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Aon Benfield Securities

In its press release, RMS stated that “(a)s a result of the model changes, RMS expects to see wind risk increase for all hurricane states on an industry-wide basis. However, individual portfolios will dier considerably depending on the region and line of business. On a wind-only basis, portfolios concentrated along the coast will show the smallest increase in wind losses, and may even decrease in some regions. Portfolios consisting of non-coastal exposure and commercial or industrial business will generally show the largest increases.” 1

The press release continues, saying “(c)hanges in loss results in the market portfolios analyzed by RMS typically range between +20% to +100%. However, there are extreme cases above and below this; in particular, concentrated portfolios will see changes outside of the range, including some decreases. Storm surge impacts will vary considerably according to the geographic makeup, lines of business, and data resolution of each portfolio. However, risk could increase in coastal locations due to the combined impacts of wind and storm surge, especially for commercial and industrial lines, which often cover surge-driven flood losses. The impact of surge will typically be lower for residential lines, as policies are usually wind-only.” 2

The catastrophe bond market continues to digest the changes from RMS. While investors may regard the changes as justification for increased coupons, this potential impact has not yet been evident. Sponsors may continue to delay issues while the market assesses the impact of the change.

Additionally, secondary market pricing is still absorbing the model change.

$ Millions

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

’08

’08

’09

’09

’09

’09

’10

’10

’10

’10

’11

Outlook

Although we do believe that Q2 2011 ILS issuance will be down over the year earlier quarter, we do not expect a downward trend in ILS activity as a result of recent events. Aon Benfield Securities continues to see interest from both issuers and investors, particularly in light of the fact that a significant amount of ILS coverage will expire in the current quarter (please see “Catastrophe Bond Maturities, Second Quarter 2011” table).

1,600

2,350

2,393

1,015

Life/Health Issuance

Catastrophe Bond Issuance By Quarter

300

232

3,000

810

411

2,500

2,000

1,500

1,000

650

Nat Cat Issuance

Source: Aon Benfield Securities

500

0

320

0

Catastrophe Bond Maturities, Second Quarter 2011 ($Millions)

Sponsor Chubb Group Chubb Group Chubb Group Chubb Group Chubb Group North Carolina Wind Pool Zenkyoren USAA USAA USAA Flagstone Flagstone Glacier Reinsurance AG Glacier Reinsurance AG Glacier Reinsurance AG Liberty Mutual Ins Co Nationwide Mutual Ins. Co. Allstate Insurance Co Swiss Re Swiss Re Swiss Re

Swiss Re Source: Aon Benfield Securities

Issue East Lane Re II Ltd. Series 2008-1 Class A East Lane Re II Ltd. Series 2008-1 Class B East Lane Re II Ltd. Series 2008-1 Class C East Lane Re Ltd. Series A 2007-I East Lane Re Ltd. Series B 2007-I Parkton Re Ltd. Series 2009-1 Muteki Ltd. Series 2008-1 Class A Residential Reinsurance 2008 Limited Class 1, Series 2008-I Residential Reinsurance 2008 Limited Class 2, Series 2008-I Residential Reinsurance 2008 Limited Class 4, Series 2008-I Valais Re Ltd. Series 2008-1 Class A Valais Re Ltd. Series 2008-1 Class C Nelson Re Ltd. Class G Series 2008-I Nelson Re Ltd. Class H Series 2008-I Nelson Re Ltd. Class I Series 2008-I Mystic Re II Ltd. Series 2007-1 Caelus Re Limited Series 2008-1 Class A Willow Re Ltd. Class D Series 2008-1 Vega Capital Ltd. Series 2008-1 Class A Vega Capital Ltd. Series 2008-1 Class B Vega Capital Ltd. Series 2008-1 Class C Vega Capital Ltd. Series 2008-1 Class D

Perils

Maturity

Amount

NE US All Natural Perils^

Apr-11

75.0

NE US All Natural Perils^

Apr-11

70.0

US/Canada All Natural Perils^

Apr-11

55.0

US HU

May-11

135.0

US HU

May-11

115.0

NC Wind

May-11

200.0

JP EQ

May-11

300.0*

US HU, EQ

Jun-11

125.0

US HU, EQ

Jun-11

125.0

US HU, EQ, ST, WS, WF

Jun-11

100.0

US/EU/JP Wind, US/JP EQ

Jun-11

64.0*

US/EU/JP Wind, US/JP EQ

Jun-11

40.0*

US HU, EQ

Jun-11

67.5

EU Wind

Jun-11

45.0

EU Wind

Jun-11

67.5

US HU

Jun-11

150.0

US HU, EQ

Jun-11

250.0

US HU

Jun-11

250.0

US/EU/JP Wind, US/JP EQ

Jun-11

21.0*

US/EU/JP Wind, US/JP EQ

Jun-11

22.5*

US/EU/JP Wind, US/JP EQ

Jun-11

63.9*

US/EU/JP Wind, US/JP EQ

Jun-11

42.6*

TOTAL

$

2,384.0

  • *

    Potentially impacted by recent events

^ Includes Hurricane, Earthquake, Severe Thunderstorm, Winter Storm, Wildfire, and other perils

1

RMS press release, February 28, 2011.

2

Ibid.

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