1. www.rgare.com The security of experience. The power of innovation. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010

2. 2 Reinsurance as a Strategic Capital Management Solution Reinsurance has a long history as a capital management tool Use of reinsurance in this capacity has increased steadily and will likely continue to climb Virtually every reinsurance treaty contains some degree of capital leveraging

3. 3 Capital Different levels of capital: –Economic capital, what you think you should hold to support your risks –Regulatory capital, what regulators believe you should hold –Rating agency capital, what the agencies think you should hold –Accounting statement capital, how much capital shows up on your official returns Too much capital may be much better than too little; optimal capital levels balance safety and efficiency

4. 4 How much capital? Inefficient use of capital Insolvency Regulator Intervention Regulator Supervision Difficulty Attracting Customers Optimal Capital Statutory Minimum Suggested Minimum Source: Alex Thomson, Capital costs of Insurance – some empirical analysis

5. 5 Capital Capital flows to best risk-adjusted returns Sources of capital: –Capital markets for equity, debt, hybrid –Sell assets –Reinsurance –Embedded value securitization (essentially reinsurance through public markets)

6. 6 II. Comparison EquityHybrid DebtReinsurance Market StatusOpenClosedOpen CostHigh Low-Med Tax DeductibleNoUsually Tier 1 CapitalYesNoYes TermPermanent5-10 yearsVariable CounterpartyNo Yes Risk TransferNo Yes DilutiveYesNo Leverage ImpactDecreaseIncreaseDecrease LiquidityYes Depends Increase CapitalYes Reduce Cap. Req.No Yes Solvency Ratio

7. 7 Capital Value of a company may depend upon how it is financed if financing affects –Taxes –Borrowing rates –Cost of capital “Flight to quality” environments reward strong capital positions Capital markets have not been open during much of the recent crisis –Do not overly rely on any single form of capital To determine optimal capitalization –Must know what capital you target –Must determine the most important metrics: ROE, embedded value, profit per share, etc. Risk adjusted returns have taken on increased prominence

8. 8 Reinsurance as a Capital Tool Like any type of capital tool, reinsurance has positive and negative features –Negatives:introduces large counterparty limited size compared with vastness of public markets may be more expensive may “shrink” the company –Positives:speed no prospectus no bankers, lawyers affects both numerator, denominator of capital ratio shows up as retained earnings (equity) cost private (usually) flexibility involves reinsurance of a block of business, but can be structured to fit needs

9. 9 Reinsurance Flexibility in a Capital Solution Small or large amounts In force or new business Duration Cash or cashless Beneficial tax effects Quick, dependable Range of risk transfer from full to minimal Slope of effects Can be perfect hedge recapture

10. 10 Reinsurance Motivations New business financing Eliminate redundant capital Increase liquidity Monetize embedded value to recycle capital Contingent capital Merges & Acquisitions Overall capital planning / management

11. www.rgare.com The security of experience. The power of innovation. Reinsurance as a Strategic Capital Management Solution Presenter’s Name: Greig Woodring, FSA Presenter’s Title: President & CEO RGA Reinsurance Company Event Name: International Insurance Society Seminar Date: June 8, 2010