1. ILS & Reinsurance Innovation for Captives

2. Panel Moderator: Steve Britton, Managing Director, Global ILS Management Aon Captive & Insurance Management Panel: Rhodri Lane, Vice President, ILS Origination and Structuring GC Securities Nick Campbell, Chief Risk Officer Third Point Reinsurance Ltd. Gavin Woods, Counsel, Corporate and ILS Appleby Global

3. Session Topics ILS Market Update ILS Structures Legal and Regulatory Framework Introduction to Catastrophe Bonds Corporate Catastrophe Bonds: Case Studies –Penn Union Re Ltd. Series 2015-1 –Acorn Re Ltd. Series 2015-1 Operational Risk Bond Reserve-based Reinsurance Transformer Solutions

4. “Railroad or Transportation Company?”

5. Growth in alternative capital Development in Alternative Capital Alternative Capital Continues to Grow Growth in alternative capital  Alternative capital continues to climb to USD 72 billion and now represents over 12 percent of overall reinsurer capital.  Collateralized reinsurance continued its trend with more than a 10 percent increase to USD35.2 billion, now representing nearly 50 percent of the overall capacity provided in alternative markets  Sidecar capacity increased 20 percent over year end 2014 at USD 8.0 billion in capital.  Outstanding Cat Bonds are currently at their highest level at just over USD 23 billion

6. Property Cat Bond Issuance and Outstanding by Year Property Cat Market Review Property Cat Bond Issuance by Quarter Property Cat Bond Maturities by Quarter Property Cat Bond Metrics 2016 Completed Issuances 2016 Issuance Volume 10$2.3B Total OutstandingMaturities in the 1 st Half of 2016 $21.7B$4.1B Source: Aon Securities Inc.

7. Outstanding Property Bonds by Sponsor ReinsurersInsurersOther Large proportion of the bonds issued in 2015 came from repeat sponsors –In total $5.93 billion of bonds were issued by sponsors returning to the ILS market –Deal flow indicates that cat bonds have become a permanent fixture of sponsors’ reinsurance and retrocession programs Many new sponsors have come to market since Q1 2014 –ASIG, GAIC, Heritage, Generali, Everest Re, SJNK, TWIA, Safepoint, UnipolSai, China Re, Kaiser Permanente and Amtrak Source: Aon Securities Inc.

8. Property Cat Bonds Issued in 2016 TransactionBeneficiary Perils Trigger Size (million) Expected Loss Initial Guidance Interest SpreadSharpe Ratio Initial Rating At IssueMay 13At Issue May 13 Q1 ’16 Atlas IX Capital 2016-1SCORUS HU, US/CAN EQIndustry$300.03.29%7.00% - 7.50%7.50% 6.64% 25% 20% Not Rated Galileo Re 2016-1 A XLUS HU, EQ, EU WindIndustry $100.09.52%13.75% - 14.25%13.50% 12.33% 15% 11% Not Rated Galileo Re 2016-1 B$100.04.96%9.25% - 9.75%9.00% 8.29% 20% 17% Not Rated Galileo Re 2016-1 C$100.03.09%7.25% - 7.75%7.00% 6.47% 24% 21% Not Rated Citrus 2016-1 D-50 Heritage & ZephyrFL/HI HUIndemnity $150.03.31%7.00% - 7.50%7.50% 7.01% 25% 22% Not Rated Citrus 2016-1 E-50$100.06.29%10.00% - 10.50%10.50% 10.11% 19% 17% Not Rated Caelus Re IV 2016-1Nationwide US HU, EQ, ST, WS, VE, MI Indemnity$300.01.94%5.50% - 6.25%5.50% 5.28% 27% 25% Not Rated Espada Re 2016-I 20USAA TC, EQ, ST, WS, WF VE, MI, OP Indemnity$50.02.25%5.25% - 5.75%5.75% 5.91% 34% 21% Not Rated Manatee Re 2016-1 A SafepointFL/LA HUIndemnity $75.01.15%4.75% - 5.50%5.25% 47% Not Rated Manatee Re 2016-1 C$20.011.41%15.25% - 16.25%16.25% 16.26% 21% Not Rated Akibare Re 2016-1Mitsui SumitomoJP TYIndemnity$200.01.19%2.50% - 3.00%2.50% 2.30% 13% 11% Not Rated Aozora Re 2016-1SJNKJP TYIndemnity$220.00.90%2.20% - 2.70%2.20% 2.09%15%13% Not Rated Merna Re 2016-1State FarmNew Madrid EQIndemnity$300.00.41%2.25% 2.22%31%30% Not Rated Q2 ‘16 ResRe 2016-I Class 10 USAA US HU, EQ, ST, WS, WF, VE, MI, OP Indemnity $65.0 8.80%11.75% - 12.75%11.50% 11.53%11% Not Rated ResRe 2016-I Class 11 $75.0 2.47%5.25% - 6.00%4.75% 4.77%17% Not Rated ResRe 2016-I Class 13 $110.0 0.73%3.75% - 4.25%3.25% 3.27%32% BB- In Market Queen Street XII Re dacMunich ReUS HU, EU WindIndustry$[190.0]2.90%5.75% - 6.25%[5.25]% -[15]%- Not Rated First Coast Re Ltd.Security FirstFL HU, STIndemnity $[100.0] []4.25% - 4.75%[] - - Source: Aon Securities Inc. with seasonally adjusted bid spreads as of May 13, 2016 Aon Securities’ Deals As of May 13, 2016

9. ILS Structures Background ILS denotes a range of different instruments that allow insurance risk to be transferred to the capital markets Natural catastrophe bonds (“cat bonds”) and other types of ILS are usually issued to provide protection to insurers, reinsurers, governments, and corporations (Re)insurance company – can access alternative sources of capital to support underwriting Cedants - can obtain reinsurance protection from a new pool of capital separate from traditional reinsurers

10. ILS Structures Catastrophe Bonds (“Cat Bonds”) Risk-linked securities SPV issues bonds, with the principal used to pay losses if trigger conditions met Transfers specified set of risks from the sponsor to capital markets investors through a fully collateralised SPV Investors take on the risks of a specified catastrophe or event occurring in return for attractive rates of investment Alternative to traditional catastrophe reinsurance

11. ILS Structures Side Cars Limited duration vehicle established by a traditional reinsurer to allow for “bolt on” access to non-traditional capital for specific purposes Holdco / opco structure Voting shares owned by cedant/sponsor Investor capital typically provided by capital markets investors through preference shares/bonds issued by the reinsurer

12. ILS Structures Collateralised Reinsurance Reinsurance transacted on a fully collateralised basis Reinsurer funds the difference between the premium and total downside in trust Can be part of larger insurer platform which includes sidecars and ILS investment vehicles Investors invest in Funds which subscribe for shares in various insurance vehicles

13. Legal and Regulatory Framework Pre-2009 Bermuda reinsurance market historically attracted capital in form of large and highly capitalised commercial reinsurers Writing primarily property catastrophe and casualty reinsurance since early 1990s Insurance risk securitisation have been a feature of the international reinsurance and risk management marketplace since mid 1990s ILS structures existed in the form of Class 3 Insurers – mostly sidecar and transformers

14. Legal and Regulatory Framework 2009 onwards – Bermuda Watershed Introduction of a special category of insurer –designed for ILS vehicles –promised procedural and regulatory benefits –considered to be a “limited purpose insurer” and not subject to Solvency II equivalence regime Enhanced regulatory framework to ensure the prudent development of sound business forms associated with sidecars, Cat Bonds, etc

15. Legal and Regulatory Framework Special Purpose Insurers In its basic form, a special purpose, single transaction, or single customer (re)insurance company Standard characteristics: –Fully Funded –$1 share capital –Sophisticated Participants –Contractual Limitation of Liability –Filing Requirements Segregated Accounts Renewable structures

16. Legal and Regulatory Framework Solvency II Bermuda declared its intention to seek Solvency II equivalence over 10 years ago – shortly after the regulations were first discussed by European Union. Equivalence is important to the commercial sector of the Bermuda insurance market as it gives freer access to trade with European insurers without restrictive capital charges or other barriers to entry. The concern: equivalence is not valued by the captive sector and could make the jurisdiction uncompetitive for captives. The solution: “bifurcated equivalence” in which Solvency II standards apply to commercial insurers, and a more appropriate level of regulation applies to captives; recognises specialist nature of captives.

17. Legal and Regulatory Framework Solvency II (cont.) March 24, 2016, the European Commission awarding Bermuda with equivalent status under Solvency II Directive Benefits of equivalence : –Reinsurance: reinsurance contracts between EU insurers and Bermuda reinsurers will be treated in the same manner as reinsurance contracts entered into with EU reinsurers; –Solvency: EU insurers with a Bermuda subsidiary will be able calculate group solvency may calculate the Bermuda subsidiary’s solvency and capital requirements using Bermuda’s solvency rules; –Supervision: EU Member States will recognise the Bermuda Monetary Authority as the group supervisor for Bermuda-based insurance groups that operate in the EU. SPIs are not subject to Solvency II requirements

18. Introduction to Catastrophe Bonds Financial instruments (a “fixed” income product) which serve as an alternative source of risk financing to traditional reinsurance Capital markets-based risk transfer capacity is a complementary tool to work in conjunction with any traditional (re)insurance tools Advantages (“Sponsor” or “Cedant”) –Multi-year capacity (for catastrophe bonds) at rates defined at inception –May lower rate volatility (i.e. less dependence on the market cycles) due to its multi-year structure –Fully collateralized protection –Diversify claims paying resources and can provide meaningful capacity –Liquidity if non-indemnity trigger is utilized –Guarantee of annual premium is only for the first year –Additionally, the use of alternative markets such as the catastrophe bond market (or alternative capital markets capacity) can be used as leverage in negotiations with traditional insurance providers Investor benefits (“reinsurer”): –Diversifying asset class –High coupons relative to similarly rated fixed income products –Tradable, liquid notes

19. Introduction to Catastrophe Bonds Trigger –Balance between minimizing basis risk to sponsor and maximizing investor comfort with the proposed structure –Transparency and speed of trigger are key considerations Maturity –Typically three years; varies from one to five years –Locks in rates Occurrence vs. Aggregate; First vs. Second Event –Best fit within existing reinsurance structure –Multiyear aggregate structures have also been used One-time Issuance vs. Note Program –Reduces some of the time and cost associated with additional issuances Trigger design, like all other structuring decisions, aim to maximize the transaction’s value to the issuer given investor need

20. Introduction to Catastrophe Bonds Basis Risk Transparency / Speed of Payment Indemnity Parametric Modeled Loss Index Basis Risk The risk that the reinsurance contract (traditional, Cat Bond, ILW, etc.) does not perform as desired/expected –Sponsor not paid when actual losses are “large” enough, needing reinsurance capacity –Sponsor paid when actual losses are below the amount needed for reinsurance capacity Transparency / Speed of Payment Investors understanding of how the reinsurance contract will be settled –Parametric trigger parameters typically based on publicly disclosed information –Indemnity based on sponsor disclosed losses The speed in which a transaction will provide coverage –Parametrically triggered Cat Bonds typically settle faster –Indemnity triggered bonds are slower due to claims reporting High Low Less / Slow More / Fast Indemnity Triggered by actual loss of sponsor Index Triggered by industry insured losses Modeled Loss Triggered by modeled results to sponsor portfolio Parametric Triggered by event parameters

21. Introduction to Catastrophe Bonds Parametric triggers can be a very basic, quick and binary payout mechanism (“Cat-In-A-Box”) E.g. if the cyclone enters the defined zone, at a defined intensity, the structure pays out

22. PennUnion Re Ltd. Series 2015-1 $275,000,000 PennUnion Re Ltd. Series 2015-1 Principal-at-risk Variable Rate Notes due December 7, 2018 October 2015 Joint Structuring Agent and Joint Bookrunner  Amtrak’s subsidiary Passenger Railroad Insurance, Ltd (PRIL), successfully issued PennUnion Re, to provide three-years of protection against earthquakes and storm surge and wind loss as a result of Named Storm, on a parametric, per occurrence basis –Amtrak is the national passenger railroad provider in the US  The transaction is triggered based on key intensity measurements of the physical parameters for each respective peril captured at specified measurement locations. Depending upon the peril, the measurements are taken from both inland on offshore locations ranging from the Washington, D.C. to Providence, RI regions – Storm surge water height measurements are captured at seven tidal gauge stations in the Long Island Sound, East River, Lower New York Bay, and Delaware River. – Wind measurements are captured and interpreted for 60 ZIP codes along Amtrak’s Northeast Corridor (“NEC”) railways from Washington, D.C. to near Providence, RI. – Earthquake intensity is measured from 21 USGS stations ranging from northeastern Delaware to Providence, RI, with a concentration around the New York City metropolitan area Series 2015-1 Notes IssuerPennUnion Re Ltd. PerilStorm Surge and Wind resulting from Named Storm; Earthquake Covered AreasU.S. Northeast region TriggerParametric; Per occurrence Risk Period3 years Modeling FirmRisk Management Solutions, Inc. Rating (S&P)BB- (sf) CollateralU.S. Treasury Money Market Funds Expected Loss (NT)2.05% (year 1) Attachment Probability (NT)P(attach) = 2.84% (year 1) Exhaustion Probability (NT)P(exhaust) = 1.59% (year 1) Issuance Amount$275,000,000 (upsized from $200,000,000) Initial Risk Spread4.50% (priced at lowest end of price guidance)

23. PennUnion Re Ltd. Series 2015-1 PennUnion Re Ltd. (Bermuda) Passenger Railroad Insurance, Ltd. (PRIL) (Ceding Insurer) Series 2015-1 Noteholders Series 2015-1 Reinsurance Trust Account Permitted Investments $[●] Proceeds Permitted Investments Yield $[●] Proceeds Permitted Investments Yield + Interest Spread Amount or Extension Spread Amount Reinsurance Premium Payment Issuer Payment Premium Payment Deposit Account Repayment Amount Security Interest Amtrak Funded initially with premium in the amount equal to the Interest Spread Amount calculated on the Original Principal Amount for a period of 95 calendar days Reinsurance Agreement Insurance Coverage Premiums

24. PennUnion Re Ltd. Series 2015-1 Earthquake Calculation Locations and Associated Weights Wind Calculation Locations and Associated Weights Storm Surge Calculation Locations

25. PennUnion Re Ltd. Series 2015-1 Marketing Highlights  Parametric trigger and diversifying geography increased attractiveness of the transaction – Resulted in an extremely well supported transaction. Investors continued to show interest in parametrically triggered bonds especially those bonds exposed to esoteric underlying perils in a diversifying region. The bond was marketed during wind reason and priced at 4.50%, the low end of the initial 4.50% - 5.25% in addition to being upsized from $200M to $275M  New corporate sponsor – Investors continue to show high levels on interest in new sponsors to the capital markets, particularly non-traditional (i.e. corporate) sponsors  Marketed during wind season – Despite marketing with an active Category 4 Hurricane Joaquin in the Atlantic, investors continued to support the transaction and indicate that they are long-term partners as opposed to opportunistic investors

26. Acorn Re Ltd. Series 2015-1 $300,000,000 Acorn Re Ltd. Series 2015-1 Principal-at-risk Variable Rate Notes Due July 17, 2018 July 2015 Sole Structuring Agent and Lead Bookrunner and its other (re)insureds including Series 2015-I Notes IssuerAcorn Re Ltd. PerilEarthquake Covered AreasCalifornia and the Pacific Northwest TriggerParametric Risk Period3 years Modeling FirmRisk Management Solutions, Inc. Rating (Fitch)BB(sf) CollateralIBRD Note Expected Loss0.74% (year 1) Attachment PointP(attach) = 0.97% (year 1) Exhaustion PointP(exhaust) = 0.52% (year 1) Issuance Amount$300,000,000 Initial Spread3.40%  Acorn Re Ltd. Series 2015-1, the first parametrically triggered cat bond to be issued in 2015, provides Hannover Re with three years of protection against California and Pacific Northwest earthquake  Hannover Re ceded the risk on behalf of Oak Tree Assurance, Ltd (a wholly owned subsidiary of Kaiser Foundation Health Plan, Inc.) in addition to other reinsureds with earthquake exposure in California and the Pacific Northwest  The Series 2015-1 Notes utilize a four-step payout structure that determines payout level based on the moment magnitude and depth parameters of each earthquake that occurs within an area of 430 1o by 1o boxes  The deal was structured to include a putable note issued by the International Bank for Reconstructed and Development as a collateral solution. This solution provides investors both an increased yield and diversification away from traditional money market funds  The transaction was well with investor support, resulting in an upsizing from $200 to $300 million

27. Acorn Re Ltd. Series 2015-1 Hannover Rück SE (Ceding Reinsurer) Acorn Re Ltd. Permitted Investments Yield + Interest Spread or Extension Spread Repayment Amount Series 2015-1 Noteholders Retrocession Agreement $[●]M Proceeds Permitted Investments Yield $[●]M Proceeds Issuer Payment Reinsurance Agreement Reinsurance Premium Retrocession Premium Collateral Payment Account Retrocession Trust Account (Beneficiary: Hannover Rück SE) Initially IBRD Notes Oak Tree Assurance, Ltd. (1) (Ceding Insurer) Loss Payment Other Reinsureds with Earthquake Exposure in the Earthquake Box Locations Loss Payments Reinsurance Agreements Reinsurance Premiums

28. Acorn Re Ltd. Series 2015-1 LevelDefinitionEvent Percentage Trigger Level One If the Magnitude of a Covered Event is greater than or equal to such defined Earthquake Box minimum moment magnitude then “Trigger Level One” is met 25% Trigger Level TwoSimilar to above50% Trigger Level ThreeSimilar to above75% Trigger Level FourSimilar to the above100% Trigger level One Trigger level Two Trigger level Three Trigger level Four

29. Acorn Re Ltd. Series 2015-1 Marketing Highlights  Parametric trigger and focused risk profile led to broad support across the full investor base – Investors offered great support to the first parametric and first California focused earthquake transaction of 2015. The market also appreciated the staged (rather than binary) trigger mechanism, which offered a sensible compromise between the sponsor’s need for a quick, non linear payout and the market’s preference for non binary triggers.  Transaction attracted wider spectrum of investors, leading to an upsizing of the deal – Nearly 35 percent of support was provided by non specialist investors. This is reflective of the broadening investor base as well as a clean, transparent trigger structure that was understandable across the full spectrum of capital markets investors.

30. Operational Re Ltd. Class A and B Notes Issuer / SPVOperational Re Ltd. Risks / Perils coveredOperational Risk Losses from Credit Suisse TriggerIndemnity Risk Period5 years Modelling firmMilliman Inc. Issuance Amount CHF 220 million (CHF 105 million Class A-1; CHF 5 million Class A-2; CHF 110 million Class B) Attachment PointCHF 3.5 billion annual aggregate loss; maximum CHF 3.0 billion any one event Expected Loss< 0.20% Attachment Probability< 1/500 annual probability Exhaustion Probability< 1/1000 annual probability Coupons4.5% pa Class A-1 and Class A-2; 5.5% pa Class B Coupons guaranteed to be paid for full 5 years even if bond notional is reduced by loss  Under Basel III bank regulations, operational risk incurs a capital charge based on a 1/1000 year estimate of loss  Capital calculation performed using Advanced Measurement Approach based on Basel III guidelines  Operational risks include, eg: fraud; improper business practices; accounting errors; business disruption; advisory, disclosure and fiduciary activities; product flaws; transaction capture, execution and maintenance; loss of building and/or equipment  Multi-year coverage lends itself to ILS; bond investors used to taking credit risk over several years  Difficulties include transparency and validating model (limited history; rapidly changing market and regulatory environment)  Zurich Insurance Company insures Credit Suisse and cedes the risk to Operational Re  The transaction struggled with investor support, resulting in a downsizing from CHF 630 million to CHF 220 million Caveat: Information taken from preliminary and public sources and unverified

31. Reserve-based Reinsurance P RIVATE & C ONFIDENTIAL Reinsuring Reserves Reserve-based reinsurance is intended to assist entities to manage material risk in their portfolio of existing reserves. It protects against emergence or deterioration of incurred loss rather than future events. Illustrative Structure: Combined LPT and ADC Combination of transfer of top layer of existing loss reserves (Loss Portfolio Transfer, “LPT”) and adverse development cover (“ADC”) layer Premium less a small margin is deposited in an Experience Account (“EA”) EA is used to pays claims and is credited with interest Captive has option to commute after set period and receive balance of EA Provides capital benefit and risk transfer while protecting or enhancing investment returns Transaction accounted for as reinsurance

32. Combined LPT & ADC P RIVATE & C ONFIDENTIAL Reinsurance Layer 1 (40%) On Commutation Reinsurance Premium less Margin less Claims Paid plus Interest Credit Capital Benefit and Risk Transfer Reinsurer Existing Reserves (ER) Investment Income Captive Reserve Retention (60%) Adverse Development Retention (15%) Reinsurance Layer 2 (10%) Illustrative - Not to scale Reinsurance Premium (40.5%) Aggregate Limit (50%) Claims Paid plus

33. Combined LPT & ADC cont’d P RIVATE & C ONFIDENTIAL Benefits of Transaction Capital relief provided by transfer of reserves and availability of adverse development layer (“Layer 2”) Protection against latent adverse experience provided by Layer 2 Investment credit compensates for loss of investment income and may exceed portfolio investment returns in current environment Reinsurance premium attributable to Layer 2 is below cost ie less than the pure risk premium for that layer Any positive development on the reserves accrues to the benefit of the captive Unlike most LPTs where capturing value in the reserves through aggressive management of claims is generally the reinsurer’s intent

34. Transformer Solutions One legal entity – One Company 2 classes of share – Core and Cellular Unlimited number of Cells Legal Segregation of Cells Flexible allocation of Capital World-wide acceptance (45+ domiciles have similar legislation) Transformer company works as a facility, not a risk taker Statutory Segregation between cells Cell 1 Cell 2 Transformer PCC Core Cell 3 Cell 4 Cell 5 Cell 6