1. December 7, 2016
“The Remaking of Financial Services” William Spiegel, Co-President, Pine Brook

2. What to Listen for Today1.
Investment opportunities driven by dislocations across the value chain 2.
Today, the entire value chain is being reinvented 3.
Expertise is critical to navigate complexity and change

3. Financial Services Investment Strategy
Business Building and Growth Equity Investing Based on Large and Long- Lasting Dislocations

4. Dislocations Occur Across the Financial Services Value Chain
Origination
Underwriting
Servicing
Capital

5. In the post-crisis and technologically driven world, dislocations are occurring across the value chain, creating opportunities to remake financial services.

6. Today, Investments Are Driven by Multiple Dislocations
Regulation
Low Interest Rates
Data and Technology Innovations

7. Regulation Creates Opportunity
Low Interest Rates
Data and Technology Innovations
Impact
Opportunity
Increased capital requirements for certain product lines, removing capital from the system
Create lending and insurance companies that serve undercapitalized markets

8. Regulation Has Removed Capital from Certain Sectors
Regulations
Impact of Regulation
Solvency II
CARD Act
Dodd-Frank
Comprehensive Capital Analysis and Review (CCAR)
Consumer Financial Protection Bureau (CFPB)
Risk Retention
Basel III
Increased capital requirements +
Increased compliance costs
Removed capital from certain sectors

9. Bank Regulations Increased Capital, Reducing ROE
Tier 1 Leverage Capital to Total Loans
Historical Return on Equity
28% Decrease from 2005
Trough to Peak Increase of 41%
Source: FDIC Quarterly Banking Profile.

10. Regulation Reduced Capital to Certain Sectors
Near-Prime Credit Card
Outstanding Balances ($ bn)
U.K. Non-Conforming
Annual Mortgage Originations (£ bn)
Peak to Trough Decrease of 26%
Peak to 2015 Decrease of 87% //
Sources: Left: TransUnion. Right: Bank of England, Oliver Wyman and Deutsche Bank estimates.

11. Pine Brook Created Lending and Insurance Companies Serving Undercapitalized Markets
Company
Description
Thesis
U.K. Specialty Mortgage Originator
Lack of credit to U.K. non-prime borrowers
Near-Prime Credit Card
Lack of credit to near-prime consumers
Life and Annuity Provider
High capital requirements forced divestiture of business
Small Business Lender
Lack of credit to small businesses
U.K. Subprime Lender
Lack of credit to U.K. subprime consumers

12. Low Interest Rates Create Opportunities
Regulation
Low Interest Rates
Data and Technology Innovations
Impact
Opportunity
Low interest rates have reduced profitability
Investors searching for yield
Create lending and insurance companies with niche operating strategies
Create companies focusing on use of third-party capital

13. Low Interest Rates Reduce Investor Returns
U.S. 2-Year Treasury Rates
Peak to Trough Decrease of 96%
QE was a major monetary stimulus that was aimed at driving interest rates very low to stimulate borrowing
The 2 year and 10 year treasury yields have fallen significantly from their pre crisis levels
US, Germany, Japan, etc. 4 charts
Source: Federal Reserve Bank of St. Louis.

14. Low Interest Rates Reduce Banking Profitability
Net Interest Margin
Return on Equity
28% Decrease from 2005
Peak to Trough Decrease of 18%
Insurance companies, like all financial services company are pools of capital. They make money by getting a return on their underwriting and by investing
Insurance companies invest their capital and their reserves. And historically they have made a lot of their return by investing in short dated safe bonds
With the decline in yields, the importance of investment income to the ROE of an insurance company has fallen dramatically
Source: FDIC Quarterly Banking Profile.

15. Low Interest Rates Reduce Insurance Profitability
Investment Yield
Return on Equity
Peak to Trough Decrease of 77%
Peak to Trough Decrease of 40%
Insurance companies, like all financial services company are pools of capital. They make money by getting a return on their underwriting and by investing
Insurance companies invest their capital and their reserves. And historically they have made a lot of their return by investing in short dated safe bonds
With the decline in yields, the importance of investment income to the ROE of an insurance company has fallen dramatically
Source: Company reports and Aon Benfield Market Analysis.

16. Pine Brook Created Lending, Insurance and Asset Management Companies Optimized for a Low Interest Rate Environment
Company
Description
Thesis
Aircraft Asset Management
Substitute balance sheet capital for lower-cost third-party capital
Insurance Services
Niche operating strategy
Specialty P&C
Asset Management
Increase flows to alternative asset managers
Pine Brook’s equity is useful as risk capital to start the business, and once we prove the model we shift the capital burden to third parties for a fee

17. Data and Technology Innovations Create Opportunities
Regulation
Low Interest Rates
Data and Technology Innovations
Impact
Opportunity
Application of data and technology has improved efficiencies throughout the value chain
Incumbents hampered by legacy operating systems
Create companies with lower costs of originating, underwriting, servicing and accessing capital
Work with best-in-class incumbents that can enhance business model with new technology

18. Technology Impacting Bank Customer Behavior
U.S. Banking Interactions per Year ($ billions)
Source: BCG.

19. Insurance Ripe for Technology Innovation
U.S. FinTech Investments by Sector (2014)
Total 2014 U.S. FinTech Investment: $10 billion
Source: CB Insights and Accenture.

20. Benefits of Data and Technology Innovations
Commentary
Enables businesses to identify and reach the right customers more efficiently
Improved
Origination
Enables improved risk selection
Enhanced
Underwriting
Minimizes both loss and operating costs
Efficient
Servicing
Tech enabled businesses that allow us when we identify a dislocation to get into business quicker, faster, cheaper. By the way you’re going to hear about how we’re doing that with Fair Square and Better panel
Provides access to lower-cost and broader pools of capital
Broader Access to Capital

21. Pine Brook Has Created Companies with Lower Costs of Originating, Underwriting, Servicing and Accessing Capital
Company
Description
Thesis
U.K. Specialty Mortgage Originator
Tech and data-enabled origination, underwriting and servicing
Tech-Enabled
Mortgage Originator
Consumer Unsecured Lender
Small Business Lender

22. Dislocations Have Created Investment Opportunities
Fund II Companies
Regulation
Low Interest Rates
Data & Technology Innovations
Amedeo
Aircraft Asset Management
Belmont Green
U.K. Specialty Mortgage Originator
Better Mortgage
Prime Mortgage Originator
Clear Blue
Insurance Services
Fair Square
Consumer Unsecured Lender
Fidelis Insurance
Specialty P&C
Global Atlantic
Life and Annuity Provider
Strategic Funding
Small Business Lender
The Car Finance Company
U.K. Subprime Lender
Tunbridge Partners
Asset Management
Vibe Management (Syndicate)
Lloyd’s P&C Reinsurance