Shaping a Constructive Regulatory Environment Greg Carter 9 th June 2010

Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

33 Analytical Methodology Financial ReviewIndustry ReviewOperational Review Organisational Review Management Review ProfitabilityCompetitive landscape Underwriting expertise Parent financial strength Strategic vision Investments and liquidity Pricing trendsDistribution capabilities Dividend requirements Management quality Loss reserve adequacy Competitive advantage Business mixFinancial flexibilityDepth & breadth of experience Reinsurance utilisation Barriers to entryMarket shareStrength of affiliates Risk appetite Catastrophe riskBargaining powerOperational scaleStrength of subsidiaries Successful plan execution Capital adequacyTail of lossesExpense efficiencies Group synergiesOrganisational structure Financial flexibilityRegulatory environment Brand recognitionExplicit support agreements Corporate Governance Peer analysisAccounting framework IT capabilitiesHistory of supportFinancial projections Source: Fitch

44 Methodology – Where does Regulation sit? Financial ReviewIndustry ReviewOperational Review Organisational Review Management Review ProfitabilityCompetitive landscape Underwriting expertise Parent financial strength Strategic vision Investments and liquidity Pricing trendsDistribution capabilities Dividend requirements Management quality Loss reserve adequacy Competitive advantage Business mixFinancial flexibilityDepth & breadth of experience Reinsurance utilisation Barriers to entryMarket shareStrength of affiliates Risk appetite Catastrophe riskBargaining powerOperational scaleStrength of subsidiaries Successful plan execution Capital adequacyTail of lossesExpense efficiencies Group synergiesOrganisational structure Financial flexibilityRegulatory environment Brand recognitionExplicit support agreements Corporate Governance Peer analysisAccounting framework IT capabilitiesHistory of supportFinancial projections Source: Fitch

55 Methodology – What does Regulation influence? Financial ReviewIndustry ReviewOperational Review Organisational Review Management Review ProfitabilityCompetitive landscape Underwriting expertise Parent financial strength Strategic vision Investments and liquidity Pricing trendsDistribution capabilities Dividend requirements Management quality Loss reserve adequacy Competitive advantage Business mixFinancial flexibilityDepth & breadth of experience Reinsurance utilisation Barriers to entryMarket shareStrength of affiliates Risk appetite Catastrophe riskBargaining powerOperational scaleStrength of subsidiaries Successful plan execution Capital adequacyTail of lossesExpense efficiencies Group synergiesOrganisational structure Financial flexibilityRegulatory environment Brand recognitionExplicit support agreements Corporate Governance Peer analysisAccounting framework IT capabilitiesHistory of supportFinancial projections Source: Fitch

Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

7 Median solvency ratio (%)Solvency 1QIS4 Captive Reinsurance Non-life Composite Life ) Expected Regulatory Solvency Position Source: CEIOPS QIS4final report Solvency Ratios From QIS4 Compared With Solvency I

8 Number of firms that would not meet Firms participating who would not meet (%) MCRSCRMCRSCR France01406 Germany0804 Italy Netherlands0220 Spain UK ) Sources of Additional Capital Source: CEIOPS QIS4final report Capital Shortfalls in QIS4, Selected Countries

9 (%)Non-lifeLifeComposites Market risk Counterparty risk743 Life risk14419 Health u/w risk20115 Non-life u/w risk (premium, reserve, nat cat risk) Total Less diversification ) Options for Reducing Capital Requirements Source: CEIOPS QIS4final report QIS4 Solvency Capital Requirement (SCR) Composition

10 3) Options for Reducing Capital Requirements (cont) Source: CEIOPS QIS4final report Non-lifeLifeComposites (%) Interest rate riskEquity riskProperty risk Spread riskConcentration riskCurrency risk Less diversification QIS4 Composition of Required Capital for Market Risk

11 4) Own Funds composition & Allowance for Hybrids >Tier 1 or Tier 2? >Grandfathering? >Longer term impact on Financial Flexibility

12 5) Internal Model Use >“Solvency II compliance” >The Use Test >Partial model >Comparability and Transparency

Agenda How does Regulation impact ratings? 5 Key areas of analysis Conclusion

14 Conclusion >QIS 5 brings some clarity, but the picture is still not clear >QIS 5 results will bring the capital landscape into focus >Regulatory capital is one part of our Capital Adequacy analysis >Capital Adequacy is one part of our Credit Rating

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