Aon ILS

							Adapting to an Evolving Market

reDEFINING
Capital | Access | Advocacy | Innovation

Aon Benfield Securities, Inc. and Aon Benfield Securities Limited (collectively, “Aon Benfield Securities”) provide insurance and reinsurance clients with a full suite of insurance-linked securities products, including catastrophe bonds, contingent capital, collateralized reinsurance, industry loss warranties, sidecars and derivative products. As the most experienced investment banking firm in this market, Aon Benfield Securities offers expert underwriting and placement of new issues, financial advisory services, as well as securities trading in the secondary market. Aon Benfield Securities’ integration with Aon Benfield’s reinsurance operation expands its capability to provide analytics, modeling, rating agency, and other consultative services. Securities advice, products and services described within this report are offered solely through Aon Benfield Securities, Inc. and/or Aon Benfield Securities Limited.

Aon Benfield Securities

Foreword
I am pleased to present the second annual Aon Benfield Securities review of the insurance-linked securities market. Insurance-Linked Securities 2009 offers a distinctive analysis of this dynamic sector and should prove an indispensible resource for anyone with an interest in the market.
Like most financial markets, insurance-linked securities (ILS) have been affected in many ways by the recent global economic disruption. This publication addresses the impact of that disruption and reviews the ILS market in that context. Over time, the ILS market has provided much-needed capital to the insurance industry. Our analysis illuminates the resilience of the ILS market and our expectation of its continued importance to the insurance and reinsurance industry. Our 2009 edition offers the following: • Comprehensive review of the catastrophe bond market • Review of Aon Benfield Cat Bond Indices performance, providing insight into ILS returns compared to both previous periods and other investment benchmarks • Analysis of the ILS investor base • Analysis of related ILS instruments, including industry loss warranties, sidecars and collateralized reinsurance structures • Analysis of diversification opportunities in the non-U.S. ILS market • Thorough explanation of credit risk management and its application to the insurance industry

Aon Benfield’s annual review of the Insurance-Linked Securities market was launched in 2008, and rapidly emerged as the industry’s premier analytical work. We are pleased by your response, and look forward to continuing to offer this service for the advancement of our industry. For convenient reference, you can find this and future editions at www.aonbenfield.com. I welcome your thoughts and suggestions, which you can share with an email to paul.schultz@aonbenfield.com.

Paul Schultz

President, Aon Benfield Securities

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Insurance-Linked Securities 2009

Contents
5

| Aon Benfield Securities Annual Review of the Catastrophe Bond Market Market-driven adaptation positions industry for a bright future

15 | Aon Benfield Cat Bond Indices

Unparalleled insight into ILS market returns
18 | The Buy Side

A review of ILS investor activity
22 | Related Markets

Industry Loss Warranties, Sidecars and Collateralized Reinsurance
28 | Diversification Opportunities Outside the United States

Moderating portfolio concentration in U.S.-based perils
32 | The Developing Frontier of Credit Risk Management

Credit Default Swaps explained
39 | Appendix I

Catastrophe bond issuance statistics
44 | Appendix II

ILS market transaction summary

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Aon Benfield Securities

Aon Benfield Securities Annual Review of the Catastrophe Bond Market
Market-driven adaptation positions industry for a bright future
Unprecedented economic events have affected all financial markets, and the ILS market has been no exception. In addition to the general dislocation of financial markets, structural concerns and rising prices of ILS securities adversely affected volumes. And yet, in an extraordinarily challenging environment, the ILS market demonstrated a remarkable ability to adapt—something that will certainly continue as the market continues to grow and evolve.

Issuance Review
The importance and resilience of the catastrophe bond market can be demonstrated by the $25 billion of capital provided since its beginning. New issuance declined over the last 12 months—from $5.8 billion to $1.7 billion—despite the maturity of more than $4 billion in bonds. The combination of these effects resulted in a decline in the total amount of bonds on risk to $11.4 billion. During the annual period to June 30, 2009, some sponsors either delayed plans to issue bonds or cancelled them altogether. Considering the economic environment and the resulting activity, the ILS market continued to provide an important source of capital to the insurance industry.
CATASTROPHE BOND VOlumE, 1997-2009 (Years ending June 30)
30,000

25,000

$ Millions

20,000

15,000

10,000

5,000

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bonds On Risk

Cumulative Issuance

Source: Aon Benfield Securities

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Insurance-Linked Securities 2009

Capital constraints among investors, resulting primarily from impaired investment portfolios, created a hurdle in the form of the higher risk premiums demanded. In addition, since catastrophe bond market values did not decline as much as other sectors, some funds adhering to a fixed percentage diversification strategy found themselves overweight (particularly in the U.S. hurricane category) and were unable to add more cat risk. Due to price sensitivities of sponsors, the majority of new issuance in the first half of 2009 experienced attachment probabilities above 1.25%. Still, looking back over the recent two-year decline, 12-month volumes remained higher than in 2005.
CATASTROPHE BOND ISSuANCE BY YEAR (Years ending June 30)

8,000 7,000

7,003 5,815

$ Millions

6,000 5,000 4,000 3,000 2,000 1,000 0 2001

3,124 1,558 985 986 1,705 1,137

1,071

2002

2003

2004

2005

2006

2007

2008

2009

Source: Aon Benfield Securities

In the second half of 2008, the bankruptcy of Lehman Brothers and Lehman Brothers Special Financing left four notes (Carillon Ltd. Series 1 Class A, Ajax Re Limited Series 1 Class A, Willow Re Series 2007-1 Class B, and Newton Re Series 2008-1 Class A) without a viable total return swap counterparty. While each transaction had been thoroughly documented, none of them anticipated the sudden demise of a swap counterparty coinciding with a market dislocation that impaired the underlying collateral. Further, the prevailing documentation did not prescribe appropriate remedies for investors or sponsors in the absence of a replacement swap counterparty. Consequently, only two transactions were completed in the second half of 2008, comprising a total issuance of just $320 million: Allianz sponsored another iteration of the Blue Coast Ltd. transaction for $120 million in July (Allianz’s first transaction in 2007 was named Blue Wings Ltd.), and Platinum Underwriters Bermuda Ltd. sponsored $200 million under the Topiary Capital Limited transaction in August.

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Aon Benfield Securities

After a six-month impasse, the market began a resurgence in February 2009, with nine transactions successfully completed through June 30, 2009. The first deal entering the market during this period was the $200 million Atlas V Capital Limited. This represented the fifth offering sponsored by SCOR and contained three tranches with U.S. hurricane and earthquake exposures. In response to collateral management concerns following the Lehman bankruptcy, this transaction used a total return swap with permitted investments limited to cash, government securities, money market funds and FDIC-guaranteed bank debt. In stark contrast to previous transactions that allowed investments with maturities of up to 45 years, new transactions required far shorter maturities. The Atlas V Capital Limited transaction, for example, capped collateral maturities at just five years.
CATASTROPHE BOND ISSuANCE BY HAlF-YEAR

8,000 7,000

$ Millions

6,000 5,000 4,000 3,000 2,000 1,000 0

4,455

2,410

2,147 2,547 977
2005/6 2006/7

3,405 1,385 320
2007/8 2008/9

Jan - Jun
Source: Aon Benfield Securities

Jul - Dec

In the second quarter of 2009, the Allianz-sponsored Blue Fin Ltd. Series 2 Class A Notes saw the emergence of a new form of collateral without the need for a swap counterparty. The issue’s proceeds were invested in medium-term notes structured specifically to match the transaction’s tenor. These notes were issued by KfW (Kreditanstalt für Wiederaufbau), supported by the Federal Republic of Germany. Investors welcomed the new form of collateral, and the deal was upsized from $150 million to $180 million.

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Insurance-Linked Securities 2009

CATASTROPHE ISSuANCE BY TR ANCHE / DEAl / SPONSOR (Years ending June 30)

50

12 10 8

40

30 6 20 4 10 2 0

0

2002

2003

2004

2005

2006

2007

2008

2009

Tranches Issued
Source: Aon Benfield Securities

Deals Issued

First time Sponsors

Two new sponsors entered the catastrophe bond market in the 12 months though June 30, 2009: Platinum Underwriters Ltd. with Topiary Capital Limited, and Assurant with the two-tranche $150 million Ibis Re Ltd. transaction. U.S. hurricane and earthquake perils dominated the issuances completed during this period. Of the eleven transactions issued in the 12-month period, three were exposed solely to U.S. hurricane risk, while seven others covered both U.S. hurricane and earthquake risk. Ianus Capital Ltd., sponsored by Munich Re, was the only Euro-denominated catastrophe bond issued. This €50 million transaction covered exposure to European windstorm and Turkish earthquake risk.
CATASTROPHE BOND ISSuANCE BY YEAR AND PERIl (Years ending June 30)

8,000

Notional Limit Issued by Peril ($ Millions)

7,000 6,000 5,000 4,000 3,000 2,000 1,000
0

7,003 U.S. Hurricane 5,815 U.S. Quake Euro Wind Japan Quake Asia Pacific 3,124 Other

1,558 1,071 985 986 1,137

1,705

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Aon Benfield Securities
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Transaction Structure Resolution
As noted, credit-related concerns of investors, sponsors and rating agencies led to the scrutiny and eventual resolution of three categories of structural issues.

•	 	 ollateral	Management	and	Investment	Structures C
To ensure the integrity of collateral supporting the obligations of the issuer, market participants recognized the need to narrow the definition of permitted investments. Investors called for restrictions on the types of permitted investments, frequency of their valuation and concentration to single exposures. The primary market began implementing innovative solutions to these issues during the first half of 2009. In cases where a total return swap continued to be used, counterparties were expected to meet minimum ratings criteria and to replace collateral that failed to meet enhanced guidelines. The improved structures sought to minimize counterparty credit risk, which resulted in a shift away from leveraged financial institutions managing loosely defined collateral pools. Although total return swaps had been standard for cat bond transactions, sponsors and investors were encouraged to consider alternative structures, including money market funds and notes backed by a government entity. The following table details the collateral management solutions employed this year:
CATASTROPHE BOND COllATER Al mANAGEmENT (Year ending June 30, 2009) Collateral Issue Atlas V - 1 Atlas V - 2 Atlas V - 3 Mystic Re II 2009 East Lane Re III Ibis Re A Ibis Re B Blue Fin 2 Ianus Capital Calabash Re III A Calabash Re III B Successor II F-IV Residential Re 2009 - 1 Residential Re 2009 - 2 Residential Re 2009 - 4 Legend: TLGP: UST: KfW: IBRD: Structure Total Return Swap Assets TLGP, UST

Total Return Swap Total Return Swap Total Return Swap Medium-Term Notes Medium-Term Notes Medium-Term Notes Money Market Money Market

TLGP, UST TLGP, UST TLGP, UST KfW KfW IBRD UST, Cash UST, Cash

Temporary Liquidity Guaranty Program U.S. Treasury Kreditanstalt für Wiederaufbau International Bank for Reconstruction and Development

Source: Aon Benfield Securities

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Insurance-Linked Securities 2009

•	 	 ransparency,	Documentation	and	Oversight T
Regardless of the investment structure chosen, investors also demanded greater transparency through more extensive reporting on collateral trust investments. To reduce uncertainty and improve transparency, recent transactions have disclosed both primary and subsequent transaction documents. A new standard now exists for the indenture, reinsurance/ counterparty contract and collateral documents to be made available via secure online portals, ensuring all investors have immediate access to pertinent information as it becomes available. Investors also demanded that documents clearly specify, in the event service providers ceased to be available, how their replacements would be engaged. Although some scenarios had not been contemplated in the past, the replacement mechanics had always been clearly defined. As a result, the documentation of this process has improved substantially. Finally, outside agents must now validate collateral management, reporting, compliance, performance, and reporting.

•	 	 redit	Risk	Management C
Recent market events have given insurers and reinsurers a heightened awareness of their credit exposures. While catastrophe bonds bear credit risk through the investment portfolio, investors (and potentially sponsors) also face the credit risk associated with service providers such as the swap counterparty or collateral manager. These risks are generally managed through structure and documentation. Other credit risk management techniques—such as credit default swaps—are also available, but are not widely used at present.

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Aon Benfield Securities

Recovery Trigger Trend
The recovery trigger for catastrophe bonds is often categorized into four distinct groups: parametric, industry loss, modeled loss, and indemnity. Of the four triggers, indemnity often requires the greatest amount of risk premium (although price variations exist among recovery triggers based on the line of business composition and the geographic exposure concentration). While indemnity bonds offer sponsors the purest mitigation of their risk portfolios and the least amount of basis risk, investors in indemnity bonds face a higher degree of uncertainty. This includes uncertainty from the ongoing management, underwriting and claims policies of the sponsor. From 2006-2008, the ILS market witnessed a surge in the proportion of indemnitytriggered catastrophe bonds issued. The height of this trend was reached in 2008, when a record 47 percent of all catastrophe bonds issued during the year used an indemnity trigger ($2.75 billion of the total $5.82 billion issued). The financial market disruption reversed that trend. In fact, the percentage of indemnity transactions issued in 2009 fell to 23 percent of the total ($400 million of $1.71 million in total annual issuance). The dramatic change reflected investors’ unease with the complexity of indemnity transactions compared to more quantifiable structures. Also at issue was a lack of knowledge of less-creditworthy or less-recognized sponsors. In a new era marked by a demand for greater transparency, the indemnity trigger proved less popular with investors.
CATASTROPHE BOND ISSuANCE VERSuS PERCENT INDEmNITY (Years ending June 30)

8,000 7,000

7,003 5,815

50% 45% 40% 35%

6,000 5,000 4,000 3,000 2,000 1,000
0

30%

3,124 1,558 985 986 1,705 1,137

25% 20% 15% 10% 5%

1,071

2001

2002

2003

2004

2005

2006

2007

2008

2009

0%

Cat Bonds
Source: Aon Benfield Securities

% Indemnity Issued

Percent of New Issuance with Indemnity Loss Trigger
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Risk Transfer ($ Millions)

Insurance-Linked Securities 2009

CATASTROPHE BOND ISSuANCE BY lOSS TRIGGER (Years ending June 30)

4%
Index Indemnity Multiple Modeled Loss Parametric Index Parametric

14% 25% 19% 4% 5% 47%

16% 41%

23%

2008 Source: Aon Benfield Securities

2009

In contrast, the 12-month period ending June 30, 2009 has seen heightened interest in industry loss index-triggered transactions. In this period, 41 percent of transactions were on an industry loss-based index, compared to only 14 percent in the same period in 2008. At the same time, there were no transactions with exclusive parametric or parametric index structures, as the market experienced an increase in the percentage of multiple trigger bonds issued (a number of which included components of the parametric or parametric-index structures).

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Aon Benfield Securities

Securitized life Risk
While catastrophe bonds have grown substantially since the mid-1990s, the market for securitized life risks continues to develop. Representative life-based security transactions over the past decade have included XXX regulation, extreme mortality and embedded value. More recently, we have seen a number of longevity risk transactions come to the market. Improvements in life expectancy have had a negative impact on entities bearing longevity risk. Longevity risk reflects the uncertainty in future life expectancy and, specifically, the risk that an individual or group of individuals lives longer than expected. Entities with economic exposure to longevity risk include pension funds, annuity writers and life settlement investors, as well as the U.S. Social Security Trust Fund and comparable institutions worldwide. All of these entities increasingly face larger liabilities than previously anticipated, as pensioners and annuitants outlive and outlast the assets previously set aside for them. The recent market change has further underscored pension woes. Before 2007, high equity investment returns helped mask the challenge presented by increasing life expectancy. Recently, however, poor equity returns and low interest rates have left pension plans significantly underfunded as liabilities soar while pension assets erode. In recent years, pension funds have increasingly sought mechanisms to hedge their longevity risk. One new development in this area is the emergence of capital markets solutions using longevity swap structures. Since January 2008, there have been four capital markets transactions involving longevity swaps or derivatives:
RECENT lONGEVITY SWAP DEAlS Sponsor Canada Life Lucida Norwich Union Babcock Total Issuance Year 2008 2008 2009 2009 Value ($ mm)* 990 195 689 755 2,629

* Transactions in non-US Dollar currencies were converted to US Dollars based on prevailing rates at time of issuance.

Source: Aon Benfield Securities

Longevity swaps involve the exchange of agreed-upon cash streams between the sponsor (the entity with the existing pension liability) and a counterparty. The sponsor pays the counterparty a fixed rate (“fixed leg”) with monetary payment tied to estimated projections of future payments. These payments are based on agreedupon mortality risks in the underlying portfolio. To make the transaction worthwhile to the counterparty, the sponsor pays an additional risk premium in excess of the fixed rate. In return, the counterparty makes periodic payments on a floating basis (“floating leg”) dependent on actual mortality rates experienced by the underlying portfolio. In essence, the sponsor transfers the longevity risk to the counterparty who effectively assumes responsibility for the actual payment stream associated with the sponsor’s pension liabilities.

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Insurance-Linked Securities 2009

STRuCTuR Al PREmISE OF lONGEVITY SWAP

Pensioners in Reference Portfolio

Actual Annuity Payments

Cedent (Sponsor)

Actual Annuity Payments*

Est. Annuity Payments + Risk Premium + Costs/Fees

Counterparty
* Subject to a cap and floor

Source: Aon Benfield Securities

All four transactions to date have focused on the U.K. pension market, where legislative changes have amplified the need to seek longevity risk transfer solutions and where the legal and regulatory landscapes made transactions more feasible. In an effort to drive greater transparency, the United Kingdom has implemented new accounting rules over the past several years that require sponsors to disclose pension plan deficits. In addition, regulators have begun forcing pension fund managers to take a more active stance regarding longevity risk. While the market for longevity swaps is still emerging, many observers and participants agree it is poised to grow, with anticipated U.K. market growth in the range of £5 – £10 billion over the next several years. These projections are supported by studies suggesting that pension liabilities for private companies within the United Kingdom exceed £1 trillion. Companies are more actively seeking ways to transfer longevity risk and reduce the volatility of their balance sheets caused by the financial market disruption and increased regulatory scrutiny. Following the completion of the first-ever longevity swap involving a U.K. pension fund (by Babcock in the spring of 2009), interest in this market continues to grow, and—for now—pricing is aggressive given the current level of capacity.

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Aon Benfield Securities

Aon Benfield Cat Bond Indices
Unparalleled insight into ILS market returns
In an extraordinarily challenging investment environment, the ILS sector outperformed most asset-backed securities and provided positive returns over the past year, inclusive of the mark-to-market losses resulting from the effects of Lehman swaps. Performance lagged the previous year, however, due to the effects of the global economic crisis. The Aon Benfield Cat Bond Indices offer investors the best means of tracking ILS market performance. These indices represent the return an investor would have achieved by allocating a weighted amount of capital to each cat bond available in the market on a sector-by-sector basis. To define the market and form the basis for our total return calculations, we use the monthly indicative bids tabulated by Aon Benfield Securities. Indicative bids are derived from Aon Benfield Securities’ trading experience, combined with the results of a proprietary model that analyzes market dynamics and seasonality on a category-by-category basis. Aon Benfield Cat Bond Indices sectors follow conventional market segments: Asia/Pacific, Europe, Multiperil, North American Earthquake, and North American Wind. We also segment the market between investment-grade and non-investment-grade, given the disparity of returns for each of these markets. Aon Benfield Securities calculates each group of indices by considering the following components:

•	 Mark-to-market change for each ILS •	 Coupon returns for each ILS •	 LIBOR returns for the period
Individual securities contribute to the total return for the sector on a weighted basis by issue size and days on risk. For example, an ILS that has been on risk only half the quarter will not contribute as much as an identical issue that was on risk for the entire quarter.

Aon Benfield Cat Bond Indices
As a market, insurance-linked securities provided a total return of 3.89 percent for the year ending June 30, 2009, down from 10.12 percent the previous year. Individual sector returns for the 2009 period were lower in all cases than those observed in the 2008 period. These lower returns can be primarily attributed to mark-to-market losses across all perils. The mark-to-market principal losses were more than offset by interest income.

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Insurance-Linked Securities 2009

AON BENFIElD CAT BOND INDICES (June 30, 2009) Twelve months Ended IlS SECTOR Asia/Pacific Europe Multi-peril N.A. Earthquake N.A. Wind Investment Grade ILS Non-investment Grade ILS ALL ILS SECTORS BENCHmARKS 3 - 5 Year US Treasury Notes 3 Year US Corporate BB+ S&P 500 ABS 3 - 5 Yrs, Fixed Rate CMBS Fixed Rate 3 - 5 Yrs 7.14% 6.85% (26.21%) (2.54%) (0.59%) 10.67% 6.46% (14.04%) (5.91%) 5.56% (2.34%) 10.04% 3.16% 11.52% 11.87% 2.28% 3.96% (11.91%) (6.34%) 0.28% 6/30/2009 4.13% 6.12% 4.47% 1.95% 2.29% 2.66% 4.15% 3.89% 6/30/2008 8.96% 6.99% 9.96% 10.28% 12.53% 4.69% 11.38% 10.12% Six months Ended 6/30/2009 5.68% 6.24% 2.91% 6.71% 2.64% 0.55% 4.23% 3.59% 6/30/2008 3.87% 3.92% 3.56% 4.73% 3.76% 0.60% 4.59% 3.84%

Source: Aon Benfield Securities

AON BENFIElD CAT BOND INDICES BY SECTOR (Years ending June 30)

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 6/30/2005 6/30/2006 Asia Pacific 6/30/2007 Europe 6/30/2008 Multi-peril North American Wind 6/30/2009

North American Quake
Source: Aon Benfield Securities

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In the recent period, European bonds posted the strongest performance, followed by Multi-peril, Asia/Pacific bonds, North American Wind and North American Earthquake. These returns generally followed the relationship between expected losses and reinsurance rates as a whole, in which the Multi-peril sector offered the highest returns. Performance was also influenced by mark-to-market losses in each sector. For instance, bonds in the European Wind and Asia/Pacific sectors performed relatively well because none of the bonds in these sectors were impacted by the Lehman bankruptcy. In contrast, the North American Earthquake sector posted the lowest returns due to mark-to-market losses experienced by investors in the Ajax bond which represented a substantial six percent of the total U.S. earthquake market. In an investment climate where many asset classes provided little if any diversification benefit, ILS performance clearly demonstrated the uncorrelated nature of ILS risks, as insurance-linked securities provided solid growth in contrast to the severe credit-driven correction experienced by the equity markets. What will the next year offer? As in the past, investors can anticipate a combination of variables to affect the Aon Benfield Cat Bond Indices. Prevailing reinsurance rates will play a key role as sponsors consider the economics of reinsurance compared to ILS issuance. We expect strong returns as the cat bond market softens and existing issues benefit from mark-to-market gains—a trend that seems to have already begun as the first half of 2009 ended.

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Insurance-Linked Securities 2009

The Buy Side
A review of ILS investor activity
In the third quarter of 2008, investor appetite for catastrophe bonds remained strong, facilitating the successful placement of both the $120 million Blue Coast Ltd. transaction and the $200 million Topiary Capital Ltd. transaction. Investors expected a very active primary market in the fourth quarter, with up to $1 billion of European windstorm bonds combined with the annual Redwood renewal, replacing approximately $500 million of the expiring Redwood X bonds. Due to the financial dislocation in the broader markets, however, none of the expected issues materialized. Instead, both sponsors and investors withdrew from the market. As credit markets dried up, leverage that was once available for the purchase of cat bonds was withdrawn, in part due to the collapse of storied Wall Street investment banks like Bear Stearns and Lehman Brothers. The reduction in leverage required investors to fund the entire notional value of their positions. Many investors did not have capital to support their positions and were forced to reduce exposure. This deleveraging, coupled with fund redemptions, sparked widespread secondary selling across the cat bond market. Aon Benfield Securities’ secondary trading desk experienced record trading volume throughout the financial crisis and worked with investors to find available liquidity. Cat bond prices declined to sustained levels of the mid 90s, but maintained better pricing levels than nearly all other sectors. Most heavy selling came from multi-strategy hedge funds, although several market participants were well-positioned to capitalize on the distressed prices and purchased cat bonds at substantial discounts. Despite the disruption, the secondary market for cat bonds remained relatively liquid throughout this period. Lehman’s bankruptcy also left investors directly exposed to the market value of the principal, a prospect that further dampened investor interest through year-end. Primary market effects were further compounded by fund redemptions across the investor spectrum. In the first quarter of 2009, buyers remained hesitant to purchase secondary bonds and required thorough due diligence on collateral accounts and transaction documents. In addition, investors demanded compensation for the credit risk of the swap counterparty. Secondary trading, driven primarily by selling, remained at historically elevated levels until the middle of the first quarter when the final overhang of excess bonds finally cleared the market. Coincidently around this time, the primary market began to open up and investors shifted their focus to new issues. All eyes were on the SCOR-sponsored Atlas V Capital Limited issuance in February, the first bond to market after a six-month hiatus. Investors focused on the bond’s structure and, in the end, the transaction enjoyed broad market support as investors came together to make the transaction a success.

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Aon Benfield Securities

Atlas V Capital Limited was followed by seven straight transactions covering U.S. hurricane exposure. The drawback of multiple U.S. hurricane-exposed cat bonds was that some investors exceeded their targeted allocation to this specific risk. While investors welcomed the Ianus Capital Ltd. transaction, which offered exposure to European Windstorm and Turkey Earthquake, tight pricing tamed interest in the bond and the proposed €100 million transaction stalled and was subsequently downsized to €50 million. Overall, eight of the nine recent issues were sponsored by seasoned issuers who regularly tap the capital markets as an important source of reinsurance capacity.

Segmenting the Cat Bond Investor market
INVESTOR BY TYPE (% OF NEW TR ANSACTIONS)

PRE – CREDIT CRISIS
Cat Funds Hedge Funds Institutional Reinsurers Mutual Funds

POST– CREDIT CRISIS
13%

4% 20%

36% 18%

40%

33%

7%

29%

2007 & 2008 Source: Aon Benfield Securities

2009

A review of investors in transactions managed by Aon Benfield Securities reveals that much has changed. The most drastic and startling change for the annual period ending June 30, 2009 is that hedge fund participation has quadrupled, taking market share from both reinsurers and institutional investors. In this period, hedge funds comprised 29 percent of the investor base, compared to just 7 percent one year earlier. Although one might assume hedge fund selling in the secondary market would translate into decreased participation in the primary market, quite the opposite has occurred. Despite the exit of some hedge funds from the catastrophe bond market, rising risk premiums have caused other hedge funds to enter the market in a manner not seen since the months following Hurricane Katrina. Although reinsurer participation fell from 20 percent to 13 percent for Aon Benfield Securities transactions, the average number of reinsurers investing in cat bonds remained relatively unchanged. Reinsurers will continue to find opportunities to invest in the ILS space, which is evidenced by the number of reinsurers that have established or plan to establish dedicated cat bond funds.

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Insurance-Linked Securities 2009

Institutional investor participation in Aon Benfield Securities transactions declined from 33 percent to 18 percent, while mutual fund participation vanished altogether after representing four percent of the investor base last year. Investors in both categories have deployed substantial capital across all sectors of the fixed income and broader markets, and systematically analyze and monitor their portfolio concentrations. This process has led both groups of investors to two conclusions. First, distressed debt opportunities were perceived to be so attractive during the past year that, on a relative value basis, investors view catastrophe bonds as less desirable than other opportunities even after considering the diversification benefits of insurance-linked securities. Second, since catastrophe bond market values did not decline as much as other sectors, funds adhering to a fixed percentage diversification strategy found themselves overweight and unable to add more cat risk. Despite these temporary setbacks, catastrophe bonds continue to be an important asset class for institutional investors. Aon Benfield Securities expects their participation to return to pre-disruption levels as the broader market recovers. Dedicated funds continue to be a force in the market, rising to 40 percent of the investor base for Aon Benfield Securities transactions in the period. By definition, these investors have all of their capital dedicated to the ILS space; being overweight in this asset class is not a concern. Nor would they pare back ILS investments to pursue distressed debt or other opportunities. Instead, dedicated funds increased their participation in primary and secondary offerings, expecting the market to soften and, consequently, benefit from mark-to-market gains. Considering the number of start-up funds currently attempting to raise capital, Aon Benfield Securities expects participation from dedicated investors to grow. An increase in the number of new funds will present a good barometer of the continued importance of this asset class in the broader market.

A Geographic Overview
INVESTOR BY COuNTRY (Years ending June 30)

PRE – CREDIT CRISIS
U.S. Bermuda Switzerland UK Other*

POST– CREDIT CRISIS
6% 5%

9% 12%

14% 13% 21% 45% 19% 56%

2007 & 2008
*	Other	includes	Germany,	Canada,	Norway,	Italy,	France	and	Australia.

2009

Source: Aon Benfield Securities

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Aon Benfield Securities

The geographic distribution of investors in Aon Benfield Securities transactions has not experienced drastic change since last year. Over the year ended June 30, 2009, U.S. investors still held the greatest share of new cat bonds issues at 56 percent, versus 45 percent the prior year. Bermuda, Switzerland and the United Kingdom follow next with 19, 14 and 6 percent, respectively. As we observed in last year’s ILS review, few Asia Pacific investors have yet to enter the cat bond market in a meaningful way. Nonetheless, this market continues to interest investors and sponsors, and Aon Benfield Securities is in the process of establishing an office in the region to develop this market’s potential.

Outlook: Capital Inflow
Aon Benfield Securities sees many positive signs in the market. Although redemptions became a regular occurrence in the fourth quarter of 2008 and the first quarter of 2009, these requests were largely satisfied. In the second quarter of 2009, investors began to find success in raising capital, and indicated they were experiencing net inflows. In May, the Aon Benfield Securities trading desk experienced more buyers than sellers—a welcome reprieve from the heavy selling activity of the prior six months. Demand is high for 2009 vintage bonds containing improved collateral structures and increased transparency; investors began to bid over par for certain bonds during June 2009. Leverage has started to return to the market as some banks are now extending credit for cat bonds, albeit at a comparatively high price. Several new investors have entered the space, including traditional fund of fund players and family offices investing directly in bonds. Taken together, these signs seem to indicate the tide has turned. Assuming a loss-free year, Aon Benfield Securities expects catastrophe bond risk premium will decrease 10 to 15 percent by the 2010 renewals.

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Insurance-Linked Securities 2009

Related Markets
Industry Loss Warranties, Sidecars and Collateralized Reinsurance
In times of crisis, it is often said that one should “go back to basics”—that is, to concentrate efforts on those elements of business which are best understood. Largely, that maxim has been reflected in investor appetites and behaviors since October 2008. The liquidity provided by the secondary market in catastrophe bonds allowed investors the opportunity to exit positions or, alternately, to take advantage of attractive prices to acquire catastrophe bonds. Also during this time, new issuance favored non-indemnity triggers. Similar trends were evident in the related insurance and reinsurance markets of index-based trading, sidecars and collateralized reinsurance, with capital favoring simpler structures, well-defined underlying risks and higher returns.

IlW & Industry loss Index-Based Trading
Of all the ways investors can access direct exposure to catastrophe risk, contracts based on industry loss estimates offer low barriers to entry in terms of transparency, required expertise, market knowledge and structural complexity. Buyers value the speed of execution and lack of required portfolio disclosure, while heightened basis risk presents the primary hurdle. The majority of these transactions are structured as Industry Loss Warranty contracts (ILWs) in the traditional reinsurance space. They are often structured between two reinsurers, but can use a transformation or collateralization approach when capital is provided by a hedge fund or other investor. In May 2009, the International Swaps and Derivatives Association (ISDA), which maintains standard language for institutional derivatives contracts, released a standard form for a U.S. hurricane catastrophe swap. This ISDA initiative aims to standardize catastrophe swaps to facilitate increased volume and liquidity. Where insurers and reinsurers have historically preferred to effect index-linked transactions in reinsurance form, several have executed swap transactions directly with counterparties from outside the insurance arena. This structure holds some appeal for those who wish to acquire significant limits discretely. Catastrophe swaps are accounted for as derivatives. Because today’s catastrophe swap markets are relatively illiquid, parties apply U.S. GAAP for insurance liabilities when booking these transactions. However, if swap markets deepen and become more liquid in the future, reference prices may become more readily available and reliable, bringing mark-to-market variation to cat swap transactions.

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Aon Benfield Securities

Time Evolution of IFEX 2008 10B and 20B Event-linked Future Contract Pricing
IFEX ElF QuOTED ClOSING PRICE

100

EQE Sep 19, updated estimate onshore loss 8-12bn5 PCS 3rd estimate Feb 3 USD 11.5bn9 PCS Preliminary Estimate Sept 30 USD 8.1bn6 RMS Sep 17, updated estimated onshore and offshore loss USD, 7-12bn4 PCS 2nd estimate Dec 5 USD 10.655bn8 RMS Oct 24, updated estimated onshore and offshore loss USD 13-21bn7

$ price per $100 closing price

80

60

40

RMS Sep 14, estimated onshore and offshore loss USD 6-16bn3 Hurricane Ike Landfall Sept 13; EQE Sep 13, estimated onshore loss USD 8-18bn1 AIR Sep 13, estimated onshore loss 8-12bn2

20

0 June-08

July-08

Aug-08

Sep-08

Oct-08

Nov-08 Dec-08

Jan-09

Feb-09

Dec08 1E10B

Dec08 1E20B

Estimate Dates

Source: Prices (Chicago Climate Futures Exchange Estimates (Various))

1

		“	 QECAT	Initial	Post-Landfall	Estimates	of	Insured	Onshore	Losses	from	Hurricane	Ike,”	EQECAT	press	release,	 E Sept. 13, 2008. http://www.eqecat.com/news/2008/Ike_9-13_08.htm 			 AIR	Worldwide	Estimates	Insured	Losses	to	Onshore	U.S.	Properties	from	Hurricane	IKE	at	between	USD	8	Billion	 “ and	USD	12	Billion,”	AIR	Worldwide	press	release,	Sept.	13,	2008. http://www.air-worldwide.com/newsandeventsitem.aspx?id=12598 			 Hurricane	Ike	Could	Cause	$6	Billion	to	$16	Billion	of	Insured	Damage	According	to	Initial	RMS	Estimates,”	RMS	 “ press	release,	Sept.	14,	2008.	http://www.rms.com/NewsPress/PR_091308_Ike_Industry_Loss.asp 			 Hurricane	Ike	Insured	Losses	Estimated	at	$7	Billion	to	$12	Billion,”	RMS	press	release,	Sept.	17,	2008.	http:// “ www.rms.com/NewsPress/PR_091708_Ike_Industry_Loss.asp 			 EQECAT	Narrows	Range	of	Estimated	Onshore	Insured	Losses	from	Hurricane	Ike	Based	Upon	Reconnaissance“ Team	Reports,	Review	of	Storm’s	Characteristics,”	EQECAT	press	release,	Sept.	19,	2008.	http://www.eqecat.com/ news/2008/Ike_9-19_08_refinedloss.htm Property Claims Services Inc Catastrophe Insured Property Damage Estimates, http://www.ccfe.com/about_ccfe/products/ifex/PCS_Catastrophe_Estimates.xls 			 RMS	Revised	Hurricane	Ike	Industry	Loss	Estimate	to	$13	to	21	Billion,”	RMS	press	release,	Oct.	24,	2008.	http:// “ www.rms.com/NewsPress/PR_102408_Revised_Ike.asp Property Claims Services Inc Catastrophe Insured Property Damage Estimates, http://www.ccfe.com/about_ccfe/products/ifex/PCS_Catastrophe_Estimates.xls Ibid.

2

3

4

5

6

7

8

9

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Insurance-Linked Securities 2009

The potential for such variation may be illustrated using data from exchange-traded catastrophe futures contracts. The chart on the previous page shows how the prices of the IFEX $10 and $20 billion 2008 U.S. Tropical Wind event-linked futures contracts varied from before Hurricane Ike’s landfall in September 2008 through February 2009. During this time, PCS and catastrophe modeling companies produced various estimates of the actual losses that would eventually be calculated by PCS. These actual losses are the values upon which these contracts settle, and the estimates play an important role in shaping market expectations. As the magnitude of the loss from Ike became clear, pricing on the $10 billion contract rose quickly from the high 30s to the mid 80s. The pricing on the $20 billion contract fell from the high 20s to the high teens, until traders realized the loss was unlikely to reach the $20 billion level—at that point, the contract’s pricing began a decline to zero. Pricing on the $10 billion contract experienced some volatility in the initial phase of loss estimation and then tracked upwards, trading at a slight discount by the end of the period shown. Exchange-traded cat futures and options platforms have seen limited growth since our last update, while the platforms themselves and their supporters have seen several changes. The CME and NYMEX platforms merged in August 2008, bringing together their respective Gallagher Re-Ex and Carvill Hurricane Index (CHI) products. Subsequently, Aon Corporation acquired Gallagher Re, and the CME Group bought the CHI index from Carvill, renaming it the CME hurricane index and selecting EQECAT as the calculation agent. All platforms have experienced limited market depth and volume, with the vast majority of industry index-based transactions continuing to be placed on an over the counter (OTC) or brokered basis. It remains to be seen whether the role of event-linked futures and options in the reinsurance space will progress beyond its current niche position. Several potential applications provide some potential, including the ability to hedge or speculate on pricing. Although the ILW product arguably enjoys the greatest degree of standardization among all catastrophe reinsurance products, investors and reinsurers without financial strength ratings still generally need to agree upon collateral release conditions and execute trust agreements (or other suitable mechanisms such as letters of credit) with their cedents. This leads to great variation in the precise mechanics of each individual market transaction. This variation worked to the detriment of unrated providers in early June 2009, as rated reinsurers who had excess capacity after the June 1 renewal season entered the market as sellers of ILW capacity on a reinsurance basis—providing a product with greater ease of execution to the marginal buyer of ILW capacity. The additional capacity provided by rated entities contributed to a recent reduction in the pricing of U.S. ILW products relative to the capital-constrained start of 2009.

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Aon Benfield Securities

Sidecars
Historically speaking, the sidecar market has provided almost $11 billion of capital to the market. The effects of Hurricanes Gustav and Ike last year, combined with asset write-downs resulting from the financial markets’ dislocation, led to an overall drain on reinsurers’ balance sheets estimated at the equivalent of 18 percent of pre-crisis shareholders’ funds10. This erosion of capital sparked a contemporary increase in sponsors’ demand for sidecars and sidecar-like structures.
TYPICAl SIDECAR STRuCTuRE

Sponsor

Reinsurance Contract

Ceded Premiums

Interest Sidecar Reinsurance Trust Accounts Bank Loan Proceeds Equity Proceeds Equity Proceeds Dividends

Debt Investors

Security Interest in Shares

Equity Investors

Sidecar Holdings
Dividends

Source: Aon Benfield Securities

Typical Sidecar Structure with leverage
A typical sidecar structure is shown in the figure above. The attractiveness of the structure for the three principal participants—equity investors, debt investors and the sponsor—depends on the returns available to each. Many investors concluded volatility in the financial markets had created the potential for returns greater than the mid 20s level typical of sidecars created in 2007 and 2008. Equity investors increased their required returns on sidecar-like structures to more than 30 percent on an internal rate of return basis. With the increased cost of debt leverage in the bank loan markets, and lower expectations for growth in reinsurance rates-on-line,

10

			 The	Aon	Benfield	Aggregate,”	June	2009. “ http://www.aon.com/attachments/200906_ab_research_abaggregate_1q.pdf

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Insurance-Linked Securities 2009

sidecar capacity became scarce—and sometimes non-existent—during the recent twelve months. This generally reduces the attractiveness of a transaction to the sponsor. Together, these factors made it more difficult than in the recent past to create a structure that satisfied the parties’ required returns, and severely limited the classes of business that would be amenable to supporting such a structure moving into 2009 hurricane season. During the year ending June 30, 2009, several sidecar “renewals” were rumored to have been pursued before ultimately being withdrawn. Renaissance Re’s $60 million Timicuan Reinsurance II Ltd, a sidecar primarily covering Florida hurricane risks for the Bermuda company’s customers, was one of a small number of successful issuances for the 2009 hurricane season. Hannover Re and Swiss Re placed the latest iterations of their “K” (K6 at €129 million) and “Sector” (Sector Re III) transactions, respectively, and the MAP, Hiscox, Ark and Amlin Lloyds syndicates raised a total of £160 million external capital to fund Special Purposes Syndicates (effectively sidecars within Lloyds) to support their ongoing business. Potential sidecar sponsors also turned to the traditional reinsurance markets looking for quota share retrocession, but generally found a similar lack of available capacity. As a result, many reinsurers planned to reduce net lines as we entered the peak hazard season on June 1, 2009.

Collateralized Reinsurance
The convergence of the reinsurance and capital markets continues to be reflected by greater emphasis on collateralized reinsurance in cedents’ traditional reinsurance programs. The collateralized reinsurance market gained new capacity from Juniperus Capital, Alphacat Re, Cartesian Iris Re, additional funds raised by Pentelia Capital Management and Steamboat Re. It also benefited from the continued support of Aeolus Re, DE Shaw Re and Nephila, among others. As buyers of collateralized protection have become more familiar with this mechanism, events in the broader financial markets have driven greater appreciation for the benefits of collateralized coverage and a preference for safer assets in the trusts used to secure the reinsurance obligations.
New York Regulation 114 Permitted assets in a Reg. 114 compliant trust are specifically limited to the following asset classes: •	Cash (USD) • CDs issued by U.S. bank • U.S. Federal or State obligations • U.S. corporate debt obligations which are either i) secured by collateral, ii) rated A or better, iii) insured by an Aaa-rated insurer, or iv) carry highest possible rating by the NAIC SVO • Preferred shares of U.S. firms if all of their debt obligations are rated A or better • Common stock of U.S. firms, if all of its obligations are eligible as investments under Section 1404 of the New York Insurance Law and it is registered under the Securities Exchange Act of 1934 • Investment companies which invest 90% or more of their assets in the asset classes described above

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Aon Benfield Securities

In the past, New York Regulation 114 was the industry standard for permitted trust assets. However, the general approach today is to accept only cash, Treasuries and other government guaranteed assets. Restrictions on the degree of portfolio concentration in a single asset class or single issuer are also frequently imposed. In addition, letters of credit may still be used, although cedents are closely monitoring the aggregation of financial institution counterparty credit risk in the wake of the Lehman bankruptcy. Hurricane Ike also provided a valuable test of collateralization agreements for several cedents. While incurred losses alone may not have been enough to pierce layers of protection, the collateral release language typically provided for the assets to be maintained in the trust beyond the expiration of the risk period in the event of a loss large enough to impact the layer after further development. Generally, these clauses appear to have provided acceptable security to cedents, although the market still supports a wide variety of different forms and mechanisms for this process. Notable among the departures from the collateralized reinsurance market was CIG Re, sponsored by Citadel Investment Group, the well-known Chicago-based hedge fund. In November 2008, Citadel announced the intention to close CIG Re, citing a high cost of capital and difficulty in competing with rated entities. (New Castle Re, CIG Re’s A.M. Best-rated sister entity, remained open, but renewal rights were sold to Torus Insurance Holdings in December 2008.) The highly visible difficulties of Citadel’s main investment funds—related to the financial market dislocation following October 2008—were partially responsible for reducing the firm’s appetite for the asset class. In an April 2009 presentation at the Federal Reserve Bank of Chicago, Citadel COO Gerald Beeson made specific reference to the “effectively closed” securitization market, naming it as a contributing cause of this high cost of capital.11

Summary
Despite the disruption of the capital markets in October, the catastrophe risk securitization and related markets have taken several positive steps that paved the way for the return of capital to the cat bond space. This capital has been used to provide collateralized reinsurance coverage, support sector-specific hedge funds and fund index trades as well as less complex securitization structures. As the broader financial world returns to equilibrium, we expect these markets will continue to expand their robust contribution to the reinsurance industry.

11

“Future	of	Financial	Innovation,”	Citadel	presentation	to	Financial	Institutions	Risk	Management	 Conference, April 14, 2008. www.chicagofed.org/news_and_conferences/conferences_and_events/files/2009_sr_beeson.ppt

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Insurance-Linked Securities 2009

Diversification Opportunities Outside the United States
Moderating portfolio concentration in U.S.-based perils
U.S. wind is the largest global peril in the reinsurance industry, and is also the best understood and most extensively modeled. Property catastrophe insurers tend to be highly exposed to this risk, creating a high demand for reinsurance. Since bonds covering this risk far outnumber those covering other perils, many ILS investors have found themselves “overweight” in this category.
u.S. VERSuS DIVERSIFYING PERIlS

Diversifying Perils $4,380 MM 31%

U.S. Perils $9,695 MM 69%

Diversifying Perils $3,389 MM 28% U.S. Perils $8,801 MM 72%

Diversifying Perils $2,385 MM 21% U.S. Perils $8,738 MM 79%

6/30/08

12/31/08

6/30/09

Source: Aon Benfield Securities

For investors who focus on absolute returns and use other asset classes to achieve their portfolio diversification objectives, this concentration of risk may not be a significant concern. For dedicated ILS funds, however, diversification by peril and geography are key aspects of a disciplined investment strategy. Despite the attraction of the multi-year protection available from most cat bonds and the enhanced security from collateralized cover, the pricing differential with traditional reinsurance and the basis risk inherent in non-indemnity cat bond structures are the two primary reasons why sponsors are reluctant to access the capital markets for non-U.S. perils. Because of these sponsor concerns, the supply of European catastrophe bonds has not risen to meet investor demand.

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Aon Benfield Securities

Pricing Differential
As noted, the insurance sector has not been immune to the crisis in the financial markets, with many companies suffering impairment on the asset side of their balance sheet. These impairments have reduced the capital strength of the sector and reduced the “surplus” capital carried by most reinsurers by 18 percent since mid-20081. Add to this the increased cost and scarcity of equity capital, in addition to the effective suspension of the subordinated debt markets in a relatively low catastrophe loss year, and one would expect the price and perceived cost of reinsurance capital to increase. This has not been the case in the key non-U.S. property catastrophe markets that have previously used the capital markets as a source of alternative capacity. Traditional reinsurance capacity in Europe and Japan is in plentiful supply, with most programs renewing comfortably despite heightened concerns about the counterparty credit risk of some names in the sector, and a dramatic increase in foreign exchange volatility. For example, January 2009 renewals produced only marginal increases in average rates on line in the major European countries (Germany, France and U.K.) with zero to five percent increases for European Windstorm excess of loss treaties. For April 2009 renewals in the Japan market, average rates on line for typhoon windstorm and earthquake excess of loss treaties increased by five to 12 percent. In comparison, the risk premium of non–U.S. peril catastrophe bonds trading in the secondary market increased by over 30 percent during the last 12 months. As in the United States, this price widening reflected the distressed selling that occurred in the second half of 2008 by investors reducing allocations to, or exiting from, the ILS sector. In addition, pricing was driven by an increased sensitivity to counterparty credit/investment risk in total return swap structures driven by the default of Lehman. The contrast is even starker in the Japanese market. A hurricane excess of loss risk with an expected loss of two percent would likely be placed at approximately 3 to 3.5 percent in the reinsurance market, while a comparable cat bond would typically come to market with price guidance of approximately 6.5 to 7.5 percent over LIBOR. For many insurers, these cost differentials are too high to justify the use of catastrophe bonds, despite their advantages in offering diversified and secure multi-year capacity.

1

The	Aon	Benfield	Aggregate,”	June	2009,	 http://www.aon.com/attachments/200906_ab_research_abaggregate_1q.pdf

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Insurance-Linked Securities 2009

Basis Risk
ILS investors have a strong preference for single-event, non-indemnity, occurrencebased transactions. This requires sponsors to calculate and assume the basis risk between the relevant trigger structure for the cat bond, and to find an alternative solution for a second event cover. Unlike the U.S. market, there is no generally accepted independent loss reporting agency in Europe or Japan that produces reliable post-event industry loss estimates which can be used to structure an industry loss index. Swiss Re’s Sigma2 and Munich Re’s NatCatSERVICE3 have been used in the ILW market, but each has struggled to gain wide acceptance as a source of independent loss reporting for the cat bond market. In Europe, two initiatives are focused on addressing this gap in the ILS market and providing sponsors with more acceptable structuring options.

•	 	 aradex. This industry exposure- and vulnerability-weighted parametric P
index developed by RMS provides a proxy for insured industry losses due to European windstorms, covering 12 European countries. The ability to tailor the index to CRESTA zone level and by line of business assists in the mitigation of basis risk. The Paradex index is calculated no more than 40 business days after an event, facilitating prompt payout for the sponsor. This index was used in the Topiary Capital transaction, sponsored by Platinum in August 2008. Topiary was a $200 million second and subsequent event global multi-peril bond, whose European windstorm component contributed 52 percent of the initial annualized expected loss of the transaction. The European windstorm index value was calibrated by CRESTA zone and line of business, including agricultural, commercial, industrial and residential.

•	 	 ERILS	AG. This independent company was created by seven major P
European insurance-related4 players to provide industry-wide catastrophe insurance data covering nine European countries. PERILS seek to cover at least 40 percent of the market as a basis for estimating loss data at the market level, and will produce industry loss estimates by risk type and CRESTA zone following major catastrophe events. Although not due to be operational until January 2010, PERILS issued its first loss estimate in May 2009—€1.55 billion for the property insurance loss for the January 2009 Windstorm Klaus—to illustrate its methodology and let market participants evaluate the potential benefits of PERILS.

2

Sigma is the brand name used by Swiss Re’s Economic Research and Consulting unit to disseminate information and analysis about economic, financial and insurance issues in the global markets. 			 atCatSERVICE	is	a	database	for	natural	catastrophes	launched	by	Munich	Re	in	1974	 N PERILS AG founder members include Allianz, Axa, Groupama, Guy Carpenter, Munich Re, Partner Re, Swiss Re and Zurich

3 4

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Aon Benfield Securities

While it remains to be seen whether PERILS can gain the same level of market acceptance as Property Claims Services (PCS) in the United States, or whether Paradex will become the parametric index of choice for sponsors, we believe each initiative represents an enhancement for the ILS market that will be featured in future European peril cat bonds. The level of basis risk in a transaction will vary according to the quality of the underlying exposure data, modeling and calibration of the index—the higher the quality of underwriting data, the lower the potential basis risk. Optimizing the index against historic events and simulated likely future events will increase a sponsor’s comfort with the expected payout following a major loss event and the resultant basis risk. Various adjustment factors can be incorporated in the index calculation to mitigate concerns regarding un-modeled exposures, loss adjustment expenses, currency mismatch and expected changes to the underlying portfolio. Prompt payout following a loss event and acceptance of a parametric index amongst investors are strengths of this structuring option.

Summary
A strong market of global investment opportunities, diversified by peril, geography, risk attachment level and sponsor, are important ingredients for a successful and vibrant ILS market. Potential sponsors of non-U.S. peril transactions are understandably cautious given the current pricing differential and basis risk issues. At the same time, the strategic imperative to achieve a more balanced, diverse and secure source of reinsurance capacity has never been more apparent and could drive a stronger pipeline of issuance over the coming year. Aon Benfield expects the investor community’s demand for new issuance of non-US peril transactions will continue to grow and, as the financial markets begin to settle, new capital will be attracted to this asset class, leading to tightening in cat bond pricing and a more compelling alternative source of capacity for sponsors.

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Insurance-Linked Securities 2009

The Developing Frontier of Credit Risk Management
Credit Default Swaps explained
The field of credit risk management has grown substantially over the past few years, particularly since the beginning of the financial crisis in 2008. Although banks have decades of experience evaluating credit, many other firms—including insurance companies—are placing unprecedented scrutiny on their direct and indirect credit exposures. To illustrate, the International Association of Credit Portfolio Managers (IACPM) was formed in 2001 as an industrial organization dedicated to advancing credit management. Today, the IACPM includes 80 members in more than 14 countries including several insurance industry participants. Credit risk for insurance companies arises from many sources. Reinsurance recoverables present a significant credit risk: should a reinsurer not satisfy its claim payment obligations, the reinsurance buyer would be left with an unexpected liability. In addition, large surety arrangements may involve several providers under a single bond on a joint and several structure. This presents a contingent liability, which arises from the possibility that one of the co-surety partners fails to perform and the remaining partners are left to satisfy a claim pro-rata. Catastrophe bonds also entail credit risk of the investment portfolio or investment manager, although this risk has been mitigated through more conservative structures introduced in 2009. In general, any type of receivable can present credit risk. Aside from public and private capital markets transactions, one of the most discussed forms of credit management is the credit default swap (CDS). A CDS is similar to buying insurance protecting against an adverse credit event, and represents a viable form of credit risk management for insurers and reinsurers. Until recently, CDS trading operated generally as an over-the-counter (OTC) market between financial institutions that managed the supply and demand of contracts. Many changes have taken place over the past few months because of market demands and as new regulatory requirements.

Credit Default Swaps Demystified
In a CDS, the buyer of protection typically makes an up-front payment to enter into the contract, and subsequently makes periodic payments to the CDS seller over the life of the contract. In exchange, the seller agrees to compensate the buyer if a pre-defined credit event occurs with respect to a reference security. The reference security is a bond or some other publicly-traded liability of the entity for which protection is desired, and has sufficient market size and liquidity to support trading of the liability and the associated CDS. The credit event is typically tied to the default of the reference security (usually bankruptcy of the issuer, or the general inability to make an interest or principal payment). Unlike some insurance products (such as a catastrophe bond with an indemnity trigger), actual loss experienced by the protection buyer is not a prerequisite for compensation under the contract.

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Aon Benfield Securities

Until recently, CDS prices were quoted in terms of basis points (“bps”), a unit equal to 1/100th of a percentage point. For example, if a CDS were trading at 300 bps, the purchaser of protection would pay 3.00% per annum for the life of the contract (in addition to any up-front costs). A higher CDS price generally implies the market’s perception of greater risk for a reference security (and its issuer), as compared to another security with a lower CDS price. New standards have been implemented, however, that change the way most credit default swaps are priced and executed. Going forward, most CDS contracts will typically be priced with a premium or discount to value (similar to a corporate bond), and the periodic spread will be fixed at some standardized level. Swaps can continue to be quoted in spreads, however, for comparison purposes. CDS contracts can be used for hedging, speculation and arbitrage. As such, contracts are traded in the OTC market and profit or loss can be realized by price movement prior to expiration. Because credit default swaps were initially created as a hedge for actual reference securities (and not for speculation or arbitrage), the settlement of a CDS in cases when the reference security has defaulted depends on the value of the reference security at the time of default. Consider, for example, a bond priced at $100 and a one-year CDS priced at 500 bps. The investor wishing to hedge his $100 investment would purchase $100 (“notional” amount) of the referenced CDS and pay a $5 premium (500 bps times $100) over the course of the one-year contract. Assume the bond defaults and is now deemed to be worth $20 (a 20 percent “recovery”). The investor would receive $80 from the seller of the CDS ($100 minus the $20 recovery) and sell the bond for $20, thus recouping his original investment of $100 ($80 plus recovery of $20). If the CDS was purchased as a hedge without owning the reference security, the buyer would simply receive $80 from the CDS seller. The buyer would then attempt to recover the remaining $20 or consider it “retention” or expense. In today’s market, most CDS buyers do not own the reference security, but rather speculate on the issuer’s credit risk. In the example above, a speculative CDS buyer would receive the $80 benefit from the purchase of the $100 CDS.

CDS Pricing
Many factors affect the price of credit default swaps for a reference security of an insurance company. The most important factor is market participants’ assessment of an insurance company’s financial health, which reflects the company’s earnings history, asset quality, management strength, and strategic and financial outlook. Other considerations include a company’s geographic reach, diversification of insurance lines and investment portfolio risk. In addition, characteristics of the CDS market itself have a pricing impact. An imbalance between supply and demand for a specific CDS contract will drive pricing, just as it does in the capital markets generally. Some critics of the CDS market charge that the operational nature of the OTC market and lack of transparency have generally allowed dealers to overprice contracts. There is no empirical evidence of this practice and it would be difficult to substantiate given the number of participating dealers.

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Insurance-Linked Securities 2009

CDS SPREADS — u.S.

1,000

800

Basis Points

600

400

200

0
8 8 8 8 9 7 7 7 -0 r-0 -0 r-0 -0 ne -0 r-0 r-0 ar ch ne ar ch be be be Ju be Ju em em em em Ju ne -0 9
Ju ne

M

pt

ec

pt

Se

Se

D

XL

Berkshire

Liberty

D

ec

ACE

M
8

Chubb

Source: Aon Benfield Securities, Bloomberg

CDS SPREADS — EuROPE
1,000 900 800

Basis Points

700 600 500 400 300 200 100 0
-0 8 8 8 e0 r-0 r-0 ar ch be r ne r-0 Ju n em em em m ar ch be be Ju be -0 9 -0 9 7 7 7 -0 -0

M

pt e

pt

ec

Se

Se

Swiss

Zurich

D

SCOR

Allianz

D

ec

Hannover

M

Munich

Source: Aon Benfield Securities, Bloomberg

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Aon Benfield Securities

From the mid-1990s through January 2008, CDS pricing for insurance companies changed little, generally remaining below 150 bps with little variation between companies. After January 2008, however, spreads for some companies widened greatly while differences between companies grew substantially. This departure from the previous pattern can be attributed to the broad financial crisis as well as individual companies’ anticipated losses from Hurricane Ike. In the United States, for example, AIG spreads widened to as much as 2,500 bps and the Hartford traded in a range around 1,000 bps in the fall of 2008. In contrast, ACE and Chubb traded at less than 300 bps. The variation and magnitude of CDS spreads for insurance companies—both U.S. and non-U.S.—dropped significantly in May and June of 2009. With some exceptions (AIG, for example), spreads now range between 100 and 500 bps. While still in excess of spreads from September 2008, these new levels are consistent with similarly-rated companies in other industries and seem less driven by the lack of supply or the increased demand of credit risk management.

AIG: What Went Wrong
The collapse of AIG and the subsequent blame assigned to credit default swaps has tarnished the instrument’s reputation. The sequence of events at AIG added fuel to global economic distress, and the subsequent difficulty in liquidating the company’s CDS positions made a bad situation worse. Through a structured investment arm, AIG sold CDS contracts through the OTC market. AIG realized the economic benefit of these sales, believing that claims against the contracts they sold were highly improbable. Many of the swaps were sold against asset-backed securities and other structured credit. AIG placed these derivatives without owning the instruments, leaving the company substantially exposed in the event resulting claims were greater than expected. The events that followed are documented well in the world press. When some of the reference securities underlying AIG’s CDS began to default, other bonds followed. Unlike traditional insurance where one event is unlikely to affect another, the reference securities (particularly those created in the structured credit markets) were systemically correlated. AIG found itself on the wrong side of more than $440 billion of bad trades.5 AIG’s situation left those global financial institutions acting as counterparties in AIG’s CDS transactions without the credit protection they relied on. These institutions were forced to seek replacement credit protection with other forms of hedging which proved quite expensive. This led the U.S. government to intervene to support both AIG and the broader financial markets.

5

			 euters.	“How	AIG	fell	apart.”	Sept	18,	2008. R

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Insurance-Linked Securities 2009

Exchange-Traded Credit
The global CDS market continues to change rapidly with increasing regulation, particularly in how the contracts are traded. Until recently, broker-dealers set their bid/ask spreads based on their own analysis of the market and also agreed among themselves what the market-clearing recovery rate should be in the event of a default. This market has been, and continues to be, less transparent than U.S. legislators would like. While there are a sufficient number of dealers to impose at least a modest market effect, many have suggested changes to increase the efficiency of the market. Government officials seek more regulation because of the perceived role CDS played in the recent impairment of AIG and other financial institutions. While these bills and pronouncements have done little to add substance to the OTC market to this point, it is clear the market will be subject to a new regulatory landscape.6 Market participants have been working to adapt the market to more transparent exchange-traded contracts. These new derivatives would be traded over a licensed and regulated exchange with centralized clearing, full transparency and price discovery. Perhaps most significantly, the exchange would establish capital requirements for its members and serve as the counterparty to each transaction. This would lead to a virtual elimination of counterparty risk that, in hindsight, was a significant problem for the market in the demise of the AIG and Lehman Brothers structured finance operations. The U.S. government views the prospect of central clearing as the key to removing systemic risks posed by the failure of a large counterparty such as AIG and Lehman.7 Up to this point, dealers have shown a reluctance to send CDS trades through a central clearinghouse, fearing a reduction in the margins they enjoy through the OTC market.8 Despite dealer resistance, additional regulation seems likely. In the United States, both the Intercontinental Exchange (ICE) and the CME Group have launched efforts to participate in the exchange-traded CDS market, and both have received approval from the SEC and Federal Reserve to proceed. ICE benefits from the support of a group of large dealers that own a stake in the company. These dealers include Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, and UBS.9 Some non-bank market participants have expressed concerns about ICE’s emerging role, citing both the correlation of counterparty risk among the institutional owners as well as the potential market inefficiencies introduced by the relationship among formerly competitive institutions. Owner-dealers are expected to transact most if not all of their CDS transactions through ICE, potentially erecting a barrier of entry to other exchanges including CME Group. For its CDS offering, CME Group is partnered with hedge fund Citadel Investment Group.

6 7 8 9

			 ayer-Brown.	“OTC	Derivatives	–	In	the	Crosshairs	of	U.S.	Regulatory	Change.”	May	19,	2009 M 			 euters.	“NY	Fed	meets	with	large	CDS	dealers	on	clearing.”	April	1,	2009. R 			 all	Street	Journal.	“ICE	Clears	Major	Hurdle	for	CDS.”	March	18,	2009. W Ibid.

36

Aon Benfield Securities

ICE has enjoyed a first-mover advantage, launching its CDS clearing capability for credit indices on March 9. The main indices, known as Markit CDX, each cover multiple sectors such as investment grade, North American high yield and North America emerging markets. Clearing volumes on the ICE have been light but growing. As of the date of this publication, CME Group has not announced a launch date for its own clearinghouse activities. ICE has indicated that, upon growth of CDS index trading, it will introduce the ability to trade single-name credit default swaps across the exchange. It is unclear how long this will take, or if ICE has the systems in place to support such a strategy. In Europe, Liffe (a London-based clearing house) and LCH.Clearnet Group Ltd. (an Anglo-French clearinghouse) have launched a service similar to that of ICE. The system has yet to process any swap trades. Eurex, the derivatives business co-owned by Deutsche Börse AG and SWX Swiss Exchange AG hopes to strike a deal with dealers similar to ICE’s arrangement.10 Liffe, Eurex and LCH.Clearnet deal exclusively with contracts linked to European indexes, known as Markit iTraxx CDS Indices. Like their U.S. cousins, they represent the most liquid names in the European markets.11

The “Big Bang” Structure
With substantial progress underway, ISDA has issued new procedures and standards for the CDS market, addressing many of the concerns voiced by industry participants and government leaders. ISDA sets industry standards for documentation, procedures and trading. It derives its authority from the trading community at large, including broker-dealers and investors, through their nearuniversal adherence. The new standards provided by ISDA, dubbed the “Big Bang,” specify more detailed procedures including the creation of a multi-stakeholder committee to determine recovery rates for specific transactions. Previously, recovery rates were determined in a closed-door process by a small group of dealers. The changes add transparency and broader participation by the industry at large, which is expected to lead to greater consistency and confidence in the market. As a whole, ISDA’s new standards are viewed as another step toward the facilitation of exchange-traded credit default swaps.12

10 11 12

Ibid. Markit CDX. 2009. Markit Financial Information Services. http://www.markit.com.

			 hannon	D.	Harrington.	“Credit-Default	Swaps’	‘Big	Bang’	Loosens	Banks’	Grip.”	Bloomberg.	April	8,	2009. S

37

Insurance-Linked Securities 2009

Outlook
Many insurance company risk managers view the current cost of credit default swaps to be excessive relative to other options (including, in some cases, traditional reinsurance). Should the current trend of declining CDS spreads continue, CDS-based credit protection would become more economically attractive for risk managers seeking ways to hedge their credit exposure. We do expect these trends to continue as a result of further stabilization of the credit markets, greater OTC pricing transparency, and the movement toward exchange trading. The inevitability of greater transparency in CDS contracts is undisputed, thanks in large part to the blossoming interest of central governments. Their interest reflects their citizens’ understandable demands for greater financial responsibility in the wake of a financial crisis that continues to weigh on economies around the globe. Credit default swaps have gained an increasingly unfavorable reputation over the past year due to the role they played in the demise of many certain financial institutions. The recent changes in CDS standardization, and the movement toward exchange trading should help to improve their reputation. The concept of managing credit risk through hedging has merit. In the advent of derivatives many years ago, treasurers and risk managers were distrustful of the interest rate swap. This type of contract has become routine and is considered by many senior financial managers to be an integral part of their capital management. Optimistically speaking, and assuming the details can be resolved through thoughtful market evolution, CDS derivatives should have the opportunity to instill the same level of acceptance.

38

Aon Benfield Securities

Appendix I
Catastrophe bond issuance statistics
As	of	June	30,	2009	
Source: Aon Benfield Securities

39

Insurance-Linked Securities 2009

CATASTROPHE BOND VOlumE, 1997-2009 (Years ending June 30)
30,000

25,000

$ Millions

20,000

15,000

10,000

5,000

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bonds On Risk

Cumulative Issuance

CATASTROPHE BOND ISSuANCE BY YEAR (Years ending June 30)

8,000 7,000

7,003 5,815

$ Millions

6,000 5,000 4,000 3,000 2,000 1,000 0 2001

3,124 1,558 985 986 1,705 1,137

1,071

2002

2003

2004

2005

2006

2007

2008

2009

40

Aon Benfield Securities

CATASTROPHE BOND ISSuANCE BY HAlF-YEAR

8,000 7,000

$ Millions

6,000 5,000 4,000 3,000 2,000 1,000 0

4,455

2,410

2,147 2,547 977
2005/6 2006/7

3,405 1,385 320
2007/8 2008/9

Jan - Jun

Jul - Dec

CATASTROPHE ISSuANCE BY TR ANCHE / DEAl / SPONSOR (Years ending June 30)

50

12 10 8

40

30 6 20 4 10 2 0

0

2002

2003

2004

2005

2006

2007

2008

2009

Tranches Issued

Deals Issued

First time Sponsors

41

Insurance-Linked Securities 2009

CATASTROPHE BOND ISSuANCE BY YEAR AND PERIl (Years ending June 30)

8,000

Notional Limit Issued by Peril ($ Millions)

7,000 6,000 5,000 4,000 3,000 2,000 1,000
0

7,003 U.S. Hurricane 5,815 U.S. Quake Euro Wind Japan Quake Asia Pacific 3,124 Other

1,558 1,071 985 986 1,137

1,705

2001

2002

2003

2004

2005

2006

2007

2008

2009

CATASTROPHE BOND ISSuANCE VERSuS PERCENT INDEmNITY (Years ending June 30)

8,000 7,000

7,003 5,815

50% 45% 40% 35%

6,000 5,000 4,000 3,000 2,000 1,000
0

30%

3,124 1,558 985 986 1,705 1,137

25% 20% 15% 10% 5%

1,071

2001

2002

2003

2004

2005

2006

2007

2008

2009

0%

Cat Bonds

% Indemnity Issued

42

Percent of New Issuance with Indemnity Loss Trigger

Risk Transfer ($ Millions)

Aon Benfield Securities

CATASTROPHE BOND ISSuANCE BY lOSS TRIGGER (Years ending June 30)

4%
Index Indemnity Multiple Modeled Loss Parametric Index Parametric

14% 25% 19% 4% 5% 47%

16% 41%

23%

2008

2009

u.S. VERSuS DIVERSIFYING PERIlS

Diversifying Perils $4,380 MM 31%

U.S. Perils $9,695 MM 69%

Diversifying Perils $3,389 MM 28% U.S. Perils $8,801 MM 72%

Diversifying Perils $2,385 MM 21% U.S. Perils $8,738 MM 79%

6/30/08

12/31/08

6/30/09

43

Insurance-Linked Securities 2009

Appendix II
ILS market transaction summary
As	of	June	30,	2009
Source: Aon Benfield Securities

44

Aon Benfield Securities

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 6/16/1997 Sponsor USAA Issuer Residential Reinsurance I Class Class A-1 Class A-2 10/16/1997 Swiss Re SR Earthquake Fund, Ltd. Class A-1 Class A-2 Class B Class C 11/19/1997 3/3/1998 Tokio Marine & Nichido Fire Zurich Group Parametric Re Ltd. Trinity Re Ltd. Class A-1 Class A-2 6/16/1998 6/16/1998 7/17/1998 7/17/1998 12/21/1998 2/2/1999 3/25/1999 4/15/1999 5/12/1999 6/1/1999 6/24/1999 11/23/1999 USAA Yasuda USF&G USF&G Centre Solutions USF&G Kemper Sorema SA Oriental Land USAA Gerling American Re Residential Reinsurance II Pacific Re, Ltd. Mosaic Re Ltd. Mosaic Re Ltd. Trinity Re 1999, Ltd. Mosaic Re II, Ltd. Domestic, Inc. Halyard Re B.V. (Yr 1) Concentric, Ltd. Residential Reinsurance III Juno Re, Ltd. Gold Eagle Capital Limited Namazu Re, Ltd. Seismic Limited Atlas Reinsurance p.l.c. Class A Class B Class C 4/1/2000 5/23/2000 5/26/2000 6/12/2000 11/19/2000 11/19/2000 12/28/2000 12/28/2000 2/8/2001 3/22/2001 3/30/2001 5/9/2001 Sorema SA State Farm USAA Vesta Fire Ins AGF AGF Munich Re Munich Re Swiss Re American Re Sorema SA Swiss Re Halyard Re B.V. (Yr 2) Alpha Wind 2000-A Ltd. Residential Reinsurance 2000 Limited NeHi, Inc. Mediterranean Re p.l.c. Mediterranean Re p.l.c. Prime Capital CalQuake & EuroWind Ltd. Prime Capital Hurricane Ltd. Western Capital Limited Gold Eagle Capital 2001 Limited Halyard Re B.V. (Yr 3) SR Wind Ltd. Class A-1 Class A-2 6/1/2001 6/15/2001 USAA Zurich Re Residential Reinsurance 2001 Limited Trinom Ltd. Class A-1 Class A-2 Class A Class B Class A Class B 11/23/1999 3/3/2000 3/10/2000 Gerling Lehman Re SCOR Class A Class B Class A-1 Class A-2 Class A Class B Perils US Gulf/East Coast Wind US Gulf/East Coast Wind California EQ California EQ California EQ California EQ Japan EQ Florida Wind Florida Wind US Gulf/East Coast Wind Japan Wind US (Wind, EQ, ST) US (Wind, EQ, ST) Florida Wind Florida Wind US (Wind, EQ, ST) US (Wind, EQ, ST) New Madrid EQ EU/JP Wind, JP EQ Japan EQ US Gulf/East Coast Wind US Wind US Wind, US EQ US Wind, US EQ Japan EQ California EQ Europe Wind. CA/JP EQ Europe Wind. CA/JP EQ Europe Wind. CA/JP EQ EU/JP Wind, JP EQ Florida Wind US Gulf/East Coast Wind Northeast/Hawaii Wind France Wind, Monaco EQ France Wind, Monaco EQ Califorina EQ/ Europe Wind US Wind US EQ US Wind, US EQ EU/JP Wind, JP EQ US/France Wind US/France Wind US Gulf/East Coast Wind US/EU Wind, US EQ US/EU Wind, US EQ Trigger Indemnity Indemnity Index Index Index Index Parametric Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Parametric Indemnity Indemnity Modeled Loss Modeled Loss Modeled Loss Index Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Modeled Loss Modeled Loss Modeled Loss Parametric Index Parametric Index Index Modeled Loss Indemnity Parametric Index Parametric Index Indemnity Modeled Loss Modeled Loss Size (000) $86,814 $313,180 $25,200 $12,000 $60,300 $14,700 $80,000 $10,467 $61,533 $450,000 $80,000 $15,000 $21,000 $2,385 $51,615 $25,000 $20,000 $80,000 $17,000 $100,000 $200,000 $80,000 $50,000 $126,600 $100,000 $145,500 $70,000 $30,000 $100,000 $17,000 $52,500 $200,000 $41,500 $41,000 $88,000 $129,000 $159,000 $97,000 $116,400 $17,000 $58,200 $58,200 $150,000 $60,000 $97,000 Ba2 Ba2 Ba1 BB+ BB+ BB+ BB BB+ BBBB BB+ BB+ Ba2 Ba3 Baa3 Ba3 Ba3 Ba3 Ba2 Ba2 BBB+ BB+ BB+ BB+ BB+ BB+ BB+ BB+ BB BBB BB+ BB BB Ba2 Baa3 Ba2 BB BB+ BBB+ BBBBBBB+ BBBBBa1 Ba2 BB+ BB BB BB+ BBBBB Ba2 BB+ Aaa Ba3 AAA BB mIS Aaa Ba2 Baa3 Baa3 Ba1 Ba3 Ba2 Aaa Ba3 Ba2 Ba3 BB AAA BB BB BBS&P AAA BB BB BBBBBBBB B Fitch

45

Insurance-Linked Securities 2009

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 12/27/2001 12/28/2001 Sponsor CEA SCOR Issuer Redwood Capital I, Ltd Atlas Reinsurance II p.l.c. Class A Class B 3/28/2002 4/8/2002 5/22/2002 5/31/2002 6/26/2002 CEA Hiscox Nissay Dowa USAA Swiss Re Redwood Capital II, Ltd St. Agatha Re Ltd. Fujiyama Ltd. Residential Reinsurance 2002 Limited Pioneer 2002 Ltd. A-02-1 B-02-1 C-02-1 D-02-1 E-02-1 F-02-1 9/16/2002 Swiss Re Pioneer 2002 Ltd. B-02-2 C-02-2 D-02-2 12/16/2002 Swiss Re Pioneer 2002 Ltd. A-02-3 B-02-3 C-02-3 D-02-3 E-02-3 F-02-3 12/30/2002 3/17/2003 Vivendi Swiss Re Studio Re Ltd. Pioneer 2002 Ltd. A-03-1 B-03-1 C-03-1 D-03-1 E-03-1 F-03-1 5/30/2003 6/17/2003 USAA Swiss Re Residential Reinsurance 2003 Limited Pioneer 2002 Ltd. A-03-2 B-03-2 C-03-2 D-03-2 Class Perils Califorina EQ Europe Wind. CA/JP EQ Europe Wind. CA/JP EQ California EQ California/New Madrid EQ Japan EQ US Gulf/East Coast Wind US Wind Europe Wind California EQ Central US EQ Japan EQ US/EU Wind, US/JP EQ Europe Wind California EQ Central US EQ US Wind Europe Wind California EQ Central US EQ Japan EQ US/EU Wind, US/JP EQ California EQ US Wind Europe Wind California EQ Central US EQ Japan EQ US/EU Wind, US/JP EQ US Wind, US EQ US Wind Europe Wind California EQ Central US EQ Trigger Industry Index Parametric Index Parametric Index Industry Index Modeled Loss Parametric Indemnity Parametric Index Parametric Index Parametric Index Parametric Parametric Index Parametric Index Parametric Index Parametric Index Parametric Parametric Index Parametric Index Parametric Index Parametric Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Parametric Index Parametric Index Indemnity Parametric Index Parametric Index Parametric Index Parametric Size (000) $160,050 $50,000 $100,000 $194,000 $33,000 $67,900 $125,000 $85,000 $50,000 $30,000 $40,000 $25,000 $25,000 $5,000 $20,500 $1,750 $8,500 $21,000 $15,700 $25,500 $30,550 $3,000 $150,000 $6,500 $8,000 $6,500 $5,500 $8,000 $8,140 $160,000 $9,750 $12,250 $7,250 $2,600 Ba3 Ba3 Ba3 Ba3 Baa3 Ba3 Ba3 Ba3 Ba3 Baa3 Ba3 Ba3 Ba3 Baa3 Ba3 Ba3 Ba2 Ba3 Ba3 Ba3 Baa3 Ba3 Ba3 Ba2 Ba3 Ba3 Ba3 Baa3 mIS Ba2 A3 Ba2 Baa3 S&P BB+ A BB+ BBBBB+ BB+ BB+ BB+ BB+ BB+ BBBBB+ BB+ BB+ BB+ BBBBB+ BB+ BB+ BBBBB+ BB+ BB+ BB+ BB+ BB+ BBBBB+ BB+ BB+ BB+ BB+ BB+ BBBFitch

46

Aon Benfield Securities

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 6/25/2003 6/25/2003 6/25/2003 7/24/2003 7/24/2003 7/24/2003 7/24/2003 7/24/2003 7/24/2003 8/25/2003 9/15/2003 12/15/2003 12/15/2003 12/15/2003 12/18/2003 Sponsor Zenkyoren Zenkyoren Zenkyoren Swiss Re Swiss Re Swiss Re Swiss Re Swiss Re Swiss Re TREIP Swiss Re Swiss Re Swiss Re Swiss Re EDF Issuer Phoenix Quake Wind Ltd. Phoenix Quake Ltd. Phoenix Quake Wind II Ltd. Palm Capital Ltd. Oak Capital Ltd. Sequoia Capital Ltd. Sakura Capital Ltd. Arbor I Ltd. Arbor II Ltd. Formosa Re Ltd. Arbor I Ltd. Pioneer 2002 Ltd. Palm Capital Ltd. Arbor I Ltd. Pylon Ltd. Series 2 D-03-3 Series 2 Series 3 Class A Class B 12/31/2003 12/31/2003 3/15/2004 3/15/2004 3/15/2004 5/21/2004 CEA CEA Swiss Re Swiss Re Swiss Re USAA Redwood Capital III, Ltd. Redwood Capital IV, Ltd. Oak Capital Ltd. Sequoia Capital Ltd. Arbor I Ltd. Residential Reinsurance 2004 Limited Helix 04 Limited Arbor I Ltd. Gi Capital Ltd. Oak Capital Ltd. Sequoia Capital Ltd. Arbor I Ltd. Foundation Re Ltd. Series 2004-I Series 3 Series 3 Series 6 Class A Class B 12/15/2004 12/31/2004 12/31/2004 3/15/2005 Swiss Re CEA CEA Swiss Re Arbor I Ltd. Redwood Capital V, Ltd. Redwood Capital VI, Ltd. Arbor I Ltd. Series 8 Series 7 Series 5 Series 2 Series 2 Series 4 Class A Class B 6/10/2004 6/15/2004 6/30/2004 9/15/2004 9/15/2004 9/28/2004 11/17/2004 Converium Swiss Re Swiss Re Swiss Re Swiss Re Swiss Re Hartford Fire Ins Series 1 Series 1 Series 1 Series 1 Series 1 Series 1 Class Perils Japan Wind, Japan EQ Japan EQ Japan Wind, Japan EQ US Wind Europe Wind US EQ Japan EQ US/EU Wind, CA/JP EQ US/EU Wind, CA/JP EQ Taiwan EQ US/EU Wind, CA/JP EQ Central US EQ US Wind US/EU Wind, CA/JP EQ France Wind France Wind California EQ California EQ Europe Wind US EQ US/EU Wind, CA/JP EQ US Wind, US EQ US Wind, US EQ US/EU Wind, US/JP EQ US/EU Wind, CA/JP EQ Japan EQ Europe Wind US EQ US/EU Wind, CA/JP EQ US Wind US Wind, US EQ US/EU Wind, CA/JP EQ California EQ California EQ US/EU Wind, CA/JP EQ Trigger Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Indemnity Parametric Index Parametric Parametric Index Parametric Index Parametric Index Parametric Index Industry Index Industry Index Parametric Index Parametric Index Parametric Index Indemnity Indemnity Modeled Loss Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Industry Index Industry Index Parametric Index Industry Index Industry Index Parametric Index Size (000) $192,500 $192,500 $85,000 $22,350 $23,600 $22,500 $14,700 $95,000 $26,500 $100,000 $60,000 $51,000 $19,000 $8,850 $70,000 $120,000 $150,000 $200,000 $24,000 $11,500 $21,000 $127,500 $100,000 $100,000 $18,000 $125,000 $10,500 $11,000 $31,800 $180,000 $67,500 $15,000 $150,000 $150,000 $20,000 Ba2 Ba2 Ba3 Ba3 A2 Ba1 Ba1 Baa3 Ba3 Ba3 Baa3 Ba3 A1 mIS Baa3 Baa3 Ba1 Ba3 Ba3 Ba3 Ba3 S&P BBB+ BBB+ BBBBB+ BB+ BB+ BB+ B A+ NR B BBBBB+ B BBB+ BB+ BB+ BBBBB+ BB+ B BB B BB+ B BB+ BB+ BB+ B BB+ BBB+ B BB+ BB+ B Fitch

47

Insurance-Linked Securities 2009

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 5/31/2005 Sponsor USAA Issuer Residential Reinsurance 2005 Limited Class Class A Class B 6/7/2005 6/15/2005 7/28/2005 11/8/2005 Factory Mutual Ins Co Swiss Re Zurich PXRE Cascadia Limited Arbor I Ltd. KAMP Re 2005 Ltd. Atlantic & Western Re Limited Class A Class B 11/15/2005 12/15/2005 12/21/2005 Munich Re Swiss Re PXRE Aiolos Ltd. Arbor I Ltd. Atlantic & Western Re II Limited Champlain Limited Series 10 Class A Class B 12/22/2005 Montpelier Re Class A Class B 1/26/2006 2/9/2006 2/9/2006 2/17/2006 5/11/2006 Swiss Re CEA CEA Hartford Fire Ins FONDEN Australis Ltd. Series 1 Redwood Capital VII, Ltd. Redwood Capital VIII, Ltd. Foundation Re Ltd. Series 2006-I CAT-Mex Ltd. Calabash Re Ltd. Series 2006-I Residential Reinsurance 2006 Limited Successor Cal Quake Parametric Ltd. Successor Euro Wind Ltd. Class D Class A Class B 5/24/2006 5/31/2006 ACE INA USAA Class A-1 Class A Class C 6/6/2006 6/6/2006 Swiss Re Swiss Re A-I A-I A-II B-I C-I C-II 6/6/2006 Swiss Re Successor Hurricane Industry Ltd. B-I C-I D-I D-II E-I E-II F-I 6/6/2006 6/6/2006 6/6/2006 6/6/2006 Swiss Re Swiss Re Swiss Re Swiss Re Successor Hurricane Modeled Ltd. Successor II Ltd. Successor III Ltd. Successor IV Ltd. B-I A-I E-I A-I A-I Series 9 Perils US Wind, US EQ US Wind, US EQ Pacific Northwest EQ US/EU Wind, CA/JP EQ US Wind, Central US EQ US/EU Wind US/EU Wind, US HU Europe Wind US/EU Wind, CA/JP EQ US/EU Wind, US EQ US/EU Wind, US EQ US/JP EQ US Wind, US EQ Australia EQ/HU California EQ California EQ US Wind, US EQ Mexico EQ Mexico EQ US Wind US Wind, US EQ US Wind, US EQ US EQ Europe Wind Europe Wind Europe Wind Europe Wind Europe Wind US Wind US Wind US Wind US Wind US Wind US Wind US Wind US Wind US/EU Wind, US/JP EQ US/EU Wind, US/JP EQ US/EU Wind, JP EQ US/EU Wind, US/JP EQ Trigger Indemnity Indemnity Parametric Parametric Index Indemnity Modeled Loss Modeled Loss Parametric Index Parametric Index Modeled Loss Modeled Loss Modeled Loss Modeled Loss Parametric Index Industry Index Industry Index Industry Index Parametric Parametric Industry Index Indemnity Indemnity Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Industry Index Industry Index Industry Index Industry Index Industry Index Industry Index Industry Index Modeled Loss Multiple Multiple Multiple Multiple Size (000) $91,000 $85,000 $300,000 $25,000 $190,000 $100,000 $200,000 $110,000 $18,000 $125,000 $125,000 $75,000 $15,000 $100,000 $160,000 $65,000 $105,000 $150,000 $10,000 $100,000 $47,500 $75,000 $47,500 $97,130 $3,000 $18,500 $110,750 $3,000 $14,000 $7,250 $34,250 $10,250 $5,000 $35,000 $54,000 $42,250 $73,200 $154,250 $7,200 $30,000 mIS S&P BB B BB+ B BB+ BB+ B+ BB+ B BB+ BB+ B B+ BB BB+ BB+ BB BB+ BB+ BB B BB+ BB BB BB BBB B BBB B B NR NR B BBB NR NR B BBBB B BB Fitch

48

Aon Benfield Securities

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 6/6/2006 Sponsor Swiss Re Issuer Successor Japan Quake Ltd. Class A-I B-I C-I C-II 6/19/2006 Munich Re Carillon Ltd. Series 1 Class A1 Class A2 Class B 6/21/2006 6/21/2006 6/30/2006 7/28/2006 8/3/2006 Balboa Ins Group Liberty Mutual Ins Co Dominion Resources Hannover Re Endurance Specialty Ins Co VASCO Re 2006 Ltd. Mystic Re Ltd. Series 2006-1 Drewcat Capital Ltd. Eurus Ltd. Shackleton Re Limited Class A Class B Class C 8/3/2006 8/4/2006 8/25/2006 11/17/2006 11/17/2006 Tokio Marine & Nichido Fire Swiss Re Factory Mutual Ins Co Catlin Ins Co Ltd. Hartford Fire Ins Liberty Mutual Ins Co Fhu-Jin Ltd. Series 1 Successor Hurricane Industry Ltd. Cascadia II Limited Bay Haven Limited Foundation Re II Ltd. Mystic Re Ltd. Series 2006-2 Class A Class B Class A Class G 11/30/2006 Class A Class B 12/8/2006 12/8/2006 Swiss Re Swiss Re Successor Euro Wind Ltd. Successor Hurricane Industry Ltd. C-III A-III E-IV E-V 12/8/2006 12/20/2006 12/21/2006 12/29/2006 Swiss Re Zurich Re SCOR CEA Successor I Ltd. Lakeside Re Ltd. Atlas Reinsurance III p.l.c. Redwood Capital IX, Ltd. Series 1 Class A Class B Class C Class D Class E 1/8/2007 ACE INA Calabash Re II Ltd. Series 2006-I Class A-1 Class D-1 Class E-1 3/1/2007 3/14/2007 Hannover Re Swiss Re Kepler Re Ltd. Australis Ltd Series 2 B-I B-II Class B E-III Class A Class A Perils Japan EQ Japan EQ Japan EQ Japan EQ US Wind US Wind US Wind US Wind US Wind US Wind Europe Wind US EQ US Wind US Wind, US EQ Japan Wind US Wind US EQ US/EU/JP W, US/JP Q US/EU/JP W, US/JP Q US Wind US (HU, EQ, ST) US Wind US Wind Europe Wind Europe Wind US Wind US Wind NA/EU W, CA/JP Q NA/EU W, CA/JP Q US EQ Japan EQ, Euro Wind California EQ California EQ California EQ California EQ California EQ US Wind US EQ US Wind, US EQ US/Europe/JP/Aus/NZ/ Canada Wind,EQ Australia EQ/HU Trigger Modeled Loss Modeled Loss Modeled Loss Modeled Loss Industry Index Industry Index Industry Index Indemnity Industry Index Parametric Index Parametric Index Industry Index Industry Index Industry Index Parametric Index Industry Index Parametric Multiple Multiple Industry Index Industry Index Industry Index Industry Index Parametric Index Parametric Index Industry Index Industry Index Multiple Multiple Dual Modeled Loss Parametric Index Parametric Index Parametric Index Parametric Index Parametric Index Modeled Loss Modeled Loss Modeled Loss Indemnity Parametric Index Size (000) $103,470 $26,250 $70,750 $3,000 $51,000 $23,500 $10,000 $50,000 $200,000 $50,000 $150,000 $125,000 $60,000 $50,000 $200,000 $50,000 $300,000 $133,500 $66,750 $180,000 $67,500 $200,000 $125,000 $15,000 $118,000 $4,000 $26,000 $4,000 $24,500 $190,000 $120,000 $125,000 $125,000 $18,000 $20,000 $12,000 $100,000 $50,000 $100,000 $200,000 $50,000 Ba2 BB Ba2 Ba2 Baa3 Ba3 B3 B3 Ba3 Bz3 Ba3 Ba2 mIS S&P BB BBB B B+ B+ B BB+ BB+ NR BB BB BB BB+ BB+ NR BB+ AA BBBBB+ B BB+ BB B BB NR NR NR NR BB+ BB+ BB+ BB+ BBBBB B BB B+ BB BB+ Fitch

49

Insurance-Linked Securities 2009

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 4/3/2007 4/13/2007 4/30/2007 Sponsor Allianz SE Aspen Insurance Limited Chubb Group Issuer Blue Wings Ltd. Series 1 Ajax Re Limited Series 1 East Lane Re Ltd. Series 2007-I Carillon Ltd. Series 2 Longpoint Re Ltd. Series 2007-I Successor II Ltd. AKIBARE Ltd. Series 1 Class Class A Class A Class A Class B 5/8/2007 5/8/2007 5/10/2007 5/14/2007 Munich Re Travelers Indemnity Co Swiss Re Mitusui Sumitomo Ins Co Class E Class A Class A-2 Class A Class B 5/29/2007 Nephila Gamut Reinsurance Limited Class A Class B Class C 5/31/2007 5/31/2007 Liberty Mutual Ins Co Swiss Re Mystic Re II Ltd. Series 2007-1 MedQuake Ltd. Class A Class B 5/31/2007 USAA Residential Reinsurance 2007 Limited Class 1 Class 2 Class 3 Class 4 Class 5 6/11/2007 6/14/2007 6/15/2007 Glacier Reinsurance AG Allstate Ins Co Swiss Re CIG Reinsurance Ltd, New Castle Reinsurance Co Ltd Nelson Re Ltd. Series 2007-I Willow Re Ltd. Series 2007-1 Spinnaker Capital Ltd. Series 1 Emerson Reinsurance Ltd. Class A Class A Class B Perils US EQ, UK Flood California EQ US - Northeast Wind US - Northeast Wind US Wind US - Northeast Wind NA/EU W, CA/JP Q JP Wind JP Wind US/EU/JP W, US/JP Q US/EU/JP W, US/JP Q US/EU/JP W, US/JP Q FL/Northeast Wind Turkey/Greece/Israel/ Portugal/Cyprus EQ Turkey/Greece/Israel/ Portugal/Cyprus EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ US/EU W, US Q US - Northeast Wind US Wind NA/EU/UK/JP/Aus/NZ All Natural Perils NA/EU/UK/JP/Aus/NZ All Natural Perils NA/EU/UK/JP/Aus/NZ All Natural Perils NA/EU/UK/JP/Aus/NZ All Natural Perils US/EU/JP W, US/JP Q US/EU/JP W, US/JP Q US/EU/JP W, US/JP Q FL Wind Class A Class B Class C JP Wind, Mexico EQ JP Wind, Mexico EQ Mexico EQ Trigger Multiple Industry Index Indemnity Indemnity Industry Index Industry Index Multiple Parametric Index Parametric Index Indemnity Indemnity Indemnity Industry Index Parametric Index Parametric Index Indemnity Indemnity Indemnity Indemnity Indemnity Multiple Industry Index Industry Index Size (000) $150,000 $100,000 $135,000 $115,000 $150,000 $500,000 $100,000 $90,000 $30,000 $60,000 $120,000 $60,000 $150,000 $50,000 $50,000 $145,000 $125,000 $75,000 $155,000 $100,000 $75,000 $250,000 $200,000 B1 Aa3 Baa3 Ba3 mIS S&P BB+ BB BB+ BB+ B BB+ B BB+ BB+ ABBBBBB+ BBB BB B B BB+ BB+ B BB+ Fitch

6/20/2007

Indemnity

$185,000

A2

Class B Class C Class D 6/21/2007 Brit Ins Limited Fremantle Limited Series 2007-I Class A Class B Class C 6/22/2007 6/25/2007 Swiss Re Swiss Re/Kyoei Fire and Marine Ins Co Spinnaker Capital Ltd. Series 2 Fusion 2007 Ltd.

Indemnity Indemnity Indemnity Multiple Multiple Multiple Industry Index Parametric Index Parametric Index Parametric Index

$140,000 $130,000 $45,000 $60,000 $60,000 $80,000 $130,200 $30,000 $80,000 $30,000

Baa3 Ba2 Ba3 Aa1 A3 Ba2 Ba2 B B BB+ AAA BBB+ BB-

50

Aon Benfield Securities

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date Sponsor State Farm Mutual Automobile Ins Co Issuer Class Perils US/Canada (Wind, EQ, ST, WS, WF) US/Canada (Wind, EQ, ST, WS, WF) US/Canada (Wind, EQ, ST, WS, WF) US/Canada (Wind, EQ, ST, WS, WF) US/Canada (Wind, EQ, ST, WS, WF) US/Canada (Wind, EQ, ST, WS, WF) Worldwide All Perils Worldwide All Perils US Wind Class A Class A Class B 11/17/2007 Catlin Newton Re Limited; Series 2007-1 Atlas Reinsurance IV Limited GlobeCat Ltd. Series USW Class A Class B 11/29/2007 12/21/2007 SCOR Swiss Re Class A Class A-1 Class A-1 Class A-1 12/27/2007 12/28/2007 Groupama SA Swiss Re Green Valley Ltd. Series 1 Successor Hurr Industry Ltd. Successor II Ltd.; Series 3 Successor II Ltd.; Series 3 Redwood Capital X Ltd. Series 1 Class A C-VI D-VI 12/28/2007 12/28/2007 12/31/2007 Swiss Re Swiss Re CEA C-III E-III Class A Class B Class C 12/31/2007 CEA Redwood Capital X Ltd. Series 2 Class D Class E Class F 2/21/2008 3/14/2008 Catlin Munich Re Newton Re Ltd. Series 2008 - 1 Queen Street Ltd. Series 1 Class A Class A Class B 3/31/2008 Chubb Group East Lane Re II Ltd. Series 2008-I Class A Class B Class C JP EQ EU Wind EU Wind US EQ US Wind EU Wind, JP EQ US Wind US EQ Latin America EQ France Wind US Wind US Wind US/EU Wind, US/JP EQ US/EU Wind, US/JP EQ US EQ US EQ US EQ US EQ US EQ US EQ US/EU/JP Wind, US/ JP EQ EU Wind EU Wind Northeast US All Natural Perils Northeast US All Natural Perils US/Canada All Natural Perils Trigger Size (000) mIS S&P Fitch

7/5/2007

Merna Reinsurance Ltd.

Class A Class A (loan) Class B Class B (loan) Class C Class C (loan)

Indemnity

$256,000

Aa2

AAA

Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Industry Index Parametric Parametric Index Parametric Index Industry Index Industry Index Modeled Loss Industry Index Industry Index Modeled Loss Parametric Index Industry Index Industry Index Multiple Multiple Parametric Index Parametric Index Parametric Index Industry Index Industry Index Industry Index Indemnity Parametric Index Parametric Index Indemnity Indemnity Indemnity

$94,000 $647,600 $19,000 $155,000 $9,000 $94,500 $30,750 $50,000 $260,000 $155,000 $65,000 $87,500 $137,500 $160,000 $40,000 $20,000 $25,000 $200,000 $30,000 $30,000 $50,000 $50,000 $25,000 $227,700 $50,200 $130,500 $45,200 $20,000 $150,000 €70,000 €100,000 $75,000 $70,000 $55,000

Aa2 A2 A2 Baa2 Baa2 ABBBNR BB+ BB+ BB+ BB+ BB+ B B3e B1e Ba3e BB+ B2 B B

AAA AA+ AA+ AA-

7/18/2007

Arrow Capital Reinsurance Co, Ltd

Javelin Re Ltd.

Class A Class B

7/20/2007 10/15/2007 11/7/2007

Swiss Re Japan Railway East Allianz SE

Spinnaker Capital Ltd. Series 3 MIDORI Ltd. Blue Fin Ltd. Series 1

Baa3 Ba2 Ba3 Ba3 B2 NR BB BB+ B BB BB B-

51

Insurance-Linked Securities 2009

SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009
Date 5/14/2008 5/30/2008 Sponsor Zenkyoren Flagstone Issuer Muteki Ltd. Series 2008-1 Valais Re Ltd. Series 2008-1 Class Top Class A Class C 5/30/2008 Glacier Reinsurance AG Nelson Re Ltd. Series 2008-I Class G Class H Class I 5/30/2008 Homewise Mangrove Re Ltd. Series 2008-1 Residential Reinsurance 2008 Limited Class A Class B 5/30/2008 USAA Class 1 Class 2 Class 4 6/17/2008 6/25/2008 6/27/2008 Allstate Ins Co Nationwide Mutual Ins Co Swiss Re Willow Re Limited Series 2008-1 Caelus Re Limited Series 2008-1 Vega Capital Ltd. Series 2008-I Class D Class A Class A Class B Class C Class D 7/28/2008 Allianz SE Blue Coast Ltd. Series 2008-1 Class A Class B Class C 8/1/2008 2/13/2009 Platinum SCOR Topiary Capital Limited Series 2008-1 Atlas V Capital Limited Class A Series 1 Series 2 Series 3 3/4/2009 3/10/2009 4/16/2009 4/28/2009 5/5/2009 Chubb Group Liberty Mutual Ins Co Allianz SE Swiss Re Assurant Inc. East Lane Re III Ltd. Series 2009-1 Mystic Re II Ltd. Series 2009-1 Blue Fin Ltd. Series 2 Successor II Ltd. Series 4 Ibis Re Ltd. Residential Reinsurance 2009 Limited Class A Class F Class A Class B 5/28/2009 USAA Class 1 Class 2 Class 4 6/10/2009 Swiss Re Calabash Re III Ltd. Series 2009-I Ianus Capital Ltd. Class A Class B 6/9/2009 Munich Re Class A Perils JP EQ US/EU/JP Wind, US/ JP EQ US/EU/JP Wind, US/ JP EQ US Wind, US EQ EU Wind EU Wind FL HU FL HU US Wind, US EQ US Wind, US EQ US (HU, EQ, ST, WS, WF) Texas Wind US Wind, US EQ US/EU/JP Wind, US/ JP EQ US/EU/JP Wind, US/ JP EQ US/EU/JP Wind, US/ JP EQ US/EU/JP Wind, US/ JP EQ US Wind US Wind US Wind US/EU Wind, JP EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ FL Wind US Wind, US EQ US Wind, US EQ Northeast US, CA EQ US EQ US EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ US Wind, US EQ US EQ EU Wind, Turkey EQ Trigger Parametric Index Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Indemnity Industry Index Indemnity Multiple Multiple Multiple Multiple Industry Index Industry Index Industry Index Parametric Index Industry Index Industry Index Industry Index Indemnity Industry Index Modeled Loss Multiple Modeled Loss Modeled Loss Indemnity Indemnity Indemnity Modeled Loss Modeled Loss Multiple Size (000) $300,000 $64,000 $40,000 $67,500 $45,000 $67,500 $150,000 $60,000 $125,000 $125,000 $100,000 $250,000 $250,000 $21,000 $22,500 $63,900 $42,600 $70,000 $30,000 $20,000 $200,000 $50,000 $100,000 $50,000 $150,000 $225,000 $180,000 $60,000 $75,000 $75,000 $70,000 $60,000 $120,000 $86,000 $14,000 €50,000 B2 BB BBBBBBBBBBB+ BBB+ BBB+ B+ B+ B BB BB BBA3 Baa2 Ba3 mIS Ba2 Ba2 B3 B3 B3 B1 Ba2 B1 BB B BB+ BB+ BB+ ABBB S&P Fitch

52

Aon Benfield Securities

SummARY OF SIDECAR ISSuANCE
Initial Size ($mm) 100.0 500.0 600.0 90.9 300.0 525.0 900.0 146.0 370.0 156.0 125.0 310.5 150.0 75.0 70.0 265.0 2006-2012 BB+ NR 2007 2007 NR BBB+/ BB+ US commercial property Peak zone and ILW Property cat reinsurance and retrocessional Property cat reinsurance Property cat reinsurance Dec-07 Dec-07 Dec-06 Dec-08 Dec-07 Dec-08 Dec-08 Dec-07 Apr-08 Dec-07 2007-2008 2007-2008 2007 NR NR Property cat, property risk, aviation and marine Property cat retrocessional Property cat, aviation Property cat reinsurance Property cat reinsurance 2007 2007-? 2007-2008 2007-2008 NR bbb+ NR Property cat retrocessional Property cat retrocessional Property cat retrocessional 730.0 60.0 635.0 360.0 100.0 107.7 350.0 250.0 185.0 175.0 520.0 100.0 220.0 400.0 40.0

SideCar Top Layer Re Olympus Re DaVinci Re Rockridge Re Blue Ocean Re Cyrus Re Flatiron Re Helicon Re Kaith/K5 Olympus Re II Petrel Re Starbound Re Bay Point Re Sirocco Re Timicuan Re Castlepoint Re Concord Re Mont Fort Re Cyrus Re Panther Re Syncro Ltd. Norton Re Stoneheath Re New Point Re Triomphe Re Maxwell Re K5 New Point Re Sector Re MaRI Ltd. Syndicate 6105

Coverage Side By Side Quota Share Side By Side Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Side by Side

Principal Sponsor Renaissance Re, SF White Mountains Re Renaissance Re, SF, Max Re Montpelier Re Montpelier Re XL Capital Arch Re White Mountains Re Hannover Re White Mountains Re Validus Renaissance Re Harbor Point Lancashire Renaissance Re Tower Group

Inception Dec-99 Dec-01 Dec-01 Jun-05 Dec-05 Dec-05 Dec-05 Dec-05 Dec-05 Jan-06 May-06 May-06 Jun-06 Jun-06 Jul-06 Jul-06 Aug-06 Aug-06 Nov-06 Dec-06 Dec-06 Dec-06 Dec-06 Dec-06 Dec-06 Dec-06 Jan-07 Jan-07 Jan-07 Jan-07 Jan-07

maturity Jul-09 Jun-05 Jul-09 Jun-06 Dec-07 Nov-06 Dec-07 Dec-07 Jan-07 Jan-06 May-07 May-07 Jun-07 Jun-07 Dec-06 Jul-07 Aug-12 Dec-07 Dec-07 Dec-07

Coverage Years 2000-on 2002-2005 2002-on 2005 2006-2007 2006-2007 2006-2007 2006-2007 2006-2009

Rating AA NR A NR NR NR BBBNR

line of Business High Excess US property Cat Property Cat, property risk, retro, and marine Property Cat reinsurance High excess cat retrocessional Property cat retrocessional Property cat reinsurance and retrocessional Property and marine reinsurance Short-tailed property and marine Property cat, property risk, aviation and marine

NR 2006-2007 2006-2007 2006-2007 2006-2007 NR A+/BBB-/ BB+ BB NR

Property cat, property risk, retro and marine Marine and offshore energy reinsurance contracts Short-tailed property and marine US property, marine, retro, and workers’ comp Marine and offshore energy insurance contracts Reinstatement Premium Protection

Quota Share Quota Share Quota Share Quota Share Quota Share Side by Side

Lexington Insurance Co Flagstone Re XL Capital Hiscox Lloyd’s #4242 (Chaucer) Brit Insurance XL Capital

Side by Side Quota Share

Harbor Point Paris Re ACE

Quota Share Side by Side Quota Share Side by Side Quota Share

Hannover Re Harbor Point Swiss Re ACE Ark Underwriting

53

Insurance-Linked Securities 2009

SummARY OF SIDECAR ISSuANCE
Initial Size ($mm) 69.0 86.2 182.5 341.5 60.0 118.2 40.0 67.9 79.9 136.0 150.0 133.0 72.5 40.6 62.4 57.3 180.0 60.4 10,853.4

SideCar Syndicate 6104 Syndicate 6103 Puma Capital Starbound Re II Mont Gele Re Norton Re II Syndicate 6105 Syndicate 6104 Syndicate 6103 Cyrus Re II Sector Re II Globe Re Syndicate 6106 Syndicate 6105 Syndicate 6104 Syndicate 6103 Kaith/K6 Timicuan Re II

Coverage Quota Share Quota Share Quota Share Quota Share XOL Side by Side Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share Quota Share

Principal Sponsor Hiscox MAP Bridge Re Ren Re Flagstone Re Brit Insurance Ark Underwriting Hiscox MAP XL Capital Swiss Re Hannover Re Amlin Ark Underwriting Hiscox MAP Hannover Re Renaissance Re

Inception Jan-07 Jan-07 Apr-07 Jun-07 Jul-07 Dec-07 Jan-08 Jan-08 Jan-08 Jan-08 Apr-08 May-08 Jan-09 Jan-09 Jan-09 Jan-09 Mar-09 Jun-09

maturity Dec-07 Dec-07 Apr-08 Jun-08 Jul-09 Dec-08 Dec-08 Dec-08 Dec-08 Dec-08 Apr-09 May-09 Dec-09 Dec-09 Dec-09 Dec-09 Mar-10 Dec-09

Coverage Years 2007-2008 2007-2008 2007 2007-2008 2007-2009 2008 2008 2008 2008 2008 2008-2009 2008-2009 2009 2009 2009 2009 2009-2010 2009

Rating

line of Business Property cat reinsurance Property cat reinsurance Property cat, aviation

BBB+/ BBB-/BB NR NR

Property cat reinsurance Property cat reinsurance Property cat retrocessional Property cat reinsurance Property cat reinsurance Property cat reinsurance Property cat reinsurance and retrocessional Property cat, aviation

Baa3/ Ba3/B2

Property cat retrocessional Property cat reinsurance Property cat reinsurance Property cat reinsurance Property cat reinsurance Property cat, property risk, aviation and marine

NR

Property cat retrocessional, primarily Florida TOTAL

*		 yrus	Re	-	November	29,	2006	-	Conditions	to	the	effectiveness	of	an	amendment	were	satisfied.	The	amendment	allows	the	issuance	of	debt	and	 C calls for additional capital

54

Aon Benfield Securities is providing this Insurance-Linked Securities 2009 (ILS 2009) for informational purposes only. ILS 2009 is not intended as advice with respect to any specific situation, and should new be relied upon as such. In addition, readers should not place undue reliance on any forward-looking statements. Aon Benfield Scurrilities undertakes no obligation to review or update any such statements based on changes, new developments or otherwise. ILS 2009 is intended only for designated recipients, and it is not to be considered (1) an offer to sell any security, loan, or other financial product, (2) a solicitation or basis for any contract for purchase of any securities, loan, or other financial product, (3) an official confirmation, or (4) a statement of Aon Benfield Securities or its affiliates. With respect to indicative values, no representation is made that any transaction can be effected at the values provided and the values provided are not necessarily the value carried on Aon Benfield Securities’ books and records. Discussions of tax, accounting, legal or actuarial matters are intended as general observations only based on Aon Benfield Securities’ experience, and should not be relied upon as tax, accounting, legal or actuarial advice. Readers should consult their own professional advisors on these matters as Aon Benfield Securities does not provide such advice. Aon Benfield Securities makes no representation or warranty, whether express or implied, that the products or services described in ILS 2009 are suitable or appropriate for any issuer, investor or participant, or in any location or jurisdiction. The products and services described in ILS 2009 are complex and speculative, and are intended for sophisticated issuers, investors, or participants capable of assessing the significant risks involved. Except as otherwise noted, the information in the ILS 2009 was compiled by Aon Benfield Securities from sources it believes to be reliable. However, Aon Benfield Securities makes no representation or warranty as to the accuracy, reliability or completeness of such information, and the information should not be relied upon in making business, investment or other decisions. Aon Benfield Securities and/or its affiliates may have independent business relationships with, and may have been or in the future will be compensated for services provided to, companies mentioned in the ILS 2009.

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