Docstoc

200909_ab_securities_insurance_linked_securities

Document Sample
200909_ab_securities_insurance_linked_securities Powered By Docstoc
					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




                                                                               3
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




4
                                                                                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




                                                                                                     5
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
                                                                                          7,003
                                    7,000
                                                                                                  5,815
                                    6,000
                       $ Millions




                                    5,000

                                    4,000
                                                                                  3,124
                                    3,000

                                    2,000                         1,558                                   1,705
                                            1,071   985    986            1,137
                                    1,000

                                       0
                                            2001    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.




6
                                                                      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

                      6,000
         $ Millions




                      5,000
                                         4,455            2,410
                      4,000

                      3,000

                      2,000   2,147
                                                          3,405
                                         2,547                              1,385
                      1,000
                                  977
                                                                             320
                         0
                              2005/6     2006/7          2007/8             2008/9
                                          Jan - Jun       Jul - Dec

Source: Aon Benfield Securities


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.




                                                                                           7
Insurance-Linked Securities 2009




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

                       50                                                                                                                                            12


                                                                                                                                                                     10
                       40

                                                                                                                                                                     8
                       30

                                                                                                                                                                     6

                       20
                                                                                                                                                                     4

                       10
                                                                                                                                                                     2


                         0                                                                                                                                           0
                                                                       2002        2003          2004     2005       2006         2007       2008          2009

                                                                        Tranches Issued                   Deals Issued                   First time Sponsors

                       Source: Aon Benfield Securities


                       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)




                                                                                                                                  7,003
                                                                       7,000                                                                                 U.S. Hurricane

                                                                                                                                                             U.S. Quake
                                                                       6,000                                                              5,815
                                                                                                                                                             Euro Wind

                                                                       5,000                                                                                 Japan Quake

                                                                                                                                                             Asia Pacific
                                                                       4,000
                                                                                                                                                             Other
                                                                                                                          3,124
                                                                       3,000


                                                                       2,000                                                                      1,705
                                                                                                          1,558
                                                                                  1,071                           1,137
                                                                                          985      986
                                                                       1,000


                                                                              0
                                                                                  2001    2002     2003   2004    2005    2006    2007     2008     2009



                       Source: Aon Benfield Securities


8
                                                                                         Aon Benfield Securities




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.

           C
        •	 	 ollateral	Management	and	Investment	Structures
           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                                       Structure                        Assets
             Atlas V - 1                              Total Return Swap                  TLGP, UST
             Atlas V - 2
             Atlas V - 3

             Mystic Re II 2009                        Total Return Swap                  TLGP, UST
             East Lane Re III                         Total Return Swap                  TLGP, UST
             Ibis Re A                                Total Return Swap                  TLGP, UST
             Ibis Re B
             Blue Fin 2                              Medium-Term Notes                     KfW
             Ianus Capital                           Medium-Term Notes                     KfW
             Calabash Re III A                       Medium-Term Notes                     IBRD
             Calabash Re III B
             Successor II F-IV                          Money Market                     UST, Cash
             Residential Re 2009 - 1                    Money Market                     UST, Cash
             Residential Re 2009 - 2
             Residential Re 2009 - 4


            Legend: TLGP:        Temporary Liquidity Guaranty Program
                    UST:         U.S. Treasury
                    KfW:         Kreditanstalt für Wiederaufbau
                    IBRD:        International Bank for Reconstruction and Development
            Source: Aon Benfield Securities




                                                                                                              9
Insurance-Linked Securities 2009




                                      T
                                   •	 	 ransparency,	Documentation	and	Oversight
                                     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.
                                      C
                                   •	 	 redit	Risk	Management
                                     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.




10
                                                                                                    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 indemnity-
   triggered 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)




                                                                                                                      Percent of New Issuance with Indemnity Loss Trigger
                             8,000                                                                            50%
                                                                                    7,003
                             7,000                                                                            45%
Risk Transfer ($ Millions)




                                                                                            5,815             40%
                             6,000
                                                                                                              35%
                             5,000
                                                                                                              30%
                             4,000                                                                            25%
                                                                            3,124
                             3,000                                                                            20%

                                                                                                    1,705     15%
                             2,000                          1,558
                                     1,071   985     986            1,137                                     10%
                             1,000
                                                                                                              5%

                                 0                                                                            0%
                                     2001    2002    2003   2004    2005    2006    2007    2008    2009

                                                    Cat Bonds          % Indemnity Issued


  Source: Aon Benfield Securities




                                                                                                                                                                        11
Insurance-Linked Securities 2009




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



                                                                    4%
                              Index
                                                                         14%            16%
                              Indemnity
                                                              25%                                    41%
                              Multiple

                              Modeled Loss                                        19%

                              Parametric Index           4%              47%
                                                          5%
                              Parametric                                                  23%



                                                                    2008                      2009

                       Source: Aon Benfield Securities


                       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).




12
                                                                                                 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                Issuance Year         Value ($ mm)*
  Canada Life           2008                   990
  Lucida                2008                   195
  Norwich Union         2009                   689
  Babcock               2009                   755
  Total                                        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 agreed-
upon 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.




                                                                                                                         13
Insurance-Linked Securities 2009




                       STRuCTuR Al PREmISE OF lONGEVITY SWAP



                                                   Actual
                          Pensioners              Annuity
                                                  Payments        Cedent
                         in Reference
                                                                 (Sponsor)
                           Portfolio


                                                           Actual         Est. Annuity
                                                          Annuity       Payments + Risk
                                                         Payments*        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.




14
                                                                     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, Multi-
peril, 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.




                                                                                          15
Insurance-Linked Securities 2009




                       AON BENFIElD CAT BOND INDICES (June 30, 2009)

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


                       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            6/30/2007            6/30/2008       6/30/2009

                                                    Asia Pacific              Europe              Multi-peril

                                                North American Quake                     North American Wind


                       Source: Aon Benfield Securities




16
                                                                      Aon Benfield Securities




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.




                                                                                           17
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.




18
                                                                        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       POST– CREDIT CRISIS

                                         4%
       Cat Funds
                                                                  13%
       Hedge Funds                 20%
                                               36%
                                                                               40%
       Institutional                                        18%

       Reinsurers

       Mutual Funds                   33%
                                                7%                  29%



                                     2007 & 2008                        2009

Source: Aon Benfield Securities


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.




                                                                                            19
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               POST– CREDIT CRISIS

                                                                      9%                                5%
                              U.S.                                                                 6%

                              Bermuda                         12%
                                                                                                14%
                              Switzerland                                        45%                           56%
                                                            13%
                              UK
                                                                                                  19%
                              Other*                                 21%



                                                                    2007 & 2008                         2009

                       *	Other	includes	Germany,	Canada,	Norway,	Italy,	France	and	Australia.
                       Source: Aon Benfield Securities




20
                                                                      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.




                                                                                          21
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.




22
                                                                                                                                   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
$ price per $100 closing price


                                                                                                                                      Feb 3 USD 11.5bn9
                                       80
                                                    PCS Preliminary Estimate
                                                    Sept 30 USD 8.1bn6                                                        PCS 2nd estimate
                                                                                                                              Dec 5 USD 10.655bn8
                                       60
                                              RMS Sep 17, updated estimated                             RMS Oct 24, updated estimated onshore
                                              onshore and offshore loss USD,                            and offshore loss USD 13-21bn7
                                              7-12bn4
                                       40
                                                                                                  RMS Sep 14, estimated onshore
                                                                                                  and offshore loss USD 6-16bn3

                                       20
                                              Hurricane Ike Landfall Sept 13;                    AIR Sep 13, estimated onshore loss 8-12bn2
                                              EQE Sep 13, estimated onshore loss
                                              USD 8-18bn1
                                        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
                                        E
                                     		“	 QECAT	Initial	Post-Landfall	Estimates	of	Insured	Onshore	Losses	from	Hurricane	Ike,”	EQECAT	press	release,	
                                        Sept. 13, 2008. http://www.eqecat.com/news/2008/Ike_9-13_08.htm
                                 2
                                       “
                                     			 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
                                 3
                                       “
                                     			 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
                                 4
                                       “
                                     			 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
                                 5
                                       “
                                     			 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
                                 6
                                      Property Claims Services Inc Catastrophe Insured Property Damage Estimates,
                                      http://www.ccfe.com/about_ccfe/products/ifex/PCS_Catastrophe_Estimates.xls
                                 7
                                       “
                                     			 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
                                 8
                                      Property Claims Services Inc Catastrophe Insured Property Damage Estimates,
                                      http://www.ccfe.com/about_ccfe/products/ifex/PCS_Catastrophe_Estimates.xls
                                 9
                                      Ibid.




                                                                                                                                                             23
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.




24
                                                                              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         Ceded
                         Contract          Premiums



                                   Sidecar   Interest
                                 Reinsurance                      Debt
                                    Trust                       Investors
                                  Accounts   Bank Loan
                                                  Proceeds

                            Equity         Dividends          Security
                           Proceeds                           Interest
                                                             in Shares
                       Equity
                      Proceeds
        Equity                     Sidecar
      Investors                   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




                                                                                                  25
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




26
                                                                                              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




                                                                                                                  27
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
                                                          Diversifying                   Perils
                          Diversifying                    Perils                         $2,385 MM
                          Perils                          $3,389 MM                      21%
                          $4,380 MM                       28%
                          31%            U.S. Perils
                                         $9,695 MM                       U.S. Perils
                                                                                                    U.S. Perils
                                         69%                             $8,801 MM
                                                                                                    $8,738 MM
                                                                         72%
                                                                                                    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.




28
                                                                           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




                                                                                               29
Insurance-Linked Securities 2009




                       Basis Risk
                       ILS investors have a strong preference for single-event, non-indemnity, occurrence-
                       based 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.

                                        P
                                     •	 	 aradex. This industry exposure- and vulnerability-weighted parametric
                                         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.
                                        P
                                     •	 	 ERILS	AG. This independent company was created by seven major
                                         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.
                       3
                             N
                           			 atCatSERVICE	is	a	database	for	natural	catastrophes	launched	by	Munich	Re	in	1974	
                       4
                            PERILS AG founder members include Allianz, Axa, Groupama, Guy Carpenter, Munich Re,
                            Partner Re, Swiss Re and Zurich




30
                                                                      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.




                                                                                          31
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.




32
                                                                     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.




                                                                                          33
Insurance-Linked Securities 2009




                        CDS SPREADS — u.S.

                                           1,000


                                            800


                       Basis Points
                                            600


                                            400


                                            200


                                              0




                                                                                                           8




                                                                                                                          8
                                                                                               8




                                                                                                                                        8



                                                                                                                                                  9



                                                                                                                                                              9
                                                                                 7
                                                                   7
                                                   7




                                                                                                       -0



                                                                                                                      r-0
                                                                                             -0




                                                                                                                                    r-0




                                                                                                                                                 -0



                                                                                                                                                          -0
                                                                               r-0
                                                                r-0
                                                -0




                                                                                                      ne
                                                                                           ch




                                                                                                                                               ch



                                                                                                                                                         ne
                                              ne




                                                                                                                     be



                                                                                                                                   be
                                                                            be
                                                             be




                                                                                         ar



                                                                                                      Ju




                                                                                                                                             ar



                                                                                                                                                        Ju
                                             Ju




                                                                                                                 em



                                                                                                                               em
                                                                          em
                                                           em




                                                                                         M




                                                                                                                                             M
                                                                                                                pt



                                                                                                                              ec
                                                                       ec
                                                       pt




                                                                                                             Se



                                                                                                                             D
                                                       Se



                                                                      D




                                                            XL                   Berkshire                  Liberty                 ACE               Chubb


                       Source: Aon Benfield Securities, Bloomberg




                        CDS SPREADS — EuROPE

                                             1,000
                                               900
                                               800
                                               700
                            Basis Points




                                               600
                                               500
                                               400
                                               300
                                               200
                                               100
                                                   0
                                                                                                                           8
                                                                                                            8




                                                                                                                                         8
                                                                                                  8




                                                                                                                                                             9
                                                                                                                                                    9
                                                                                     7
                                                                      7
                                                       7




                                                                                                                        -0
                                                                                                           -0




                                                                                                                                      r-0
                                                                                                -0




                                                                                                                                                          -0
                                                                                                                                                 -0
                                                                                 r-0
                                                                   r-0
                                                      0
                                                   e-




                                                                                                                         r
                                                                                                       ne
                                                                                               ch




                                                                                                                                                          ne
                                                                                                                                               ch
                                                                                                                      be



                                                                                                                                    be
                                                                               be
                                                                be
                                                  n




                                                                                             ar



                                                                                                       Ju




                                                                                                                                             ar



                                                                                                                                                        Ju
                                               Ju




                                                                                                                  em



                                                                                                                                 em
                                                                            em
                                                               m




                                                                                         M




                                                                                                                                             M
                                                               e




                                                                                                                pt



                                                                                                                               ec
                                                                          ec
                                                            pt




                                                                                                                Se




                                                                                                                              D
                                                          Se




                                                                         D




                                             Swiss                 Zurich                SCOR               Allianz                 Hannover             Munich


                       Source: Aon Benfield Securities, Bloomberg




34
                                                                       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
      R
    			 euters.	“How	AIG	fell	apart.”	Sept	18,	2008.




                                                                                             35
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
                             M
                           			 ayer-Brown.	“OTC	Derivatives	–	In	the	Crosshairs	of	U.S.	Regulatory	Change.”	May	19,	2009
                       7
                             R
                           			 euters.	“NY	Fed	meets	with	large	CDS	dealers	on	clearing.”	April	1,	2009.
                       8
                             W
                           			 all	Street	Journal.	“ICE	Clears	Major	Hurdle	for	CDS.”	March	18,	2009.
                       9
                            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 near-
universal 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
      Ibid.
11
      Markit CDX. 2009. Markit Financial Information Services. http://www.markit.com.
12
       S
     			 hannon	D.	Harrington.	“Credit-Default	Swaps’	‘Big	Bang’	Loosens	Banks’	Grip.”	Bloomberg.	April	8,	2009.




                                                                                                                   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
                                                                                             7,003
                                    7,000
                                                                                                     5,815
                                    6,000
                       $ Millions




                                    5,000

                                    4,000
                                                                                     3,124
                                    3,000

                                    2,000                            1,558                                   1,705
                                             1,071   985      986            1,137
                                    1,000

                                        0
                                             2001    2002     2003   2004    2005    2006    2007    2008    2009




40
                                                                         Aon Benfield Securities




CATASTROPHE BOND ISSuANCE BY HAlF-YEAR

                    8,000

                    7,000

                    6,000




       $ Millions
                    5,000
                                             4,455           2,410
                    4,000

                    3,000

                    2,000    2,147
                                                             3,405
                                             2,547                              1,385
                    1,000
                              977
                                                                                320
                       0
                             2005/6          2006/7          2007/8             2008/9
                                              Jan - Jun      Jul - Dec




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

         50                                                                               12


                                                                                          10
         40

                                                                                          8
         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)
                                                                                                                                                 7,003
                                                                                      7,000                                                                                U.S. Hurricane

                                                                                                                                                                           U.S. Quake
                                                                                      6,000                                                               5,815
                                                                                                                                                                           Euro Wind

                                                                                      5,000                                                                                Japan Quake

                                                                                                                                                                           Asia Pacific
                                                                                      4,000
                                                                                                                                                                           Other
                                                                                                                                         3,124
                                                                                      3,000


                                                                                      2,000                                                                       1,705
                                                                                                                         1,558
                                                                                                  1,071                          1,137
                                                                                                          985    986
                                                                                      1,000


                                                                                             0
                                                                                                  2001    2002   2003    2004     2005   2006    2007     2008     2009




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




                                                                                                                                                                                            Percent of New Issuance with Indemnity Loss Trigger
                                                                                     8,000                                                                                          50%
                                                                                                                                                     7,003
                                                                                     7,000                                                                                          45%
                       Risk Transfer ($ Millions)




                                                                                                                                                                  5,815             40%
                                                                                     6,000
                                                                                                                                                                                    35%
                                                                                     5,000
                                                                                                                                                                                    30%
                                                                                     4,000                                                                                          25%
                                                                                                                                            3,124
                                                                                     3,000                                                                                          20%

                                                                                                                                                                          1,705     15%
                                                                                     2,000                                1,558
                                                                                                 1,071    985     986              1,137                                            10%
                                                                                     1,000
                                                                                                                                                                                    5%

                                                                                         0                                                                                          0%
                                                                                                 2001     2002    2003     2004     2005     2006        2007     2008    2009

                                                                                                                 Cat Bonds               % Indemnity Issued




42
                                                                                    Aon Benfield Securities




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



                                             4%
      Index
                                                   14%                        16%
      Indemnity
                                     25%                                                      41%
      Multiple

      Modeled Loss                                                      19%

      Parametric Index          4%                  47%
                                 5%
      Parametric                                                                 23%



                                              2008                                  2009




u.S. VERSuS DIVERSIFYING PERIlS



                                                                               Diversifying
                                           Diversifying                        Perils
  Diversifying                             Perils                              $2,385 MM
  Perils                                   $3,389 MM                           21%
  $4,380 MM                                28%
  31%             U.S. Perils
                  $9,695 MM                               U.S. Perils
                                                                                           U.S. Perils
                  69%                                     $8,801 MM
                                                                                           $8,738 MM
                                                          72%
                                                                                           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          Sponsor                  Issuer                Class             Perils             Trigger      Size (000)   mIS    S&P    Fitch
                                                                            US Gulf/East Coast
6/16/1997         USAA          Residential Reinsurance I     Class A-1                            Indemnity      $86,814     Aaa    AAA
                                                                                  Wind
                                                                            US Gulf/East Coast
                                                              Class A-2                            Indemnity     $313,180     Ba2     BB     BB
                                                                                  Wind
10/16/1997       Swiss Re       SR Earthquake Fund, Ltd.      Class A-1       California EQ          Index        $25,200     Baa3          BBB-
                                                              Class A-2       California EQ          Index        $12,000     Baa3          BBB-
                                                               Class B        California EQ          Index        $60,300     Ba1            BB
                                                              Class C         California EQ          Index        $14,700     Ba3            B
             Tokio Marine &
11/19/1997                         Parametric Re Ltd.                           Japan EQ           Parametric     $80,000     Ba2
              Nichido Fire
 3/3/1998     Zurich Group            Trinity Re Ltd.         Class A-1       Florida Wind         Indemnity      $10,467     Aaa           AAA
                                                              Class A-2       Florida Wind         Indemnity      $61,533     Ba3            BB
                                                                            US Gulf/East Coast
6/16/1998         USAA          Residential Reinsurance II                                         Indemnity     $450,000     Ba2     BB     BB
                                                                                  Wind
6/16/1998        Yasuda              Pacific Re, Ltd.                          Japan Wind          Indemnity      $80,000     Ba3           BB-
7/17/1998        USF&G               Mosaic Re Ltd.            Class A      US (Wind, EQ, ST)      Indemnity      $15,000
7/17/1998        USF&G               Mosaic Re Ltd.            Class B      US (Wind, EQ, ST)      Indemnity      $21,000
12/21/1998   Centre Solutions      Trinity Re 1999, Ltd.      Class A-1       Florida Wind         Indemnity      $2,385      Aaa           AAA
                                                              Class A-2       Florida Wind         Indemnity      $51,615     Ba3            BB
 2/2/1999        USF&G              Mosaic Re II, Ltd.         Class A      US (Wind, EQ, ST)      Indemnity      $25,000
                                                               Class B      US (Wind, EQ, ST)      Indemnity      $20,000
3/25/1999        Kemper              Domestic, Inc.                          New Madrid EQ         Indemnity      $80,000     Ba2    BB+
4/15/1999      Sorema SA          Halyard Re B.V. (Yr 1)                    EU/JP Wind, JP EQ      Indemnity      $17,000
5/12/1999     Oriental Land          Concentric, Ltd.                           Japan EQ           Parametric    $100,000     Ba1    BB+
                                                                            US Gulf/East Coast
 6/1/1999         USAA          Residential Reinsurance III                                        Indemnity     $200,000     Ba2     BB
                                                                                  Wind
6/24/1999        Gerling              Juno Re, Ltd.                             US Wind            Indemnity      $80,000             BB    BB+
                                   Gold Eagle Capital
11/23/1999    American Re                                      Class A       US Wind, US EQ       Modeled Loss    $50,000     Baa3          BBB-
                                        Limited
                                                               Class B       US Wind, US EQ       Modeled Loss   $126,600     Ba2            BB
11/23/1999       Gerling            Namazu Re, Ltd.                             Japan EQ          Modeled Loss   $100,000             BB
 3/3/2000      Lehman Re             Seismic Limited                          California EQ          Index       $145,500     Ba2    BB+
3/10/2000         SCOR           Atlas Reinsurance p.l.c.      Class A    Europe Wind. CA/JP EQ    Indemnity      $70,000            BBB+   BBB+
                                                               Class B    Europe Wind. CA/JP EQ    Indemnity      $30,000            BBB-   BBB-
                                                              Class C     Europe Wind. CA/JP EQ    Indemnity     $100,000             B-     B-
 4/1/2000      Sorema SA          Halyard Re B.V. (Yr 2)                    EU/JP Wind, JP EQ      Indemnity      $17,000
5/23/2000      State Farm       Alpha Wind 2000-A Ltd.                        Florida Wind         Indemnity      $52,500            BB+
                                 Residential Reinsurance                    US Gulf/East Coast
5/26/2000         USAA                                                                             Indemnity     $200,000     Ba2    BB+
                                      2000 Limited                                Wind
6/12/2000     Vesta Fire Ins            NeHi, Inc.                        Northeast/Hawaii Wind   Modeled Loss    $41,500     Ba3            BB
                                                                          France Wind, Monaco
11/19/2000        AGF            Mediterranean Re p.l.c.       Class A                            Modeled Loss    $41,000     Baa3   BBB+   BBB
                                                                                  EQ
                                                                          France Wind, Monaco
11/19/2000        AGF            Mediterranean Re p.l.c.       Class B                            Modeled Loss    $88,000     Ba3    BB+    BB+
                                                                                  EQ
                                 Prime Capital CalQuake                   Califorina EQ/ Europe    Parametric
12/28/2000     Munich Re                                                                                         $129,000     Ba3    BB+     BB
                                    & EuroWind Ltd.                                Wind              Index
                                Prime Capital Hurricane                                            Parametric
12/28/2000     Munich Re                                                        US Wind                          $159,000     Ba3    BB+     BB
                                         Ltd.                                                        Index
 2/8/2001       Swiss Re        Western Capital Limited                          US EQ               Index        $97,000     Ba2    BB+
                                   Gold Eagle Capital
3/22/2001     American Re                                                    US Wind, US EQ       Modeled Loss   $116,400     Ba2    BB+
                                     2001 Limited
3/30/2001      Sorema SA          Halyard Re B.V. (Yr 3)                    EU/JP Wind, JP EQ      Indemnity      $17,000
                                                                                                   Parametric
 5/9/2001        Swiss Re             SR Wind Ltd.            Class A-1      US/France Wind                       $58,200            BB+    BB+
                                                                                                     Index
                                                                                                   Parametric
                                                              Class A-2      US/France Wind                       $58,200            BB+    BB+
                                                                                                     Index
                                 Residential Reinsurance                    US Gulf/East Coast
 6/1/2001         USAA                                                                             Indemnity     $150,000     Ba2    BB+
                                      2001 Limited                                Wind
6/15/2001       Zurich Re              Trinom Ltd.            Class A-1    US/EU Wind, US EQ      Modeled Loss    $60,000     Ba2     BB    BB-
                                                              Class A-2    US/EU Wind, US EQ      Modeled Loss    $97,000     Ba1    BB+     BB




                                                                                                                                                  45
Insurance-Linked Securities 2009




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

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




46
                                                                                                                       Aon Benfield Securities




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

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




                                                                                                                                               47
Insurance-Linked Securities 2009




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

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




48
                                                                                                                            Aon Benfield Securities




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

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




                                                                                                                                                      49
Insurance-Linked Securities 2009




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

     Date       Sponsor                   Issuer             Class             Perils             Trigger        Size (000)   mIS    S&P    Fitch
 4/3/2007       Allianz SE       Blue Wings Ltd. Series 1    Class A      US EQ, UK Flood         Multiple       $150,000            BB+
             Aspen Insurance
 4/13/2007                       Ajax Re Limited Series 1    Class A        California EQ       Industry Index   $100,000            BB
                 Limited
                                     East Lane Re Ltd.
 4/30/2007    Chubb Group                                    Class A    US - Northeast Wind       Indemnity      $135,000            BB+
                                       Series 2007-I
                                                             Class B    US - Northeast Wind       Indemnity      $115,000            BB+
 5/8/2007       Munich Re          Carillon Ltd. Series 2    Class E          US Wind           Industry Index   $150,000             B
                Travelers           Longpoint Re Ltd.
 5/8/2007                                                    Class A    US - Northeast Wind     Industry Index   $500,000            BB+
              Indemnity Co            Series 2007-I
 5/10/2007       Swiss Re            Successor II Ltd.      Class A-2    NA/EU W, CA/JP Q         Multiple       $100,000             B
                 Mitusui                                                                         Parametric
 5/14/2007                         AKIBARE Ltd. Series 1     Class A          JP Wind                             $90,000            BB+
             Sumitomo Ins Co                                                                       Index
                                                                                                 Parametric
                                                             Class B          JP Wind                             $30,000            BB+
                                                                                                   Index
                                   Gamut Reinsurance
 5/29/2007       Nephila                                     Class A    US/EU/JP W, US/JP Q       Indemnity       $60,000     Aa3     A-
                                       Limited
                                                             Class B    US/EU/JP W, US/JP Q       Indemnity      $120,000     Baa3   BBB-
                                                            Class C     US/EU/JP W, US/JP Q       Indemnity       $60,000     Ba3    BB-
              Liberty Mutual         Mystic Re II Ltd.
 5/31/2007                                                               FL/Northeast Wind      Industry Index   $150,000            B+
                  Ins Co              Series 2007-1
                                                                        Turkey/Greece/Israel/    Parametric
 5/31/2007       Swiss Re            MedQuake Ltd.           Class A                                              $50,000            BB-
                                                                         Portugal/Cyprus EQ        Index
                                                                        Turkey/Greece/Israel/    Parametric
                                                             Class B                                              $50,000             B
                                                                         Portugal/Cyprus EQ        Index
                                  Residential Reinsurance
 5/31/2007        USAA                                       Class 1      US Wind, US EQ          Indemnity      $145,000            BB
                                       2007 Limited
                                                             Class 2      US Wind, US EQ          Indemnity      $125,000             B
                                                             Class 3      US Wind, US EQ          Indemnity       $75,000             B
                                                             Class 4      US Wind, US EQ          Indemnity      $155,000            BB+
                                                             Class 5      US Wind, US EQ          Indemnity      $100,000            BB+
                 Glacier           Nelson Re Ltd. Series
 6/11/2007                                                   Class A       US/EU W, US Q           Multiple       $75,000             B
             Reinsurance AG              2007-I
                                   Willow Re Ltd. Series
 6/14/2007    Allstate Ins Co                                Class B    US - Northeast Wind     Industry Index   $250,000            BB+
                                         2007-1
                                  Spinnaker Capital Ltd.
 6/15/2007       Swiss Re                                                     US Wind           Industry Index   $200,000     B1
                                        Series 1
             CIG Reinsurance
             Ltd, New Castle                                            NA/EU/UK/JP/Aus/NZ
 6/20/2007                       Emerson Reinsurance Ltd.    Class A                              Indemnity      $185,000     A2
               Reinsurance                                                All Natural Perils
                  Co Ltd
                                                                        NA/EU/UK/JP/Aus/NZ
                                                             Class B                              Indemnity      $140,000     Baa3
                                                                          All Natural Perils
                                                                        NA/EU/UK/JP/Aus/NZ
                                                            Class C                               Indemnity      $130,000     Ba2
                                                                          All Natural Perils
                                                                        NA/EU/UK/JP/Aus/NZ
                                                            Class D                               Indemnity       $45,000     Ba3
                                                                          All Natural Perils
                                    Fremantle Limited
 6/21/2007    Brit Ins Limited                               Class A    US/EU/JP W, US/JP Q        Multiple       $60,000     Aa1           AAA
                                       Series 2007-I
                                                             Class B    US/EU/JP W, US/JP Q        Multiple       $60,000     A3            BBB+
                                                            Class C     US/EU/JP W, US/JP Q        Multiple       $80,000     Ba2           BB-
                                  Spinnaker Capital Ltd.
 6/22/2007       Swiss Re                                                     FL Wind           Industry Index   $130,200     Ba2
                                        Series 2
              Swiss Re/Kyoei
                                                                                                 Parametric
 6/25/2007   Fire and Marine         Fusion 2007 Ltd.        Class A    JP Wind, Mexico EQ                        $30,000             B
                                                                                                   Index
                   Ins Co
                                                                                                 Parametric
                                                             Class B    JP Wind, Mexico EQ                        $80,000             B
                                                                                                   Index
                                                                                                 Parametric
                                                            Class C          Mexico EQ                            $30,000            BB+
                                                                                                   Index




50
                                                                                                                       Aon Benfield Securities




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

  Date         Sponsor                Issuer                Class             Perils             Trigger        Size (000)   mIS    S&P    Fitch
             State Farm
               Mutual                                                  US/Canada (Wind, EQ,
 7/5/2007                     Merna Reinsurance Ltd.       Class A                               Indemnity      $256,000     Aa2           AAA
             Automobile                                                    ST, WS, WF)
               Ins Co
                                                           Class A     US/Canada (Wind, EQ,
                                                                                                 Indemnity       $94,000     Aa2           AAA
                                                           (loan)          ST, WS, WF)
                                                                       US/Canada (Wind, EQ,
                                                            Class B                              Indemnity      $647,600     A2            AA+
                                                                           ST, WS, WF)
                                                            Class B    US/Canada (Wind, EQ,
                                                                                                 Indemnity       $19,000     A2            AA+
                                                            (loan)         ST, WS, WF)
                                                                       US/Canada (Wind, EQ,
                                                           Class C                               Indemnity      $155,000     Baa2           A-
                                                                           ST, WS, WF)
                                                           Class C     US/Canada (Wind, EQ,
                                                                                                 Indemnity       $9,000      Baa2           A-
                                                           (loan)          ST, WS, WF)
             Arrow Capital
7/18/2007     Reinsurance         Javelin Re Ltd.          Class A      Worldwide All Perils     Indemnity       $94,500             A-
                Co, Ltd
                                                            Class B     Worldwide All Perils     Indemnity       $30,750            BBB-
                              Spinnaker Capital Ltd.
7/20/2007      Swiss Re                                                      US Wind           Industry Index    $50,000            NR
                                    Series 3
             Japan Railway
10/15/2007                         MIDORI Ltd.              Class A            JP EQ            Parametric      $260,000            BB+
                 East
                                                                                                Parametric
11/7/2007      Allianz SE      Blue Fin Ltd. Series 1       Class A          EU Wind                            $155,000            BB+
                                                                                                  Index
                                                                                                Parametric
                                                            Class B          EU Wind                             $65,000            BB+
                                                                                                  Index
                               Newton Re Limited;
11/17/2007      Catlin                                      Class A           US EQ            Industry Index    $87,500            BB+
                                 Series 2007-1
                                                            Class B          US Wind           Industry Index   $137,500            BB+
                               Atlas Reinsurance IV
11/29/2007      SCOR                                        Class A       EU Wind, JP EQ       Modeled Loss     $160,000             B
                                      Limited
12/21/2007     Swiss Re      GlobeCat Ltd. Series USW      Class A-1         US Wind           Industry Index    $40,000     B3e
                                                           Class A-1          US EQ            Industry Index    $20,000     B1e
                                                           Class A-1     Latin America EQ      Modeled Loss      $25,000     Ba3e
                                                                                                Parametric
12/27/2007   Groupama SA     Green Valley Ltd. Series 1     Class A        France Wind                          $200,000     BB+
                                                                                                  Index
                             Successor Hurr Industry
12/28/2007     Swiss Re                                      C-VI            US Wind           Industry Index    $30,000     B2      B
                                      Ltd.
                                                             D-VI            US Wind           Industry Index    $30,000             B
12/28/2007     Swiss Re      Successor II Ltd.; Series 3     C-III     US/EU Wind, US/JP EQ      Multiple        $50,000
12/28/2007     Swiss Re      Successor II Ltd.; Series 3     E-III     US/EU Wind, US/JP EQ      Multiple        $50,000
                             Redwood Capital X Ltd.                                             Parametric
12/31/2007       CEA                                       Class A            US EQ                              $25,000     Baa3
                                   Series 1                                                       Index
                                                                                                Parametric
                                                            Class B           US EQ                             $227,700     Ba2
                                                                                                  Index
                                                                                                Parametric
                                                           Class C            US EQ                              $50,200     Ba3
                                                                                                  Index
                             Redwood Capital X Ltd.
12/31/2007       CEA                                       Class D            US EQ            Industry Index   $130,500     Ba3
                                   Series 2
                                                            Class E           US EQ            Industry Index    $45,200     B2
                                                            Class F           US EQ            Industry Index    $20,000     NR
                                 Newton Re Ltd.                         US/EU/JP Wind, US/
2/21/2008       Catlin                                      Class A                              Indemnity      $150,000            BB
                                 Series 2008 - 1                              JP EQ
                                Queen Street Ltd.                                               Parametric
3/14/2008     Munich Re                                     Class A          EU Wind                             €70,000            BB+
                                    Series 1                                                      Index
                                                                                                Parametric
                                                            Class B          EU Wind                            €100,000             B
                                                                                                  Index
                                East Lane Re II Ltd.                     Northeast US All
3/31/2008    Chubb Group                                    Class A                              Indemnity       $75,000            BB
                                  Series 2008-I                           Natural Perils
                                                                         Northeast US All
                                                            Class B                              Indemnity       $70,000            BB
                                                                          Natural Perils
                                                                       US/Canada All Natural
                                                           Class C                               Indemnity       $55,000             B-
                                                                              Perils




                                                                                                                                                 51
Insurance-Linked Securities 2009




SummARY OF CATASTROPHE BONDS - 1997 THROuGH JuNE 30, 2009

     Date      Sponsor                  Issuer               Class           Perils            Trigger        Size (000)   mIS    S&P   Fitch
                                                                                              Parametric
 5/14/2008     Zenkyoren       Muteki Ltd. Series 2008-1      Top             JP EQ                           $300,000     Ba2
                                                                                                Index
                                  Valais Re Ltd. Series                US/EU/JP Wind, US/
 5/30/2008     Flagstone                                    Class A                            Indemnity       $64,000     Ba2
                                         2008-1                              JP EQ
                                                                       US/EU/JP Wind, US/
                                                            Class C                            Indemnity       $40,000     B3
                                                                             JP EQ
                 Glacier            Nelson Re Ltd.
 5/30/2008                                                  Class G      US Wind, US EQ        Indemnity       $67,500     B3
             Reinsurance AG         Series 2008-I
                                                            Class H         EU Wind            Indemnity       $45,000     B3
                                                            Class I         EU Wind            Indemnity       $67,500     B1
                                  Mangrove Re Ltd.
 5/30/2008     Homewise                                     Class A          FL HU             Indemnity      $150,000     Ba2
                                   Series 2008-1
                                                            Class B          FL HU             Indemnity       $60,000     B1
                                Residential Reinsurance
 5/30/2008       USAA                                       Class 1      US Wind, US EQ        Indemnity      $125,000            BB
                                     2008 Limited
                                                            Class 2      US Wind, US EQ        Indemnity      $125,000             B
                                                                       US (HU, EQ, ST, WS,
                                                            Class 4                            Indemnity      $100,000            BB+
                                                                              WF)
                                  Willow Re Limited
 6/17/2008   Allstate Ins Co                                Class D        Texas Wind        Industry Index   $250,000            BB+
                                   Series 2008-1
              Nationwide          Caelus Re Limited
 6/25/2008                                                  Class A      US Wind, US EQ        Indemnity      $250,000            BB+
             Mutual Ins Co         Series 2008-1
                                   Vega Capital Ltd.                   US/EU/JP Wind, US/
 6/27/2008      Swiss Re                                    Class A                            Multiple        $21,000     A3     A-
                                     Series 2008-I                           JP EQ
                                                                       US/EU/JP Wind, US/
                                                            Class B                            Multiple        $22,500     Baa2   BBB
                                                                             JP EQ
                                                                       US/EU/JP Wind, US/
                                                            Class C                            Multiple        $63,900     Ba3
                                                                             JP EQ
                                                                       US/EU/JP Wind, US/
                                                            Class D                            Multiple        $42,600
                                                                             JP EQ
                                 Blue Coast Ltd. Series
 7/28/2008     Allianz SE                                   Class A         US Wind          Industry Index    $70,000            BB-
                                       2008-1
                                                            Class B         US Wind          Industry Index    $30,000            B+
                                                            Class C         US Wind          Industry Index    $20,000            B-
                                Topiary Capital Limited                                       Parametric
 8/1/2008       Platinum                                    Class A     US/EU Wind, JP EQ                     $200,000            BB+
                                    Series 2008-1                                               Index
 2/13/2009       SCOR           Atlas V Capital Limited     Series 1     US Wind, US EQ      Industry Index    $50,000            B+
                                                            Series 2     US Wind, US EQ      Industry Index   $100,000            B+
                                                            Series 3     US Wind, US EQ      Industry Index    $50,000             B
                                  East Lane Re III Ltd.
 3/4/2009    Chubb Group                                    Class A         FL Wind            Indemnity      $150,000            BB
                                     Series 2009-1
             Liberty Mutual        Mystic Re II Ltd.
 3/10/2009                                                               US Wind, US EQ      Industry Index   $225,000            BB
                 Ins Co             Series 2009-1
 4/16/2009     Allianz SE        Blue Fin Ltd. Series 2     Class A      US Wind, US EQ      Modeled Loss     $180,000            BB-
 4/28/2009      Swiss Re       Successor II Ltd. Series 4   Class F    Northeast US, CA EQ     Multiple        $60,000
 5/5/2009     Assurant Inc.           Ibis Re Ltd.          Class A          US EQ           Modeled Loss      $75,000            BB
                                                            Class B          US EQ           Modeled Loss      $75,000            BB-
                                Residential Reinsurance
 5/28/2009       USAA                                       Class 1      US Wind, US EQ        Indemnity       $70,000            BB-
                                     2009 Limited
                                                            Class 2      US Wind, US EQ        Indemnity       $60,000            B-
                                                            Class 4      US Wind, US EQ        Indemnity      $120,000            BB-
                                  Calabash Re III Ltd.
 6/10/2009      Swiss Re                                    Class A      US Wind, US EQ      Modeled Loss      $86,000            BB-
                                    Series 2009-I
                                                            Class B          US EQ           Modeled Loss      $14,000            BB+
 6/9/2009      Munich Re           Ianus Capital Ltd.                  EU Wind, Turkey EQ      Multiple        €50,000     B2




52
                                                                                                                   Aon Benfield Securities




SummARY OF SIDECAR ISSuANCE

                                                                                                                                            Initial
                                                                            Coverage                                                         Size
   SideCar      Coverage       Principal Sponsor     Inception   maturity     Years     Rating             line of Business                ($mm)

 Top Layer Re   Side By Side   Renaissance Re, SF     Dec-99      Jul-09    2000-on       AA          High Excess US property Cat           100.0

                                                                                                    Property Cat, property risk, retro,
 Olympus Re     Quota Share    White Mountains Re     Dec-01      Jun-05    2002-2005     NR                                                500.0
                                                                                                              and marine

                               Renaissance Re, SF,
  DaVinci Re    Side By Side                          Dec-01      Jul-09     2002-on       A            Property Cat reinsurance            600.0
                                    Max Re

 Rockridge Re   Quota Share      Montpelier Re        Jun-05      Jun-06      2005        NR          High excess cat retrocessional         90.9

 Blue Ocean
                Quota Share      Montpelier Re        Dec-05      Dec-07    2006-2007     NR           Property cat retrocessional          300.0
     Re

                                                                                                      Property cat reinsurance and
   Cyrus Re     Quota Share        XL Capital         Dec-05      Nov-06    2006-2007     NR                                                525.0
                                                                                                             retrocessional

  Flatiron Re   Quota Share          Arch Re          Dec-05      Dec-07    2006-2007    BBB-       Property and marine reinsurance         900.0

  Helicon Re    Quota Share    White Mountains Re     Dec-05      Dec-07    2006-2007     NR        Short-tailed property and marine        146.0

                                                                                                   Property cat, property risk, aviation
   Kaith/K5     Quota Share       Hannover Re         Dec-05      Jan-07    2006-2009                                                       370.0
                                                                                                               and marine

                                                                                                    Property cat, property risk, retro
Olympus Re II   Quota Share    White Mountains Re     Jan-06      Jan-06                  NR                                                156.0
                                                                                                              and marine

                                                                                                      Marine and offshore energy
   Petrel Re    Quota Share          Validus          May-06     May-07     2006-2007     NR                                                125.0
                                                                                                        reinsurance contracts

                                                                                        A+/BBB-/
 Starbound Re   Quota Share      Renaissance Re       May-06     May-07     2006-2007               Short-tailed property and marine        310.5
                                                                                          BB+

                                                                                                     US property, marine, retro, and
 Bay Point Re   Quota Share       Harbor Point        Jun-06      Jun-07    2006-2007     BB                                                150.0
                                                                                                            workers’ comp

                                                                                                      Marine and offshore energy
  Sirocco Re    Quota Share        Lancashire         Jun-06      Jun-07    2006-2007     NR                                                 75.0
                                                                                                         insurance contracts

 Timicuan Re    Side by Side     Renaissance Re        Jul-06     Dec-06                           Reinstatement Premium Protection          70.0

 Castlepoint
                                  Tower Group          Jul-06     Jul-07                                                                    265.0
     Re

                               Lexington Insurance
 Concord Re     Quota Share                           Aug-06      Aug-12    2006-2012     BB+           US commercial property              730.0
                                       Co

 Mont Fort Re   Quota Share       Flagstone Re        Aug-06      Dec-07                  NR               Peak zone and ILW                 60.0

                                                                                                      Property cat reinsurance and
   Cyrus Re     Quota Share        XL Capital         Nov-06      Dec-07      2007        NR                                                635.0
                                                                                                             retrocessional

                                                                                         BBB+/
  Panther Re    Quota Share          Hiscox           Dec-06      Dec-07      2007                      Property cat reinsurance            360.0
                                                                                          BB+

                                  Lloyd’s #4242
  Syncro Ltd.   Quota Share                           Dec-06                                            Property cat reinsurance            100.0
                                    (Chaucer)

  Norton Re     Side by Side      Brit Insurance      Dec-06      Dec-07      2007        NR           Property cat retrocessional          107.7

 Stoneheath
                                   XL Capital         Dec-06      Dec-07     2007-?      bbb+                                               350.0
     Re

 New Point Re   Side by Side      Harbor Point        Dec-06      Dec-06    2007-2008     NR           Property cat retrocessional          250.0

 Triomphe Re    Quota Share          Paris Re         Dec-06      Dec-08    2007-2008                  Property cat retrocessional          185.0

 Maxwell Re                           ACE             Dec-06      Dec-07                                                                    175.0

                                                                                                   Property cat, property risk, aviation
      K5        Quota Share       Hannover Re         Jan-07      Dec-08                                                                    520.0
                                                                                                               and marine

 New Point Re   Side by Side      Harbor Point        Jan-07      Dec-08    2007-2008     NR           Property cat retrocessional          100.0

  Sector Re     Quota Share         Swiss Re          Jan-07      Dec-07      2007                        Property cat, aviation            220.0

  MaRI Ltd.     Side by Side          ACE             Jan-07      Apr-08                  NR            Property cat reinsurance            400.0

  Syndicate
                Quota Share     Ark Underwriting      Jan-07      Dec-07    2007-2008                   Property cat reinsurance             40.0
    6105




                                                                                                                                                    53
Insurance-Linked Securities 2009




SummARY OF SIDECAR ISSuANCE

                                                                                                                                              Initial
                                                                              Coverage                                                         Size
      SideCar       Coverage       Principal Sponsor   Inception   maturity     Years      Rating            line of Business                ($mm)

     Syndicate
                    Quota Share         Hiscox          Jan-07      Dec-07    2007-2008                   Property cat reinsurance             69.0
       6104

     Syndicate
                    Quota Share          MAP            Jan-07      Dec-07    2007-2008                   Property cat reinsurance            86.2
       6103

 Puma Capital       Quota Share        Bridge Re        Apr-07      Apr-08      2007                        Property cat, aviation            182.5

     Starbound                                                                              BBB+/
                    Quota Share         Ren Re          Jun-07      Jun-08    2007-2008                   Property cat reinsurance            341.5
        Re II                                                                              BBB-/BB

 Mont Gele Re          XOL            Flagstone Re       Jul-07     Jul-09    2007-2009      NR           Property cat reinsurance            60.0

  Norton Re II      Side by Side     Brit Insurance     Dec-07      Dec-08      2008         NR          Property cat retrocessional          118.2

     Syndicate
                    Quota Share     Ark Underwriting    Jan-08      Dec-08      2008                      Property cat reinsurance             40.0
       6105

     Syndicate
                    Quota Share         Hiscox          Jan-08      Dec-08      2008                      Property cat reinsurance             67.9
       6104

     Syndicate
                    Quota Share          MAP            Jan-08      Dec-08      2008                      Property cat reinsurance             79.9
       6103

                                                                                                        Property cat reinsurance and
     Cyrus Re II    Quota Share        XL Capital       Jan-08      Dec-08      2008                                                          136.0
                                                                                                               retrocessional

     Sector Re II   Quota Share         Swiss Re        Apr-08      Apr-09    2008-2009                     Property cat, aviation            150.0

                                                                                             Baa3/
      Globe Re      Quota Share       Hannover Re       May-08     May-09     2008-2009                  Property cat retrocessional          133.0
                                                                                            Ba3/B2

     Syndicate
                    Quota Share          Amlin          Jan-09      Dec-09      2009                      Property cat reinsurance            72.5
       6106

     Syndicate
                    Quota Share     Ark Underwriting    Jan-09      Dec-09      2009                      Property cat reinsurance            40.6
       6105

     Syndicate
                    Quota Share         Hiscox          Jan-09      Dec-09      2009                      Property cat reinsurance             62.4
       6104

     Syndicate
                    Quota Share          MAP            Jan-09      Dec-09      2009                      Property cat reinsurance             57.3
       6103

                                                                                                     Property cat, property risk, aviation
      Kaith/K6      Quota Share       Hannover Re       Mar-09      Mar-10    2009-2010                                                       180.0
                                                                                                                 and marine

                                                                                                         Property cat retrocessional,
 Timicuan Re II     Quota Share      Renaissance Re     Jun-09      Dec-09      2009         NR                                                60.4
                                                                                                              primarily Florida

                                                                                                                    TOTAL                    10,853.4


  C
*		 yrus	Re	-	November	29,	2006	-	Conditions	to	the	effectiveness	of	an	amendment	were	satisfied.	The	amendment	allows	the	issuance	of	debt	and	
  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.
          200 E. Randolph Street, Chicago, Illinois 60601
t: +1 312 381 5300 | f: +1 312 381 0160 | www.aonbenfield.com
           Copyright Aon Benfield Inc. 2009 | #2764 - 08/2009

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:14
posted:12/19/2010
language:English
pages:56