Overview and Trends in Insurance Portfolio Management

Investment Symposium March 2010

I4: Market Overview and Trends in Insurance Portfolio Management

Len Carlson Scott Robinson Greg Smith

Moderator Ken Griffin

Government: New Partner or Peril?

Presented by Len Carlson, CFA Managing Director, Portfolio Management

SOA Investment Symposium, Marriott New York Marquis, March 22, 2010

All rights reserved. This presentation is produced by Conning and may not be reproduced or disseminated in any form without the express permission of Conning. This presentation is intended only to inform readers about general developments of interest and does not constitute investment advice. While every effort has been made to ensure the accuracy of the information contained herein, Conning does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon this information. Conning does not guarantee that this presentation is complete. Opinions expressed herein are subject to change without notice . Past performance is no indication of future results. Conning is a portfolio company of the funds managed by Aquiline Capital Partners LLC ("Aquiline", a New York-based private equity firm,) with offices in Hartford, New York, Dublin and London.

Investment Actuarial Symposium – March 22, 2010 1

1 The Debt Cycle - Levels Rise to New Highs

(US Debt/GDP)

Source: Morgan Stanley, Federal Reserve, BEA, Datastream, “The Statistical History of the United States”

Investment Actuarial Symposium – March 22, 2010 2

Policy Responses to the Financial Crisis

Stabilize financial institutions

Provide liquidity

Deficit spending

Increased regulation

Increased and lasting market influence

Investment Actuarial Symposium – March 22, 2010 3

2 Policy Response Effects – Fixed Income Spreads Barclays Indices OAS 1998 - 2010

Source: Barclays

Investment Actuarial Symposium – March 22, 2010 4

The Federal Reserve Balance Sheet

U.S. Federal Reserve Balance Sheet ($BN) US Billion

Source: Strategas

Investment Actuarial Symposium – March 22, 2010 5

3 Excess Reserve Worries – Inflationary Tinder?

Depository Institutions Monetary Base, Excess Reserves $million $2,200

$2,000

$1,800

$1,600

$1,400

$1,200

$1,000

$800

$600

$400 Depository Institutions Monetary Base Depository Institutions Excess $200 Reserves $0 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Source: Source: Bloomberg, Conning Analytics

Investment Actuarial Symposium – March 22, 2010 6

The Fed’s Exit Strategy

Raise the Fed Funds rate

Wind-down of short-term lending

Interest on excess reserves

Reverse repurchase agreements

Term deposits

Portfolio runoff and asset sales

Investment Actuarial Symposium – March 22, 2010 7

4 The Fed’s Exit Strategy

Use of multiple tools

Despite knowledge of responses, experience is limited

Timing is critical

Too early – choke off recovery, increased fiscal stimulus and deficit spending likely

Too late – inflationary pressures rise

Historically, bias has been one of extended easing

Tightening policy rarely initiated in months preceding elections

Alternative tools less visible than Fed Funds

FOMC telegraphing change

Investment Actuarial Symposium – March 22, 2010 8

Deficit Spending – Balloons Government Debt

CBO’s Baseline Budget Outlook

Source: CBO Jan. 2010

Investment Actuarial Symposium – March 22, 2010 9

5 Deficit Spending – Balloons Government Debt

Budget Outlook 2010 Effects of Selected Policy Alternatives on the Deficit (In billions of dollars)

Source: CBO Jan. 2010

Investment Actuarial Symposium – March 22, 2010 10

Deficit Spending – Balloons Government Debt

Budget Balance (% of GDP)

Source: Action Economics

Investment Actuarial Symposium – March 22, 2010 11

6 Deficit Spending – Implications

Greece – Tragedy avoided or the canary in the coal mine?

Crisis of confidence and credibility for Greece

Large deficits and weak growth plague others

Increasing focus on structural versus cyclical deficits

Return of sovereign risk considerations

Developpped and developing countries alike

Investment Actuarial Symposium – March 22, 2010 12

Deficit Spending – Implications

Increased volatility

Sovereign to corporate spreads relationships may tighten, but unlikely to remain inverted

Risk of crowding out as private sector credit demand rises

Growth dampened by debt loads, higher taxes, fiscal restraint

Policy errors/shifts – “IMF Tells Bankers to Rethink Inflation” -Wall Street Journal, February 12, 2010

Inflation levels that are not priced into the market

Investment Actuarial Symposium – March 22, 2010 13

7 Municipal Issuers Feel the Pinch

State and local issuers State Revenue Declines over the Past Two Recessions are experiencing significant revenue shortfalls

Revenue squeezes are expected through 2011

Many pension plans are significantly underfunded

Other post-retirement benefit obligations (OPEB) pose additional fdiifunding issues

Fundamentals are Source: Pew Center on the States 2010, Nelson A. Rockefeller Institute of Government’s declining, unpopular State Revenue Reports actions are needed to arrest these trends

Investment Actuarial Symposium – March 22, 2010 14

Municipal Opportunities – Taxable Issues

Build America Bonds - BABS - Authorized under the American Recovery and Reinvestment Act of 2009

Provides municipal issuers a taxable issuance option with a federal interest subsidy for capital projects.

BAB interest subsidy equal to 35% of taxable interest paid is provided to the issuer in arrears

States, transportation agencies and utilities with large capital programs are larges issuers

Typically 30 to 40 year non-call 10 and bullet maturities with make whole call features tailored to the taxable market

Opportunity to diversify long credit risk away from corporates, but credit work is essential!

Recent* Issuer Rating Coupon Maturity Spread NY MTA- Dedicated Tax AA/A+ 7.336 11/15/39 +170bps Miami -D ad e Trans it A1/AA/A+ 69106.910 07/01/39 +225bps Dallas Rapid Trans Aa3/AAA 6.249 12/01/34 +135 bps Illinois St Tolls Aa3/AA-/AA- 5.293 01/01/24 150bps/10's New Jersey St Trans A1/AA-/A+ 6.875 12/15/39 +190bps NYC Water Auth Aa3/AA+/AA 6.250 06/15/41 +180bps Port Seattle Wash Aa2/AA-/AA 7.000 05/01/36 +165bps Univ of Texas Aaa/AAA/AAA 6.276 08/15/41 +120bps Univ of North Carolina Aa1/AA+/AA+ 5.757 12/01/39 +140bps Los Angeles Schools Aa3/AA- 6.758 07/01/34 +200bps *As of 2/18/10

Source: Conning, Bank of America Merrill Lynch

Investment Actuarial Symposium – March 22, 2010 15

8 CMBS - Government Medication Treats the Symptoms

AAA spreads have recovered Property values remain depressed

Barclays CMBS Index Spreads Commercial and Residential Cumulative Property Price Returns

6250 6250 100%

Moody's/Real Commercial Price Index 90% Case Shiller 20 MSA Residential Price Index 5000 5000 80% ) 70% 3750 3750 from 12/00 from

( 60% Spread Spread 2500 2500 50%

40% Current index down 29% from 07/06 peak 1250 1250 30% Cumulative Price Return Return Price Cumulative

20% 0 0 Current index down Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 10% 43% from 10/07 peak Source: Bloomberg/Conning Analytics 0% 01/31/2010 MIN MAX MEAN Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 5 Yr AAA CMBS vs. Treasury 250 50 1000 255 10 Yr AAA CMBS vs. Treasury 430 61 1125 281 10 Yr AA CMBS vs. Treasury 3600 68 4125 1123 Source: Moody’s, Real Estate Analytics LLC, Bloomberg 10 Yr A CMBS vs. Treasury 4660 77 4850 1419 10 Yr BBB CMBS vs. Treasury 5870 119 6000 1843

Source: Barclays

Investment Actuarial Symposium – March 22, 2010 16

CMBS – The Fundamentals are Challenging

Commercial Mortgage Maturities By Lender Type

Source: Congressional Oversight Panel, Foresight Analytics

Investment Actuarial Symposium – March 22, 2010 17

9 Corporate Sector Impact

Increased regulation and scrutiny for Financials

Consumer protection

Systemic risk

Derivatives

Reduction of implied support could negatively effect ratings on senior debt

Financial sector most exposed to sovereign issues

Investment Actuarial Symposium – March 22, 2010 18

Mortgage Backed Securities

350 42 The $1.25B Fed purchase program has 300 kept valuations at rich 37

levels. Spreads are 250 vulnerable to some 32 wideni ng as th e 200 Government

medication wears off p Vol % Vol S

Program to be 100 completed by March 31 22 50 Reinvestment of funds 17 from Agency buyouts of 0 delinquent mortgages may mitigate near-term -50 12 widening Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Source: Bloomberg/Barclays/Conning Analytics Many investors already 01/31/2010 MIN MAX MEAN positioned for widening 30 Yr MBS Curr.Cpn vs.Treasury 155 96 300 156 5 x 5 Swaption Volatility 24.87% 13.80% 36.70% 20.34% 30 Yr MBS OAS Spread 1 -18 135 44 30 Yr MBS Zero Volatility Spread 45 21 187 106 30 Yr MBS OAS vs. 10 Yr Agcy -23 -81 60 -4 30 Yr MBS vs. 10YSwap Spread 64 53 173 80.43

Investment Actuarial Symposium – March 22, 2010 19

10 Future Structure of FNMA & Freddie Mac? U.S. Government Accountability Office (GAO) produced a detailed report to Congress in October, 2009 examining potential structures:

Establishment of a government corporation or agency: Focus on purchasing qualifying mortgages and issuing MBS, but eliminate retained mortgage portfolios. Probability relatively high

Re-establish for-profit enterprises with government sponsorship: Restore the enterprises to their previous status, but add controls and regulation; Impose public-utility-like regulation with business activity restrictions and profitability limits. Probability low

Privatization: Abolish the enterprises and disperse mortgage lending and risk management to the private sector. Probability low

Under all of these scenarios , we believe pre-existing GSE debt and MBS guarantees will continue to be fully supported by the Treasury

The sustainability of AAA ratings of the U.S. government will be the topic of increasing scrutiny in the intermediate term

GSE debt and MBS will remain closely tied to this issue

Investment Actuarial Symposium – March 22, 2010 20

Summary

Sovereign risk has returned

Volatility likely to be higher, systemic risk elevated

Combined effect is an upward pressure on spreads

Financials most exposed corporate sector

Markets likely to become less tolerant of delays in addressing cyclical and/or structural deficits

Seeds of secular change in policy makers’ views on inflation? (Markets are not priced for this)

Investment Actuarial Symposium – March 22, 2010 21

11 ABOUT CONNING As a knowledge leader for the insurance industry, Conning serves clients with a unique combination of asset management, insurance research and strategic consulting. Headquartered in Hartford, CT, with offices in New York, London and Dublin.

CONNING RESEARCH & CONSULTING is a Hartford, CT-based publisher and consulting firm with more than 40 years of industry experience. Conning Research’s team of analysts bring a wealth of industry knowledge from their prior operating roles in insurance. For more information on Conning Research & Consulting and its services, please call 888-707-1177 or visit www.conningresearch.com

All rights reserved. This presentation is produced by Conning and may not be reproduced or disseminated in any form without the express permission of Conning. This presentation is intended only to inform readers about general developments of interest and does not constitute investment advice. While every effort has been made to ensure the accuracy of the information contained herein, Conning does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon this information. Conning does not guarantee that this presentation is complete. Opinions expressed herein are subject to change without notice. Past performance is no indication of future results. Conning is a portfolio company of the funds managed by Aquiline Capital Partners LLC ("Aquiline", a New York-based private equity firm,) with offices in Hartford, New York, Dublin and London.

12 An Uppydate on the Life Insurance Industry A Rating Agency Perspective

Scott A. Robinson, Senior Vice President

Investment Actuarial Symposium March 22, 2010

2 Agenda

• Ratings/Financial Trends • How Has Moody’s Life Insurance Group Reacted to the Financial Turmoil? • What Does the Market Think? • Lingering Questions on Investor’s Minds »Commercial Real Estate

Investment Actuarial Symposium March 22, 2010

1 Ratings/Financial Trends

4 Ratings Trends in North American Life Insurance Sector

Rating Distribution (53 Groups) Insurance Financial Strength Rating 35 30 Aa3

25 A1 20 tings

a A2 15 R 10 A3

5 Baa1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 Aaa Aa A Baa

Upgrades and Downgrades Outlook Distribution 25 57% 20

10 2% 38% 4% 5

0 2000 2002 2004 2006 2008 Upgrades Downgrades Negative Positive Stable Developing As of March-11-2010

Investment Actuarial Symposium March 22, 2010

2 5 Financial Profile: Net Income (2001-2009)

-10

-20

-30

-40

-50 2001 2002 2003 2004 2005 2005 2006 2007 2008 2009 * AIG Insurance * Excludes 2 companies

Investment Actuarial Symposium March 22, 2010

6 Below Investment Grade Bonds % of Total Bonds

12%

10% s

8% 1% 2% 1% 1% 1%

6% 1% 1% 2% 2% 0% 0% 1% 2% 2% 2%

2% 2% 2% 2% 2% 4% BIG Bonds % of Total Bond BIG Bonds % of Total 5% 5% 5% 2% 4% 4% 4% 4% 3% 4% 4%

0% 2003 2004 2005 2006 2007 2008 Q1-09 Q2-09 Q3-09 2009

Class 3 Class 4 Class 5 Class 6

Investment Actuarial Symposium March 22, 2010

3 7 NAIC RBC Trend

500%

450%

400%

350%

300%

250%

200%

150%

100% 2001 2002 2003 2004 2005 2006 2007 2008 2009 * Average RBC * Excludes 2 companies

Investment Actuarial Symposium March 22, 2010

How Has Moody’s Life Insurance Group Reacted to the Financial Turmoil?

4 9 Stress Testing Insurers

» Ratings need to be forward-looking (incorporating expectations), and not wait until reported results » Apply firm -wide macroeconomic scenario to industry and establish expectations for key uncertainties under base case and stress case scenarios

» Using rating methodology & scorecards, evaluate rating profile under base case and stress case scenarios » Scenarios impact business as well as financial profiles

Investment Actuarial Symposium March 22, 2010

10 Stress Testing Insurers, continued

» Stress case i ndi cat ed rati ng i nfl uences our rating now » Differentiate between 2 insurers with same base case rating but different stress ratings » Position rating today so if the stress scenario happens, we would not expect to downgrade more than a few notches » If stress scenario appears more likely, then ratings will move closer tdttilltoward stress rating level

Investment Actuarial Symposium March 22, 2010

5 11 Stress Testing Insurers--Investments

Economic Loss Factors Base Case Stress Case Cash and short term 0% 0% US Government and agencies 0% 0% Agency MBS 0% 0%

Foreign governments .25% 1.5% Municipals .25% 1.5%

I-G Corporates .25% 1.5% B-I-G Corporates 5% 10%

Structured – RMBS Varies Varies Structured – CMBS Varies Varies Structured – ABS Varies Varies Structured – Other Varies Varies

Redeemable preferred stock .5% 2.5% Non redeemable preferred 1% 5%

Commercial Mortgages 3% 10% Real Estate 5% 20%

Equities 0% 25% Limited partnerships/Alternatives 0% 25%

Investment Actuarial Symposium March 22, 2010

Life Insurance Investment Portfolio

Distribution of Stress Case Losses (US $ 120 - 130 billion)

Commerical Mortgage / Real Estate Eq u it ie s 19% 12% Limited partnerships 7%

Other 11%

B-I-G corporates 8%

RM BS I-G Corporates 22% 12% ABS CMBS 8% 1%

Investment Actuarial Symposium March 22, 2010

6 13 Stress Testing Insurers—Variable Annuities

• Life Insurers Stress Case:

» VAs with Guarantees: Stress Case—S&P 500 @ 800

» Look at GAAP, regulatory as well as economic impact, the latter two being captured through Moody’s VA survey

– Regulatory impact – VACARVM, C3 Phase II

– Economic impact - look at CTE 98, looking through offshore reinsurance

» Consider variables other than S&P levels - interest rates, volatility, foreign currency in deterministic scenarios

» Ranges of policyholder behavior effectiveness

» What are companies hedging? What are they not hedging?

Investment Actuarial Symposium March 22, 2010

14 Incorporating Base and Stress into Scorecard

Base and Stress Scorecards Key Variables Factor Investment losses Part 1 - Business Profile weight Factor 1: Market Position and Brand 15 Equity market decline impact on VA Factor 2: Distribution 10 Disruption of distribution Factor 3: Product Focus and Diversification 15 Part 2 - Financial Profile Factor Operating income decline weight

Credit ratings migration on Factor 1: Asset Quality 5 investment portfolio Factor 2: Capital Adequacy 10

Liquidity stress – opco and Factor 3: Profitability 15 holdco Factor 4: Liquidity 10

XXX / AXXX solutions Factor 5: Financial Flexibility 20

Investment Actuarial Symposium March 22, 2010

7 15 Incorporating Base and Stress into Scorecard

ABCDEFGHI

Current YE Last Traditional Raw Last YE Raw Base Case Stress Case published Base Case Stress Case Proposed Score (1&5 yr Score (1 yr Raw Score Raw Score adjusted Adjusted Adjusted Adjusted Financial Strength Rating Scorecard [1] metrics) metrics) (1 yr metrics) (1 yr metrics) score Score Score Score

Business Profile Aa2 Aa2 Aa3 A1 A1 A1 A3A1 Market Position , Brand and Distribution (15%) Aa1 Aa1 Aa1 Aa3 Aa2 Aa3 A2 Aa3 Market Share Ratio Aa Aa Aa A Relative Market Share Ratio Aaa Aaa Aaa Aa Distribution (10%) A1 A1 A1 A2 A1 A1 Baa1 A1 Distribution Control A A A A Diversity of Distribution Aa Aa Aa A Product Focus and Diversification (15%) Aa3 Aa3 A2 A2 A2 A2 A3A2 Product Risk A A Baa Baa Life Insurance Product Diversification Aaa Aaa Aaa Aaa

Financial Profile A2 A2 A1Baa1A1 A1 Ba1 Baa1 Asset Quality (5%) Aa1 Aa1 Aa1 Aa1 A1 A1 A3A1 High Risk Assets % Invested Assets 6.0%/Aaa 6% 6.0% 9.0% Goodwill % Equity 28.0%/A 28.0% 25.0% 35.0% Capital Adequacy (10%) Baa2 Baa2 Baa2 Baa2 Aa3 A3 Ba3 Baa2 Equity % Total Assets 5.0%/Baa 5.0% 5.0% 4.0% Profitability (15%) Baa1 Baa2 A2Ba2A1 A1 Ba2 Baa2 Return on Equity (5 yr. avg. ) 90%/A9.0%/A 14. 0% -5. 0% Sharpe Ratio of Growth in Net Income (5 yr.) 20.0%/Baa 20% 30.0% -1.0% Liquid and Asset/Liability Management (10%) Aaa Aaa Aaa Aa2 Aa3 Aa3 A3Aa3 Liquid Assets Divided by Policyholder Reserves 90.0%/Aaa 90% 90.0% 80.0% Financial Flexibility (20%) A2 A1 A1Baa3A2 A2 Ba3 Baa2 Financial Leverage 29.0%/Aa 29.0% 26.0% 35.0% Earnings Coverage (5 yr. avg.) 4.0x/A 4.0x 4.0x -1.0x Cashflow Coverage (5 yr. avg.) 2.0x/Baa 3.0x 3.0x -1.0x Total Scorecard Rating A1 A1 Aa3 A3 A1 A1 Baa3 A3 Total Scorecard Rating -- Value 4.67 4.71 4.50 7.09 4.74 5.19 9.50 6.65

Investment Actuarial Symposium March 22, 2010

What D oes the Mar ke t Think?

8 17 The Credit Market’s view: Life Insurers

Life Insurance (CDS Ratings)

4 1,100

Quarterly Monthly 1,000 2 900

0 800 Jun- Dec- Jun- Dec- Jun- Dec- Jun- Aug- Oct-07 Dec-0 Feb-0 Apr-0 Jun-0 Aug- Oct-08 Dec- Feb- Apr- Jun- Aug- Oct-09 Dec- Feb- 04 04 05 05 06 06 07 07 7 8 8 8 08 08 09 09 09 09 09 10 700

-2 600

500 -4 CDS Spreads

400 CDS GAP CDS GAP (MDY- CDS RATING)

-6 300

200 -8 100

-10 -

MEDIAN GAP Median CDS Spreads

Investment Actuarial Symposium March 22, 2010

18 Life Insurer CDS-Implied Ratings

Aa2

Baa2

Ba2

Caa2

J-08 F-08 M-08 A-08 M-08 J-08 J-08 A-08 S-08 O-08 N-08 D-08 J-09 F-09 M-09 A-09 M-09 J-09 J-09 A-09 S-09 O-09 N-09 D-09 J-10 F-10

AEGON N.V Genworth Financial, Inc. Lincoln National Corporation MetLife, Inc. Prudential Financial, Inc. Prudential plc

Investment Actuarial Symposium March 22, 2010

9 Whyyy Are Moody’s Ratings Not in line with Market-Implied Ratings?

20 Fundamental Reasons for the Gap

1. Investment horizon 2. Opaque fi nanci al s an d comp lex lia bilities 3. Unrealized investment losses could materialize into losses 4. Concern over inability to access capital markets / capitalization at statutory entities 5. Fear of run-on-the bank scenario 6. Lingering concerns about commercial real estate

Investment Actuarial Symposium March 22, 2010

10 LingggQering Questions from Investors

22 How big an issue is CRE / CMBS for the life industry?

» ~$300 billion of CRE loans outstanding on balance sheet – 10% of invested assets,,gyp 125% of regulatory capital » CMBS (mostly super senior Aaa) represent another ~$225 billion of investments on balance sheet » Relative exposure to commercial mortgage loans declining since 1990s when it represented ~30% of invested assets and burned the industry

Investment Actuarial Symposium March 22, 2010

11 23 CRE Exposure & Trends

» Life insurers lost market share to CMBS conduits in past 10 years – Industry didn’t loosen underwriting standards as much as CMBS loans » Instead, industry purchased super-senior Aaa CMBS tranches

Investment Actuarial Symposium March 22, 2010

24 CRE Exposure—Lending Activity Relative to CMBS

New Issuance Growth: Life insurers vs. CMBS

240 100%

210 75%

180 50%

150 25%

120 0% $ in Billions 90 -25%

60 -50%

30 -75%

0 -100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Est 2009

CMBS issuance (L axis) Life insurers issuance (L axis)

CMBS annual growth rate (R axis) Life Ins. annual growth rate (R axis)

Investment Actuarial Symposium March 22, 2010

12 25 Profile of CRE

» Mostly fixed-rate 10 year (20-30 yr amortization) loans on fully developed, stabilized properties – No construction or speculative lending

» Loans outstanding – 60% LTV, 1.8x DSC, 7%-8% cap rates – Well-diversified by property-type and geographic region

» Well-laddered portfolio with ~10%-15% maturing annually – Average life is 7-10 years

Investment Actuarial Symposium March 22, 2010

26 Profile of CRE

» Mostly fixed-rate 10 year (20-30 yr amortization) loans on fully developed, stabilized properties – No construction or speculative lending

» Loans outstanding – 60% LTV, 1.8x DSC, 7%-8% cap rates – Well-diversified by property-type and geographic region

» Well-laddered portfolio with ~10%-15% maturing annually – Average life is 7-10 years

Investment Actuarial Symposium March 22, 2010

13 27 Loss Estimates for CRE

» Our concerns focused on loans with LTVs > 90% and/or DSCs < 1.2x, especially those maturing

» CMBS Team provided us with lifetime loss factors based on profile of insurers’ CRE – Base case: 3% – Stress case: 10%

Investment Actuarial Symposium March 22, 2010

Summary

14 29

Bumpy Road to Recovery

Positives: » Access to capital markets is improving for institutions broadly, including life insurers » Capital erosion is moderating » Fixed income spreads have tightened dramatically » Recent stabilization in equity markets: both market level and volatility Negatives: » Although capital markets appear to be stabilizing, sustainability of improvement is not assured » Continued elevated investment losses and downgrades of securities will pressure capital adequacy; commercial mortgage loan losses have yet to emerge » Inforce blocks of marginally profitable VAs with guarantees; hedging cost and effectiveness remain concerns » Product sales are down significantly and consumers remain under pressure (winners and losers in the current environment) Æ Signs of stabilization in life insurer credit profiles, but significant negative pressures persist, making for a bumpy road to recovery

Investment Actuarial Symposium March 22, 2010

www.moodys .com

15 31

© 2009 Moody’s Corporation and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are , and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. Moody’s Investors Service, Inc. (“MIS”), a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Investment Actuarial Symposium March 22, 2010

16 Life Insurance Investments in 2009

Presented by Gregory M. Smith, FSA, MAAA Vice President, Research & Publications

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 1

All rights reserved. This presentation is produced by Conning and may not be reproduced or disseminated in any form without the express permission of Conning. This presentation is intended only to inform readers about general developments of interest and does not constitute investment advice. While every effort has been made to ensure the accuracy of the information contained herein, Conning does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon this information. Conning does not guarantee that this presentation is complete. Opinions expressed herein are subject to change without notice. Past performance is no indication of future results . Conning is a portfolio company of the fufundsnds managed by Aquiline Capital Partners LLC ("Aquiline", a New York-based private equity firm,) with offices in Hartford, New York, Dublin and London.

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 2

1 Aggregate Results for 2009

Operating Gain, Capital Gains and Losses, and Net Income– Net Stat Gain of $21.4 billion ($ in billions) Realized Capital Gain Realized Capital Loss Net Income $60 $50 $40 $30 $20 $10 $0 -$10 -$20 -$30 -$40 -$50 -$60 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E Source: Conning Research & Consulting, Inc. analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 3

Statutory Net Income by Component

Net Operating Gain (Loss) Excluding Individual Annuities Individual Annuities Net Operating Gain (Loss) Realized Capital Gains and Losses $60

$30

$0 $ in Billions$ Indiv Ann Indiv Ann Gain lized CGL et Income -$30 N Rea Indiv Indiv Gain, ex Gain, ex

-$60 2004 2005 2006 2007 2008 2009E Years Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 4

2 Noticeable Changes in the Mix of Assets

Asset Mix

100%

s Other 90% Schedule BA Common Stock

84% 84% 85% Preferred Stock 82% Mortgages & Real Estate 80% 81% 81%

As % of Investable Asset Cash & Bonds

70% 2004 2005 2006 2007 2008 2009E

Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 5

Allocations Then and Now

Allocations to Major Asset Classes in 2004 versus 2008 by Business Focus

Cash & Bonds Mortgages & Real Estate Preferred Stock Common Stock Schedule BA Other

100%

97%

93% 90% 91% 88% 86%

82% 80% 81% 81%

% of Investable Assets Investable of % 78% 77%

70% '04 Life '08 LIfe '04 '08 '04 A&H '08 A&H '04 '08 '04 Reins '08 Reins Annuity Annuity Mixed Mixed

Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 6

3 Impairments by Business Focus

Impairments by Asset Class and Business Focus Cash & Bonds Mortgages & Real Estate Preferred Stock Common Stoc k Schedule BA Other as % of BOY Surplus + AVR 100% 20% 18% As % of % As BOY Surplus 90% 16% 14% 80% 12% 78% 10% 70% 8% of Total Impairments Total of 69% 6% + AVR 67% 66% 60% 64% 4% As % 2% 55% 50% 0% 2004 2005 2006 2007 2008* 2009E *Certain AIG impairments in aggregate write-ins are Source: Company filings, Conning analysis omitted from 2008.

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 7

AVR’s Impact on Surplus was Modest in 2009

Asset Valuation Reserve versus Realized Gains & Losses

Realized Gains & Losses Impact of AVR on Surplus EOY AVR

$50 $40 $30 $20 $10 $0 -$10

$ in Billions in $ -$20 -$30 -$40 -$50 -$60 2001 2002 2003 2004 2005 2006 2007 2008 2009E

Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 8

4 Allocations to Cash Increase

Liquidity of Bond Portfolio—All Companies

% Public % 144(a) Public % Cash & Short-Term Bonds

100%

90%

80%

75% 70% 74% 74% 73% 69% 69% 60%

As % of Total Bonds 50%

40% 2004 2005 2006 2007 2008 2009E

Cash holdings at 185% and 160% of 2007 levels

Source: Company filings, Conning Research & Consulting analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 9

Bonds: BIGs Are Up - Overall Quality Slips Again

NAIC Designations and Average Quality of Bond Portfolio

10 0 % 1. 5 0

98% 1. 4 5 BIG 5.8% 5.7% 5.8% 6.2% 6.4% 7.7% 96% 1. 4 0 Investment Gr ade Over all 94% 1. 3 5 Quali ty (RH)

94.2% 94.3% 94.2% 92% 93.8% 93.6% 1. 3 0 92.3%

90% 1. 2 5 2004 2005 2006 2007 2008 2009E

Lower scores on the right hand scale equate to higher quality.

Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 10

5 Returns for Bond Portfolio Drive Overall Results

Returns by Asset Class (% of average investable assets) 2005 2006 2007 2008 2009E

Bonds Gross Book Yield (()GBY) 5.81% 5.87% 5.98% 5.73% 5.60% Bonds Gross Total Return (GTR) 3.18% 4.56% 5.19% (5.02%) 14.17% Mortgages GBY 7.12% 6.87% 6.58% 6.25% 6.13% Mortgages GTR 7.15% 6.86% 6.78% 5.81% 5.59% Preferred Stock GBY 5.96% 7.90% 6.52% 6.25% 6.74% Preferred Stock GTR (2.07%) 10.65% 0.33% (28.55%) N/A* Common Stock GBY 2.65% 2.82% 2.91% 3.40% 2.70% Common Stock GTR 8.77% 16.72% 5.86% (33.44%) 25.05% Total Investable GBY 6.03% 6.15% 6.18% 5.77% 5.47% Total Investable GTR 3.98% 5.39% 5.48% (4.28%) 11.93%

*GTR is not available at this time due to accounting reclassification. Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 11

Quest for Yield was Successful…in 2006 and 2007

Forecast Asset Mix, Gross Book Yield and Risk-Free Rate ($ in millions, as % of underlying investable assets)

$2,800 6.5%

Other $2,600 6.0% Schedule BA

Common Stock $2,400 5.5% Preferred Stock

Mortgages & Real Estate

$2,200 $2,329 5.0% Cash & Bonds

4 07 Moving Avg 10-yr Treasury 2,158 8 1 $2,000 $ 4.5% $2, Gross Book Yield $2,0 $2,087

$1,800 4.0% 2005 2006 2007 2008 2009E

Source: Company filings, Conning analysis

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 12

6 The View from 40,000 Feet

S&P 500 FTSE DA X Hang Seng Separate Account General Account Year-over-Year Growth in GA Assets 120% $3,600 12% 100% $3,200 10% $2,800 80% $2,400 8% $2,000 60%

6% vested2007 at Sep Billions $1,600 n

$ in $ in $1,200 4% 40% $800 2% 20% $400

$0 0% Growth of I $1 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009E 9/07 12/07 3/08 6/08 9/08 12/08 3/09 6/09 9/09 12/09 3/10 Source: Company filings, Conning analysis Source: Yahoo Finance

140.0 2001 2002 2003 2004 2005 2006 2007 2008 s

e 4% 137.5 3%

2% t HH Incom nt in Million 135. 0 1%

0% 132.5 -1%

-2% 130.0

-3% Nonfarm Employme

% Real Change in Lower Limi Lower Change in % Real -4% 127.5 Top Quintile Fourth Quintile Third Quintile Second Quintile 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Census Bureau Source: Bureau of Labor Statistics

SOA Investment Actuary Symposium Session I4, Marriott New York Marquis, March 22, 2010 13

ABOUT CONNING As a knowledge leader for the insurance industry, Conning serves clients with a unique combination of asset management, insurance research and strategic consulting. Headquartered in Hartford, CT, with offices in New York, London and Dublin.

All rights reserved. This presentation is produced by Conning and may not be reproduced or disseminated in any form without the express permission of Conning. This presentation is intended only to inform readers about general developments of interest and does not constitute investment advice. While every effort has been made to ensure the accuracy of the information contained herein, Conning does not guarantee such accuracy and cannot be held liable for any errors in or any reliance upon this information. Conning does not guarantee that this presentation is complete. Opinions expressed herein are subject to change without notice. Past performance is no indication of future results. Conning is a portfolio company of the funds managed by Aquiline Capital Partners LLC ("Aquiline", a New York-based private equity firm,) with offices in Hartford, New York, Dublin and London.