Trends in Insurance Capital Raising and Capital Management May 24, 2011 FIAR by xPrimm

Introduction to silkroutefinancial 22 silkroutefinancial is the only investment bank specialized in emerging markets financial institutions, providing M&A, capital raising and financing advisory services to financial institutions in emerging markets as well as international players with interest in the region. Established in 2007 by former senior bankers with HSBC London, silkroutefinancial is a full- service, FSA-regulated investment bank with the head office in London, 6 regional offices and 2 representative offices. On the IB side, SRF has the largest number of senior bankers dedicated to financial institutions in CEE. Our unique origination model combines local connectivity, operating industry experience and extensive execution capability Despite turbulent time SRF has worked on numerous projects, including: – Acted as sole financial advisor to Gothaer AG on the acquisition of a majority stake in P.T.U. S.A, one of the top 15 insurers in Poland – Advised a top 10 insurance company in Germany looking to acquire one of the top 15 in Turkey and on acquisition of insurance companies in Russia & Ukraine – Executed debt raising for a Ukrainian bank and advised them on bancassurance agreements with international institutions Current active engagements include several listing of banks and insurance companies on the WSE as well as sales mandates for smaller banks and insurance companies. In the process of establishing one of the largest Private Equity funds focused exclusively on the insurance industry in Eastern Europe

Public equity versus private equity We have all seen a fairly low interest in insurance on the part of public equity investors in the region A few examples: 1-2 insurers listed in each of Poland, Bulgaria and Romania 5-6 insurers listed in each of Serbia and Turkey 1 insurance broker listed in Poland As investors warm up to the region and the stock markets in Eastern Europe stabilize, we will see a greater number of insurance companies successfully tapping the public equity markets Eurohold in Bulgaria (parent of Euroins) has just completed a fairly successful capital increase on the Sofia Exchange Listings of regional or local insurers on the Warsaw public market will soon be of great interest to many executives in the industry Still, private equity will continue to remain significant for the intermediate and long term: Regional and international players will continue to expand French, German, American and, increasingly, Russian interest in the region Domestic investors will diminish their profile Private equity companies will start getting involved more in the region Tapping the public equity markets will require thorough preparation as investors will demand transparency, performance, great corporate governance along with a good understanding of the public market expectations

GWP vs Combined Ratio vs Return On Equity (ROE) 44 The focus on growth has pushed many carriers in the region towards an outsized appreciation of GWP with respect to an insurer’s performance While GWP will no doubt remain a critical metric for the industry, two key factors will slowly make the Combined Ratio a more relevant differentiator for the purpose of comparing various firms: Slowing growth – while the region remains dynamic, growth will come slower due to better regulation and natural hurdles (market education, segment saturation) Investor pressure – recent experience will make investors less willing to reward growth over profitability This is more apparent in Turkey, a market with chronic problems in terms of profitability, where CR is: 107% in non-life 109% in health (life sector remains profitable) Especially for the larger markets and the larger companies, ROE will also become a more meaningful metric in the intermediate future as investors learn from previous errors. In addition to underwriting performance (which combined ratio already reflects), ROE covers investment performance too. Senior managers need to ensure that their attention to investment returns is properly allocated versus the underwriting activity As outsourcing of investment activity grows, professional money managers from the Anglo-Saxon world are expected to increasingly set up shops in the region.

Life versus Non-Life market development 55 With the life and health segments poised to grow significantly more than the non-life segment in the next cycle, the investor focus is creating new opportunities Most significant new investments are now directed towards life and health opportunities We will continue to see greenfield investments both domestically within each national market by local providers but also regionally by regional players In the non-life sector, credit and performance bond insurance are growing the fastest Health insurance products currently offered by medical services providers will increasingly be underwritten and eventually taken over by qualified insurance carriers In the initial stages, health insurance will provide superior results However, in markets that will become chaotic and poor regulated, results will start suffering in 3-5 years due to competition Life insurance product offering will mature and pricing will stabilize as Western Europe insurers start looking for growth towards Emerging Europe The low to non-existing growth prospects in the West have been pushing players out of those mature markets and those who want to survive will look to the East The Western expertise in money management will ensure good performance even after underwriting performance will start dimming Senior care will become integral to life insurance contracts

Valuation of non-life insurers 66 The information above can also be found on pg. 122 of the 2010 xPrimm Insurance Report

Contact Tony Romani Associate Director Head of SEE M: E: 7