set of risk principles dictating how risk within the business is quantified. Unified technology for assessing risk Scenario testing Investment optimisation Risk appetites Reinsurance optimisation Portfolio optimisation

Competitive advantage Build a capital model consistent with the market template, use it for all decisions Find material hidden risks, dependencies or feedback loops that others haven’t Run your model in a tighter, more robust environment where you can get results to where they are needed faster

Competitive advantage The 95% The winner