Making better reinsurance decisions… ICAR Conference Bucharest– October 1 st 2007 Situation regarding the development of Guidelines on Risk Management, Asset Allocation and Operation of Romanian Catastrophe Scheme ( PAID)

2 Agenda Introduction – Summary of AC9 project Current working assumptions Draft structure based on current working assumptions Overview of Modelling assumptions Required outputs of the AC9 Project AC 9 planned timetable Issues to be addressed by consultancy What should Romanian Insurers do next?

3 Introduction – Summary of AC9 AC9 Consultancy Project is funded by World Bank to: “Development of Guidelines on the Risk Management, Assets Allocation and Operation of Romanian Catastrophe Insurance Scheme (PAID) Willis Re has been selected via a competitive tender process to support the development of PAID by assisting in the development of these guidelines The guidelines need to be developed in advance of the inception of the compulsory insurance law. This requires urgent and close co-operation with insurers. A need to ensure the operating procedures of the compulsory insurance scheme are effective and efficient for insurance organisations and other related parties. PAID will become a significant part of the Romanian insurance landscape from 2008 onwards. A major opportunity to grow insurance penetration across Romania: There are approximately six months to prepare. PAID is attracting worldwide attention to the Romanian insurance industry. Successful implementation will further enhance the reputation of the Romanian financial services sector throughout international markets

4 Current working assumptions Authorised Romanian insurance companies will distribute policies and collect premiums. 100% of exposure arising from PAID policies will be reinsured by insurance companies to PAID Insurance companies will receive a commission of up to 10% of the original gross premium on every PAID policy sold. Insurance companies will provide details of policies sold on to PAID and remit premiums in respect of policies sold to PAID. Insurance companies will provide PAID with details of policies sold in a preagreed spreadsheet format to allow PAID to efficiently consolidate policy data and track their aggregate exposures In the event of any claims the insurance company responsible for selling the policy will settle the claim. PAID will provide funds to the insurance companies on receipt of claims advices in a preagreed spreadsheet format.

5 Draft structure based on current working assumptions Policyholder Authorised Insurance Company PAID External Reinsurance and Government IT interface

6 Overview of Modelling assumptions Modelling outputs will provide indications of the likelihood and size of potential losses Penetration rates: Willis will model 100% basis and various other scenarios e.g. 20% penetration, 40% penetration etc. Initial capital of PAID - to be confirmed ( dependant on various considerations) Loans available to PAID the amounts and conditions - to be confirmed Reinsurance structures – to be confirmed by the Consortium of Reinsurance brokers The key assumptions are the modelling outputs and the penetration rates

7 Required outputs of AC9 Project Develop a Customised Dynamic Financial Asset model for PAID DFA tool to be able to analyse the financial viability of PAID to changes in the direct cover Recommend optimal Asset Liability Management Policy Design a risk management structure including reinsurance on the basis of the DFA modelling outputs Prepare cost effective operating procedures Provide Training

8 Review of plan timetable Deliverables are as advised in the revised inception report: Inception report - 1st August 2007 Report on the production of customised DFA model - 15th October 2007 Report on optimising PAID policy, risk and capital - 15th November 2007 Deliverables report and outputs - 15th November 2007 Final report -15th August 2008

9 Issues that need to be addressed by consultancy The following are points that have been raised by the Insurance Industry and which need to be addressed No underwriting risk – but we are insurers not agents! Commission of 10% too small Unknown associated costs and claims settlement costs Details of claims handling procedures Interrelation between compulsory policy (PAD) and Facultative Policies Concerns of adjustment process after a BIG catastrophe Development of a Database

10 What can Romanian Insurers do in preparation? Instigate dialogue with the CSA Feedback through Willis Limited and the AC9 consultancy Prepare sales force in the light of your Company business plan