1. The Impact of Solvency II Türda Özmen Director The 2nd International Insurance Conference Istanbul, 30 September 2010

2. Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings

3. Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings

4. 3 Road Ahead 1 July 2010 Final QIS5 Specifications 31 Dec 2012 Solvency 2 in Force? 2010 April 2011 QIS5 Results 20112012 End 2010 Draft Level 2 Implementing Measures Aug–Nov 2010 QIS5 to Run Jun–Oct 2012 Final Level 2 Implementing Measures Adopted 2013

5. Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings

6. 5 QIS 4 Results – Refresher Source: CEIOPS Comparison of Solvency Ratios, All QIS4 Participants

7. 6 UK Life Solvency Ratio Source: Milliman Breakdown from QIS 4 to Estimated QIS 5 (Draft Specifications) Calculated for a Notional Life Company Representing Market

8. 7 EU Life Solvency Ratios Source: Milliman, Autorité de Contrôle Prudentiel For a Notional Life Company Representing Whole Market Calculated for a Notional Life Company Representing Market

9. 8 Non-Life Underwriting Parameters Source: CEIOPS, EC Premium Risk Standard Deviations

10. 9 Internal Models – The Vision >Alternative to the standard formula >Tailored to business specifics >Calibrated to 99.5% VaR over 1 year

11. 10 Internal Models – The Reality Given that each insurer writes different business, has a different risk profile, a different corporate structure, different operational processes and a different risk management framework, each internal model will be different and used in a different way. (FSA DP 08/4) Photo Source: US Army

12. 11 Outstanding Issues >Grandfathering >Equivalence >(Relative) level of some standard capital charges >Tax

13. Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings

14. 13 Impact on the Insurance Industry >Shift from capital-intensive to capital-lite products >Pricing for increased cost of capital >Asset reallocation >Increased de-risking >Industry consolidation >Implementation costs

15. Agenda The Road Ahead Where are Capital Ratios Headed under Solvency II? Impact on the Insurance Industry Implications for Ratings

16. Capital Req.s Up Means Leverag e Down Increase d Barriers to Entry Improve d Risk- Based Assess- ment Transparency and Comparability Up? Short- Term Implem- entation Risk Technica l Issues: Coupon Deferrals Threats to Some Product Lines Transparency and Comparability Down?

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