Swiss Re | AIIF 2013 a A reinsurer’s perspective regarding the national program against natural disasters AIIF-2013 Azerbaijan International Insurance Forum a Swiss Re | ICAR 2012

a Swiss Re at a glance Our financial strength is currently rated: Standard & Poor’s: AA-/stable; Moody’s A1/positive; A.M. Best: A+/stable We deliver both traditional and innovative offerings in Property & Casualty and Life & Health that meet our clients’ needs. A pioneer in insurance-based capital market solutions, we combine financial strength and unparalleled expertise for the benefit of our clients. 149 years of experience in providing wholesale re/insurance and risk management solutions. 2 The “Gherkin”, London Headquarters, Zurich Armonk, New York Key statistics in USD bn FY 2011FY 2012 Premiums earned: Net income: Shareholders’ equity: Return on equity:9.6%13.4% Return on investments:4.4%4.0% P&C combined ratio: 101.6% 80.7% L&H benefit ratio:87.9%75.5% Swiss Re is a leading and highly diversified global reinsurer, founded in Zurich (Switzerland) in 1863 Revenues by business (Total 2012: USD 25.4bn)

a Swiss Re | AIIF Natural catastrophes losses are rising globally Note: Loss amounts indexed to 2009Source: Swiss Re, sigma No 2/2010 Note: Insured losses: property and business interruption, excluding liability and life insurance losses Source: Swiss Re, sigma No 2/2012 Natural catastrophe losses , in USD billion massive gap between economic and insured losses

a Swiss Re |AIIF Closing the Gap Including ex-ante instruments in the overall risk financing mix helps a country to lower its financial exposure to catastrophic risks, natural and man-made. Access to funds by individuals and corporations Reduced financial burden for the government after an event Less volatility for the state budget and more planning certainty Debt financing Tax increases Donor assistance Budget reallocation Others Ex-post financing Reserve funds, parametric reinsurance, catastrophe bonds (Re-)insurance policies Private Citizens / Individuals Corporations / Commercial Enterprises Government’s exposure (state budget) (Re-)insurance policies Ex-ante risk financing

a Swiss Re | AIIF Is Azerbaijan at risk?

a Swiss Re | AIIF 2013 Baku city and the Absheron Peninsula are considered as areas of moderate seismic activity However, they are significantly at risk from earthquakes due to rapid growth of population, intensive building activities and also land and water instabilities (e.g. landslides, significant ground water level fluctuations) -> water saturated soils can show liquefaction in case of strong ground shaking In 2000, a Magnitude 6.3 EQ occurred 35 km south of Baku in the Caspian Sea. The EQ together with numerous aftershocks caused 35 casualties, 1289 damaged and 3 collapsed buildings (Babayev et al., 2010). The insured losses were put at USD 30mn (AXCO). 6 Seismic hazard in Baku

a Swiss Re | AIIF 2013 A scientific study from Babayev et al. (2010)*, calculating different earthquake scenarios for Baku, shows: High ground shaking intensities are predicted for following parts of the city: – southern coastal parts – northeastern parts – some downtown areas The rather poor building vulnerabilities will greatly contribute to losses arising from earthquakes 7 Seismic hazard in Baku *Babayev et al. (2010): Scenario-based earthquake hazard and risk assessment for Baku (Azerbaijan). Nat. Hazards Earth Syst. Sci., 10,

a Swiss Re | AIIF Significant landslides in the SW part of Baku and Magnitude>4.5 earthquakes near Baku (from Babayev et al., 2006)

a Swiss Re | AIIF Liquefaction effects in the M6.1 Christchurch (NZ) EQ in 2011 General characteristics: – Medium-sized earthquake – Densely populated area (central business district) – Building quality in Christchurch mostly good, exception: historic buildings – High insurance loss ($ 12bn, 80% of economic loss) Surprise Factors: – It was "just an aftershock" of Sept EQ – Liquefaction contributes heavily to insured losses – Additional costs such as land restoration or deconstruction costs – Many (political) challenges around rebuilding Photos: Tonkin & Taylor Ltd. - Land damage information (2011)

a Swiss Re | AIIF 2013 Liquefaction was observed in Japan although the overall impact was not as devastating as in New Zealand. The scale of liquefaction and its impact on the overall loss picture in Christchurch has been unexpected. Most areas which are located near large rivers are potentially prone to liquefaction Do we fully understand the liquefaction potential in other areas (e.g. Tokyo Bay, San Francisco Bay, Perth)? 10 Soil Liquefaction Secondary effects, such as soil liquefaction, can significantly increase the overall event loss. Port of Hitachi collapsed due to liquefaction and lateral spread (Source: EERI Special Earthquake Report Japan) Differential Settlement of the Chancellor Hotel in Christchurch Large scale liquefaction in the suburb of Bexley

a Swiss Re I AIIF Swiss Re´s position on Pools 11 Swiss Re believes natural disasters are insurable risks in the private market throughout most countries in the world - if the free market is allowed to work. NatCat pools are often supported in markets where they help introducing or promoting a new coverage. Pools are questioned where inadequate terms (premium, deductibles,…) might be imposed. Pre-requisites for setting up a pool: Are potential losses assessable (probability & severity) and "random"? Are there numerous insured parties jointly forming a risk community ? Is it economically viable for insurers/reinsurers to insure the risk?

a Swiss Re |AIIF Solution features Payments used to offset the economic costs of earthquakes Insured peril: Earthquake Insured assets: Private residential dwellings Funding: Compulsory premiums paid by homeowners; policies distributed by Turkish non-life insurers Effect: Significantly increased penetration of earthquake coverage in Turkey Policy coverage: – Limit of TLY 140,000 (~60,000 €) – 2% deductible – Additional cover can be bought from private insurers Involved parties Insurance supplier: TCIP/DASK, a legal public entity Operational pool manager: Eureko Sigorta Distributors: 30 local insurance companies Reinsurers: Swiss Re and other overseas reinsurers Case study Turkey: Turkish Catastrophe Insurance Pool (TCIP)

a Swiss Re I AIIF Swiss Re – A leading partner for the public sector 13 First dedicated public sector team in the reinsurance industry Over 25 closed transactions since 2006 Manage insurance, reinsurance and capital markets and all perils (disasters, weather, longevity, etc) Global footprint Pioneer in emerging and industrialized markets

a Swiss Re |AIIF Basic Copyright Notice & Disclaimer for Swiss Re Presentations provided to External Parties ©2013 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation without the prior written permission of Swiss Re. This presentation is for information purposes only and contains non-binding indications as well as personal judgment. It does not contain any recommendation, advice, solicitation, offer or commitment to effect any transaction or to conclude any legal act. Any opinions or views expressed are of the author and do not necessarily represent those of Swiss Re. Swiss Re makes no warranties or representations as to this presentation’s accuracy, completeness, timeliness or suitability for a particular purpose. Anyone shall at its own risk interpret and employ this presentation without relying on it in isolation. In no event will Swiss Re or one of its affiliates be liable for any loss or damages of any kind, including any direct, indirect or consequential damages, arising out of or in connection with the use of this presentation.