Chi H. Hum Swiss Re Capital Markets September 24, 2002 Presentation to: Casualty Loss Reserve Seminar Regarding: Alternative Risk Markets The Insurance-Linked Securities Market

Proprietary and Confidential Page 2 This document is solely for your use ( “you”). The concepts and structures it contains are confidential and proprietary information, as well as business assets of Swiss Re Capital Markets Corporation and our affiliates (“SRCM”, “us” or “we”). They are shared with you for the exclusive purpose of allowing you to evaluate your interest in such structures. In particular, this information may not be used to discuss similar structures with any person SRCM could reasonably consider a competitor in this field. Unless otherwise agreed in writing, SRCM and its affiliates act solely in the capacity of an arm's length contractual counterparty and not as an adviser or fiduciary. Accordingly, you should not regard transaction proposals or other written or oral communications from us as a recommendation or advice that a transaction is appropriate for you or meets your financial objectives. This material does not constitute an offer to enter into any transaction. Such material is believed by us to be reliable, but we make no representation as to its accuracy or completeness. This brief statement does not purport to describe all of the risks associated with financial transactions and should not be construed as advice to you. Structures similar to these typically are not registered under the Securities Act of 1933 or any state or foreign securities laws and may be offered only to certain institutional investors.

Proprietary and Confidential Page 3 Table of Contents Insurance-Linked Securities Market An Issuer’s perspective Workers Compensation CAT

Insurance-Linked Securities Market

Proprietary and Confidential Page 5 Note: U.S. dollars in millions. Source: Swiss Re Capital Markets. ILS New Issue Volume USD 683 mm Reliance USAA Res Re I SR Earthquake Fund Parametric Trinity Pacific USAA Res Re II Mosaic Re Trinity Re II Mosaic Re II Domestic Halyard Concentric USAA Res Re III Juno Namazu Golden Eagle USD 754 mm USD 725 mm USD 825 mm 2000 Seismic Atlas Re Halyard Alpha Wind USAA Res Re 2000 NeHi Med Re USD 1,139 mm 2001 USD 965 mm Western SR Wind Redwood I USAA Res Re 2001 Trinom Gold Eagle 2001 Atlas Re II 2002 Redwood II St. Agatha Fujiyama USAA Res Re 2002 PIONEER A PIONEER B PIONEER C PIONEER D PIONEER E PIONEER F Prime CalQuake & EuroWind Prime Hurricane Multiline U.S. Windstorm New Madrid California EQ Japan Typhoon Japan EQ EU Windstorm

Proprietary and Confidential Page 6 ILS Outstanding at Year End Since 1997 Note: U.S. dollars in millions, as of December 31 of each year. Source: Swiss Re Capital Markets. While new issue volume growth has been choppy, total ILS supply has grown as multi-year deals have come to market. $1,266 $1,031 $1,158 $1,994 $2,403 $3, Issued Outstanding Estimated net new issues from now through the end of 2002

Proprietary and Confidential Page 7 Source: Swiss Re Capital Markets. ILS spreads increased after the September 11th attacks but in many instances are now even lower than before September 11. Secondary Markets Spread Trends

Proprietary and Confidential Page 8 Note: Spreads at issuance. Source: Swiss Re Capital Markets. 850 Return Spread over LIBOR (bps) Risk: Expected Loss %0.20%0.40%0.60%0.80%1.00%1.20%1.40% Redwood Capital II Fujiyama Pioneer (TC Atl, Cal EQ) Pioneer (EU Wind) Pioneer (Central U.S. EQ) Pioneer (Japan EQ) Pioneer (Multi) Redwood Capital I Western Capital Mitsui Swap SR Earthquake Fund Parametric Re SR Wind A-1 SR Wind A-2 Swiss Re Capital Markets Transactions Selected Insurance-Linked Securities and Swaps Residential Re 2002

Proprietary and Confidential Page 9 Note: Estimate from Swiss Re Capital Markets. ILS Investor Segmentation Capital market investors now dominate non- life insurers in the ILS investor base. Banks 5% Non-life Insurers 15% Non-life Reinsurers 25% Mutual Fund/Investment Advisor 30% Life Insurers 15% Proprietary Funds 10% 1999 Banks 5% Non-life Insurers 5% Non-life Reinsurers 15% Mutual Fund/Investment Advisor 40% Life Insurers 10% Proprietary Funds 25% 2002 Mutual Fund/Investment Advisor segment has increased from 30% to 40%. Proprietary Funds segment has increased from 10% to 25%

An Issuer’s Perspective

Proprietary and Confidential Page 11 An Issuer’s Perspective Insurance linked-securities offer an attractive way to manage peak catastrophe exposures Traditional management techniques include reinsurance, increased surplus (equity), and reduced risk taking Counterparty risk inherent in reinsurance increases for peak exposures An issuer can also obtain fixed priced multi-year capacity through the capital markets Basic ROL for Single A Cover “Apples to Apples” Comparison of ROL for Peak Exposures Traditional Retro ILS Cover Basic ROL Collateralization* Fixed Pricing Adjustments *Value of collateralization depends on reinsurer’s financial strength.

Proprietary and Confidential Page 12 Securitization Creates Value Worldwide peak risks are an issue for the reinsurance industry TC Atlantic (*) EQ California (*) WS UK TC Japan EQ Japan EQ New Madrid (*) EQ Canada WS France EQ Australia EQ Italy EQ Mexico WS Germany EQ Portugal EQ Columbia EQ Israel WS Netherlands EQ South Africa WS Belgium World wide coverage (*) Estimated split based on SR book Ideal level reinsurance would take for optimal diversification Peak risks would ideally be ceded to capital markets, which are better able to diversify these risks Source: Swiss Re.

Proprietary and Confidential Page 13 SPV Reinsured Investors Investments Swap Counterparty Principal & interest Cash proceeds Reinsurance premium Contingent claim payment Cash proceeds Investment earnings Scheduled interest Investment earnings Basic Structure 1 Reinsured enters into a reinsurance contract with a Special Purpose Vehicle (SPV). 2The SPV hedges the reinsurance contract by issuing Notes and Preference Shares to investors in the capital markets 3Proceeds from the securities offering are invested in high quality securities and held in a collateral trust. 4Investment returns are swapped to a LIBOR -based rate by the Swap Counterparty

Proprietary and Confidential Page 14 Structuring Elements Multi-Year Transaction –Allows amortizing up front transactional costs over several years. –Lock in spreads for long term capacity in a market where reinsurance prices are increasing –Investors prefer maturities of 2 to 4 years. Size –Minimum meaningful size is USD 70 mm - USD 100 mm –Increased size allows amortizing up front transactional costs over a larger amount of cover

Proprietary and Confidential Page 15 PIONEER 2002 Ltd. Summary Highlights: Allows Swiss Re to expedite issuance in response to risk appetite from the capital markets First ILS securitization program containing five classes of Notes with uncorrelated risks based on parametric indices, and one class of Notes with a combination of the five risks A set of newly defined parametric indices which can be used for future issuances First ILS transaction where investor can choose between single or multi-peril tranches

Proprietary and Confidential Page 16 Issuance Structure Swiss Re PIONEER 2002 Ltd. Initial out of $2 billion Notes Return of Outstanding Amount LIBOR + Spread North Atlantic Hurricane Europe Windstorm California Earthquake Central U.S. Earthquake Japan Earthquake Combined 5 perils $255 million (initial takedown) Investors Total return on investments LIBOR – X Swap Counter- party

Proprietary and Confidential Page 17 New Risks So far, the majority of insurance-linked securities issued have been for natural perils. Reasons for this include –Risk is relatively easy to isolate and understand –Availability of historical data, scientific research and risk models Swiss Re continues to analyze portfolios of risk, looking for ways to optimize capital utilization. We think that there are areas outside of cat risk, where securitization could be a useful tool for capital management. As securitization technology and investor sophistication progress, other risk classes will join natural perils. In several areas substantial statistical information is already available. These new risk classes could include –Life insurance related risks –Auto insurance related risks –Workers Compensation CAT

Workers Compensation CAT a work in progress

Proprietary and Confidential Page 19 Potential Opportunities Considerations for an issuer –ILS investors are looking for new issues, diversifying risks and transactions, and transparent triggers –Workers’ compensation catastrophe reinsurance rates high relative to pre 9/11 levels –Limited availability of traditional reinsurance –Cost of Capital to support additional exposure may be a drag on ROE –Potential to aggregate other portfolio risks, e.g., property catastrophe risks –Modeling firms creating risk models for WC Cat, have database of housing stock, location and cat risk data –Terrorism…with or without…segregating the risk

Proprietary and Confidential Page 20 What Is Possible as an Issuer? An Illustrative Transaction *Secondary trigger: One or more actual losses to cedent.

Proprietary and Confidential Page 21 Trigger: Transparency vs. Basis Risk Basis Risk Transparency Physical Indemnity Modeled Loss Industry Index Cat bonds can use one of several trigger mechanisms that are trade-offs between basis risk and loss trigger transparency to the investors Parametric Index

Proprietary and Confidential Page 22 Trigger: Modeled Loss After an event, the modeling firm inputs physical parameters from the earthquake into the escrow model and the model calculates the loss. Event Seismicity and Attenuation Earthquake Intensity Attenuation and Ground Motion Economic Losses Subject Business “Insured” Losses $ A modeled loss trigger may help balance the twin goals of best execution and minimization of basis risk Hybrid of parametric and indemnity based coverage Payments related to performance of notional portfolio of insured risks designed to closely reflect portfolio How does it work –Modeling firm analyzes actual portfolio Creates a hypothetical portfolio of risks closely correlated with actual exposures

Proprietary and Confidential Page 23 Issues to Consider Basis risk resulting from modeled loss trigger Potential size and term of deal –$75 million 2-year deal is the minimum size to effectively spread costs –or, 4-year shelf program amortizes costs with variable issuance capability Stability of book of business, ie., will current origination opportunity continue Revisions to FASB SPE consolidation rules