1. Risk Transfer and Why Reinsurance Contracts May Never Be the Same CAS Annual Meeting November 14, 2006

2. Risk Transfer and Why Reinsurance Contracts May Never Be the Same Moderator: Alex Krutov, FCAS President, Navigation Advisors LLC Panelists: Donald Farnan, CPA Partner, PricewaterhouseCoopers Joseph Sieverling, CPA SVP and Director of Financial Services, RAA Nancy Watkins, FCAS Principal, Milliman, Inc.

3. (Re)Insurance Risk Transfer FASB Statement 113 Accounting and Reporting for Reinsurance of Short- Duration and Long-Duration Contracts Reinsurance accounting vs. Deposit accounting

4. Risk Transfer Tests FAS 113 (Paragraph 9): A.The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts B.It is reasonably possible that the reinsurer may realize a significant loss from the transaction

5. Risk Transfer Tests FAS 113 (Paragraph 9): A reinsurer shall not be considered to have assumed significant insurance risk … if the probability of a significant variation in either amount or timing of the payments by the reinsurer is remote.

6. Risk Transfer Tests FAS 113 (Paragraphs 10 and 11): Mandates the use of the present value of all cash flows approach in the risk transfer test

7. Risk Transfer Tests FAS 113 (Paragraph 11): Adds an important exception to the rule

8. Bifurcation Proposals (FASB) Splitting insurance and reinsurance contracts into financing and insurance components Concept of Unequivocal Insurance Risk Is the bifurcation idea abandoned?

9. Questions to be Answered What is risk transfer according to current accounting regulations? Is FAS 113 “broken” or is it the case of poor compliance / enforcement? What are the implications of using a rules- based approach instead of the principle- based FAS 113? What are the current proposals and activities at the FASB and NAIC level?

10. Questions to be Answered What is risk transfer according to current accounting regulations? Is FAS 113 “broken” or is it the case of poor compliance / enforcement? What are the implications of using a rules- based approach instead of the principles- based FAS 113? What are the current proposals and activities at the FASB and NAIC level?