1 CONFIDENTIAL ©2016 AIR WORLDWIDE The Evolving Role of Insurance in Building Climate Resilience Brent Poliquin, CCM May 27, 2016

2 CONFIDENTIAL ©2016 AIR WORLDWIDE The capital markets can be accessed for efficient economic recovery from natural disasters through catastrophe bonds.

3 CONFIDENTIAL ©2016 AIR WORLDWIDE Catastrophe Bond Schematic Investors (Reinsurer) Investors (Reinsurer) Special Purpose Vehicle Sponsor (Cedant) Sponsor (Cedant) Collateral Account Investment Earning / Loss Risk-Free Return Receives Coupon Purchases Bond Reinsurance Recoveries Principal (at maturity) Pays Premium Reinsurance Agreement Offering Circular

4 CONFIDENTIAL ©2016 AIR WORLDWIDE The Value Proposition Sponsor Benefits Diversification in insurance sources Competing capital sources & potential cost savings Collateralized protection Highly customizable Multi-year coverage & price stability Investor Benefits Diversifying asset class High coupons relative to similarly rated fixed-income products Tradable, liquid notes Low volatility instrument

5 CONFIDENTIAL ©2016 AIR WORLDWIDE Common Trigger Types Parametric Trigger based on event parameters or an index formula based on event intensity measurements Modeled Loss Trigger based upon modeled results of sponsor portfolio Industry Index Trigger based upon percentage of insured loss for entire industry Indemnity Trigger based upon actual claims of sponsor

6 CONFIDENTIAL ©2016 AIR WORLDWIDE What is “Basis Risk”? Basis risk is the difference between the losses you wish to protect against and the recoveries from the transaction Minimizing basis risk helps ensure you will receive a recovery when you really need it (and only then) Catastrophe models can optimize your structure to maximize the fit between your loss potential and the transaction’s recoveries

7 CONFIDENTIAL ©2016 AIR WORLDWIDE Basis Risk versus Transparency Basis Risk to Sponsor Transparency to Investor Indemnity Parametric Modeled Loss Industry Index

8 CONFIDENTIAL ©2016 AIR WORLDWIDE 1 year 3 years 5 years Occurrence Single Issuance Note Program Other Customizable Features of Cat Bonds Aggregate

9 CONFIDENTIAL ©2016 AIR WORLDWIDE The Issuance Process Origination (Months - Years) Structuring (8 – 16 weeks) Marketing (2 – 4 weeks) Offshore Meeting Risk Modeling Detailed Structuring Offering Materials Source: Alternative (Re)insurance Strategies © 2012 Sponsor Structurer & Bookrunner Risk Modeler Legal Counsel Rating Agency Reporting Agency Trustee / Bank

10 CONFIDENTIAL ©2016 AIR WORLDWIDE Parametric Trigger: “Cat-in-a-box”

11 CONFIDENTIAL ©2016 AIR WORLDWIDE Parametric Trigger: Event Intensity Measurement Index Formula Calculation Location LatitudeLongitude ajaj bjbj cjcj Cap j Peak Ground Acceleration (PGA j ) Calculation Location contribution to Event Index Value , ……………………… 1043…………………… Where: a j, b j, c j, and Cap j are the parameters at Location j PGA j is the Peak Ground Acceleration (“PGA”) at Location j Each j is one of the 1,043 Calculation Locations (the K-NET stations), which record PGA

12 CONFIDENTIAL ©2016 AIR WORLDWIDE HAZARD ENGINEERING FINANCIAL Intensity Calculation Exposure Information Damage Estimation Event Generation Policy Conditions Central Pressure & Landfall Wind Speed Loss to Catastrophe Bond Loss Calculations Modeled Loss Trigger: Use Actual Event Characteristics to Estimate Loss

13 CONFIDENTIAL ©2016 AIR WORLDWIDE Trends In Catastrophe Bonds

14 CONFIDENTIAL ©2016 AIR WORLDWIDE Catastrophe Bonds Have Become an Integral Strategic Risk Transfer Tool Sources: AIR, Artemis

15 CONFIDENTIAL ©2016 AIR WORLDWIDE Catastrophe Bond Issuance by Region/Peril Source: Munich Re

16 CONFIDENTIAL ©2016 AIR WORLDWIDE Catastrophe bonds have proven to be a successful format to transfer catastrophe risk and are highly customizable. While initially designed to offer insurance companies an alternative to traditional reinsurance, catastrophe bonds have proven to be an effective tool for a government’s emergency relief needs. Catastrophe bond investors desire diversifying regions and perils. Key Takeaways