Swiss Re's CEO Hosts Investors' Day Conference (Transcript)

Jun.24.13 | About: Swiss Reinsuranc (SWCEY)

Swiss Re AG (OTC:SWCEY) Investors’ Day Conference Call June 24, 2013 5:00 AM ET


Michel M. Liès – Group Chief Executive Officer

Christian Mumenthaler – CEO-Reinsurance

Alison Martin – Head-Life & Health Business Management

George Quinn – Group Chief Financial Officer

Eric Schuh – Director-Business Development


Andrew J. Ritchie – Autonomous Research LLP

Fabrizio Croce – Kepler Capital Markets SA

Vinit Malhotra – Goldman Sachs International

Andy D. Broadfield – Barclays Capital Securities Ltd.

Jason Kalamboussis – Societe Generale

Ben Cohen – Canaccord Genuity

Thomas Jacquet – Exane BNP Paribas

Thomas Seidl – Bernstein Research

Tom M. Dorner – Citigroup Global Markets Ltd.

Thomas Fossard – HSBC

Stefan Schürmann – Vontobel

William S. Hawkins – Keefe, Bruyette & Woods Ltd.

Michel M. Liès

Good morning everyone, good afternoon for those in Asia and good very early morning for those in America, if any. So as you know we have the people on the webcast. So for those who are not in Zürich, I just would like to point out that you missed a fantastic sunshine here in the city of Zürich, but okay, that was your choice. A very warm welcome to the Swiss Re Investor Day 2013 here in Zürich, or Rüschlikon to be precise.

My name is Michel Liès. I am Swiss Re Chief Executive Officer and for the next half an hour and so, I am going to give you an update on the group strategy and doing so in a manner that I believe matches investors focus based on the feedback that we have received. I hope that you will walk away in the afternoon with an impression that we have chosen to keep things exactly where they are or should be in some areas, but at the same time deliver some important operational improvements in other areas. And if you’re making the right moves into promising market and have updated our capital management and other groups efforts, such as on productivity further, we are simply keeping the pressure on.

While we are doing all this, we are not introducing new strategies and targets. The current target 2011-2015 and the current strategy are our priority. You know that we’ll be talking about Strategy, Life & Health Reinsurance, and Capital Management today. I wish to offer a few words regarding what is not permanently on the agenda of today, namely our P&C business, P&C Reinsurance and Corporate Solutions.

As for the first one, you know that we have a lot about P&C Re in matters of disclosure on the July renewals and our reserve will book out with the Q2 results on August 8. Furthermore, you will get usual strategic message and presentation about P&C Re at Monte Carlo in early September. So that’s the reason for the silence today. It’s simply timing.

On Corporate Solution, we’ve said what we wanted to say on strategy and of course we continue to update on the execution quarterly and we may consider doing a deeper dive maybe next year on these business Corporate Solutions.

So let’s now start with a quick preview of today’s highlight. Against the backdrop of an unchanged group strategy, you will see that our efforts are dedicated to and focused on execution. The strategic roadmap is in front of us and the executive committee is in driving mode now, not in mapping mode. The way to measure mileage of success are the financial targets and growing regular dividends which is also very important to us.

In these contexts, the High Growth Markets opportunity is a priority, along with an emphasis on productivity. These two points are not completely unrelated. As we do see a shift of resources into High Growth Market and we expect cost savings to help finance these opportunities.

After my session, we will have a lunch break, where I hope we can continue the discussion also with the other members of management that are present here today.

The next highlight that you will hear about from Christian and Alison, well I should say, from Alison and Christian to be a little bit elegant, is our Life and Health business. We have prepared this session with the same intensity as our update of last years investors day on the new segment of our financial reporting.

In detail you will hear about our management is addressing the pre-2004 U.S. business and our further management actions are going to improve the profitability of the entire book. As a result of these efforts, we do expect the return on equity of Life and Health Reinsurance to improve significantly to 10% to 12% by 2015, which is after an expected dip in 2014 that we are anticipating from fixing the pre-2004 U.S. book.

The third content area, an highlight of the day to me, is George to the finance, across capital management and asset allocation topics. George will share with you what we’re planning regarding deleveraging our balance sheet and how this is going to be EPS and return on equity accretive in our expectations. Furthermore, he will have significant numbers and explanation on asset rebalancing towards our mid-term plan where we’re aiming to utilize about US$3 billion of additional economic capital by year-end 2013. And finally, he is going to speak about dividends, business growth and our financial targets.

Before we end the day, I will rejoin George for a quick wrap up after his session and I hope that at that stage your key takeaways of the days are at least loosely related to what I considered the highlight.

We are now entering in – actually my session and as announce, I will first provide more detail on the group strategy, partly also serving as a teaser for the sessions to come later today this afternoon. This is then followed by some near and mid-term initiatives that I feel would benefit from more color from me, namely the High Growth Market, which we have communicated about many times before and an emphasis on productivity, which we’ve only started to flag very recently.

Regarding the longer-term, we will have a brief look at some broader themes and internal consideration that we have on our radar screen and that might shape our thinking beyond 2015. This will be covered in the outlook which we will summarize by priority for Swiss Re in the usual format and evolve from what you’ve heard me say at the occasion of our full year results. And then finally the floor is yours and we’ll have the first debate of the day.

Our strategy remain one of relative outperformance in some areas like reinsurance and asset management and one of smart expansion in other like Corporate Solution or Health. On the topic of Health, I have picked this example on purpose you do notice that we have actually added Health next to longevity on these slide. And that what used to read emerging markets now reads High Growth Markets. The former is a reflection of the higher importance we are attaching to new business in health, the latter is a pure wording change and simple reflection on the fact that many of the emerging market have long already emerged into fully professional insurance and reinsurance markets, where we conduct business with our clients in the same way as in the so called mature markets, but growth remains higher.

I don’t have any issue with an unchanged group strategy as long as it is sustainable and produces the result that make us meet or exceed our financial target. Both conditions are met currently and there are no signs that it won’t be in the future as long as we continue doing what we’ve been promised by performing well for our clients and for our owners being a good employer and corporate citizen.

Regarding our strategic goal that you see on the right, I do hear a lot about our alleged obsession with growth. I certainly do have a passion for our business and for this company, quite logical after more than 30 years working for this company. Companies have two [y] [ph], and our [y] [ph] is our core business and what it does to society. That’s what you are invested in and what generates financial returns.

Having said that, I am absolutely and fully aware of the difference between growth and value creation and that you need the latter in everything you do in order for growth to make any sense. That’s why we are working so hard on improving returns and margins and that’s why we add new business only when it is above our 11% return on equity profitability hurdle rate. I also know that value creation is not only in the business model and market position of a company, but also in the many key decision that management is making on behalf of the firms’ owners.

So the strategic goal is to be the leading player including in profitability not the largest or the fastest growing. I commit that we’re making decision based on maximizing value to existing shareholders with a long-term investment view. It does not mean that we don’t care about that in here now, the here and now, we know the way the superior long-term value creation is delivering on both short-term and also on mid-term profitability target like the ones we defined for the period 2011-2015.

So this is the meaning of my phrase 'perform and grow', we do not have to double in size in order to be taken seriously. We are one of the big guys if I may say. Profitable new business is sensible and creates value and earning growth, but we’re not obsessed with that.

While it’s true for the Group in matters of strategy, stability, also all sort of business unit, in a way even more so, at least in these high level view, as you shouldn’t be able to spot any change here compared to last year. And it is of course because we only started with a realignment into the new group structure two years ago including defining these strategies. You can expect very elaborated business strategy attaching below the 30,000 feet as usual here and of course the strategy do adapt to the market environment and other factors, but at the top level for the business units, we’re happy with what we’ve got for now as a roadmap and also here my focus is on the business unit execution and delivery.

Reinsurance continue to be the foundation of our strengths and the largest part of our business with more than 80% share. Here, we wanted to be the world leader, again, the leader not the fastest grower. As I have said earlier, there will be more news on the P&C side of reinsurance in Q2 and Monte Carlo while Life and Health will be covered in details later today.

Corporate Solution is a smaller part of the group, a bit less than 10% of the premiums, but certainly not a small company by its own right, if you compare its capitalization, premium income, and asset base to other players in the insurance industry. We see a key opportunity for value creation through considered expansion in a market – the commercial insurance market and is quite bit larger than the reinsurance market and here we have a market share of less than 2%, not double digit like in reinsurance.

You’ve seen group progress and delivery from corporate solution in 2012, no strategic update today versus 2012. The business is fully in execution mode. Also no change to the business unit strategy for Admin Re at the level shown here, and I recognize that our communication has evolved a bit versus last year not least as a result from selling our Admin Re US business in September 2012. We’ll come back to Admin Re in a minute, but before that, let’s take a step back now and allow for a different angle and outside in aggregated view on Swiss Re that I am sure you would recognize in someway.

We have recently commissioned an investor perception survey based on in-depth interviews with a sample of Swiss Re shareholders and analysts. This follows a similar survey we conducted two years earlier and our goal was to see how things have evolved regarding Swiss Re when not seen through the glasses of those who have a certain incentive to call their work a success, of course, I mean, the management.

All in all, I am glad to see that the results are markedly better and it seems that we’ve come a long way in addressing some key issues while building on areas that were and are considered our key strengths like underwriting. The results of the survey are very detailed and telling. In the interest of time, I can only show a small glimpse by the good confirmation as to the relevance of the topics of today sessions.

I need to caution you that the items listed here are top of the mind views, meaning things that come to mind quickly. I do know that no serious investor buys a company based on hunch or a gut feeling, but rather puts in detail analysis work and often also interaction with the company’s management. And so it’s not surprising that the detailed result of the survey are by far not as black and white or blue and grey if you look at the slide as shown here. Our concrete actions are based on the detailed results not on the high level survey.

Let’s take a look at the top of mind views first. You see that the balance is tilted to the left which is the good side. The reason for that is that we have quite a bit more consensus on the positives, meaning more people in aggregate mention this point independently from each other than they did on the negatives. We try to show that weight through the darker colors.

Clear consensus winners overall is P&C underwriting, followed by market position, remember this was unprompted meaning the categories were not given but aggregate in a smart way by the survey taker, in manual labor. This means people really seem to like these aspects and can put a name to them. Also mentioned by several were the low risk investment portfolio and capital strengths and balance sheet.

Except for P&C underwriting for the reasons pointed earlier. All these points are touched upon in the presentation today. Both myself and Christian will talk about market position, Christian and George will talk about investment, and George in some details about our capital management.

On the weaknesses, Life & Health Reinsurance performance was mentioned the most and third most overall after P&C underwriting and market position on the positive side. Then a lot of people seem to be able to formulate Admin Re, in an unprompted way as well. Although in the same frequency as investment portfolio capital strengths on the left hand side of the balance, which is much less frequent than two years ago when the survey was taken.

What is quite new to us over the last years is asset management to risk adverse. Some view suggesting we might at time exhibit the kind of once bitten, twice shy behavior. And finally a perceived growth for gross sake strategy was mentioned as a concern I think I have said a few things about that already.

So what I would like to do now is to say a word or two on the points on the right hand side to set the scene for the coming presentation by my colleagues, as Alison and Christian are of course covering live and George will speak to asset management as I already said, and also on the capital aspect of expanding our business. And on the growth strategy, have a few slide on the High Growth Markets and I hope I will succeed in showing on a more granular level where we see that growth coming from.

Life & Health Reinsurance performance, we’ve done a full review of the business with the result that we can see a clear divide between a large majority of the business that is performing well, to very well and a minority of pre-2004 U.S. business that as you know already is not performing well at all.

Alison and Christian are going to report on these in detail and we’ll show how they are tackling the poorly performing parts of these business and how the new business being written as we speak and going forward is of an entirely different quality.

On top, Christian will present management actions across the entire Life & Health’s book that are expected to lead to higher profitability by 2015. There is just one point, I would like to remind everyone, again, again and that goes beyond the kaleidoscope of our review of the life reinsurance activities. It’s the compression to the primary life players.

Our business model is different. We are not exposed in a meaningful way to guarantees and also less to low interest rates. We are more focused on biometric risks and we will take advantage of a widening circle protection gap meaning widespread and reinsurance against the Life & Health risk, in many parts of the world mature like High Growth Market. We see excellent opportunities in this field, more on these in the afternoon.

An additional item from the survey on the less positive right hand side of the balance showing perceived strengths and weakness is Admin Re, clearly on the weakness side of the balance. I thought it could be worth while reminding everyone of the strategy of the business, which consist of three parts; selective growth, value extraction and operational excellence meaning synergies.

The management team is moving fast in improving the profitability of the business while having delivered on cash generation targets as well in 2012, showing that there is a tangible and fungible value in this business. I am well aware that the feedback on our Admin Re business is centered around two topic really. One being the profitability of the business, we are working on it. The other being the strategic clarity, not from the business unit angle where I have just laid out the three management priorities, but from Swiss Re group strategic perspective as the owner of Admin Re.

We have said that, we are considering potentially allowing third-party capital to enter the business in some way, which will also be part of the transaction to acquire new block of business. This would dilute our ownership on the business and is a strategic option. I hope to have something to say here later this year.

Let me now say a few words on asset management seen as, too risk adverse, another concern mentioned by several survey participants. I of course don’t seem that we have been too risk adverse, on the contrary we have been positioned very well over the past years, but of course I recognize that we have become increasingly left of center when it comes to our asset allocation versus peers.

As our group strategy says, we need to outperform our peers also in asset management not by being super-smart nor by being more risky, but with the best possible asset allocation for our liability profile and the execution thereof. So what we have done now is to accelerate our rebalancing efforts somewhat, which means that we are moving further inside our mid-term plan ranges mainly by acquiring more corporate bonds and to a lesser extent, equities by year-end.

This will lead us towards an asset allocation closer to peer levels, while remaining balanced overall, but also with higher expected running income in the portfolio. This will require utilizing meaningful additional economic capital for asset risk as George will point out in more detail this afternoon. At the same time, outside of core asset management, we are also starting to lower our senior debt and layer of credit levels in the Group. By 2016, we expect to have reduced those by more than US$4 billion. This deleveraging has beneficial effect on the return on equity and the earning per share as George will elaborate on later.

High growth market, (inaudible) channeled the fourth point on the right side of the balance, the growth strategy into a positive direction with our high growth market case. Remember, I refused an overall obsession for growth, but we do see opportunities in this high growth market of the world for business in which we are participating already today and on those in which we plan to participate tomorrow. We’ve all seen the figures about GDP growth rates in high growth market and for sure these figures are often some saying that mature market can only dream of or best they are distant memory for decades ago, but we don't see just as often the insurance premium growth in these markets, which are in most case even higher than GDP growth rates.

Take the 14% growth on average over the last 13 years from emerging Asia as an example; this clearly has got to be about twice as high as GDP growth. More interesting even is the compounding effect you can see for example where 30 years of cumulative growth gets in emerging Asia versus the mature market. We are talking about the difference greater than 20 times.

Now these results is, as well and of course, we already have for example more than 1,000 colleagues on the ground in Asia for Swiss Re and past growth rate were captured to some extent. My point here is that we expect this growth rate to continue at levels much higher than the mature markets for sometimes in the high growth market and double the growth rate means multiple compounded after many years. This is why we have dedicated strategy for the markets where we see the most tangible business potential for us not in five years, but today already.

Note that what I am saying covers Reinsurance and Corporate Solutions, but not Admin Re. There is actually no plan for Admin Re to enter these high growth markets. You can see that high growth market are already today are contributing 15% of our net premium, a large part of that in Asia where they constitute almost half of the total premium. China is the key driver, but it's not the only one. We see a contribution to group premiums of 20% to 25% from high growth market by 2015, and all these regions are expected to be part of this increase and in addition to our traditional insurance and reinsurance businesses, we see some opportunities to participate via selected direct investment as well

So we’re starting from a good position. An interesting question now is where exactly should you expect us to be most active going forward? The theoretical answer would be well where we can acquire profitable new business, but all of you know that acquiring business requires preparation and to some extent also investment; both cash type investments such as into new offices as we’ve seen from corporate solutions recently, also investment of management time in devising the strategy and process, and finally, of course, also the investment of assigning talented underwriter and not only underwriters.

Sometimes this opportunity cost can be more of a problem to solve than the actual cash investment. It’s our responsibility as management to show that career path can and should be spending across our markets including high growth markets and it's not necessarily best to be close to the headquarter all the time for a career path at Swiss Re .This means that some focus is required as not all projects can be started in parallel and in quality, and thus, here are the markets we are focused on.

You see there are five very large ones that are both Reinsurance and Corporate Solutions focused; China, India, Indonesia, Brazil and Mexico. Aside from these five markets, you can see further ones that are in Corporate Solutions focus on the map. There are additional markets that are on Reinsurance side, but not yet fully in their focus but might be at a later stage, examples for these would be Sub-Saharan Africa and Vietnam.

So now that we have defined our starting point and ambition as well as our geographical focus, what exactly are we going to do in these targeted high growth markets in order to capture to develop profitable business? We certainly see faster than average organic growth in these markets and for Corporate Solutions, these might also mean new offices openings in some of those markets become necessary as an infrastructure investment first. We are also open to partnership in Property & Casualty and Life & Health reinsurance with local players or acquisition in Corporate Solutions where it makes sense.

There are certain lines of business with a particular promising outlook in the high growth market. They include Nat Cat business such as driven by value admiration from fixed asset and infrastructure growth and also Agro business, which for example, helps protecting harvest against natural perils or extreme weather. Of course, there are many infrastructure project; some of which similar and precedent in size like some of the bridge project that we have seen, other unprecedented in equity like the dozens of subways, construction and expansion in parallel, running in parallel. They all need engineering powers including risk management capabilities and services.

Health and medical business is booming in the high growth market and I don’t need to tell you about solvency relief for the shares targeted towards easing the strain of continuous double-digit growth rates on primary insurers, balance sheet and regulatory capital, for example, in China. As I’ve said before, we also see opportunities for direct investment in the high growth markets and for sure, we’re investing in our colleagues who are based there, while growing there, who are coming here and to other Swiss Re offices from the high growth market.

We pride ourselves in taking diversity, extremely seriously. I am sure that our talent at Swiss Re will get an immense boost from the different backgrounds of all the people, young and experienced, who will become colleagues in and from the high growth markets over the years. I mentioned already our premium targets from high growth markets for 2015, the 20% to 25% range of our total, but I’ve not shown you yet the size of the market opportunity and there on the right hand side of the slide, you can see some numbers for the market, it’s not for Swiss Re, for the market, which I was pondering over a moment. Premium pool of more than $100 billion in reinsurance in 2020 and more than $2 trillion in primary insurance, each in seven years, but seven years come quite quickly.

What about profit you may ask? Are they not lower? And indeed, like we said before, the profit contribution by the high growth market is not quite as high as the top line, but the numbers here 11% of Group pre-tax profit after cost of capital versus the 15% of premium suggest that it’s also not quite as low or non existent as some seem to always fear to be the case when we speak about high growth market. So we are looking at real, present day opportunities for profitable growth here.

I’ve said earlier that there is another point where I just would like to add a bit of color and therefore let’s now briefly talk about productivity at our added emphasis on it. I had a flat productivity briefly in the past, that is the priority for me, but I deliberately waited until today to give you a bit more relevant detail on this topic. As you may know, running a business costs money. Talented people don’t work for free and talented people are one of the key element of our business. So when I’m talking about productivity, I am not talking about cost cutting. I am talking about getting the best, when it comes to capital deployed, including of human capital.

We are spending money on people who do great things for Swiss Re and who are the reason why we have market leading underwriting results. I keep reminding people that combined ratio, for example, includes costs, and in our case, the overhead expenses are also fully allocated now. What seems to balance these is lower acquisition expense and loss ratio for more direct business and from better business, need from better underwriting, effective claims management and also from our key account management, who generates value-tailored solution for our most demanding plans, where standard solution wouldn’t have been sold into first place, otherwise. This is another reason why I think the financial targets are so important because they are lowest to show how we generate strong and sustainable return because on how we run things not despite our expense levels.

Having said that, the management expenses ratio, of course, braces with our cycle management and only in recent years, we have started to expand our portfolio again after having deliberately shrunk it, for example, in the soft casualty market over the past years. With somewhat higher premium level now, we see our management expenses are coming down in relative terms and we now expect to control them at these lower terms. In other word and more simple terms, I do not want the ratio to go up again in the future. This requires an emphasis on productivity management, which will be beneficial to delivering on our financial targets.

Now quickly, our target to save $250 million to $300 million of management expenses, a bit less than 10% of the total compared to 2012 levels by 2015, so a little bit less than 10% in three years, doesn’t appear to be that much over three years, but enough to redeploy the savings to higher return areas.

All Swiss Re functions are participating in this, albeit in different levels, you may imagine that Admin Re has a much higher cost saving target than group underwriting for example. What everyone shares is the fact that these targets are at wired into their plans and individual target. So the $250 million to $300 million is not an ambition, but the real target that has been sliced up and handed out to the real people for delivery. Like I’ve said before, I am having a keen eye on the management expense ratio and if it were to rise again, we have to save more, but I don’t expect that to happen. Our financial targets are the relevant targets, nothing else.

Conveniently, that brings me to the financial targets, which are on the next slide. I really don’t have much to add on them other than delivering is our top priority as it was before and as it will remain until the end of the year 2015, which is the end of this period. You can see that we’ve done well so far, but complacency is not the term that I think should be in my vocabulary at this stage. I think the Swiss Re you see today is in the best shape you’ve seen it a while as an investor.

If I may I would much like to keep being associated as the CEO of such a winning company also for the years to come. So George and I will not alleviate the pressure that we are building up. Concretely, George will cover the financial targets in more detail and in particular on earning per share growth in his presentation in the afternoon.

So by now, we’ve been through the overview of the coming day based on my highlights and of date of the group strategy as well as an outside-in view and a few responses to areas of debate regarding our strategy, growth, Admin Re, high growth market. I’ve also reiterated and expanded on the known topic of the high growth market and I’ve also added a new topic on the agenda, which I just discussed, productivity emphasis.

I hope we can see some direction in all these and how it should leads to value creation. I also hope you feel able to see clear milestone where the results become visible via the financial targets. The reason why I am saying all that is the feedback that we did hear more than once was that our strategic focus was allegedly trying to be all things to all people at a same time; meaning large growing, paying high dividend, doing the sexy stuff like high growth market and so on and so on.

This is of course not how I see it. The only thing I would concede is that I do believe in our unique strengths to be able to both, grow the dividend and the business in the near to mid-term, based on our capitalization levels and business outlook. This is not trying to be all things to all people. It’s simply doing two things that are not super easy to do at the same time. We are not claiming everyone can do it, but we believe that in our current situation, we can. Running a business is inevitably multidimensional, just the targets and the strategy goals have to be simple, very simple.

Our strategic themes and initiatives to follow a clear and common focus on supporting delivery of the financial targets and our strategic goals, I agree that some are more short-term, hence maybe more about the financial targets and other some more long-term, meaning they might only flourish during our next financial target period. I will manage the mix, we will manage the mix, and I will certainly not use one as the excuse not to achieve the other.

Talking about the longer term, there is one more topic that I have promised to touch upon today and it’s the outlook beyond 2015. Let’s do that now. What you see here is an inspiration view out will get from our strategic and financial targets for today, to the update strategy and financial targets for 2016-2020.

As I’ve said before, this will be an evolution not a revolution, and we are very aware that this is not a game of chess, where you have to move. We know that in some areas we might best not move as we are already where we want to be in maximizing value to shareholders. So what we’re seeing as one step from today towards tomorrow is a portfolio of longer term, often large and some even disruptive strategic themes that are happening in the market, many also with Swiss Re doing anything, even if it’s art for us to admit, that it is possible.

These here are a selection only, themes such as Nat Cat risk pooling growing around the world, high growth market and the opportunities they bring, big data with its clearing insurance implication, also new distribution channels and possible partnership in insurance, all are things that might be big enough to make us think whether they could influence the next top level strategy of Swiss Re Group, which would again be re-decibel to an handful of bullet points like it is today. Another step if you will, a more subjective one and driven by the preference and priorities set by Swiss Re management. Target capital structure, George will elaborate on that, profitability requirements and topics like productivity and talent management all apply. Again, this is a relevant selection of things not a complete reflection of our thinking.

Of course, you may imagine that we don’t make that easy for ourselves and to be the formidable economic research team in-house, you can be sure that for example that possible strategies for the Group are tested against market factors, economic scenarios, but also regulatory circumstances, and on the writing consideration such as P&C cycle. I am not even going to mention your views that the strategy update will be grounded in what our competitive position allows in our various businesses, where we see opportunities for optimizing the business mix and so on. This is about generating return for us Swiss Re, not about getting it right for the full sector.

In the end, we’ll have an update strategy, but judging from the degree of reflection already in today’s strategy of many of the themes that we see extending to after 2015, I reiterate that to me that this will be very likely an evolution of what we started a while ago and are still running today. I’ll update you on these again at an appropriate time in the future, but don’t tell the rest just now, it’s still sometime to go until we run out of our current financial target, meaning by the end of the period 2011-2015. So, latest with the full year results of 2014. You could definitively expect to see something, maybe a glimpse of something a little bit earlier.

From the view into the more distant future, let’s switch back against the current thinking. So now these are the near to mid-term priorities for Swiss Re. You see a pent resist stating our aim to both perform and grow profitable business and earnings of course not top line. And from the new [build] items, I said it initially you see we are keeping the pressure on execution is key.

For the group strategy and the session concludes the update on these topic. I have added the productivity topics to the existing two topics, which I will focus on execution of an unchanged strategy and a focus on high gross market. Like we did with the 2012 full year results, I will report back to you latest with the full year result 2013 are now vided with delivering these three.

The next session today about Life & Health Reinsurance, we’ll cover a good part of my second priority, which is address low returns in our life business. I am glad that they can update this part with higher expected return for the Life & Health Reinsurance business. And then on Re, no news flow on third-party capital at this point of time, but the work on improving returns continues of course. So we will keep watching this and informing you.

My priorities on capital and asset management will be entirely covered by George later today. And I was not even able to add a new deleveraging target to it. So hopefully you will receive a good update from George on these until I get back to you in a few months with our achievement in 2013.

And as mentioned before, the only part of my priorities not featured permanently in today’s agenda is on the P&C business. Re and Primary, P&C Reinsurance and Corporate Solution, we will have news Q2 in August and in Monte Carlo as usual in September. So that’s just around the corner, no update on the priority until then.

With that, I just hope that I’ve given to you some fruitful thought and a useful start into this very important day for us. As now discussed from my message before, we break for lunch and as I have highlighted a few things to be covered later today, I suggest that if your question relates to Life & Health or Capital Management please your discretion when to best ask them, but by any mean feel free to ask me anything you want to my view or comments on. Thank you very much.

Question-and-Answer Session

Eric Schuh

So let’s start with the Q&A session. Could you please state your name and firm and wait until you have a microphone as the session is recorded. I see, Thomas here first.

Unidentified Analyst

Thank you, Eric. Michel, I have two questions on the emerging market growth, the five core markets. Could you sort of share with us what are sort of the hurdles for foreign reinsurers to enter these markets, in the past there have been quite significant hurdles, are these removed and what is your assessment on this? And secondly, would you apply the same hurdle rate for those five markets as you apply in the other parts of the business?

Michel M Liès

I think it depends on the market. You have clear markets in which the regulatory environment is far from being clear and being final at least we hope. That’s mainly India and Brazil. We see probably in the three others some more immediate opportunities. And about the hurdle rate, I’ll communicate that the current situation is 11% of our profit corresponding to 15% of our premium. The minimum is definitively half of our premium growth achieved in our results globally. And then depending on the situation of the market, you can rebalance that a little bit between the five markets including some others, but there is definitively also a growth increase in the profitability in these market not only in the premium.

Eric Schuh


Unidentified Analyst

Thank you.

Eric Schuh

Next question, I can see in the back. Andrew.

Andrew J. Ritchie – Autonomous Research LLP

It’s Andrew Ritchie from Autonomous. I just want to clarify, I think you mentioned that but I haven’t seen it in print for about a year I think. When you think about the profitability of any new business, I think you’ve talked in the past – once in the past about 11% after-tax GAAP ROE. Can you just clarify that still – that the major measuring stick that you're thinking about or have you relaxed that because you're thinking a bit longer term, just maybe reiterate that?

And then the second question is a bit cheeky, but you did mention P&C and we can ask you about Life & Health or capital, so we can ask you about P&C. I mean the slide mentions successful renewals at adequate rate level is expected to continue, is that just a holding statement, can you give us any more sense about, I was excited about the ability to deploy capital there, just any – little bit more color about the current market conditions would be useful. Thanks.

Michel M Liès

Yeah, the first one, the answer is yes and I’ve mentioned that when we speak about Admin Re. And of course when you speak about the reinsurance market, there is a kind of – we expect that’s definitively for the deals that we wanted to achieve, the return rate that we expect. The second one, I am sorry I didn’t – you mean on the P&C, that was a question on the P&C?

As I said, we won't come into details about P&C today, so there is just one point I would like to mention. Quite a lot of deployed capacity in P&C are deployed towards client for which we had something more than just capacity. We simply analyzed with them the situation that they have from a capital standpoint, very often we also conclude some private deals including also some capacity deployment for Nat Cat. So whatever is the global news happening in July renewal, on which I don’t want to say you anything because July has still not started. There is definitively a disconnection between what is happening in the market of pure capacity providers and what is happening in the market of our clients.

Just one small example and you won’t need to go into too much detail about the way in which we deal with our clients, the capacity market in matters of reinstatement is extremely short and reinstatement is something which is extremely important in Nat Cat cover. So there is definitively always a lot of prudence to have when you try to extrapolate what you see happening in the market or what you may anticipate in the market to some portfolio in particular from us. The portion of our portfolio in P&C which is related to very specific relation with very top client is extremely important and that justifies the disconnection.

Fabrizio Croce – Kepler Capital Markets SA

Yes, good morning, it’s Fabrizio Croce from Kepler Cheuvreux. I have actually two questions. The first one is in terms of growth. 2012, 15% emerging market exposure, 2015 already 25%, this is pretty impressive growth. If we look down the road, we are in 2020 potentially we are already around 50% with some luck. So the question is, is there a limit there in order to not, I mean, (inaudible) you are a have a Swiss-U.S. company currently and by growing so fast in emerging market, there are certain point, the question is about the entity of the company. Would there be some transaction bringing these risk into the market, so, you work as distributor or what is the plan going forward?

And the second question is about your life primary insurance company, Elips Life, is there some update on how well the production is going there, given that we had for group life business, a very good figure for all competitors. And looking at Elips Life, a curiosity, why is this actually attached into the reinsurance operation rather than in corporate solution? It is B2B business, so actually it should be in corporate solution, so simple the question.

Michel M Liès

The first one on the emerging market is, you know, first you mentioned 25% if I remember well, I mentioned the range from 20% to 25%. Honestly, we’ll see the evolution but definitely there will be a rebalance, there will be a rebalance of economic power in this planet and I definitively do see that we need to react to that. You’re very nice to say that we’re a Swiss-American company to be honest. I am not totally sure that the portion of the business that we have in Switzerland justify the appellation of a Swiss-American company. Let’s say we’re a European-American company for 85% of the business, but definitively, let’s say, we will see what happens after that.

We do believe that the range of 20% to 25% is something that can be achieved without jeopardizing the quality of the business that we integrate and a lot to be honest of what will happen also between 2016 and 2020 depends on what will happen in the mature market and probably also the stability of the growth in some of the key market that I didn’t mention, within the High Growth Market. You see now some turbulence in some countries and they are some question about the sustainability of some of these growth. But we do not fix us a proportion for the time being for the peer 2016, 2020, that’s something on which we will work in the next two years before starting this period.

On Elips Life, Christian, you want to answer that this afternoon or do you want to answer that now, if you have a mic.

Christian Mumenthaler

I mean, Elips Life is a tiny, tiny little company, right, this, say the profit is maybe $2 million, $3 million. So, currently it’s in Life & Health, integrated in Life & Health Business and the reason is that we can use that carrier for some of the deals we do with some of our clients. You know some of your clients, for example, P&C clients, if they want to sell Life & Health insurance, they can also use our carrier Elips Life. So, it’s while they do their business, there is an additional piece to that which is strategic for the Life & Health Business. It allows us to offer more of the value chain to some of our clients.

Vinit Malhotra – Goldman Sachs International

Good morning. This is Vinit Malhotra from Goldman. Just back on the slide 16, please.

Michel M. Liès

16, you’re saying.

Vinit Malhotra – Goldman Sachs International

Yes, please. Thanks, and just on this chart, I mean, obviously, this went – probably this went up because of the very high growth we have seen in recent and then you still do wanted to grow and when you mentioned emerging markets, it feels like there will be some bit of risk management emphasis needed as well, and from some other companies, we’ve seen that when there is too much emphasis on cost cutting while growing, the risk management could potentially, so what could you – could you just comment a bit more on where these cost cuts could come and how you think about risk management as you grow so aggressively into because if you think about the lines you mentioned, Nat Cat, I can imagine, doesn’t require much cost, but all of the others would require a lot of investment and cost? Thanks.

Michel M. Liès

I think one of the key concern that we want to achieve definitely is, well, first, I would say after 18 months of working, we have definitely between the business unit and the Group still some improvement that we can make, so that’s totally independent on which market we want to develop. The other aspect is definitively that we definitively need to move some of our people or some of our cost to the most promising market compared to the mature market. So I see definitively and we can be underwriting, can be in risk management, definitively, can be also for the client market side.

Some market which have a certain, I wouldn’t inertia, because definitively in the mature market, we have also a lot of the returns, a lot of the important clients, but there are definitively some markets in which I believe we can improve a little bit the cost of the people in the front and definitively rebalance that to the most promising market. That’s the two elements which I see plus a natural productivity. This productivity effort is something on which, it’s probably not the first time in this company, but in this growth environment, we can address these issues in a quite fashion.

In the sense that a lot of the top managers of this company can simply ask themselves can I do more with the same people instead of recruiting each time more for doing more and this piece of the approach and the mentality and the way that we can do that with the promising growth that we have in front of us in a less disturbed matter than the way we did it lately is what I aim to achieve.

So honestly, clearing a little bit some of the overlap between Group and business units, quite normal. We have taken now 18 months to observe that, rebalancing some of the business oriented people including risk management capabilities definitively to the markets, which are the most promising compared to the mature market in which we have an established situation for which probably in some cases, not probably for everything, but for some cases, we can save a little bit of money and simply having the 200 managing directors of this company, adding to the way in which they look to future is simple question, can I do a little bit more with my team without in always requiring more people, that’s the three elements for me.

William S. Hawkins – Keefe, Bruyette & Woods Ltd.

Thank you. I’m William Hawkins from KBW. Michel, could you just clarify what you said about Admin Re? I think you made reference to third-party capital coming in as part of a transaction to acquire, again, without asking for a specific, that sounds to me like you wouldn’t rule out actually allocating more capital to Admin Re. I’d kind of assume that’s the prices are bringing in third-party capital was about trying to relief the capital intensity of that activity. So again without asking for specific on a deal, can you just clarify what you’re thinking about the capital….

Michel M. Liès

In the current environment, unless we would like to dilute the capital that we have, we do see the strategic value of Admin Re. We do see it outside of the U.K. also in Continental Europe, even if I believe that solvency too is delaying a little bit some of the opportunities. We do see a nice combination with our reinsurance activities. We do not see why should we own this company at 100%, definitively not now in five years. Even let’s assume third-party capital is entering this year, by definition, we will have less capital invested in these type of business. If we do see a strategic meaning, I cannot exclude that we will have in five years, so many opportunities that in five years, we may have better capital, more capital invested in Admin Re as today, but definitively, the conditions of the market will have to change quite dramatically in order to make up this scenario a realistic scenario. So short-term is definitively less capital.

Eric Schuh

Okay, so one more question from Tom and we’ll see if we have room for – Tom, please.

Tom M. Dorner – Citigroup Global Markets Ltd.

Hi. It’s Tom Dorner, Citigroup. Just a simple question, you’ve given the premium target for the high growth markets, could you give a sense of what share of profits you would expect them to generate in 2015? Are you sure the figures for 2012 would it be a similar proportion or is there operational leverage or just a flavor? Thanks

Michel M. Liès

At least, half of the growth, at least.

Eric Schuh

All right, and so, Andy and Jason, two quick questions I think we have time for that.

Andy D. Broadfield – Barclays Capital Securities Ltd.

Andy Broadfield from Barclays. The first is just a very simple one on the growth markets. You’ve given us a sort of return versus premiums, I was just wondering whether you can give us a sense of the returns versus capital? And I think you mentioned that there was scope to improve margins, so I was just wondering what that margin improvement was likely to come from, is it just scalabilities, the different products, et cetera? And just on Admin Re, whether you can explain why not – less than 100% is a better position for you than either 100% or nothing.

Michel M. Liès

Yeah, on the capital, of course, it depends on the mix. If you have a surplus relief quota share, probably the return on capital won't be the same as you have on cat. So it’s quite difficult to give you a rate of return in matters of capital. The only thing that I can tell you when we speak about return, be it on premium, be it on capital, the only thing on which we are ready to make a certain compromise is the cost that we had in our pricing. So we don't make any compromise on the technical price, but on the cost, we do, of course, when we cost a contract or a treaty in the emerging market, we do include in the percentage at the initial a certain growth pattern that we do not include in the majority of the mature markets, because it’s growing and it's supposed to carry their cost a little bit easier. On the rest, I would say the rules of the game are the same as for the mature markets and there is not a lot of difference in the way in which we approach that.

On the Admin Re, it’s again probably the same answer. We do believe in the strategic dimension of Admin Re. We do believe that we have a value proposition, which makes us different from many players, especially taking into view what may happen in Continental Europe with lot of composite company, who have a lot of interest of having anybody acquiring their life business, treating their client in a decent fashion, taking into account that these clients are at the same time also client in Property & Casualty and that's something in which the platform that we have in U.K. is extremely valuable, but in the current environment, in the current return that we do see, we definitively have some difficulties to see why these strategic, logical addition to our business value proposition needs to be fully financed by ourselves.

So we would like to be able to offer to our key reinsurance clients, solutions, but in the current environment, we do not see that the solutions need to be fully financed by our self, and why not 0%, simply because we see some strategic importance in that and we see that growing. There is – in the reflection about Admin Re, it reminds me always, and sorry I will repeat that probably several times, in the 30 years of this company I have heard so many people telling us that we should sell the P&C because it’s hopeless.

The same people telling us five years later, we should sell Life & Health, and probably among some people telling us now Admin Re, why shouldn't you sell it. I believe in the strategic dimension. I believe in the cyclicality of the business and the fact that they are not cyclical at the same time, but in the current return environment there is definitively the best compromise between the strategic conviction and the return is not to finance 100% by ourselves, but not to let it go.

Eric Schuh

All right, very last quick question from Jason.

Michel M Liès

Well, it depends the quick answer and we will try to give a quick answer.

Jason Kalamboussis – Societe Generale

Jason Kalamboussis from Societe Generale. On Admin Re is – do you find that your maintenance expenses and other expenses when you compare that into the U.K versus the U.K industry are both or below in which case you know you’re counting in Admin Re on doing savings that are away from maintenance and other expenses.

And quickly on the targets, are you happy with the ROE and EPS targets? So since you mentioned 2016 and beyond, do you want to carry these targets and specifically with the ROE which is quite low. And also when looking at within the compensation package, why do you find that – I think that it is linked to not to reaching a specific ROE target, but it’s pro rata of reaching the targets. So if you could just elaborate quickly on that? Thank you.

Michel M. Liès

On the first one we are probably [maybe involved], but again the Admin Re cost, maintenance cost definitively because of the quality of the platform that we have compared to others. And that’s one of the effort that the Admin Re team as such not speaking now about the global strategy of Admin Re is addressing and definitively size is scale and size is partly an answer to that. They are working intensively on that and we have probably in Admin Re as we have in some other lines of business, some costs or cost which are levied above the average, but also the services which are above the average. And as I told you, that’s something which is extremely important for the next steps that we may envisage outside of the U.K and continental Europe for this line of business.

On the next question, I don’t know – do you suggest that I should eliminate the ROE from the 2016-2020 or a case in which we can discuss.

Jason Kalamboussis – Societe Generale

It was, do you want to keep the same targets, that’s been based on ROE and EPS beyond 2015 and would you do some of our Re target earlier given that you are clearly looking at our recent time much better.

Michel M. Liès

Much too early to speak about that honestly. I think that in 2013 to speak about. But we will put on the table in 2016 is much too early. I believe honestly for the people who’re serving our industry, the three peers that we gave and the three indicators that we gave are something which is taken seriously. So I suppose, it will inspire us for the period 2016, 2020. I like the additional return to risk free, but we may come to better ideas and any kind of ideas that you can contribute us to develop would be highly welcome. But really, it’s much, much too early to tell you what we will put on the table in 2016, 2020. We said, it will definitively be much more material on that with the result 2014, meaning at the beginning of 2015.

Jason Kalamboussis – Societe Generale

Thank you.

Eric Schuh

Okay. Thank you very much. So that concludes the first session of the day. Lunch is served outside and we’ll reconvene at 1 P.M. Thank you.

Michel M. Liès

Bon appétit.

Christian Mumenthaler

Welcome back to everybody here in the room in Rüschlikon. In the next 45 minutes or so, Allison and I would like to talk to you about Life & Health Reinsurance and all the actions we have taken since the last Investor Day to improve the performance of this business.

There will be three key messages in our presentation. The first one is that we strongly believe Life & Health Reinsurance has a strong strategic fit to Swiss Re as a whole. The second one is that we have conducted a very detailed in-depth review of our Life & Health’s portfolio and that the result of that is the vast majority of the portfolios are performing at or above expectations and that the only problematic piece is the pre-2004 U.S. business. We believe that fixing this business will cost us $500 million pretax in 2014. The third message is that management actions to improve the business are already underway and as a result of all of that we believe that Life & Health Reinsurance will generate an ROE between 10% and 12% by 2015.

We have structured the presentation in four parts. First, I will talk a little bit about the basics of Life & Health and why believe it’s strategically important, but also about the challenges we currently face. Then Alison Martin will lead you through our in-depth review and some of the outcomes of that review. I’ll have the third section around management actions and how we believe we can improve the ROE, and we’ll end up with a summary and Q&A.

So let’s start. It was really important for me to establish first, as a basis that we believe very strongly that there’s a strong strategic case for Life & Health Reinsurance. That gets sometimes forgotten when we talk about operational challenges, but I think I and also the whole team is quite excited about that business from a fundamental perspective, and here is why. Having a lot of good and detailed data about mortality as well as R&D is critical to be able to price the Life & Health business precisely and Swiss Re has both of that in large quantities, thanks to our significant presence in this market for a long period of time.

Then, all the large clients have both Life & Health and P&C businesses, and therefore servicing both makes a lot of sense from a reinsurance perspective. This is also a market we have very high entry barriers because of this data you need. So this is very different. The picture you see in P&C where everybody now talks about all this extra capacity coming into the market, here it’s very different. Actually the last competitor that entered the market, I think was in the year 2000. So there’s very little activity on that front.

Next, there is a strong diversification benefit with P&C. We try to estimate that benefit. If you took Life & Health Reinsurance away from Reinsurance P&C would need about $2 billion more capital according to the Swiss Solvency Test.

And finally, there is growth in the underlying demand in Life & Health Products all across the world, because high-growth markets growth on one hand, also aging societies in large parts of the world and the retreat of the welfare states in a lot of the developed markets.

So, all in all these are all strategic factors, which I think, make this actually a very attractive business for Swiss Re to be in. But there’s some challenges. Some of them are quite fundamental, I’ll list them on the left side, and some others are temporary in nature, and I’ll list them on the right side.

On the fundamental challenges, you have very long durations. So it’s not uncommon for Life & Health business to have cash flows up to 50 years, 60 years in the future. So you need a very strong balance sheet to be able to cover that and a long-standing company, which fits us. Then there is a wide difference in regulations across the world, creating uneven playing fields, in particular the views of the U.S. regulation are very different from the Swiss regulator, which is much more based on economic principles.

And then finally, I’ve repeatedly said that, but I think U.S. GAAP is not very adequate for describing the economic reality of that business. On one hand GAAP forces you to have this so-called locked-in reserves, which do not allow management to adapt the reserves on the year-by-year basis as long as they seem sufficient overall. So you cannot see, like in P&C, what we believe the real reserve should be.

On the other hand, GAAP forces you to mark-to-market certain elements of the balance sheet, which creates some artificial volatility year-by-year and you’ve seen that, for example, the B36 item in our balance sheet has a lot of volatility. This is due to GAAP.

So these are some of the fundamental challenges and if you think about strategic benefit I’m not particularly worried about these, but then on the right side you have two current challenges. The first one is the extreme low interest rate environment, which you’re all very familiar with, which is poison for Life & Health’s primary and reinsurance business.

And the second one is this pre-2004 U.S. business, which actually was sort of a soft cycle comparable to a soft cycle in P&C, what was a period of very high cession rates where the industry has done a lot of mistakes and Swiss Re during that time had a leading market share.

So let me say a few more words about the two current challenges and what they meant in the past for us. So first, the very low interest rate environment, which you’re obviously familiar with. So end of 2011, interest rates were already very low that the figures I showed in last Investor Day, but they have dropped further and in the year to incredibly low levels. This plus result of some gains realization, which we had as we shifted the portfolio a bit more to credit means that the investment income of 2012 for the Life & Health business was $138 million lower than in 2011. That corresponds to about the headwind of 2% in terms of ROE for the Life & Health business. So this was a challenge in 2012.

Then you have the pre-2004 U.S. business. We try to estimate the total holistic that this Post Level Term business has had in 2012, and we came to conclusion that is about $112 million. That corresponds to a headwind of about 1.5 percentage points in ROE. Then, this year we’ve also recaptured some of the business we had retroceded to Berkshire Hathaway. This is so called YRT business, Yearly Renewable Term business and Alison will talk more about that. So why don’t we go to cash payment for taking that business back of $610 million. We expect that the recapture will have a negative impact on income in the short-term.

So these are the two challenges we have been facing last year in that business. So what have we done about that since the last Investor Day? Well, the first item here is that we have conducted a very detailed study of our Life & Health business. We went into great details. We looked at the last nine years. We tried to project all the portfolios 50 years plus into the future, but a particular focus on the poorly performing parts of the portfolio and Alison will lead you through that in a minute.

The second is that we extracted as much capital as possible; that is about $2.7 billion over in the last two years, $1 billion was in Q1 of this year. This obviously will improve the ROE.

Third one, we discussed at last Investor Day, we’re in the process of rebalancing our asset allocation. There will be more discussions later today on that. And then fourthly, we have established a dedicated Life & Health Business Management Division, which is there specifically to deal with these past issues.

So let me say a few words about this new division. This new division will become operational in just a few days and it will led by Alison Martin. The idea behind that is that we want a division which is responsible for the full end-to-end process once the business is bound on our balance sheet. So the new division contains Technical Accounting, Claims, Reserving/Valuation, Asset Liability Management and that will help the division and the management of the division to focus very precisely on maximizing the value of the In-force book, which is a living book. We have policy holders who continue to pay their premiums in this huge book.

So as that Alison will lead that team. Alison is currently the Head of Products. So in that role Thierry Léger, will replace her, Thierry Léger is here present in Rüschlikon, so in case you want to talk to him afterwards. He has been leading the Global Division before and will now take this Life & Health Products role, which is around pricing of new business.

Go to the second item, I’d like now to hand over to Alison to give you a sense of the results of our in-depth review.

Alison Martin

Thank you, Christian. As Christian said, we’ve done a global review of all of our Life business. We’ve covered all three basis, which were important to us. So that’s U.S. GAAP, economic or EVM for us and statutory.

It’s very important to cover all three basis; given the differences in profit recognition timing and also the availability to pay dividends. We’ve looked to all material known drivers of earnings and possible sources of volatility. And we covered in aggregate 80% of the present value of claims of, all of our Life & Health portfolio.

Given the weighting of our business to mortality risk, this resulted and was covering more than 90% of our mortality business. And as I said all material Life & Health portfolios were included.

As Christian mentioned, we covered up to nine years of historic results on all of the basis and then we look to projections, in some cases about 50 years depending on the duration of the underlying cash flows. We produced a very detailed report and recommendations to the Board of Directors.

And now I’d like to just walk you through a few of the key analysis. I’ll start with operating income, and what you see on this chart is the last seven years of operating income. We’ve split it by region, so you’ll see Asia is in green, Europe in Blue, and then the Americas we split between the US Individual Life, which is in red and the rest of the Americas in Orange.

Now the US Individual Life business this is all of our US Individual Life. So it’s not just the pre-2004 business, but also reflects business written after that date. In order to provide a comparable set of earnings you’ll see there are few exclusions such as Variable Annuity’s and Admin Re, which are detailed on the footnote.

Overall the Life & Health business has produced significant strong U.S. GAAP profits over this timeline. You’ll see Europe in particular has produced a very large stable contribution averaging at approximately $700 million per annum. The Americas has also produced a stable positive result.

Asia was small has always been positive and in recent years has been growing its contribution to the Life results. And then you see the US Individual Life business, which has produced losses on an operating basis since 2007. This is predominantly due to the pre-2004 business, which I’ll focus more on later. But it’s also due to the inclusion of the rest of our post-2004 US Individual Life business, which is currently suffering from new business strength. As a result of the fact, but it doesn’t have a large positive in-force on which to offset the new business acquisition cost. As a remainder, we do not amortize, we do not defer our acquisition costs.

Now, if I focus on an economic view and what you’ll see here is our total economic profit. We spilt by new business on the top of the chart and prior business development is in the bottom. In aggregate, Life & Health has contributed $5.4 billion of economic profit to the Group over the same timeline 2006 to 2012.

If I focus on the new business chart first, you’ll see it spilt by the same regions as the prior chart and you’ll see good contributions from all of our areas across all lines of business. In particular in 2012 there’s been a significant increase. This has been across our traditional Life & Health business around the world and also from the volume of large transactions, which we were successful in executing into 2012. In aggregate, we’ve written more than $3 billion of new business profit over this period.

Now, if I turn to the prior development. Now this is a recollection. So EVM previous business reflects two things. Firstly, it is any current year deviation in your actual experience versus what you expected. And then secondly, it also reflects any changes to your future assumptions. So i.e. if your current best estimates suggest that your future performance will either be positive or negative you capitalize that in the single year.

So, what you see on the chart is the cumulative effect of both of those. You’ll see in aggregate, the Life & Health has had positive development of more than $2 billion over this period. This is after a significant write-off of the US Individual Life business, which you see in the chart is in red. Most of this write-off was due to the pre-2004 business issues, which I’ll talk about later.

Another way of looking at positive development is to think about the margins in our business and what we show on this chart is the way that we have a significant margin in our U.S. GAAP reserves overall our best estimate liabilities. Well, the chart shows you the red line is our locked-in U.S. GAAP reserves and the green is our current best estimate liability. You’ll see overtime, we do expect those will run off in tandem now the exact way that profit will emerge will be dependent on both the level, so the volume of new business we write and importantly the mix. As this chart purely reflects the run off of our existing business, it doesn’t include the continuing of writing a positive new business.

Now I’d like to focus a little bit on the two problem areas; one of the important aspects of our review was to really drill down into any area, where we felt that the significant effort was required to really understand the key drivers of performance. There are two areas that resulted, the both US Individual Life, the first is Post Level Term or PLT as we call it.

What PLT relates to, is an underlying policy holder product, which is a level term product, it’s typically 10 hours, 15 hours, 20 hours, or 30 hours in duration. And we reinsure it by a mechanism called coinsurance. The particular problem area we’ll talk about is policies that were sold to consumers between 1999 and 2003.

The second area, I will touch on is Yearly Renewable Term or YRT. This relates to underlying term and permanent products i.e. can be up to whole life duration for the individual policy holder. And this is we reinsure this via YRT as opposed to coinsurance, but this business again were sold pre-2004. And looking at what’s driving our economic performance today. It’s very important to focus on the market dynamics that were occurring at the time.

So, what we show on the next slide is how the US Individual Life cession rate changed between 1995 and 2012. We’ve also highlighted on this chart a few of the major market events, which we believe drove some of the performance issues that we’re seeing today.

So, I’ll focus first, on preferred risk underwriting and its introduction in the mid-‘90s. This was the development of a new way to classify underwriting risks. It resulted because in the late-‘80s following the incidence of HIV testing, U.S. companies typically obtain blood testing. That enable that blood to be used to try and satisfy risks into better, they were known as preferred and worst risks, which was standard. Now the introduction of that additional set of underwriting classes, resulted and for those people, who qualified so they had the healthier life risks, they were classified as preferred. They could get a cheaper price to product.

What this resulted in though, is that the original pool of lives that we had. The healthy lives lapse their policies and the less healthy lives stayed in the original pool. Now the pool was priced on an average mortality basis. So having the healthy lives lapse out of it, resulted in a less healthy i.e. a worst average mortality on the pool that is left. This is the situation, which is known in the industry as anti-selective lapse.

The second issue and it is related in part to the first. There was a [ready sense] and an uncertainty by the primary companies or at leases by some of them, as to what the right mortality assumptions would be to use for this new preferred risk underwriting classes. So, this combined with one at the time, was an aggressive reinsurance pricing market resulted in cession rates significantly increasing as you can see on the chart.

This increases the risk of a misalignment of interest between the insurers and the reinsurers a cession rates in some cases reached 90%, unfortunately that was born out in a small number of cases. And, we saw increasing underwriting exceptions. Now, what I mean by underwriting exceptions is while our policy holder has received an underwriting class, which is inconsistent with the level of which, we would have suggested the underwriting was done at. And therefore they will not paying a sufficient premium for that underlying risk.

The third factor is sales to the over 65s, which again escalated significantly in the late 1990s and early 2000s. Now, partly this was facilitated by the introduction of legislative changes allowing for a policyholder in the U.S. to sell the interest in their life insurance policy. This enabled a third party to pay the premiums and effectively finance a policy on somebody else’s life. This is typically known as STOLI or Stranger Owned Life Insurance for obvious reasons.

At the same time as this policy was being affected, I guess two important things to note. The first is that as an industry we had not prioritized focusing on underwriting criteria for the over 65s. So some of the very normal testing, which is done today such as cognitive testing, which is clearly very age specific, was not prevalent back in the late 1990s and early 2000s. What we saw as a result of this aggressive sales to the over 65s was that the lapse rates that we had originally assumed in pricing were not being borne out in reality.

So I guess what does this all this mean; one of the last bullet point on the slide shows. The industry was pricing typically on out of date mortality tables and on overly optimistic lapse assumptions relevant to the risk classifications that was then in use in the industry at the time.

At this time Swiss Re, as Christian has already said, went through a period of growth. So what we show in this chart is our equivalent market share of the three major acquisitions, which we did during this period. So M&G Re, Life Re and Lincoln Re, which was the last acquisition we did in 2001. What you see is that by the time we acquired Lincoln Re in 2001, we hadn’t implied new business market share of close to 30%.

We started to see adverse experience emerging in 2001 and particularly in 2002. We led the market repricing exercise in 2003 and you’ll see a significant falloff in our market share over the next couple of years as other reinsurers absorbed the business, which we were repricing. We fell to a market share of approximately 10% as a result in 2005.

Now we just want to focus a little bit in more depth on the two issues. So I’m going to start with PLT first. So what we show in this chart is a typical level premium term plan. This is a real level premium term plan. So what you see is that for the first 10 years the policyholder pays the same annual premium, hence the level premium plan. But then come that 10th policy anniversary, they have a significant step up in the premium. In this instance, which is not atypical, a policyholder goes from paying [SACA] $500 per annum to paying SACA $5,000 per annum for the same cover.

Now, as I said, this is not atypical. You can have some lower premium increases, but we also see instances of significantly higher premium increases. There is an obvious situation, which arises with this type of premium increase. Healthy lives will lapse their policies because if they still want life cover they are able to go and be underwritten and to take a much cheaper policy than this level would suggest. That leaves you with those unhealthy lives who are unable to be re-underwritten or who feel that this premium level is reasonable given other market comparables for them and their health status.

When these products were introduced, this was expected. So it was anticipated that they would be a high level of lapse as healthy lives lapsed off and an elevated mortality on the lives that didn’t. These are the assumptions that we locked in to our U.S. GAAP earnings. However, actual experience has been much worse than we expected, which you’ll see on the next slide.

As the first 10 year plans started to crossover, i.e. they moved from that 10th policy anniversary into the 11th year, we saw a significant negative deviation between what we locked our U.S. GAAP reserve assumptions in at and what actual experience emerged as and you can see that in the chart. What we show, so 2010 we suffered negative $25 million, increasing in 2012 up to a $112 million. This is a full in income assessment, so it represents not just the underwriting income, but also net investment income and expenses attributable to those blocks.

As part of our repricing efforts in 2003, we changed the assumptions that we used for the PLT business. We no longer assumed any profit in the post level term period. This will have a significant improvement in our results going forward, any remaining T-10 plans crossover. And also the management actions, which Christian will touch on later, we expect will significantly reduce the drag on U.S. GAAP earnings for many T-15, T-20 or T-30 year plans, which will crossover in the future.

Now I’d like to focus on YRT. Following our repricing in 2003, and up until 2008, we recognized a significant negative economic impact from the YRT business. This is approximately $1.2 billion. In January of 2010, we announced that we were retroceding this business 100% to Berkshire Hathaway, as it was not meeting our return hurdles.

The transaction to Berkshire Hathaway was subject to a Stop Loss trigger of $1.5 billion and also net asset transfer of $0.6 billion. Since we entered into that retrocession, the YRT business has significantly underperformed expectations from mortality risk.

Now what we’ve tried to illustrate in the chart and apologies, if it’s a little complex is where, are we seeing that negative deviation come from. Now the way we look at our mortality risk and we try and understand what’s driving things as we spilt it between pricing eras.

Now the differential in the pricing eras is very much based on things like the introduction of preferred risk. So, we try to stratify into major pricing changes. So, hence you see pre-1995, 1995 to 1998 and 1999 to 2003. We also spilt between the younger and the older ages.

Now this is the chart gives you an indication against what we locked our U.S. GAAP assumptions in as to where is the negative deviation coming from. And you see very clearly that it’s coming from issue age 70 over that was sold in 1999 to 2003 with the negative deviation of 69% against our expectations.

Now, as a result of this very poor experience it became increasingly probable that the Stop Loss trigger we had was going to be reached in the future. This would have resulted and hence needing to take an economic impact today to recognize that future probability.

In March of this year, we announced that we had recaptured a portion of this business from Berkshire Hathaway for payment of $610 million. This recapture and shows flexibility for us and how we can deal with the underlying issues on a small number very poorly performing treaties.

Since inception of the retrocession, the cover has given us more than $800 million of loss protection including the recapture payment that we received. The global portfolio review that I spoke about before that covered this portfolio as well and the detailed analysis that we’ve undertaken confirms that we expect adverse experience to continue to emerge. So, we expect to recognize an EVM charge for this year of approximately $650 million that number will be firmed up during our EVM process later this year.

And as Christian mentioned, our U.S. GAAP earnings are expected to reduce by approximately $500 million pretax next year. As we work on resolving, the small number of underperforming treaties.

Now if I stand back and say, so what did we do about this? So we have this significant market issues and what was Swiss Re’s response. We made a lot of changes and enhancements to our risk management, our pricing and our control frameworks.

I’ll start on the top left of this slide. So, from a pricing perspective, we’ve repriced 97% of our open treaties. This was in 2002 to 2004, we had average price increases of 15%, in some cases materially higher, particularly those that had high volumes of older age business. We changed our treaty terms, in some cases significantly, particularly around the requirements to provide us with granular data. So, we could access the risk that we were taking better. We made a lot of improvements on underwriting.

We increase the frequency and the granularity of the underwriting orders that we conducted. And, we reduce the number of disagreements we had with clients, from an average of about 10% in the early 2000s, which peaked 15% in 2005, very rapidly down to the levels that we are at today, which is less than 2%. We improved our data quality as Christian said, this is critical to a life reinsurer.

We introduced a new policy administration system in 2006. This enabled us to process on a policy-by-policy basis, which is known as seriatim, significantly higher volume of business. In 2002, we were processing less than 20% of our business. By 2008, we were processing more than 70%, and by next year we expect this to be more than 90%. We also improve claims practices, with the particular focus on the adjudication of larger claims that we’ve received early in the policy durations, and again our high focus on older age business.

And then, finally and overarching all of this, we significantly enhanced our overall control framework. We’ve introduced systematic in-force reviews, a closely monitored limit framework and very strict new business approval processes which are in effect today.

I’m conscious of spend a lot of time focusing on the U.S. perhaps for obvious reasons. But, if I look at the summary of all of the review that we undertook, I think it’s very important to highlight we did not just look at our US Individual Life business. We’ve focused on all of Swiss Re’s Life & Health business.

What this chart shows you, is the majority of our business generate substantial U.S. GAAP margins. The chart gives you the difference between our actual premium margins at on a U.S. GAAP basis, compared to a priced premium margins. And you’ll see that the bulk of our portfolios are either around or above the expectations we set a pricing. Particularly, this relates to the biometric and the demographic assumptions. So i.e. the core insurance risk factors.

As I mentioned before, the US Individual Life business pre-2004 has underperformed and our post-2004 business to avoid the obvious question, sitting slightly below on our actual to priced chart. This is because of the new business strength, unlike the other portfolios, the U.S. post-2004 business does not have the benefit of a profitable in-force to absorb new business acquisition costs on a growing portfolio, because obviously the pre-2004 business is isolated separately. Otherwise from an insurance risk factor basis that business is performing just as well as the others.

So, overall our Life & Health business is very strong. The underlying profitability of it has been masked to some extent to recent years by a pre-2004 U.S. business. Although the business can’t be improved further and Christian is going to talk through that now.

Christian Mumenthaler

Thank you Alison. Let me now lead you through some of the levers we have to improve the performance of the business going forward that’s on page 25.

So, this four levers we can see, the first one is the quite obvious one, it’s about liability management and that is to address some of the issues that Alison has highlighted in her section. Then there is capital management which has two components; one is the extraction of capital and the second one is the deleveraging. Asset management is the third one, with a move towards a more balanced portfolio. And, new business is an obvious other levers we have. So, let me now, go into each of them individually and tell you what we intend to do.

First, liability management on the post level term side. So Swiss Re being a very big player in this market we have been able to collect a significant amount of data on policyholder behavior over the last few years as people crossed through this Post Level Term period.

So what we have recorded, and you can see that on the left, is depending on this premium increased factors that our plans choose to apply to these policies you can see the reaction of policyholders in terms of lapse behavior. The blue line here is the persistency. So you can see on the horizontal line, as you go from low increases to high increases the persistency drops quite substantially as more and more people would lapse, choose to lapse. But that alone is not good enough to determine how we can maximize the value.

The other critical factor to know is the mortality of the remaining population and that takes much longer to observe obviously than the lapse. So this is where we have the benefit of a lot of data and the red line you can see here is what we have observed so far. So, not totally surprisingly as you increase these rates on premiums more and more people lapse, but the health of the underlying people who remain with you gets worse and worse. So basically you’re left with the less healthy people and therefore you have an anti-selective lapse. So this data, both of these, mortality and persistency are necessary if you want to find the optimal point to maximize the value of the portfolio going forward.

So recognizing that we formed a team in 2011, which is working with our clients to maximize the value of their portfolio as their clients, their policyholders' crossover. Luckily there is only 20 clients, which cover about 90% of this crossover period. So it’s a manageable number of clients. We’ve approached all of them, discussed that. It’s quite a bit of work for them to do, because they need to change some of the policy systems, but so far we have been quite successful in that, and the chart on the left shows you the total business that is crossing over and you can see that 28% of that business has already some changed parameters. So changed premium multiple according to our research. Then you have 11% that is in pilot phase and 47%, which are in discussion with us.

So what have been the results so far? So you can see that that’s the dark part, the 28%. These measures we have implemented with the clients, have tripled the persistency from 19% to 60%, i.e., our clients were able to keep three times more policyholders as they crossed over. And at the same time we have reduced mortality by 65%, all other things being equal. So with these kinds of results we are quite optimistic that dollars to remain with the clients, if not all, will choose to implement these changes as it allows them to keep significantly more policyholders in their books. We also planned that once we’re finished with the T-10 business to grow through T-15, T-20 et cetera. So, it’s still lots of work to do.

On the YRT side, liability management, it’s important to stress that there’s only a small number of strongly underperforming treaties, which are driving these negative results and I’ve a range of options on how to deal with these. We will discuss all these options with the clients, but our expectation that recapture by the client will be the preferred option, i.e., they will take the business back against the premium paid, one of premium paid by our side.

We are currently in discussion. We’ve all of these clients. We expect resolution to be either in 2013 or more likely in 2014. It’s obviously quite hard to give a number on the result and outcome of all of these negotiations. We have been successfully with one very large client and based on this one experience we estimate the pre-tax impact to be about $500 million and this to take place mostly in 2014. Obviously, if we can do anything in 2013, we will do that. So if you take both the PLT and YRT actions together, we expect to improve the Life & Health results compared to 2012 by 1 percentage points in 2015.

The next lever is capital management and the extraction of capital. As I mentioned before, we have extracted $2.7 billion of capital, of which $1 billion happened this year. We believe that this leads us to a good position with the capitalization level. So we don’t expect massive additional. We will now focus on increasing liquidity and capital fungibility within Life & Health, but the $1 billion we took out in Q1 of this year should improve the ROE by about 1 percentage point compared to 2012.

Then there is capital management deleveraging side. George will present you this afternoon a whole package around that. So I won’t dwell too long on that. But clearly Life & Health Reinsurance will be a big contributor to that deleveraging effort and we expect to be able to reduce the cost of debt by about $100 million. Today it’s about $600 million. So we expect to reduce it by $100 million, which will have an impact of 1.5% ROE points.

Asset management is the third lever. On page 31, I’ve listed our portfolio as it is today, in Q1 2013 and then a selected group of Life & Health insurers in Europe and a selected group of U.S. Life & Health insurers and reinsurers. You can see significantly different asset allocations today and please focus on the pinkish part of that chart, which is basically the corporate bonds. You can see that we have 22% in our portfolio at the end of Q1 and that in Europe and the U.S. we have significantly higher allocations, 46% in this case, 58% in the U.S. So, clearly some room to move more towards and more normal Life & Health asset allocation for us.

On this slide, you can see our history. We have three data points here, full year 2011, 2012 and 2013 and how we went from 14% in corporate bonds to 22% today. And on the right you can see our revised mid-term plan, which were at least 20% to 40% allocation to credit, which is definitely more in line with our peers.

We also have an economic outlook currently, which has some moderate growth projected and this favors credit. So we estimate or plan to go towards the upper end of this mid-term plan in our asset allocation this year. This should lead to about 30 basis points to 40 basis points increase in yields by Q1 2014 and results in about 1.5% percentage points additional ROE by 2015.

Last but not least the new business. So we expect obviously to write new business, which will have a positive effect in three ways. The first one is that poorly performing business will slowly run off and be replaced by new business where we have this 11% ROE hurdle rate. Then we expect a slight growth of the overall portfolio in high growth markets in Health and also some of the large transactions that Alison has mentioned.

And finally, some of this additional growth will have some diversification benefits because it is in lines that diversify very nicely with the large Life & Health portfolio. Things like health or longevity are examples for that. So the capital efficiency will be improved for that.

If you take all of that into account and look at our projections, we think this should be able to increase the ROE by about 0.5 percentage points in 2015 and obviously more going forward. This should be a steady increase.

As an illustration of that on left side will highlight that the gross earned premium we had between 2006 and 2012 in some of these emerging markets. In this case, we had an increase of about 70%. So there is clearly some growth happening underneath.

On this slide you can see the rough timing of all of these actions and when we expect the benefits to be there. The green points show you positive GAAP impact we would expect. The red points are negative impact in GAAP and the tick mark is when we think the full benefit will be realized.

So you can see on the first line, which is the Post Level Term, we have worked on it. So we expect some benefits this year, more benefits to come next year and by 2015 we should be finished with the T-10. Then on the YRT side, as I expressed before, I think it’s going to cost us something to fix this issue. This will have a negative impact most likely in 2014 and do expect that by 2015 it should be finished.

On the capital management side, capital extraction, we have done that already and by 2014 we should have the full benefit of that. Deleveraging will take several years. It’s a step-by-step process. So we’ll have improvements every year. Asset management, we expect to implement the changes this year and have the full benefit next year. And then, new business will also be something that we continuously improve.

So based on that assumption, our view currently is that we have some benefits in 2013. We’ll have a hit in 2014, and then 2015 we’ll be able to reach the ROE target we have set.

Let me now summarize. So first, the summary of all of these levers and the ROE increase we believe we can reach over the 2012 year. So, as I said, we expect about 1 percentage point improvement from liability management, 2.5% from capital management, 1.5% from asset management and 0.5 percentage point from the new business front.

All of that does not assume any realized gains, nor do we put any estimates for rising interest rates. Should rates increase there will be additional benefits to the ROE, but this is not in the 10% to 12% we have set here.

So let me just repeat for the end there three key messages. The first one is that, we believe there is a strong strategic benefit for Swiss Re to be in the Life & Health Reinsurance business and that some of the issues we have seen are not strategic in nature than were operational. We’ve done a very in-depth review of the Life & Health portfolio, which has shown that the vast majority of the business is performing very well.

The issue is centered around the pre-2004 U.S. business and we believe that fixing that will be a pretax impact of $500 million in 2014. And finally, management actions to address this are all underway. As a result of all of that, we expect the Life & Health Reinsurance ROEs to get in the range between 10% and 12% by 2015.

And with that, I end my presentation. And we go over to Q&A. Thank you very much.

Eric Schuh

First questions Ben Cohen and then I saw Andrew Broadfield, so over there in the front, gentlemen.

Ben Cohen – Canaccord Genuity

Thanks very much. I'm Ben Cohen at Canaccord. I wanted to ask two things, I think on Slide 28 where you’re talking about I guess the YRT hit, you said that your estimates of the loss that you’ve thought would come out was based on the experience with one client. Just wondering if you could say a bit more detail about how you extrapolate from one example, and maybe give us some sense in terms of the sensitivity for the overall negative charge on the upside and on the downside from the range of outcomes that there could be, because its clearly not, there clearly isn’t one number there, I’ll leave it with that. Thanks.

Christian Mumenthaler

It’s actually one question, but a very difficult one, obviously. So it’s delicate to talk too much about that, because obviously we are in discussion with clients, so it’s not in the shareholders interest if we talk too much about this year. But what I can say is that you might wonder okay what would be the motivation of the clients to enter into these discussions. And this business is called YRT, Yearly Renewable Term, so in theory we have the option to increase the rates on this business. Now this is something that is extremely unpopular and the reason for that is that the clients themselves cannot increase rates with their policy holders.

So it’s something that has been done only extremely rarely and certainly never by Swiss Re. So this is, I’d say the backdrop of the negotiation and certainly not an outcome we desire, but it gives you a sense of why we believe it is possible to reach an agreement with clients. When it comes to the rest of your question, obviously we have the data we have, we have one example, went through all the negotiations, we came to a certain result and from that we don’t have more data in this one point, from that we try to extrapolate what we think is realistic to reach with these other few clients, and in terms of upside downside its really hard to give any estimate. I think we are fine with this estimate at this point in time.

Thomas Jacquet – Exane BNP Paribas

Hi, good afternoon. Thomas Jacquet from Exane-BNP. I have two questions. Can you share with us your forecast for the session rate in the U.S. do you expect any recovery anytime soon on constant decline in the session rate. And my second question, which is maybe a bit related on the growth prospect, what part of the high growth market agenda is assumed by the Life Reinsurance division, do you intend to grow there or do you have specific targets? Thank you.

Alison Martin

So in terms of the U.S. session rate forecast, we do forecast that its going to continue to gradually decline, but certainly not in the same way that we’ve seen over the last call it five years with a very rapid reduction. So we do anticipate a small continuing reduction in the session rates, but nothing material.

Christian Mumenthaler

I think on a high growth markets the majority of what we have today in terms of premium comes from P&C and that’s because China is dominating quite a bit, where its the motor business, I think where we have been successful with Life & Health where we certainly see very nice growth rates going forward is more in the health side, so its pure mortality there is a bit less interest in these developed market, but health quick to go in these type of products, which we have much more attractivity in particularly in some of the Asian markets. So this is where we see most of the additional profit coming from and this is where you see the EVM profit growth mostly.

Eric Schuh

Okay, so Andy Broadfield has the next questions.

Andy D. Broadfield – Barclays Capital Securities Ltd.

Thanks Andrew Broadfield from Barclays. Two questions. First on the anti-selection you experienced on that pre-2004, I’m just thinking to what are the products we could be going into that scenario where we have segmentation of the market and thinking longevity in the UK where we have growing in Hudson Bay market. What’s the risk that you bear now or can you name any other products where you risk anti-selection sort of developing subsequently where you don’t have pricing optionality to recover it, and also potentially comment on the longevity market in the UK in that respect. And then the second question, very simple one actually the $500 million you’ve alluded to, such sort of effectively a deck write-down is that what the mechanics of the accounting for that or is that, it is too overly complicated split for [another zone].

Alison Martin

Okay, so just on that second one. Yes largely, so we carry a lot of deck in PVFP relating to these businesses, but essentially we will depend on exactly how client solutions have worked out as to what exactly gets written off as part of those settlements, but the broad answer is yes.

Christian Mumenthaler

And anti-selection, I think we shouldn’t worry too much about the UK longevity, because there is basically the fund of engineers they will not exists, it's a close block of business. And plus we’ve write over the much, much less of that business than some of the other, I think where we remain expose is basically the U.S., especially because of this long-term nature of the U.S. and [Canadian] markets. The rest of the world has much shorter tail typical [abs rates] duration is six years, seven years, so it's much less of an issue. I think the U.S. market I would say is still the most risky, we take now our charge for that in pricing when we do that, but should there be major innovations in terms of new segmentation in the U.S. market we remain exposed to that.

Now, there haven't been any for the last few years, if anything, the trend seems now to go in the other direction to simplified underwriting, have less testing, et cetera, so we will see how it develops, but this is obviously something we need to keep in mind. And certainly I would say, our enthusiasm to support additional new segmentations will be somewhat mitigated going forward. Does that answer the question?

Andy D. Broadfield – Barclays Capital Securities Ltd.

Yeah. Thanks.

Christian Mumenthaler

Okay. We see each other in the break.

Eric Schuh

So question from Thomas earlier, and then if (inaudible) later on.

Thomas Seidl – Bernstein Research

I thanks, its Thomas from Bernstein. Two questions. Number one, on the capital side, you talked about extracting capital, what allows you to extract capital as required capital would you introduced or what is the management action underline this. And the second thing is on VA you excluded it from the analysis, why and what would have been the result?

George Quinn

So on capital, it's simply the case of getting the money in the right place, so you can remove it. So I mean as Christian and I also mentioned you in the presentation, we’ve taken $2.7 billion from life and health net true excess over the economic requirements. So I mean the whole life was withdraw and put it where we could get to it and then extract it, that process is complete.

Alison Martin

And in terms of VA and why we excluded it, so the portfolio as we covered a portfolio is that we actively write business on, where as VA we’ve already previously said, we're not actively pursuing variable in EOT business.


So next question was on the (inaudible) just in front, all the way in the front.

Unidentified Analyst

Sorry, (inaudible), sorry I would like to come back to this adverse selection problem, you said on Slide 17 that you have been leading the market in repricing, which I think could lead to the problem that you have lifted prices where as your competitors did not, and for the good risk it was more attractive to join the others than your company, and maybe you have a attracted kind of the pool risks even in the new business, so that's one question.

And the other is just for my understanding on page 36 in your summary, when I add up all these positive impacts on the ROE, I come to 5.5 percentage points on the ROE, and last year at the Investor’s Day, you have said, you have a current estimate return on equity of 7% to 9%, and if I add this 5.5%, I come to 12.5% to 14.5% instead of this 10% to 12%, maybe you can just explain me what I do wrong here?

Alison Martin

So on your first question, its important so at ours would peak, we had unemployed mark, new business market share with 30%, and we were not the cheapest reinsurer, we were not the most expensive reinsurer. So we were at market price in consistent with everyone else in the marketplace. The thing that drove our reduction in market share down to 10% in 2005 was because we were the quickest to have a significant price increase. As I said, we well an average, we raise rates 15%.

Christian Mumenthaler

So on the ROE questions, as I said this is all excluding realized gains. Last year we had a good ROE in Life & Health, but it was significantly boosted by realized gains. So if you take that out, you get a ROE of more like 5% in 2012 and so that explains I guess the difference.

Eric Schuh

Thomas Fossard was the next question.

Thomas Fossard – HSBC

Yes, good afternoon. I've got two or three questions. First one would be on the new business you are targeting for your Life and Reinsurance division. How should we sink about the splits in terms of biometric risk you're going to target between mortality, mobility and longevity risk, I would say 2015.

So, second question would be on the fungibility of your capital, what are you targeting year I think that in the past you indicated some issues in Canada specifically, so could you update what’s your plan are especially for these? And the last question would be if and when you will be ready to share some cash flow profile of your Life operations? Thank you.

Christian Mumenthaler

So I mean we obviously don’t show projections in details at the different levers. But I would expect since our portfolio is massively overweight in mortality that still will be the biggest part of the growth, this is just the biggest part, and then morbidity or health generally this where we expect high growth from the existing small basis. And longevity, I’d say, it’s fair to say we are very cautious player. So we compared it to two others, we do relatively little in that market. We believe it’s going to be an important market, a big market. But there will be so much request for longevity risk in the future that we are not in a rush to use our capacity for that. So I would say it clears about in this order in terms of increase.

George Quinn

On the fungibility point, I guess, we’ve almost entirely liquefied the relevant capital part of Life & Health, which is what Christina said today that part, the process is over, so we don’t have a fungibility challenge there. And even if Alison and the team can bring more capital to the top of life, no reinsurance because of a risk tolerance we would have take care anyway. So the capital extraction processes is over for the time being for Life & Health.

On the cash flow profile, I mean we don’t plan to give one of those, I think, I mean what we do intend to do like an Alison and team are working hard on it from 2013 from Q1, you will start to see a substantially improved disclosure of Life & Health, and we aim to have the ability to compare the actual to target returns stated here today and to break it down into reasonable amounts of detail.

Eric Schuh

Okay, so we have Andrew Ritchie had a question and then Vinit. But before that I would like to ask a question from the webcast actually and our colleague Maciej Wasilewicz from Morgan Stanley managed to get a question to me. And so I think we should definitely on, on that.

And the question is two questions. What impact would have $500 million write-down in deck of PVFP have an S&P capital and economic capital? And the second question is, you’ll just seem to have had a strong impact on our INS business and we may have – maybe in raising yield environment. If we assumed 100 basis points further raise a benchmark yields. How much do you think that would help US GAAP ROE as well as economic capital specifically within the Life Re area?

George Quinn

So why don’t I deal with the first one. So on the first one, I mean ordinarily my recommendation will be to focus on the economic and time for take the 650. That will be the negative impact on the risk bearing capital from an SST perspective. The S&P element is slightly more complicated because of the two different numbers; essentially S&P is impacted by the difference between the GAAP net book value and the SST economic net worth. And I mean because in the past, we’ve only recognized 50% of the benefit, but we’re going to recognize 50% of the fall. So I mean to keep it simple assume 50% of the 650 is the issue for S&P.

Christian Mumenthaler

In terms of how interest rates, I don’t have the figures on top of my head. I think we’ve published in the last year in the Investor Day. So there is two effects, one is immediate, which is basically in terms of GAAP it takes out quite significant amount of GAAP capital.

In the economic sense, since the overall slightly short as a group, I wouldn’t expect a huge negative impact. It’s actually would be a positive impact if rates raise today. So you would have strong asymmetry within GAAP and economic capital, and what counts for us in terms of dividend capability, et cetera, is economic capital. So rising interest rates would be hugely beneficial. When it comes to exact amount, I think better refer to last year’s presentation.

Eric Schuh

Okay. Andrew Ritchie is next.

Andrew J. Ritchie – Autonomous Research LLP

It’s Andrew Ritchie from Autonomous. Just two very simple questions on the PLT issue, because I appreciate on the YRT, you given us a number and you think that’s going to do with the issue. I guess I’m trying to think of downside scenario on PLT. First thing, just to clarify this in simple terms, the [Cedant] is very aligned with you as far as PLT management actions are concerned, I appreciate they are not aligned necessarily on YRT. Is that, first of all, that’s the right assumption I’m guessing, I can’t see why they wouldn’t be aligned but need to clarify that. And secondly, I mean, when I think you put a green circle against PLT. But presumably the best case outcome is breakeven on this book, is it? I mean I guess, I’m trying to understand what happens if the 47%, all of the circle becomes dark blue, what is the kind of best-case outcome, is it working to breakeven and conversely what’s the worst case outcome, at what point would you have to take any kind of charge on PLT book? Thanks.

Alison Martin

So to your first question around alignment, yes Cedant are aligned with us. I think those question pointed out that the ones you carry the administrative burden of actually putting it in place new premium rates. So whilst the economically aligned there is always prioritization call at the clients around how quickly they can implement. So overall alignment though absolutely. In terms of as our best case to be able to breakeven, as all things it depends on the actual experience that we see. So for the T10s that are continuing to cross over now, as I’ve already said, we changed our assumptions in 2003, so the effect of those crossing over we assume no profit and post double time period. So arguably there could potentially be upside of experience is better. For the 15, 20 and 30 year plans that crossover, there we did assume profit. So we carry a downside risk to those. But the management actions that we have in place right now, around changing those premium rates, should mitigate that risk to some extent.

Eric Schuh

So the next question was from Vinit Malhotra and then after words Fabrizio.

Vinit Malhotra – Goldman Sachs International

Yes thank you Vinit from Goldman. And George in the past there’s been the messaging that there would have been a natural sort of a slowing down in the pressure in the PLT side, because of the time period of the resetting, but then it would have recovered, the pressure would have recovered in 2015. And I’m presuming that today’s presentation is trying to say that trend should not really be in that pattern, so the negative effects would have naturally gone down and then would recover again. Is that something I’m misremembering or so that’s the first question really.

And the second question is a bit inline with too earlier, so you could tell me quickly if you like. In the past, as we mentioned the pre-2004 and other businesses had different ROE targets. And again this is all linked to the discussion you just had so pardon me. But are we looking at a zero for the pre-2004 and 10 to 12 for the rest at the rough pencil guide, or are we looking at minus five and plus twelve or I mean the idea I’m trying to get is that I know it may not be that simple as you just pointed out, but when you have put this target, if you could help us it will be great. Thanks.

George Quinn

So if do the first one, on the, I mean your summary is correct. So as you know as Alison has said already, we re-priced in 2003. So we have that window during which things improved. Our target for 2015 bakes in assumptions of what we can do and therefore they expected effect from the T15 PLT product in 2015. So I’ll do the other one as well. I mean, I think it’s tough; my first reaction about you asking the question was to say well does it really matter too much? I guess it does. I think if you look back at Christian’s slides from last year, you get a sense of what we believed the business was then producing and from memory it was something like 10% product portfolio with minus 10% minus 15% return.

Alison Martin


George Quinn

Minus 15%, yeah. So the, I mean its going to improve from here based on this, but I mean we haven’t tried to quantify the aspect of this. I mean when you could pick over the aspects of this which are the pre-2004 focused i.e. the Liability Management part, that Christian mentioned at the start and you can translate the overall Life & Health business unit impact into an impact on that 10% of the capital. I mean I haven’t tried to do it, but that’s how I would if I was doing it.

Eric Schuh

The next question is from Fabrizio Croce, and then Stefan Schurmann and then Jason afterwards.

Fabrizio Croce – Kepler Capital Markets SA

Yes thank you. Simply trying to frame your appetite for longevity, I know that you say that going down the road it will be even more attractive. But still, if you generate some 11% on equity, I don’t see the necessity to give capital back to shareholders. And you’ve could write this type of business or even more aggressively seems to me pretty low figure to allocate on a $2 billion and predominantly mortality when you could go for longevity? It seems actually – the question is, are you not missing here some opportunity as well by being so restrictive on this business, because in the end it also diversify somewhat away your mortality risk?

And the second question is about emerging market. Could you tell us what is the duration of life reinsurance contract that you are raising there and in terms of an average, because in P&C potentially you are faster interacting with price increases if some net cash will occur, which means your return on equity is expandable, and in life reinsurance it could take a lot of time if the duration is very long. So the question is how long is the duration of your life reinsurance contract on emerging market?

Christian Mumenthaler

Okay. So longevity, I could talk about it for a long time I guess, this is dangerous. So I think we’re very optimistic overall that there is huge amount of longevity risk all across the world. It’s just that in most countries, regulators to state et cetera is not interested in recognizing the huge issue at this stage. An exception is UK and probably increasingly the U.S., maybe also Canada.

So this is where you have seen so far some opportunities, where actually people, pension funds, et cetera had a realistic assessment of the longevity. Whereas in most other countries, they work with all tables and there is no way to transact, because they’re not willing to pay the price.

When look at the overall pool across the world, it’s a gigantic pool. And there is no way that reinsurance generally will be able to absorb all of that. Reinsurance is a natural place for this risk to go, because it’s diversifying. We understand the risk et cetera as lots of benefits.

And if I look at this strategic picture, I just think that there are current price is out, but I don’t think they’re attractive enough. Some people think that hugely attract, it depends how you look at the capital side if you assume anti-correlation with the rest, maybe it is very attractive. But I think overall, once you write that business, it runs a 5% per annum or so, a view of the duration. So you’re stuck with it for a very long time. So, I prefer definitely to wait a bit to have the whole reinsurance market clocked with that risk. And then I think capital markets will kick in, and they will ask for a much higher return for this business. So I think it’s a long-term player right, and sorry for the long answer.

I think another issue is clearly on the mortality side you’re aligned with policyholders. You hope that people live longer, you’re on the side of medical progress, all of that. On longevity side, you bet against that. And this is slightly more uncomfortable position. I think overall, because history has shown that we have constant improvement in these expectancies. So I’d definitely would prefer to have an overweight on the mortality side overall in the overall mix of the portfolio.

So all of that makes us a bit cautious, although the duration of the business extremely long, 50 years or so. So it’s the kind of business were you could have misalignment of management showing nice EVM profit upfront. And then problems are for other people. So I think it’s reasonable to do a few deals, watch exactly what the experience does and wait for prices to increase. That’s our strategy I would say.

Fabrizio Croce – Kepler Capital Markets SA

Could you give some indication? If you think today this 11% should breakdown on mortality, longevity and disability. How would the return on equity look on the different three roughly, because then maybe we got near to the [story]?

Alison Martin

One thing, I guess I’d point out is that U.S. GAAP ROE doesn’t take into account, the actual underlying risk capital requirements. So it doesn’t really work as a metric. We price on an economic basis, because you’re going to take into account, how long the capital is tied up for and the relative risk profile, so longer duration lines to carry more risk, carry more capital.

Fabrizio Croce – Kepler Capital Markets SA

Thanks to straight answer. So far we haven’t disclosed these differences and I don’t intend to do that in the Q&A.

Alison Martin

Maybe just to your second question around the duration of the emerging markets business, so typically at the moment as Christian said we are writing a lot of health business. A lot of that is very short duration. It’s medical reimbursement; it’s the simpler products, which in those markets are much more popular. We are starting to extend to some of the longer duration lines of health like critical owners, but we still have a very short average duration.

Eric Schuh

Okay. So next question with Stefan Schürmann.

Stefan Schürmann – Vontobel

Yes, Stefan Schürmann from Vontobel. Just one question on the basically economic capital requirement, you clearly reduced the U.S. capital requirement Life & Health, I mean what should we expect on economic view going forward as basically you sort of re-risk the asset side, you are going for growth and new business especially, can you give us some feel here from the $7.3 billion you showed in 2012?

George Quinn

So ordinarily the key constrain for Life & Health is economic capital. So the dividends that you’ve seen be declared at generally, not always, but generally driven off of the rest all is defined from an economic perspective. I think from I mean what was the impact that what we announced today, some negative impact from the charge, some additional capital requirement from the asset risk. But at the same time we expect to see, Life & Health generate significant economics. And in fact from an economic perspective, it comes much more quickly than you see in GAAP. So a lot of this should be self-financed by the business.

Eric Schuh

So the next question was from Jason and then William Hawkins.

Jason Kalamboussis Societe Generale

Jason Kalamboussis, Societe Generale. Just want to ask you, is it possible to have the curve or to have an idea of when in each year what type of policies you wrote on the amount, because what I find is that now we are on the T10s then it was the problem with 1999 to 2003, by and large you start the problem was started to address in the beginning of 2003. So the problem is that what we’re seeing, you could very easily, you know what you are showing as pre-2004 and that could be just driven by the book if you have very few T15s, 2014 is going to be okay and the problem will come with T20s and could be significant. Whereas if we have by year the policies, then we have an idea of what is coming ahead. Let alone the fact that you could be bailed out by interest rates, that was the one.

The second one was, when you’re looking at your relationships, you’re clearly the major player. Now you are trying basically to push them, or to push the primary companies on both of these issues. Do you find that that has an impact of your new business, versus competitors, because competitors or a number of them sold their books, they were re-priced, took the heat, et cetera. So do you find that you’re the only one in the market basically pushing primary companies and that will have an impact on your new business? And the last quick question is, you’re mentioning a $112 million, I think that in 2012 there was something that was called in your presentation pre-2004 and it was $144 million, just want to understand what the difference is? Thank you.

Alison Martin

So I don’t think we have any plans to disclose the exact number of sales that were made between 1999 and 2003 of each [vintage], its fair to say there were a lot less T10s sold than the were, sorry T15s sold than there were T10s, but there were more T20s sold, it just makes the importance of the management actions that much more critical. But I would say we obviously have a long period of time now, we’ve got six years in which to work through with all of the clients, not just the ones that we’ve already been successful with.

I guess on the last one, the difference between the $112 million and the $144 million, as I said before, the $112 is an estimate of the full impact, so where as previously we were showing against expectations on an underwriting only basis. The $112 million includes the allocation investment income to the portfolio and all the expenses of the portfolio. So as well as the underwriting cost includes all the other measures to actually give you a true cost of that particular portfolio.

Christian Mumenthaler

May be in terms of the clients we have hundreds of clients and if you look at the issues that concentrated around the handful of clients, whose performance is really, really bad, and if you look at that and you see how far out these clients are compared to the rest, it’s quite obvious that you would assume that something must have come wrong with these clients, for example, in the under writing, in the sales process, it’s hard to prove it, but it’s quite obvious, since the performance is so far out.

So I think it’s entirely legitimate to approach these clients, with these issues. And so far, I think we had, no clients likes when you approached them about these issues, but lot of these clients we have very long-term holistic relationships. We’re absolutely happy to take losses up to a certain point, but if you see that some of these are deviating so far out, it’s in my view obvious that something went wrong and I have no issue with that. How the clients react to that we will see, but it’s a handful of clients out of all of them.

Jason Kalamboussis – Societe Generale

Just to understand on, then if we look at the 10% to 12% ROE, that you’re looking 2015, how much of it is going to be due to the fact that you are going to have less impact, because T15s are not important. What’s the element within there for example, realized gains, et cetera. It is first to have an understanding of what made that you are more confident about reaching the 10% to 12% with stable interest rates or are you planning to give more granularity on the direct guidance?

Alison Martin

I think is this the question showed you before, so we are expecting to have an improvement from the liability management on PLT. So we expect that will give us a benefit of about 1% by 2015 is a portion of that is from the fact that there are less T15s crossing over than T10s. But also will it work through with some of the management actions on some of that portfolio. Do your question around realized gains? I think Christian always said it doesn’t make an assumption about realized gains, although clearly we would expect this part of our ongoing portfolio management that would be a small element.

Christian Mumenthaler

I think maybe on the YRT, this is to avoid the downside. There is no particular upside on this. So the action is just to get rid of the downside.

Eric Schuh

Next question is from William Hawkins.

William S. Hawkins – Keefe, Bruyette & Woods Ltd.

Thanks. I’m William Hawkins from KBW. Sorry, I’m coming back against the $112 million on Slide 19. This time last year when you were talking about the 15% of capital doing the 10% negative ROE and that was contributing to the 7% to 9% ROE expectation. What you envisaging the $112 million was going to be by 2015? What are you now envisaging that numbers going to be in your revised ROE target?

And then secondly, I expect what you maybe coming on to this in the next presentation, so tell me if so. But that short production in letters of credits on Slide 30. I didn’t understand, is that a result to just some kind of natural fading of the business or is it a result of active management action? And again, I didn’t understand how you can have, I mean I thought there is letters of credit with therefore a play a reason, I assume you’re optimizing the balance sheet, but it seems to be quite material optimization?

George Quinn

I’ll do the second one. So on the letters of credit, I mean typically the market has I mean several different kind of structurally you can use, a significant part of letters of credit, we use ten structures. So we have guarantees, the capacities there all the way through to the expiry of the underlying business. In the past, has an always been the case, and we still have elements of the letters of credit that full the traditional annually renewable or slightly more short-term structures. So we have the ability to dispose a letters of credit relatively, rapidly if we choose to and we choose to.

Christian Mumenthaler

I think in the first one, we had looked at PLT in a lot of detail before discussing it last Investor Day. So nothing has changed in our view from what we saw a year-ago to would have been exactly as planned. We don’t have additional charges in EVM, and so the change really from the in-depth review is all the business that was previously with Berkshire Hathaway we took it back. We look at the in-depth review and this is worth leading to this $650 million charge.

Eric Schuh

Are there any further questions in the room? Don’t hold it against me if I overlooked your hand earlier. Okay, that doesn’t seem to be the case. So we finished seven minutes earlier than planned. Thank you very much for this very lively Q&A session. We’ll take a coffee break and reconvene at 4 O’clock sharp. Thank you.

George Quinn

I’m going to cover capital management and I’ve got four topics that I really want to touch on. So first of all is, risk tolerance, I mean in plain English, that’s the way that we express the amount of capital that we need to survive an extreme or an extreme series of events. second will be the target capital structure for the group. And we spent quite a bit of time on this over the last 12 months and I’ll explain some of the outcomes today.

And I’ll then touch on capital management priorities and I’ll also put some of the changes that have taken place already this year, how we deploy some of the capital, some of which we’ve announced today and to the context of the last capital figure that you saw. And then just for the end, I’ll take it – attend to do something other than capital management, which is to recap the various points of the day and trying to put in the context of targets.

Going back to the comments that Michelle made this morning about the investor feedback, earnings per share targets are still seen as one of the more challenging elements. And I'm hoping that if I can show you how we see it, I can nudge you in the right direction.

So I will start on this slide, slide four. So, when we think about the Group’s capital requirements, we think of three key view of the world. So the first is the minimum regulatory requirement, it varies from jurisdiction to jurisdiction, the metrics, the methods can be quite different, but in practice, it’s the absolute minimum capital requirement. In practice, this is often a purely theoretical exercise.

As this is really enough and we’d expect the regulator to intervene long before we achieve those very low levels. Clients also have a view on what’s acceptable. And the second view is what we build into the respectability view of capital. It’s the amount that clients and other stakeholders would expect us to have in any given market and you can think of this is the norm for a business. again, it varies, but it’s a key input into the capital requirements.

The last and typically the most challenging is the extreme loss criteria that you see here on slide four. This is about setting the survival level for the group. We apply a mathematical approach known as shortfall or Tail VaR; in simple terms, we measure the average of all of the losses beyond the 99 percentile.

So as an example, we take the one in 100, one in 102, one in 103, you get the picture. So we keep going, you average the thing out and you end up with a scenario depending on the risk profile on the tail that means that we can survive a combined events, maybe have a probability of one in every 300 years or more, not a one in 300 year Nat Cat, not a one in 300 year pandemic, but a combination, one in 300 year event. Again, if you look at today’s models that combined loss is about $17 billion.

This approach has got some advantages, because you try and model those more extreme scenarios and you can’t simply ignore them in the way that you can’t involve. As it draw by, though they are typically modelling events that have never happened as opposed to ones that have. but anyway, the answer is still wrong. I mean you have to apply some common sense. It’s just the approach, we’ll be more precise.

In the chart that you can see on slide four quantify some of the key thresholds. So from a respectability capital perspective, we have the Solvency I ratio 150% and honestly I think that Solvency I is about the most meaningless fact that you could possibly have in a capital regime, but we still have it as part of regulation.

Next is the Swiss Solvency Test and that’s not meaningless by far. We’ve established a target capital level of 185%, which is arrived that by that survival thresholds. So surviving that significant event still having sufficient capital means we have to start with about 185% of the SST requirements.

This also drives the $3 billion to $5 billion excess over S&P AA, that’s how it translates. We also believe that this is what our clients expect. this rating, this level of capitalization from Swiss Re. So from post extreme loss perspective, our aim simply is to still be in business. So our SST ratio post loss would be 100% higher and we’d have sufficient liquidity, not only to pay the claims post collateral because it downgrades, but also to recapitalize our subsidiaries to regulatory minimums.

I think as you all know already this isn’t the most exciting aspect of running, analyzing or investing in an insurance company because the complexity is very high. The measures can often be contradictory and some of them involve more judgment than mathematics. But this is the way that might change over time. I don’t think that all of us would love to see the change. So we just go on with them. I’m going to walk through each of these apart from Solvency I. If you are really interested in Solvency I, you have to go see someone else.

SST first on slide five, we said before that the SST requirements are based on our internal models. And we have available capital or risk bearing capital and then we have the required or target capital. I mean these are common features of any target capital system.

The first capital is there to be available to absorb the losses and the second is the capital required for the various risks that we take. Risk bearing capital is based on our economic net worth as per our economic system, plus some adjustments are required under SST and I’ll come to these in a moment. Target capital is based on that 99% shortfall calculation, again, with some SST adjustments. And at this stage, at least there is no much witchcraft; it’s relatively simple, it gets a bit more complex in a second.

Slide six lays the same information out numerically. So starting on the left, you can see that reported economic net worth for 2012 was $33.9 billion. We then make some valuation adjustments and the largest by far is the reversal of the capital costs that we’ve accrued in the economic balance sheet as part of the economic net worth to cover risks that have yet to expire. And what that really means is risk that continued to be on the balance date, so we accrue the future capital costs related to that.

For SST purposes we add this back, not because it’s not needed in SST, but because under SST it’s required in the denominator rather than the numerator. I don’t really know why that is, someone has got different preference than the way that we have.

We’re also required or permitted to make some adjustments, for example, tax. And once we add back this capital cost reserve and the other adjustments, we end up with an SST net asset value equivalent of $46.3 billion. We ended up applying dividends and add back expected economic earnings within the 12 month window that SST considers. And then finally, we add supplementary sources of core capital such as hybrids or contingent capital. That brings us to an SST RBC for 2012 of $48.7 billion. I think the reason for giving this is I know that many of you trying to estimate it and it’s not easy unless you know at least some of this, it’s not easy anyway, but hopefully this would help.

Next is target capital, again, we start from the shortfall. We take that straight from the internal model. Again, we now add back in the capital cost that we removed from the numerator. It’s not the same number, it’s the market value margin requirement; the FINMA has the same concept, but different number. FINMA actually have a smaller number, so we have a benefit here.

And then we add any add-ons that a regulator requires. So the regulator on the process of reviewing our internal models will suggest or they don’t suggest, they tell us the changes that they expect us to make. I think as many of you know, for example, within our system, we have differences between the way our model would say the capital should be calculated for private equity and the levels required by the regulator, so that’s in there. Together we have an SST ratio as reported an SST1 2013 of 245%.

Next slide and some of the history, I mean, generally our SST ratio has been very strong in just about every single year. I mean the little one is the one that coincides with the events of 2008 and 2009 and probably hasn’t surprised, what maybe a surprise is the absolute level 160%. I mean this illustrates one of the problems of models that if you an outlier, you need to consider the real world (inaudible) from time to time. But, I mean, in general, the firm has been very well capitalized through this period. Solvency I on the chart also, I mean, you can see one of the problems with Solvency I interest rates and particularly interest rate falls creates Solvency I capital, that doesn’t exist in the economic view rating capital.

We have more than one interactive rating. But I think generally it’s simple to think in terms of S&P capital because most of you and most of us are probably more familiar with that model and we tend to emphasize the figures, so the quantitative elements of the rating regime, but I think as you probably all know it’s just one of many criteria that S&P, Moody’s and A.M. Best considers this as they determine the rating that they would place on Swiss Re.

If it was just about capital, Swiss Re would not be AA; we would be much, much higher. But I mean if you speak to the rating agencies and I know from speaking to them that you speak to them frequently, you’ll be familiar with the references to different elements that they apply in the framework such as underwriting leverage ERM and various other factors or modifiers that they apply coming out with the final rating.

Typically the most demanding requirement for us overall is just to make sure that we have enough capital for that survival for that extreme loss scenario. If there’d be a minimum AA requirements were enough to a lowest to meet that requirement, then a target for excess over the S&P AA minimum would be zero, but it’s not. And therefore for us to have enough capital to survive that event is still be in business, we need $3 billion to $5 billion more, that’s where that famous $3 billion to $5 million comes from.

Next requirement is to pass an internal stress liquidity test. This is not about spot liquidity; it’s not about the consolidated cash that you see in the group’s balance sheet. This is about how much cash we would need in a severe stress environment. It’s also not a regulatory requirement although FINMA has published a circular on what they would expect from insurers and reinsurers.

I mean generally insurers and reinsurers operate in a very favorable liquidity environment. We get the cash first and we pay it back later. So, in theory, that would seem to suggest that liquidity threads are not particularly significant. However, we are exposed to very significant loss events, Nat Cats, hurricanes, pandemics, financial market risk and one of the reasons that clients buy reinsurance is so that someone else can give them a liquidity to pay the claims when the event occurs.

From that perspective it also creates good internal discipline around contract wording, being more aware of the risks the things like recapture provisions, downgrade clauses and also the need to make sure these are priced and tracked. This is an area at Swiss Re that comes to the highest level for approvals if you want to deviate from our normal standards.

Our stress test for liquidity takes center carrying that same $17 billion loss that I mentioned earlier and translates into expected cash payments over the course of the year. We include any additional collateral posting requirement and as I mentioned earlier, any need to recapitalize subsidiaries. We compare this to the cash on hand and to the cash that we can generate from liquid assets. And the requirement is the liquidity sources are greater than the requirements.

This is a fairly demanding requirement given the mix of business that we have and probably part of the reason why the group hold so much of its portfolio in a relatively liquid form. From time to time in the past, this has been a constrain for the group and I’m sure that from time to time in the future it will also be a constrain.

Slide 10 sets how we operate the capital system. SST is problematic because it’s fully mark-to-market. There is no kind of cyclical premiums, there is no balancing, there is no matching adjustment. When spreads widen, it immediately hits the capital base. I don’t think there are many if any other capital regimes that have a similar approach.

So from an internal perspective we have a green zone, which fortunately is nothing like the green zone in Baghdad. This is actually the place where you would want to be. We have more than sufficient capital and it’s where we apply our capital priorities around dividends and new business et cetera. To then prevent that we run into problems rapidly, we allow ourselves a buffer zone. And this allows us to address some of the volatility that, for example, assets and asset changes – asset value changes can cause. If we go below that, we would expect to start to take action to reduce consumption of capital over to add capital to restore ourselves to target levels.

To protect the flow of dividends, because that’s our number one priority, we’ve not only established the tolerated range, but as part of the risk tolerance, we have a requirement at the holding company, we carry part of that $3 billion to $5 billion in cash. Again, that lets us or allows us to have good confidence about future dividend capabilities. And as you know already from the figures you’ve seen this year, we set well in excess of this level at the holding company. This allows the group to carry moderate asset risk and to significantly reduce the risk that would become a forced seller in a volatile environment.

You can also see reinsurance here; I mean all of the BU subgroups operate in a similar way with levels that tailored to their businesses and the markets in which they operate. And you can see more of this on the next slide.

We define target capital ratios for each of the business units. Typically these are in SST ratios. Also subsidiary level, we have target capital setting process that again reflect regulatory minimums, respectability requirements and can include request from local boards to hold additional level of capital because of particular risks or constraints or issues that they believe exist in the local market. The group (inaudible) we grant those requests or not.

We model capital levels and the expected dividends from the business units as part of the target setting process. The basic expectation is that the business unit pays any excess above the stated target level as a dividend to the group, typically, in the first quarter of the year. To the extent that business unit wants to or has developed plans to utilize more capital that has to be approved separately as part of the annual planning process.

Let me turn to the next topic, target capital structure. When you get beyond risk tolerance, the topic turns to how you would optimize the target capital structure to maximize the return on equity within that stated risk tolerance. Here we can see a financial flexibility which is code language for look at leverage and coverage ratios from the rating agencies or other constrains, consider this part of the process that we also look at peers as part of this.

Over the past several years, our approach has really been about correcting some of the imbalances in the capital structure that we created as part of the challenges we faced in 2008 and 2009. And typically that’s been focused on leverage reduction. If you look back and you think of total leverage, which was a concept that did not exist in 2007, we reduced it by 58%.

If you focus solely on the legacy businesses in the way that they were funded, we reduced the leverage associated with this and this is the so called operational leverage by 80%. Again, I am applying all definitions that didn’t apply in the past, but it gives you some idea of the scale of the change that we’ve affected since 2007.

Now we start the next phase, which is about optimization. Some business units will have less leverage as you’ve heard from Alison and Christian, we have significant plans to deleverage the Life & Health Reinsurance business unit, and some will have more. Admin Re today, for example, has very low levels of leverage particularly (inaudible).

The net effect of all of this is to reduce leverage by more than $4 billion by 2016. And I know from the conversation that we’ve been having on the site and even from the media presentation I gave before with the start of today that this doesn’t automatically compute that you reduce leverage and you improve returns. But, obviously, when you have such a significant part of our asset portfolio and highly liquid instruments that don’t generate significant income and the borrowing is not for free, that’s a significant negative spread that we can eliminate by doing this.

The target capital structure, and as you can see on slide 14 is bell bottom up. And the mix of funding required for each business unit is tailored to their specific internal and external constraints. Again, we start from the economic risk capital requirements and we fund this with equity and equity like instruments or core capital. Incremental funding requirements funded by senior debt or letters of credit. We don’t determine ability to carry leverage by our ability to service leverage. We’ve based it on the nature of the risk and the underlying cash flow.

Slide 15 sets out our plan to 2016. We will half the amount of senior debt and half the amount of LOCs in use, while broadly maintaining the level of subordinated capital, albeit, with an intention to upgrade this part of the structure to one of the contingent capital templates that you’ve seen has issued over the course of the last 15 months.

As a start towards this goal, we have launched any and all tend to this morning for about $1.4 billion of debt that we acquired as part of the acquisition of GE Insurance Solutions back in 2006. Depending on the take-up, this would be the first step in our deleveraging plan.

In general, reinsurance will be the biggest source of deleveraging, again, Life & Health within reinsurance whereas CorSo and Admin Re will start to normalize their capital structures and rely a bit less on a pure equity financed approach. So that means more leverage and for CorSo, the first time introduction of subordinated forms of capital over the course of the next three years. We have two metrics that we’ll focus on, the first deals with senior borrowing and letters of credit and we aim to reduce this by about a quarter by 2016 while subordinated capital will stay roughly at today’s levels, which are well within the target range.

I want to make a few comments about subordinated capital where we’re on the topic. so subordinated capital or contingent capital and we’re expressing things; this is onto fully page, slide 16. We feel it makes sense to shift to a new template, partly reflecting overview of the group’s needs and what we expect to be a changing regulatory environment. You’ve seen us issue several structures now. The think they have in common is they’re all trigger about 125% SST. In some cases, our option, either with conversion or with the rate down features.

And I guess the good news is with the latest issue that we did this year, which is a rate down structure, we’ve started to attract significant institutional interest. And this complements the earlier issues, which were mainly taken out by the high net worth market. Our aim by 2016 is to have about 10% of our core capital in these forms of instruments, but about two thirds of the way there, I can’t promise you that we’ll do this nice and evenly over the next three years. We monitor demand and interest and if the market offers reasonable pricing, then we will act more quickly if that’s warranted.

Slide 18 is a reminder of our capital management priorities. I mean as you know, we have many external stakeholders to consider as the providers of capital, our shareholders are extremely high in the priority list. But we also have to respect the interest of our clients and the regulators as this defines our ability to use the capital that our shareholders provide us with.

There’s no doubt in our mind that capital strength affords us a significant advantage that gives shareholders the confidence and the dividend stream and it gives our most clients the confidence that will be there for them when probably others will know it. It’s an advantage we did not intend to give up.

Our priorities that you’ve heard before from a several times are ordinary dividend growth, business growth what it meets our profitability requirements and that includes the risk required with a balanced asset allocation.

If you look at what we’ve actually delivered over the last three years, you can see that we’ve grown the business at times when prices were obviously rising and we would like to continue to grow, but we are realists and we’re under no illusion that it’s more difficult now, but our portfolio is in very good shape and we don’t feel we have to be defensive here.

As Michel highlighted at the year end, we’ve been able to use our capital strength to take advantage of the opportunities that have risen after events like Japan and also used our strength to make sure that shareholders shared in those same benefits as you saw in the form of the special dividend that we paid back in April. Despite this, our SST ratio remains very strong.

On slide 20, you can see one of the changes that we’ve announced today and that’s we intend to use some of the strengths to continue our asset rebalancing, so the move towards the mid-term plan. We’ll use about $3 billion in capital to continue the rebalancing. There is a move about another $5 billion in credit and about $2 billion to equity both mainly from government bonds. At the same time, we’ll establish a short duration asset position. We’ve set a target for the firm to be short by about $7 million per basis point.

Given the second element will reduce investment income this year, and next is hard to claim that the short duration element is immediately accretive to the ROE. But we expect that if our judgment is correct, the reduction – that will reduce the reduction in equity if that makes sense and create an ability to reinvest in much higher interest rates.

Given the interest rates were low when we started this, our view was that payoff was asymmetric. Our view was that the risk of a disorderly rise in interest rates seemed to us to be a little bit higher than the market perception. We started the process already in May and by mid-June, we’ve done about half of it. All three of these are intended to be strategic decision. So therefore you would not expect them to necessarily change or reverse rapidly, but of course, duration of position is highly liquid.

I have a couple of final slides and before I turn to them, I think it’d be worth just highlighting the capital changes that we’ve announced or you’ve seen today since the last SST report, just to make sure that everyone has the same picture in their head. So with the last SST report, we had an SST ratio of 245%. That figure anticipates normal expected economic earnings during the course of the year. It does not include the issuance of the rate down instrument that you saw following Q1 of this year, when we issued $750 million of contingent capital. It does not yet contemplate the capital required for the change in the SAA that will increase the target capital requirement by $3 billion and also it doesn’t include the negative economic impact of (inaudible) take the $650 million. And I think you can see that if you take all of these things into account, the firm continues to be in a very strong capital position.

We think there is a quite a lot of message today and I want to try and put it back in the context of targets. And in particular, I want to come back to the earnings per share. As I mentioned earlier, the big – one of the biggest pieces of feedback we have is about question marks over the firm’s ability to hit the EPS target and deliver this as part of the overall goals. I think from an internal perspective, we typically see the economic net worth per share target as quite a bit more challenging than this one. But I understand that this measure is a bit unique to us and doesn’t yet attract lots of attention from all of you.

I think before I go through the slide, it’d be relatively important to do the philosophy to explain how we would see the targets. I mean, when we launched them, we expressed them as an average growth target based on the assumption that we would gradually improve over time. Some of you will remember the squiggly lines we used to have on the charts.

They’ve gone not because we don’t think there’ll be squiggly as it has been, but because we don’t have any space to include them anymore. The final year matters most. It’s not that the years in between don’t matter, but we want to achieve the targets in that final year that convince you that in 2016, the minimum you can expect is the achievement of the same number that we had in 2015.

Take 2012 as an example. The headline result is excellent and in fact, if that was all we had to do, we can declare victory and go home at this stage. But if you look through and I know you do, the underlying is not enough. So with this in mind, I’ll continue with some focus on how we see the underlying earnings power of the group developing over the next three years. This is a revamped version of the slide that you saw last year at the Investor Day. We’ve turned on its side just to make the text easier to read.

We’ll start with the published EPS, $11.9 per share as published for 2012 and then I’ll adjust for various items. So the first thing I’ll do is I put back a normal tax rate (inaudible) before 23% to 25% tax rates, we had backed the reserve releases.

I mean on the reserve releases, I mean, we’ve never made promises that reserve releases are sustainable. I think in times we think about the negative aspects of reserve release, what it meant, how we price this business whenever we wrote it several years ago. But, in general, a slight bias in this direction is clearly more positive. But again, today we made no promises about reserve releases. So we don’t have this as a sustainable component of earnings.

We also adjust for the lowest on the sale of the US Admin Re business last year. Then we do investment income and what I’ve done in investment income is to do the same way I did last year. So within this, I have adjusted to the expected return given the SAA that we’re going to implement this year without assumptions about rising interest rates, but what that would turn into in terms of income in 2015 compared to 2012. That would be a significant reduction, albeit, no higher significant reduction as you saw last year.

Then we get into the business elements. So we start first with the two P&C businesses; and reinsurance and CorSo. And this time last year, we were more bullish, you saw more here than I’ve got today. We’ve taken a much more cautious view of Nat Cat pricing. And in fact, in these figures, I’ve assumed that it moderates in the markets where pricing is currently the strongest.

I know you’re going to ask me at the end of the presentation what is the assumption. You’re going to have to forgive me that I’m not going to tell you. We’re still a commercial enterprise and I’d rather not say minimum targets for clients for reductions and premium. But we have assumed that I think what people can see in the market is reality.

That will be partly offset by a continuation of the trend we’ve seen in casualty, so slow, steady increase. And I mean last year, we had significant expectations for corporate solutions. If anything this year, we actually have more significant expectations; that goes well. And the market trends and the commercial market are actually positive.

Overall, we’ve reduced last year’s assumption by about $0.3 per share. The two Life & Health businesses are expected to be significant contributors to the targets. Life & Health at least partly through the management action that you’ve had today and Admin Re through a continued strong cash generation that we can reinvest elsewhere.

Excess capital, last year, we assumed that we could invest $3 billion at 11% and I’ve kept the assumption the same this year. I mean we expect to see more significant amounts of excess capital available to us over the planning period.

Last point, we just leverage as a small number on the page that includes the Life & Health benefit, which is not in the Life & Health line, if you can follow that. I mean from an execution risk perspective, there’s no subject to significant risks. I mean overall I think this illustrates while we believe that the changes and the additional targets that we’ve announced today make it more lightly that we can achieve our earnings per share target.

So let me end by summarizing the key messages from the capital management part of today’s presentation. Our risk tolerance framework is based on three key drivers, SST capital requirements, our clients’ expectation of our rating and our liquidity needs. We have a target capital structure that will substantially reduce the level of leverage and our letters of credit by more than $4 billion by the end of 2016 and this will improve ROE and EPS. We will use part of the economic capital that we have available to us to rebalance our asset allocation, but we’ll stay within the mid term plan that we’ve previously announced and we expect it by 2015 this will also improve the return on equity and earnings per share.

Finally, our capital management priorities are unchanged, dividend first, profitable business growth second. And finally, as you hear from just about every single presentation from Swiss Re, we are completely committed to delivering the financial target.

That’s the end of my presentation. If you have any questions, I’ll be happy to trying to answer them.

Question-and-Answer Session

Eric Schuh

To Andy Broadfield first, and then Andrew.

Andy D. Broadfield – Barclays Capital Securities Ltd.

Andy Broadfield from Barclays. The first question, which is the one I guess you thought about a bit and if I did that calculation on the surplus capital of 13, I think it works out to be $13.5 billion thereabout above the 175% SST requirement. I think it’s $13.5 billion above that that you hold at the moment. You’ve explained some of it and in terms of the $3 billion you’re risking and some chart on the YRT et cetera. if I go through those numbers, it seems to me still comfortably below the $5 billion surplus or $3 billion to $5 billion surplus that you want to hold. I’m just trying to think what you might think about dealing with the rest of that?

George Quinn

So I mean, generally I agree and we are well above the risk tolerance levels that we set. We both get through the planning process with the business units in the summer. So I mean, I think the Group would like to see the business units come forward with ideas that could utilize the capital. Not an easy environment for them in all case, I mean I think in some, I mean CorSo will grow, but CorSo is capitalized for the growth already anyway.

Admin Re as Michel mentioned this morning, we were focused on third-party capital, we’d now exclude the possibility we would support a transaction for Admin Re, but it is just the right level of return. I think we’ll also be happy to look alternative ways of supporting some of our reinsurance clients to become investors in their capital structure potentially, particularly in the emerging market.

So I can think of a number of things that could use a part of the capital base. but I cannot today give you a complete menu of, here is the total number at the top of the page, here are all the things that we’re highly confident and that’s the number at the bottom, I mean that’s something we know answer as we come closer to the year-end.

Andy D. Broadfield – Barclays Capital Securities Ltd.

Just coming back to CorSo, you say it’s capitalized as you needed to be, but that’s presumably within your SST calculation, you only include what you’ve acquired today in this year rather than what you need for your full growth target, or is it include the full amount was in there?

George Quinn

Full amount was in there.

Andy D. Broadfield – Barclays Capital Securities Ltd.

Okay, okay. And then the second question on the mismatch the deliberate decision to go short duration mismatch, is right I think you mentioned in reasonable size about a third of that $3 billion was used for that, and that’s temporary presumably so, which you think about that returning also within the next, I think 2015 is the time you want to be, if everything goes to plan, but to being fully matched and there’s a billion that’s going to come back in the timeframe too?

George Quinn

So I think if you look at the $3 billion of capital we’ve deployed or deploying. So I mean the process will take us through to Q3, Q4 to complete. And of the $3 billion, $1.1 billion for the duration position, $1.1 billion for the equity and $0.8 billion for trade off. So I mean the latter two, clearly help the targets immediately, the latter one doesn’t.

From a timing perspective, I mean we’re in place today an absolute limit in terms of time on it, but certainly at this stage, our expectation was that we’d start to see interest rate rises by that period and if anything, currently they appeared to be coming a bit sooner than we expected. So we’ve had a small benefit already from what we’ve done. But of all the three, I mean the one thing we want to avoid is that we trade the corporate credit and the equities that need to a more committed position. The [DDR-1] position is very liquid. But I mean we did expect to see in place for the next 18 months to two years.

Eric Schuh

Next question was Andrew (inaudible) kind of all the way in the front. And then after that Andrew Ritchie. Andrew, could you?

Andrew J. Ritchie – Autonomous Research LLP

A question regarding or related to the first presentation by Michel Liès on this high growth market initiatives, related to solvency and new capital requirements. Maybe, you can give us some flavor here on what the additional capital requirements for these high growth market initiatives are. I mean it’s obvious that there are some new capital requirements of course, based on the growth, but there may be also some diversification effects, which would reduce the capital requirements then, or also some effect from the shift to the high growth markets out from the mature markets. What are your plans here?

George Quinn

So, I think the summary (inaudible) is a good one. I mean, we just being gone through the target setting process with the business units, and one of the things, I mean as you heard from Michel, we expect to see growth in the high growth markets, and that’s a far more effective use of the capital structure. So we don’t require the same amount of capital doors as the growth would imply. There is a significant diversification benefit comes from an, I mean in general because of the way the Company is structured. I mean, even though we have a relatively moderate appetite for asset risk, asset risks still dominates the risks that we take.

So all P&C risks generally are diversifying and things for example, small and not grow scenario, so if we can go grow our exposure to Chinese earthquake, Chinese typhoon that’s very, very beneficial for us over time.

Eric Schuh

Andrew Ritchie, next question.

Andrew J. Ritchie – Autonomous Research LLP

I’m Andrew Ritchie from Autonomous. Three very quick questions, first of all George if you were to be given G-SIFI status, would you consider having to increase your sort of target SST. Would you think you just increased the loss absorbency of your capital structure, I guess even more contingent type stuff.

Secondly, I’m still a bit puzzled on the timing of your decision on asset allocation because I guess just from a simplistic outside perspective, you are starting to increase allocations to corporate credit after it had the most incredible run for the last 12 months, 18 months, why do it, why you’re so determined to get it done by the end of this year.

And I guess the third question just a clarification one, on the EPS walk, and I think I know what your response is going to be, there is lots of different ways of normalizing when we have this debate every quarter. But Christian, you raised the important point earlier that the Life & Health business had a lot of realized gains helping it in 2012. You don’t seem to just realize gains or is that in the sort of within the minus 2.6 just clarify. Thanks.

George Quinn

Okay, right, I like the way you phrase the G-SIFI question. You make it sound like a gift, if we were given G-SIFI status. So would we change something? Based upon on what we know today. Probably no, maybe we have a capital, we impose capital requirements on ourselves that are way, way above the levels that are required under regulatory minimums, and I find it hard to imagine that somehow G-SIFI status would require that level of capitalization.

So I would expect our current capital regime would cover it. I think because their requirements are not clear, it’s very hard to be sure about whether we meet all the needs, but for example. We expect more regulation, more intrusive regulation. I think FINMA very active, supervising us today. Maybe the focus is more on the non-traditional, non-insurance activities and there are particular capital requirements for those, but again hard to imagine how that would be exceed our own instated (inaudible).

And timing on decision of the asset allocation change; two things here, one is that it must be, it was last April we announced the mid-term asset allocation ranges. Today we don’t unnecessarily change, the Group still intends to stay within those ranges. So I mean for me, it was always going to happen. It’s just a question of when does it happen. I mean the timing of decision, I mean maybe if we’ve had decision earlier at the Investor Day in March, it wouldn’t be so, may not be such a big issue. But having said that, I mean I recognize Swiss Re’s history, I mean imply no.

So for us no mainly because we went through a very thorough process internally. I mean I suspect that for many companies this is not a major change. We think the numbers I gave you for the asset allocation shifts, I mean they are not immaterial, but they are not radically different asset allocations either, but I mean we’ve taken since February, to discuss it, we agreed it with the Board in May. And as a respect we immediately started execution.

We are in a period of volatility again, but we had established the plan with the expectation that through the various mechanisms we have in the capital base, we could easily absorb the volatility. So therefore, today, when we see no reason to stop, pause or slow down on what we’re doing here. EPS work, what happened to the realized gains where they’re in there, but they are offset in that asset management to that return pace. So I’ve extracted all of last year’s realized gains and replaced the underlying return of 2012 with my expected return of 2015. I think, if there’s an unknowable component take equities, I assume a straight equity return, part of which will come from realized gains, but I have no idea the timing will be. And for the sake of this presentation, I assume it cause evenly every single quarter for as long as we have them and maybe a touch unrealistic.

Andrew J. Ritchie – Autonomous Research LLP

So therefore, this essentially you’re saying 2012 earnings are about seven or three with the normalized for tax benefits reserve releases, US Admin Re and imagine the certain fast forward to the asset mix and normalize investment returns as it will be in 2015?

Unidentified Company Representative

I mean I think if you look at the numbers on that slide 22 and you go back and look at last year’s realized gains and translate into EPS, it’s a very, very large proportion of the number.

Andrew J. Ritchie – Autonomous Research LLP

Okay, great. It’s very helpful. thanks.

Eric Schuh

I think we can go to the next question.

Unidentified Analyst

Yeah, I have a couple of silly questions, and then however necessary, one is about the flood in Germany. I didn’t know that we had the suspicious low figure for the primary insurance sector. so the question is, if you could give some hint, I understood that in the – I read in The Sunday Press and sort of in that, the architecture is actually pretty strong in Germany regarding river. so basically you are pretty positive on the floods still, if you could give some update here. And then about the slide on page on six, the one with the SST and the detailed calculation, will you deliver this regularly going forward, is this something, which you are going to update or is that one-off. And then in terms of, I mean, still your excess capital that you are not looking to grow particularly longevity, you are not looking for some aggressive share buyback. So the question is, did you internally a calculation in terms of what the return on investment would be for the case you would totally shot down Admin Re at least?

Unidentified Company Representative

So first of all, flood in Germany, and I appreciate the question. I didn’t see the Alaska, but the occupation in Germany, but I mean I can’t give you an update. I don’t have one to give you today, I’m afraid. I mean when we have and if we have a reliable number, then if we think it’s material, we’ll communicate with the market immediately. And what we deliver this regularly, I mean the challenge with all of this stuff is that once I’ve shown you once it’s relatively hard to remove it from the (inaudible). And I guess, I’ve shown you some of the history. So at this stage, it would be my intention to show you this regularly, but regularly, it could be annual for base yeah if that’s okay.

Excess capital and he alluded to, what I would do now if we totally shut down Admin Re, you have to make me an offer, and tell me how much money you’re going to give me for it, I mean because I only know all the different components can do the calculation. I mean for reasons that Michel gave earlier; it’s not part of our plans. I mean, I think, I mean just to recap the reason that we are looking for a third-party capital, I mean the business is relatively asset-intensive is already skewed the asset allocation for the other two business units.

So if we think it grows in future and we think it does. I guess, we’d only make this issue worse. So if we can share that risk directly with someone else, it reduces that problem. Second thing is that these vehicles typically employ far more leverage; one would be consistent with the groups’ intended rating. So again to have other capital to share the rest or just the economic exposure, it makes sense to us. but that doesn’t mean that we don’t actually have a formula to believe that the business can produce positive economics and we do. But we think that the combination of our capital and someone else’s, our market access, I mean the skills that the team have on the Admin Re site is actually a more compelling proposition than either an outright sale or outright ownership.

Eric Schuh

Connected to this question about, before we take the next question, we’ve got an e-mailed question from Michael Huttner who is following from JPMorgan, who is following the webcast, is also an Admin Re. His question is that if we are assuming a 30% minority in Admin Re to come in and to reduce EVM capital by about $1.5 billion. is it possible in that scenario that something similar as in 2012 happens when Admin Re U.S. was sold and Admin Re paid $1.2 billion dividend to the group and the group then paid a special dividend? So Michael is saying that his point is that he can understand why there’s no special dividend priority in the current plan that’s in this exceptional scenario, it could make sense. And then secondly, on the SST, what is the credit spread risk at the end of the rebalancing of the investment portfolio compared to before?

George Quinn

So I mean for obvious reasons, I’m going to avoid giving answers that ask about special dividends. It does not make sense in June to talk about special dividends in 2014. So I mean I appreciate the creative way of asking. But you have to forgive me; I won’t answer that particular question. On SST and credit spread risk, I don’t have it with me, I think it’s not difficult for us to find and get it to make a bit. I mean if you look at the year-end disclosures, I mean, we pointed out it about fifth in terms of the risk and I mean it’s relatively linear. So if you take the 2012 year-end sensitivities.

Unidentified Company Representative

3.3 I think…

Eric Schuh

We should probably get in line.

George Quinn

(Inaudible) calculation, so make a little bit and get back to you.

Eric Schuh

There are further questions in the room, maybe take Vinit first and then Fabrizio again.

Vinit Malhotra – Goldman Sachs International

Thanks, it’s Vinit from Goldman. So I was going to ask about the third bullet point missing there, but I’ll skip that. Just on the Corporate Solutions in the past, I mean, even today, you’ve confirmed that it has enough for growth or has always had enough for growth, but you’re still going to find sub debt to be used up in that business. Is there some more growth you’re seeing than it was expected in the past? and that’s really the question, thanks.

Unidentified Company Representative

So you’re right, I mean the thing is capitalized for the growth that we expect to see from it, I mean I think we’ve seen it reach levels of profitability that are higher than we probably expected at this point in the planning cycle and if we look at the market trends, we think they can actually produce more. And it’s not necessarily a question of taking more risks to deliver more. We think the margins will actually potentially be a bit higher in Corporate Solution. I mean if you look at it from where we are today, the biggest driver of improvement in Corporate Solutions is simply them using their entire base. So honestly in the cost base, they currently have – and the other big factor is the asset build up. So as they recreate their asset portfolio, you will see their investment income rise in the quarter, these are relatively short duration business. So by 2015, we should be just above that.

Vinit Malhotra – Goldman Sachs International

Sorry, can I just ask one?

Eric Schuh

Sure, go ahead.

Vinit Malhotra – Goldman Sachs International

A very, very rough calculation would suggest a 210 SST based on all the asset risk and everything. Is that somewhat consistent with what you would have expected and that will still give that 25%...

Unidentified Company Representative

So had to do the calculation (inaudible) slightly higher.

Vinit Malhotra – Goldman Sachs International

Slightly higher.

Unidentified Company Representative

Slightly higher.

Vinit Malhotra – Goldman Sachs International

Okay, thanks.

Fabrizio Croce – Kepler Capital Markets SA

Thank you for giving the chance and the time. I have – I am still trying to square the story with the excess capital, in Monte Carlo, you said that you are actually in talk with different regulation to implement nationwide programs or that you are tying the governmental way. Could you be that you are retaining as much capital in order that if such a program should arise. let’s say a program of $5 billion or $6 billion, something really big that you could take a huge share of this business and this actually being one of the reason for which you’re retaining as much excess capital?

Unidentified Company Representative

How long will we hold excess capital for, I mean if it’s an entirely theoretical possibility, two to three years from that, the answer is no. You wouldn’t do it, it just doesn’t make sense. If you’re perspective on the duration on market as such that there’s the possibility that you might see the opportunity and you may hold the capital for a bit longer to try and take a value and we’ve done that. It’s what relatively well for us in past periods. I mean, it needs to be realistic and it needs to be something I can communicate back to you or else going to convince you that we actually have a superior use for the money. Certainly it cannot be entirely speculative.

Eric Schuh

Okay. So, Thomas, next question.

Unidentified Analyst

Okay. Hi (inaudible). When you can calculate your leverage, do you take into account the cat bonds and not all this various instrument that you issue from time-to-time? And my second question is on the SST ratio. What are the key moving parts of this ratio and maybe could you share with us how it would look like where credit spreads maybe 100 basis point higher just kind of sensitivity. Thank you.

Unidentified Company Representative

Cat bonds, no. No cat bonds. In fact we have longevity, structure also, structure of the bonds in that one also. SST ratio, key moving parts, I mean, the question that Michael asked earlier was a table of sensitivities that we give and the appendix to the investor presentation at the year-end. That has presented sensitivities to internal capital moral changes and they are good for use in terms of SST sensitives. I mean, to put in context 100 bps is about $2 billion.

Eric Schuh

Tom Dorner, ask next question.

Tom M. Dorner – Citigroup Global Markets Ltd.

Hi, it’s Tom Dorner, Citi. Just two things quickly. Firstly, do you think it’s possible that pressure in the Nat Cat reinsurance space will free up a lot of capital for you in the coming years? And then, the second is, you mentioned that one of your uses of capital might be investing in reinsurance partners in emerging markets. I wonder if you could just give more color on that please. Thanks.

Unidentified Company Representative

So pressuring Nat Cat, is it possible, yes, but pricing, we have to go a long, long way from where it’s today. I mean, Nat Cat to the U.S. market was an example, I mean, there’s a general view that prices at the second will moderate on July 1. But I don’t think that will have any impact on the amount of risk that we take. We’ll renew everything. It’s still very, very profitable business.

Could it be so bad in the future that we actually get into a casualty type circumstance, we start to reduce Nat Cat. I mean, theoretically it’s possible. We got long, long way to go from where we are today and given the risk characteristics of that business I’ve been really surprised if we go there.

I mean if you get burned on that we’re all going to know it straight away, straight after the event. It’s not like casualty where you can pretend yourself for a long time that that wasn’t really as bad as the market believes. So theoretically, yes. Practically, I don’t think so, but who knows.

Our reinsurance policy, I guess we actually said more carefully, I mean invest in insurance clients, I guess the more likely thing would do. I mean, we’ve done, I mean, Christian and the team have made some small investments already. They continue to look at portfolio of potential additional investments.

I mean so far we haven’t talked about big dollar numbers, $25 million, $50 million, I mean larger is conceivable. But I mean given that when we underweight our clients’ risks we have taken a very close look at what we do and how they do it and you can’t form an impression overall of what you think a likelihood of success is in future and whether it’s from a reinsurance perspective or from an investment perspective. We always want to try and pick the winners.

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