1. Optimising the balance sheet under S2 Scott Eason, Barnett Waddingham and Cormac Galvin, RGA Re 2 June 2014

2. Optimising the balance sheet under S2 Introduction 2 June 2014

3. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Solvency II balance sheet Tier 1 capital includes… Surplus funds (Assets – BEL – RM) including VIF Issued share capital Idea is that it is completely loss absorbing At least 50% of SCR and 80% of MCR has to be covered by T1 capital Tier 2 capital includes… Most issued sub-ordinated debt Only 20% of MCR can be covered by T2 Tier 3 capital includes... Deferred tax assets T3 limited to 15% of SCR and cannot be used to cover MCR 3 Own FundsCapital Requirements Will be publicly disclosed as well as just being a tool for regulators Tier 3 Capital SCR Tier 2 Capital Free Assets Tier 1 Capital MCR 2 June 2014

4. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Management actions available for managing the S2 balance sheet Solvency II is an economic framework – less need (opportunity?) for arbitrage solutions Actions to reduce liabilities (eg assets that are eligible for matching adjustment, transition measures) Internal model to accurately reflect risks where standard formulae doesn’t Managing risks (risk transfers, hedging, changes in mix / features of business written, changes in asset mixes) Optimising capital issuance Improving fungibility of capital for groups Generate additional profits! 4 2 June 2014

5. Optimising the balance sheet under S2 Possible bank solutions 2 June 2014

6. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Possible bank solutions Debt/Equity Management Ideas for hedging individual risks (eg equity, credit spread, interest rate, longevity) Fungibility ideas to reduce group SCR New asset classes (eg infrastructure, CRE, social housing loans) 2 June 2014 6

7. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Debt / equity management Any equity capital or eligible subordinated debt raised will improve the S2 balance sheet Equity capital issuance is generally unpopular due to its dilutive nature unless it is M&A related −will tend to cost more in terms of the discount to current share price than debt For this reason, virtually all debt issued by insurers is eligible subordinated debt −To be Tier 1, has to be perpetual, have no early repayment and have a non-payment trigger on both coupons and redemption in the event of SCR breach −Tier 2 can be dated, have early repayment (after 5y)  Tier 2 is much cheaper than Tier 1 and represents virtually all debt issued Optimisation involves raising and cancelling debt at optimal times In practice, to date, debt issuance is governed more by peer leverage levels and rating agency / analyst views 2 June 2014 7 Issue DateIssuerTypeMaturitySizeIssue spread 4/12/2013Prudential PLCT250NC30700mUKT + 208 22/11/2013RL Mutual InsuranceT230NC10400mUKT +332 17/10/2013AllianzT2PerpNC101,500mMS + 260

8. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Contingent capital Contingent capital allows an insurer to access Tier 1 capital at pre-agreed terms, should a pre- defined event (e.g. a natural catastrophe) happen Typical examples of contingent capital structures include: −Contingent hybrid debt: the insurer has the right to stop coupon and redemption payments or convert debt to equity without the issuer being considered as in default −Equity put: the insurer has the right to issue and sell shares at a fixed price, thus increasing its available capital Contingent hybrid debt is more expensive than vanilla T2 debt and the equity option will have a premium so is only used where there are concerns about the lack of T1 capital in stressed conditions Other drawbacks of contingent capital structures may include increase in financial leverage, dilution of shareholder value and need to seek prior Board approval for share issues Key block to the market to date has been the uncertainty of treatment under S2 However, (re)insurers that have issued contingent capital include Swiss Re, SCOR and Aviva 2 June 2014 8

9. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Possible bank solutions Debt/Equity Management Ideas for hedging individual risks (eg equity, credit spread, interest rate, longevity) Fungibility ideas to reduce group SCR New asset classes (eg infrastructure, CRE, social housing loans) 2 June 2014 9

10. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Derivative hedging solutions Insurers usually classify risks as rewarded (eg equity, credit spread, longevity) or unrewarded (interest rates, FX) For unrewarded risks, it is typical to enter into linear derivatives that remove the exposure completely (eg swaps, forwards) For rewarded risks, don’t want to remove full exposure (unless exceeded risk limits) so tend to prefer non-linear derivatives (eg put options) that give upside exposure but reduce downside risk 2 June 2014 10

11. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 SCR can be reduced through financial risk mitigation… SCR may be reduced by taking into account any financial risk mitigation techniques (eg derivative strategies) The benefit allowed is the change in value of the derivative held under the SCR stresses Hedging instruments have to be eligible for standard formulae −Effective risk transfer to 3rd party −Not material basis risk (see box) −BBB minimum counterparty rating Can only get full benefit if maturity >1y or part of a documented rolling program Undertakings should not reflect knowledge of their SCR shocks 2 June 2014 11 Focus on basis risk Overall principle: the protection must cover 90% of the changes in MtM of the underlying When an index-based protection is used on a particular allocation, the basis risk between the index and the allocation may be beyond limits given in the actual specifications. However: −Specifications are rather vague at this stage on two aspects: measurement period and the scenario under which the correlation needs to be measured −We believe correlation should be appreciated in stressed periods, during which the correlation between underlyings increases and on which stress tests are usually calibrated −One way to show the efficiency of a protection is to use a methodology similar to that chosen in the CEIOPS Consultation Papers, where the SII stress test calibrations were discussed. Under this, EIOPA would calculate historical Cornish Fisher VaR −Moreover, companies have to consider that protections are fungible in the insurance company portfolio, so that the basis risk may not be appreciated at the level of a particular investment, but at the balance sheet level

12. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 …but need to include capital for increased counterparty risk Risk mitigating contracts (including derivatives and reinsurance) are classified as Type 1 credit exposures 2 June 2014 12 SCR counterparty = Stressed probability of default (PD) x Loss Given Default (LGD) RatingStressed PD AAA1.34% AA3.00% A6.71% BBB14.68% BB54.44% B or less, unrated*100.000% LGD = Max[0, (1-Recovery rate) x (Market Value – RM – Collateral)] where Recovery rate = 10% for derivatives or reinsurance if reinsurer has >60% of its assets tied up in collateral arrangements; 50% for other reinsurance Market Value = the current market value of the instrument RM = the reduction to the SCR due to the risk mitigation Collateral = post-stress value of collateral held Counterparty SCR can be zeroised by over-collateralisation. If arrangements are not collateralised, then the rating of the counterparty is important * Excludes unrated banks and insurers

13. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Analysis of best approach for hedging equity- linked VIF Equity exposure is high, mainly due to the inclusion of VIF of unit-linked books as an asset that is subject to the SCR stresses Some companies see the equity exposure as a rewarded risk and some see it as an unwanted consequence of writing unit-linked business Key issue with hedging VIF is that it is not a physical asset so certain strategies such as using short-term futures are not appropriate as you need to find cash to settle hedges if markets have gone up We therefore think of VIF as a stream of equity-linked cashflows and hedge these accordingly reflecting the term to the VIF emergence To determine the optimal strategy, we need to consider the impact on the SCR capital to be held but also the expected cash generation due to the strategy as this will impact the balance sheet going forward To give an example of this, we consider the impact of various strategies on AMCs expected to be received in 5y time from a block of unit-linked business under these criteria 2 June 2014 13

14. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Analysis of best approach for hedging VIF - example 2 June 2014 14 230 0 119 35 42 0 0 100 200 300 400 500 600 700 800 900 1,000 UnhedgedForward5yr put5yr put with call - selling 1yr rolling put 1yr rolling put with call - selling Average Equity SCR over 5 year period Max capital 75% percentile Median Capital 25% percentile Min capital Average capital Forward strategy is better than doing nothing as removes the CoC; However, an option strategy can be devised that also removes the CoC and is expected to significantly enhance the cash generation 454 492 491 709 542 710 0 500 1,000 1,500 2,000 2,500 UnhedgedForward5yr put5yr put with call-selling 1yr rolling put with call- selling Shareholder payments at year 5 Max payoff 75% percentile Median Payoff 25% percentile Min payoff Average payoff

15. Optimising the balance sheet under S2 Reinsurance, an important risk and capital management tool Cormac Galvin – RGA UK Services Limited 2 June 2014

16. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Optimising an insurer’s balance sheet 2 June 2014 Why New business Dividends Leverage ratio Management time Success Capital Profits EV Share price Cash Tools Equity Debt Reinsurance Divestiture Management actions Economic Stability Regulatory Stability 16

17. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 2 June 2014 Rothesay Life confirms stake sale to Blackstone, GIC Insurance Insider October, 28 2013 Santander signs a reinsurance agreement with Abbey Life Santander Press Release July, 19 2012 IPO values Just Retirement at £1.1bn FT Finance November, 12 2013 In the press BBVA Sells Spain Life Insurance Portfolio Wall Street Journal March, 1 2013 Aviva to sell Italian insurer stake to JC Flowers City AM November, 18 2013 AIB sells Ark Life to Guardian Assurance Daily Business Post December, 24 2013 Phoenix in £5bn annuity deal with rival FT June, 27 2012 L&G in €136m annuity reinsurance deal with New Ireland Insurance Day April, 29 2013 PIC reinsures £1.4bn of longevity risk after record year Professional Pensions November, 25 2012 17

18. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Sources of financing BenefitEquityReinsuranceDebt Cost Capital benefit Risk transfer Liquidity Counterparty risk Flexibility Implementation Confidentiality Ancillary services 2 June 2014 18

19. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 2 June 2014 Reinsurance and optimising an insurer’s balance sheet Tail risk (e.g. non proportional reinsurance) Income smoothing (e.g. claims volatility) Assumption validation (e.g. data, modelling capability, experience) Risk Management Liquidity (e.g. new business financing) Economic & regulatory capital (e.g. diversification, fungibility) Other (e.g. appetite/capacity, financial rating) Capital Management Pricing/assumption setting Underwriting Other (e.g. product development, access alternative inv.) Ancillary Services Business Mix Appetite & Value 19

20. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Solvency II – an economic framework 2 June 2014 Pillar I Quantitative requirement Minimum capital requirements Market- consistent valuation of assets and liabilities Pillar II Qualitative requirements Supervisory review Principles of corporate governance and risk management Pillar III Disclosure requirements Market discipline Information for capital markets, investors and shareholders Solvency II Fewer capital “arbitrage” opportunities 20

21. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Protection Reinsurance 2 June 2014 European market Continental Europe: relatively small The UK – AP c.£1bn: 10- 20% retentions Why so much reinsurance? Capital (Solvency I required capital): Insurer: 3 per mille of sum at risk + 4% of reserves Reinsurer: 1 per mille But that’s not the full story… The solvency relief is capped for 3 per mille is capped at 50% Ancillary services – assumption setting, … 21

22. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Protection Reinsurance Solvency ISolvency II Risk management Capital management Ancillary services 2 June 2014 Solvency II – less reinsurance? 22

23. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reinsuring (payout) annuities 2 June 2014 23 European market Continental Europe: relatively small The UK: AP c.£19bn (and growing) Almost full retention Some large backbook transactions Why “little” reinsurance under Solvency I? Capital: Insurer’s Solvency I capital: 4% of reserves (no cost of capital) No cost of capital or deferred profit reserve Reinsurer’s: economic capital + cost of capital

24. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reinsuring annuities 2 June 2014 24 Solvency II (SII) –BEL – matching adjustment, yield curve extrapolation –SCR – diversification –Risk margin (RM) Reinsurance –Economic capital (SCR) –Cost of capital (RM) IFRS 4

25. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reinsuring annuities Solvency ISolvency II Risk management Capital management Ancillary services 2 June 2014 25 Solvency II – more reinsurance?

26. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reinsuring annuities – a growing opportunity 2 June 2014 26

27. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Longevity reinsurance 2 June 2014 27 European market −Continental Europe: to date limited, Aegon (NL) −The UK: vibrant (re)insurance of pension schemes and insurers: −Reinsurers providing the majority of capacity −Other capacity - insurer retention and capital market capacity Why are the reinsurers providing the majority of capacity? −Risk management: −Demonstrates holistic risk management approach to investors −Mitigation of lumpy and illiquid risk (particularly for monoline insurers) −Ancillary services: −Underwritten annuities solutions −Capital: −Solvency I: no reduction in required capital (second order); mortality pad −Solvency II: SCR is a function of the risk (diversification benefit) Pension longevity swaps hit £25 billion Financial News, 17 December 2013 Aon predicts £100bn capacity for longevity swap market in 2014 Pensions Age, 27 January 2014

28. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Longevity reinsurance Solvency ISolvency II Risk management Capital management Ancillary services 2 June 2014 28 Solvency II – more reinsurance?

29. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Other reinsurance – VIF monetisation Solvency ISolvency II Risk management Capital management? Ancillary services 2 June 2014 29

30. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Capital motivated reinsurance under Solvency II New business financing Diversification benefit VIF monetisation/crystalisation “Arbitrage” opportunities –Size or shape of the shock –Fungibility of capital –Contract boundaries –Matching adjustment –Risk margin 2 June 2014 30

31. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Possible reinsurance solutions 2 June 2014 31 Pillar I Quantitative requirement Financing support for new business Facultative cover for peak risks Reduction in accounting / capital volatility Reduction of required capital Limitation and homogenisation of risk Pillar II Qualitative requirements Risk management Optimisation of required capital External validation of assumptions Pillar III Disclosure requirements Positive public recognition of risk management Solvency II More emphasis on risk management

32. Colour palette for PowerPoint presentations Dark blue R17 G52 B88 Gold R217 G171 B22 Mid blue R64 G150 B184 Secondary colour palette Primary colour palette Light grey R220 G221 B217 Pea green R121 G163 B42 Forest green R0 G132 B82 Bottle green R17 G179 B162 Cyan R0 G156 B200 Light blue R124 G179 B225 Violet R128 G118 B207 Purple R143 G70 B147 Fuscia R233 G69 B140 Red R200 G30 B69 Orange R238 G116 29 Dark grey R63 G69 B72 Reinsurance and optimising an insurer’s balance sheet 2 June 2014 32 Tail risk (e.g. non proportional reinsurance) Income smoothing (e.g. claims volatility) Assumption validation (e.g. data, modelling capability, experience) Risk Management Liquidity (e.g. new business financing) Economic & regulatory capital (e.g. diversification, fungibility) Other (e.g. appetite/capacity, financial rating) Capital Management Pricing/assumption setting Underwriting Other (e.g. product development, access alternative inv.) Ancillary Services Business MixAppetite & Value

33. Thank you for your attention. 2 June 2014