Attractive asset characteristics for insurers Yield … CFO...the European market ! Multiple opportunities with companies in attractive sectors such as Industrials & Business Services,

FOR INSTITUTIONAL AND PROFESSIONAL INVESTOR USE ONLY/NOT FOR RETAIL USE OR DISTRIBUTION

GR

A17

JB

Attractive asset characteristics for insurers

1

Yield

Protection from rising rates

Diversification

Long-term liability matching

Low volatility of returns


GR

A17

JB

Basel III

2

Source: SwissTraveling.com


GR

A17

JB

Loans to small companies and infrastructure projects

Small/Medium-Sized Company Loans

Infrastructure Loans

Yield 10-11% 4.75% Floating rate Yes Yes Position in capital structure Senior secured Senior secured Average duration of loan 2 years 12 years Credit rating BB/B equivalent A-

3

Source: Representative characteristics based on loans observable in the market, JP Morgan Asset Management December 2012


GR

A17

JB

INFRASTRUCTURE LOANS

4


GR

A17

JB

Loans to projects which represent the essential building blocks of society

5

Education Primary school serving favorable demographic Availability payments based on maintaining facilities in good working condition

Road Essential transportation artery for important community Unitary payments based on maintaining highway availability and elimination of congestion

Housing

Elderly housing in space-constrained market Availability payments based on maintaining site availability

Energy distribution Meter installation and servicing contract Contracts with monopoly utilities through life of loans

Healthcare facility

Core UK infrastructure Unitary payment based on maintaining facility to specific standards

Street lighting Street lighting installation and maintenance Payments from government based on installation milestones and availability thereafter


GR

A17

JB

Seasoned senior secured infrastructure loans

n  Senior secured infrastructure loans offer attractive risk-adjusted returns –  A rated credit characteristics with yields at BBB / BB spread levels –  Avoid the risky “build” phase of a project

n  Weak bank balance sheets and increasingly stringent capital requirements for long dated infrastructure loans have created an opportunity for insurance companies

6

Images for illustrative purposes only


GR

A17

JB

Credit spreads have risen and are sustainable around 250 to 300 bps

7

0

50

100

150

200

250

300

350

Bas

is P

oint

s

Margins over LIBOR for long term (7+ years) infrastructure project finance debt, 6-month rolling average

Source: J.P. Morgan Asset Management estimate; Dealogic; New Issues only

Bas

el II

Pub

lishe

d

U.S

. Ado

pted

B

asel

II

Fina

l Pac

kage

Bas

el II

Pu

blis

hed

Fina

l Tex

t of B

asel

III

Fram

ewor

k Pu

blis

hed


GR

A17

JB

Spreads for infrastructure debt are generally between BB and BBB quality corporate debt

8

Source: Barclays Capital; Dealogic; J.P. Morgan Asset Management estimate, 4Q 2012

0

200

400

600

800

1,000

1,200

1,400

Jan-

00

May

-00

Sep

-00

Jan-

01

May

-01

Sep

-01

Jan-

02

May

-02

Sep

-02

Jan-

03

May

-03

Sep

-03

Jan-

04

May

-04

Sep

-04

Jan-

05

May

-05

Sep

-05

Jan-

06

May

-06

Sep

-06

Jan-

07

May

-07

Sep

-07

Jan-

08

May

-08

Sep

-08

Jan-

09

May

-09

Sep

-09

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Bas

is P

oint

s

A BBB BB Infrastructure

Margins over LIBOR for long term (7+ years) global corporate bonds and new issue infrastructure project finance debt


GR

A17

JB

Project finance default rates have been relatively low

n  Infrastructure default rates are comparable to BBB rated corporate debt

n  Project finance debt exhibits a declining annual default rate

9

Cumulative default rates for the period 1990–2010, broken down by industry

Source: Moody’s Special Report, Default and Recovery Rates for Project Finance Bank Loans, 1983–2010, January 31, 2012. The above chart is shown for illustrative purposes only . Past outcomes are not indicative of future outcomes.

0.00% 2.00% 4.00% 6.00% 8.00%

10.00% 12.00% 14.00%

1 2 3 4 5 6 7 8 9 10

Cum

ulat

ive

defa

ult r

ate

Years from issue

Infrastructure Manufacturing Media & Telecom Metals & Mining Oil & Gas Power Average Moody's Baa (or BBB equivalent) Moody's Ba (or BB equivalent)

Annual default rate from year 5

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

5 6 7 8 9 10

Ann

ual d

efau

lt ra

te

Infrastructure

Moody's Baa (or BBB equivalent)


GR

A17

JB

Recovery rates have been high

n  In default, senior infrastructure PPP/PFI debt has had excellent average recoveries of approximately 90%

n  Infrastructure PPP/PFIs, which represent over 50% of the infrastructure debt market, exhibit median recovery rates exceeding 97%

n  Prudent selection of projects enhances recovery rates

10

Average

Median

Infrastructure 80% 93%

PPP/PFI 88% 95%

Infrastructure PPP/PFI 90% 97%

Senior Secured Corporate Debt 62% 72%

Source: J.P. Morgan Asset Management estimate; 2001–2009 cumulative recovery rates, S&P Loss Stats Database. The above table is shown for illustrative purposes only . Past outcomes are not indicative of future outcomes. “”PPP” is “Public private partnership” and “PFI” is “Private finance initiative”

Infrastructure Infrastructure PPP/PFI

PPP/ PFI

Recovery rates


GR

A17

JB

Credit losses approximate A-rated corporate bonds

11

Average 5-yr cumulative credit loss rates for global corporate bonds and new issue infrastructure project finance debt

49 56

119

0

100

200

300

A Infrastructure Baa Ba

Bas

is p

oint

s

690

Sources: Moody’s and J.P. Morgan Asset Management. Based on average cumulative default rates and recovery rates between 1982 and 2010 as reported by Moody’s in Special Report, Corporate Default and Recovery Rates, 1920-2010, Feb 28, 2011. The above chart is shown for illustrative purposes only . Past outcomes are not indicative of future outcomes.


GR

A17

JB

Portfolio purchased at a price that yields more than 300 bps above LIBOR

12

Education 17%

Energy distribution

10%

Energy from waste plant

9% Hospital

9%

Road 16%

Stadium 12%

University accomodation

18%

Waste treatment

plant 9%

Credit Asset type CountryGBP par amount

purchased Legal maturity

Loan 1 Road England 19,746,338 03-31-36Loan 2 Waste treatment plant England 20,000,000 03-31-34Loan 3 Education N. Ireland 20,000,000 03-31-35Loan 4 Hospital England 20,000,000 06-30-35Loan 5 Education N. Ireland 16,405,950 05-31-35Loan 6 Energy distribution England 10,535,696 12-31-23Loan 7 Energy distribution England 11,474,592 11-30-23Loan 8 Energy from waste plant England 20,000,000 09-30-30Loan 9 Road England 15,111,031 09-30-32Loan 10 University accomodation England 20,000,000 08-31-39Loan 11 University accomodation England 20,000,000 08-31-39Loan 12 Stadium England 25,140,366 09-30-23

Total 218,413,972

-

200

400

600

800

-

10

20

30

40

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040 Cum

ulat

ive

amou

nts

GB

P m

illio

ns

Ann

ual a

mou

nts

GB

P m

illio

ns

Portfolio principal and interest payments

Principal repayment (annual) Loan margin interest (annual)

Libor interest (annual)* Cumulative principal and interest

*Forward Libor curve as of August 2012. Source: JPMAM representative transaction from 2012. The above data is shown for illustrative purposes only . Past outcomes are not indicative of future outcomes.


GR

A17

JB

Infrastructure loans purchased on behalf of investors: A UK tranche as part of a $1.5 billion investment program

13

Education (2) Regional colleges serving favorable demographics Availability payments based on maintaining facilities in good working condition

Roads (2) Essential transportation arteries for important metropolises Unitary payments based on maintaining highway availability and elimination of congestion

University accommodation (2) University accommodation at two leading UK universities Availability payments based on maintaining accommodation to specific standards

Energy distribution (2) Meter installation and servicing contract Contracts with monopoly utilities through life of loans

Waste plants (2) Waste treatment facility and energy from waste plant in fast-growing regions Plants have deliver-or-pay contracts with local authorities through life of loans

Stadium (1) Unique, world-class sports stadium Long-term staging contracts with sports authorities and long-term revenue contracts with seat and box holders

Hospital (1) Leading hospital in space-constrained market Unitary payment based on maintaining hospital availability


GR

A17

JB

SME LOANS

14


GR

A17

JB

Small/mid-sized companies have significant refinancing needs

15

Source: JP Morgan Asset Management 2012

Maturity Schedule of Small/Mid-Cap vs. Large Cap (% of outstanding)

4.6%

10.5%

15.7% 15.4%

18.1%

15.5%

9.1%

5.2% 6.0%

2.4% 4.7%

12.2% 10.9%

15.3% 16.0% 15.2%

6.2%

17.2%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015 2016 2017 2018 2019 2020 or later

$300 million or less more than $300 million


GR

A17

JB

Pricing of opportunities is attractive on absolute and relative basis

16

** Net Leverage Ratio = (Debt through the relevant tranche, less cash) / EBITDA. *** Net Loan-to-Value through the relevant tranche. 1 Source: LCD’s Leveraged Lending Review – 3Q12 (B+/B Institutional Loans – Quarterly). 2 Source: LCD’s Leveraged Lending Review – 3Q12. 3 Source: CS High Yield Index as of 9/28/12. 4 Indicative terms based on current portfolio. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

n  Current returns for middle market direct lending remain attractive in both absolute terms and on a risk-adjusted basis

–  Unlevered yields generally in the 9 -13%+ range, including LIBOR floors and origination fees

–  Typical security leverage of 3-4x Debt/EBITDA* and loan-to-value of 30-50%***

n  Pricing dynamics should remain attractive in the medium term, with a growing opportunity in the European market

n  Multiple opportunities with companies in attractive sectors such as Industrials & Business Services, Consumer Goods and Services, Technology, and Healthcare

Indicative Pricing vs. the Public Market

Leveraged Loans

High Yield Bonds

Direct Lending4

Spread L+4.5%¹ 8.1%³ L+7.5%-9.5%

LIBOR Floor 0.8%¹ 0.0%³ 1.25%-1.75%

Yield from Discount/Fees (OID) 0.9%² 1.3%³ 3.0%


GR

A17

JB

Loans to small companies and infrastructure projects

Small/Medium-Sized Company Loans

Infrastructure Loans

Yield 10-11% 4.75% Floating rate Yes Yes Position in capital structure Senior secured Senior secured Average duration of loan 2 years 12 years Credit rating BB/B equivalent A-

17

Source: Representative characteristics based on loans observable in the market, JP Morgan Asset Management December 2012


GR

A17

JB

18

This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are not available for actual investment. The information contained herein employs proprietary projections of expected returns as well as estimates of their future volatility. The relative relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Real estate, infrastructure and hedge fund investing may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate, infrastructure and hedge fund investing may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.

The value of investments and the income from them may fluctuate and your investment is not guaranteed. Past performance is no guarantee of future results. Please note current performance may be higher or lower than the performance data shown. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made.

All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not necessarily indicative of the likely future performance of an investment. Any securities mentioned throughout the presentation are shown for illustrative purposes only and should not be interpreted as recommendations to buy or sell. A full list of firm recommendations for the past year is available upon request.

Notice to U.K. residents: This document is only directed to persons believed by JPMorgan Asset Management (U.K.) Limited to be investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, high net worth companies, unincorporated associations and other persons as defined in Article 49 of that Order and to others to whom it can lawfully be distributed or given, inside the United Kingdom, without approval by an authorised person. Persons who do not have professional experience in matters relating to investments should not rely on it and any other person should not act on such information.

This document is issued in the U.K. by JPMorgan Asset Management (U.K.) Limited and has been approved solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 by JPMorgan Asset Management (U.K.) Limited which is authorised and regulated in the U.K. by the Financial Services Authority. Registered in England No. 01161446. Registered address: 125 London Wall, London EC2Y 5AY.

J.P. Morgan Asset Management

Documents

Attractive asset characteristics for insurers Yield … CFO...the European market ! Multiple opportunities with companies in attractive sectors such as Industrials & Business Services,