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MN-2550-2/16 SIDLEY GLOBAL INSURANCE REVIEW SIDLEY GLOBAL INSURANCE REVIEW March 2016 The insurance industry has a global reach. Insurers and reinsurers are critically important to the world economy. They assume and transfer all manner of risk across the globe, and serve as an enormous investor base for the world’s capital markets and beyond. Risk is increasingly shared globally among traditional and new market entrants. Risk generated in one part of the world is distributed immediately across multiple continents to other market participants, whether they be other insurers, reinsurers, private equity sponsors or capital market investors. The insurance industry is constantly evolving, and requires regulatory regimes and market participants to adapt on a frequent basis. Regulatory issues arising in one market may influence the way in which similar regulatory concerns are addressed in other markets. To understand the insurance industry, one must have a solid understanding of global developments. We prepared this publication as a tool to assist readers in obtaining such understanding. We realize that no one publication could provide adequate coverage to each and every recent global development without becoming cumbersome. Accordingly, this publication attempts to provide an overview of major legal and market developments in the global insurance industry arising over the past year. We have focused on developments in the United States, United Kingdom, European Union, Asia and other markets with intense insurance activity, such as Bermuda. This review has been produced by the Insurance and Financial Services group of Sidley Austin LLP. Sidley is one of the world’s premier law firms, with 1,900 lawyers across 19 offices in North America, Europe, Asia and Australia. Sidley is one of only a few internationally recognized law firms to have a substantial, multidisciplinary practice devoted to the insurance industry. We have more than 90 lawyers devoted to providing both transactional and dispute resolution services to the insurance industry throughout the world. Our Insurance and Financial Services group has an intimate knowledge of, and appreciation for, the insurance industry and its unique issues and challenges. Regular clients include many of the largest insurance and reinsurance companies, their investors and capital providers, brokers, banks, investment banking firms and regulatory agencies for which we provide regulatory, corporate, capital markets, securities, mergers and acquisitions, private equity, insurance-linked securities, derivatives, tax, reinsurance dispute, class action defense, insolvency and other transactional and litigation services. We hope you enjoy this edition of the Sidley Global Insurance Review. 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The firm claims a copyright in all proprietary and copyrightable text in this report. i SIDLEY GLOBAL INSURANCE REVIEW TABLE OF CONTENTS I. The Global Mergers and Acquisitions Market ....................................................1 A. North American Market ......................................................................1 1. Introduction .................................................................................. 1 2. Health Mega-Mergers .......................................................................... 1 3. Asian Acquirers ............................................................................... 1 a. Chinese Acquirers .......................................................................... 1 b. Japanese Acquirers .......................................................................... 2 4. Continued Consolidation Among P&C Reinsurers .................................................... 2 5. Other Notable Activity .......................................................................... 2 a. LTC Market ................................................................................ 3 b. Other Life Activity. 3 c. Continued Canadian P&C Consolidation ......................................................... 3 6. Outlook for 2016 .............................................................................. 3 B. European and Asian Markets ..................................................................4 1. Europe ...................................................................................... 4 2. Asia Pacific ................................................................................... 5 II. The Global Alternative Risk Transfer Market ....................................................5 A. Life & Annuity Market ........................................................................5 1. The State of the Reserve Financing Market .......................................................... 5 a. PBR Adoption Update ....................................................................... 5 b. Adoption of AG 48 .......................................................................... 5 c. Adoption of RBC. 6 d. Significant Proposals ......................................................................... 6 i. Credit for Reinsurance ..................................................................... 6 ii. Accreditation ............................................................................ 7 iii. Variable Annuity Captives .................................................................. 7 2. Transactions .................................................................................. 7 a. Regulation XXX/Regulation AXXX Transactions .................................................... 7 b. Embedded Value/Closed-Block Transactions ...................................................... 7 3. Market Outlook ............................................................................... 8 B. P&C Market ................................................................................8 1. Catastrophe Bonds. 8 2. Traditional Reinsurers in the ILS Market. 9 3. Investment Manager Activity ..................................................................... 9 4. Outlook Ahead ............................................................................... 10 C. Traditional Capital Markets ...................................................................10 III. The Global Longevity Market ..................................................................10 A. Transaction Structures .......................................................................11 1. Buy-Outs .................................................................................... 11 2. Buy-Ins