Life Insurance - Chasing The Rainbow

Please see page 33 for rating definitions, important disclosures and required analyst certificationsAll estimates/forecasts are as of 10/15/15 unless otherwise stated.

Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

INSUR100615-114208

October 15, 2015

Equity Research

Life Insurance: Chasing The RainbowA Deep Dive Into Alternative Investments And Schedule BA

Source: © iStockphoto.com

Insurance

John Hall, Senior Analyst(212) 214-8032

[email protected] Greenspan, CFA, Senior Analyst

(212) [email protected]

Kenneth Hung, CFA, ASA, Associate Analyst(212) 214-8023

[email protected] H. Patel, CFA, Associate Analyst

(212) [email protected]

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2 ($ in millio n s, e xc e p t p e r sh a re ) 10/14/15 Ma rke t

Ra t in g Ca p 14 15 E 16 E Cu rre n t 15 E 16 E 14 15 E 16 E Cu rre n t 15 E 16 E 14 15 E 16 E 14 A 15 Y TD

L ife In su ra n c e

Aflac AFL 2 $59.74 $25,729.7 $6.16 $6.05 $6.30 $31.66 $32.27 $33.08 9.7 9.9 9.5 1.89 1.85 1.81 19.8% 19.1% 19.2% (8.5%) (2.2%)

Ameriprise Financial AMP 1 $107.57 $19,171.2 $8.52 $9.48 $11.05 $39.09 $39.21 $39.68 12.6 11.3 9.7 2.75 2.74 2.71 22.6% 24.3% 28.1% 15.0% (18.7%)

Genworth Financial GNW 2 $5.19 $2,581.6 ($0.80) $1.02 $1.15 $20.55 $21.03 $22.19 NM 5.1 4.5 0.25 0.25 0.23 (3.5%) 4.9% 5.4% (45.3%) (38.9%)

Lincoln National LNC 1 $48.49 $12,168.7 $6.03 $5.99 $6.70 $50.84 $53.20 $58.11 8.0 8.1 7.2 0.95 0.91 0.83 12.8% 11.8% 12.1% 11.7% (15.9%)

MetLife MET 1 $47.20 $52,716.8 $5.74 $5.24 $6.20 $50.73 $52.19 $56.36 8.2 9.0 7.6 0.93 0.90 0.84 11.8% 10.3% 11.4% 0.3% (12.7%)

Principal Financial PFG 2 $47.77 $14,080.0 $4.41 $4.42 $4.75 $34.00 $35.46 $38.52 10.8 10.8 10.1 1.40 1.35 1.24 14.0% 13.0% 12.9% 5.3% (8.0%)

Prudential Financial PRU 1 $76.50 $34,501.5 $9.21 $10.70 $10.70 $71.09 $74.44 $81.66 8.3 7.1 7.1 1.08 1.03 0.94 14.6% 15.2% 13.7% (1.9%) (15.4%)

Torchmark TMK 2 $56.69 $7,092.8 $4.03 $4.22 $4.60 $29.56 $30.77 $33.54 14.1 13.4 12.3 1.92 1.84 1.69 14.7% 14.2% 14.3% 4.0% 4.7%

Voya Financial VOYA 1 $38.82 $8,785.9 $3.14 $3.34 $3.80 $56.33 $57.72 $62.49 12.4 11.6 10.2 0.69 0.67 0.62 6.7% 6.0% 6.3% 20.6% (8.4%)

A ve ra g e 10 .5 9 .6 8 .7 1.3 2 1.2 8 1.2 1 12 .6 % 13 .2 % 13 .7 % 0 .1% (12 .9 %)

Mu lt i- L in e s

American International Group AIG 2 $58.03 $75,084.4 $4.58 $5.06 $5.70 $73.91 $76.73 $82.48 12.7 11.5 10.2 0.79 0.76 0.70 6.8% 6.9% 7.2% 9.7% 3.6%

Assurant AIZ 2 $79.67 $5,323.4 $6.87 $7.06 $6.75 $65.29 $67.29 $71.45 11.6 11.3 11.8 1.22 1.18 1.12 11.0% 10.7% 9.7% 3.1% 16.4%

The Hartford HIG 1 $45.88 $19,033.1 $3.36 $3.97 $4.20 $42.41 $43.81 $46.69 13.6 11.5 10.9 1.08 1.05 0.98 8.5% 9.4% 9.3% 15.1% 10.1%

A ve ra g e 12 .6 11.4 11.0 1.0 3 1.0 0 0 .9 3 8 .8 % 9 .0 % 8 .7 % 9 .3 % 10 .0 %

L ife In su ra n c e S e c to r Me a n 11.1 10 .1 9 .3 1.2 5 1.2 1 1.14 11.7 % 12 .1% 12 .5 % 2 .4 % (7 .1%)

L ife In su ra n c e S e c to r Me d ia n 11.6 11.1 9 .9 1.0 8 1.0 4 0 .9 6 12 .3 % 11.2 % 11.8 % 4 .7 % (8 .2 %)

No n - L ife In su ra n c e

Re in su re rs

Everest Re RE 2 $176.99 $7,820.9 $24.71 $20.70 $19.10 $174.84 $180.97 $195.58 7.2 8.6 9.3 1.01 0.98 0.90 15.9% 12.1% 10.1% 9.3% 3.9%

PartnerRe Ltd. PRE 2 $138.60 $6,639.2 $14.76 $10.18 $9.10 $127.24 $129.97 $135.61 9.4 13.6 15.2 1.09 1.07 1.02 12.5% 8.0% 6.9% 8.3% 21.4%

RenaissanceRe RNR 2 $108.27 $4,974.3 $11.56 $9.20 $10.00 $96.43 $99.27 $107.60 9.4 11.8 10.8 1.12 1.09 1.01 13.6% 9.7% 9.7% (0.1%) 11.4%

A ve ra g e 8 .6 11.3 11.8 1.0 7 1.0 5 0 .9 8 14 .0 % 9 .9 % 8 .9 % 5 .8 % 12 .2 %

Dive rsif ie d

ACE Limited ACE 2 $105.55 $34,177.6 $9.79 $9.05 $8.95 $91.27 $94.38 $100.70 10.8 11.7 11.8 1.16 1.12 1.05 11.2% 9.8% 9.2% 11.0% (8.1%)

Arch Capital ACGL 2 $75.61 $9,257.8 $4.58 $4.10 $4.15 $47.49 $48.46 $50.97 16.5 18.4 18.2 1.59 1.56 1.48 10.7% 8.7% 8.3% (1.0%) 27.9%

Axis Capital AXS 2 $53.30 $5,364.0 $5.32 $4.20 $4.85 $51.81 $52.18 $55.39 10.0 12.7 11.0 1.03 1.02 0.96 11.0% 8.2% 9.0% 7.4% 4.3%

Chubb CB 2 $124.70 $28,304.0 $7.63 $7.45 $7.30 $70.12 $72.85 $77.77 16.3 16.7 17.1 1.78 1.71 1.60 11.5% 10.5% 9.9% 7.1% 20.5%

Travelers Corporation TRV 2 $102.77 $31,982.6 $10.55 $9.45 $9.20 $77.51 $79.67 $84.46 9.7 10.9 11.2 1.33 1.29 1.22 14.3% 12.1% 11.2% 16.9% (2.9%)

A ve ra g e 12 .7 14 .1 13 .9 1.3 8 1.3 4 1.2 6 11.8 % 9 .9 % 9 .5 % 8 .3 % 8 .3 %

P e rso n a l L in e s

Allstate Corporation ALL 1 $59.86 $23,967.3 $5.40 $4.80 $6.00 $47.96 $49.55 $53.33 11.1 12.5 10.0 1.25 1.21 1.12 10.8% 9.0% 10.8% 28.8% (14.8%)

Progressive Corporation PGR 2 $31.56 $18,492.0 $1.92 $1.95 $1.80 $12.56 $12.57 $13.57 16.4 16.2 17.5 2.51 2.51 2.32 17.4% 16.1% 13.9% (1.0%) 16.9%

United Insurance Holdings Corp. UIHC 1 $14.57 $313.7 $2.05 $1.05 $1.95 $10.19 $10.88 $12.59 7.1 13.9 7.5 1.43 1.34 1.16 25.6% 10.4% 17.1% 55.9% (33.6%)

A ve ra g e 11.5 14 .2 11.6 1.7 3 1.6 9 1.5 3 17 .9 % 11.9 % 13 .9 % 2 7 .9 % (10 .5 %)

In su ra n c e B ro ke rs

Aon Corporation AON 2 $90.05 $25,217.9 $4.76 $5.13 $5.75 N/A N/A N/A 18.9 17.6 15.7 N/A N/A N/A N/A N/A N/A 13.0% (5.0%)

Arthur J. Gallagher AJG 1 $42.45 $7,407.5 $2.39 $2.57 $2.95 N/A N/A N/A 17.8 16.5 14.4 N/A N/A N/A N/A N/A N/A 0.3% (9.8%)

Brown & Brown BRO 2 $30.91 $4,354.4 $1.62 $1.67 $1.88 N/A N/A N/A 19.1 18.6 16.5 N/A N/A N/A N/A N/A N/A 4.8% (6.1%)

Marsh & McLennan MMC 1 $52.77 $27,967.7 $2.82 $3.01 $3.42 N/A N/A N/A 18.7 17.5 15.4 N/A N/A N/A N/A N/A N/A 18.4% (7.8%)

Willis Group Holdings WSH 3 $41.58 $7,470.4 $2.33 $2.57 $2.85 N/A N/A N/A 17.8 16.2 14.6 N/A N/A N/A N/A N/A N/A 0.0% (7.2%)

A ve ra g e 18 .5 17 .3 15 .3 7 .3 % (7 .2 %)

No n - L ife In su ra n c e S e c to r Me a n 13 .5 14 .6 13 .5 1.3 9 1.3 5 1.2 6 14 .0 % 10 .4 % 10 .6 % 11.2 % 0 .7 %

No n - L ife In su ra n c e S e c to r Me d ia n 13 .7 15 .1 14 .5 1.2 5 1.2 1 1.12 12 .5 % 9 .8 % 9 .9 % 7 .8 % - 4 .0 %

S & P 5 0 0 S P X 1,9 9 4 .2 4 117 .9 2 12 9 .4 3 14 4 .7 2 16 .9 15 .4 13 .8 11.4 % (3 .1%)

P ric e / Ea rn in g s P ric e /B o o k V a lu e Op e ra t in g ROE P ric e P e rfo rma n c eEa rn in g s P e r S h a re B o o k V a lu e P e r S h a re

Notes: Our EPS for AON in the above table includes intangible amortization. Excluding intangibles, cash EPS for 2014 was $5.71 and we are projecting cash EPS of $6.03 in 2015, and $6.55 in 2016. BRO 2014 EPS backs out the $0.21 charge associated with the Axiom Re sale. For AFL, AMP, GNW, LNC, PFG, TMK, VOYA, AIG, AIZ and HIG, book value per share is ex-AOCI. For MET, book value per share is ex-AOCI other than FCTA. For PRU, book value per share is ex-AOCI and adjusted to remove amount included for foreign currency exchange rate remeasurement.Ratings: 1 - Outperform; 2 - Market Perform; 3 - UnderperformSource: FactSet and Wells Fargo Securities, LLC estimates

WELLS FARGO SECURITIES, LLCLife Insurance: Chasing The Rainbow EQUITY RESEARCH DEPARTMENT

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TABLE OF CONTENTS

Executive Summary .....................................................................................................................................................................................5

Analyzing The U.S. Life Industry’s “Other Long-term Invested Assets” ....................................................................................................7

Analyzing The Schedule BA’s Of Select Life And Non-life Insurance Companies ....................................................................................11

American International Group (NYSE: AIG)....................................................................................................................................12

The Hartford (NYSE: HIG) ...............................................................................................................................................................15

Lincoln National (NYSE: LNC) .........................................................................................................................................................18

MetLife (NYSE: MET) .......................................................................................................................................................................21

Principal Financial Group (NYSE: PFG) ..........................................................................................................................................24

Prudential Financial (NYSE: PRU)...................................................................................................................................................27

Voya Financial (NYSE: VOYA) .........................................................................................................................................................30

WELLS FARGO SECURITIES, LLCInsurance EQUITY RESEARCH DEPARTMENT

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5

Executive Summary

Summary: The sustained low interest rate environment has pressured net investment income and investment spreads for life insurers. Despite risk-based capital and other constraints, life insurers still have a few tools available in order to combat the effect of sustained low interest rates. On the margin, asset allocation is one of those available tools. With a higher return profile as compared to investment grade bonds, alternative investments have been a source of incremental yield for life insurers in the current rate environment.

Chasing the pot of gold at the end of the rainbow. While most of our covered life insurers reference having alternative investment portfolios, the disclosure offered in their respective statistical supplements is uneven and generally not comparable from one company to the next. And the discussion of the alternative investment contribution to net investment income varies significantly from company to company on quarterly conference calls. But to frame the potential impact – MetLife is budgeting to earn $1.3-1.7 billion of alternative investment income in 2015 (or as they call it, variable investment income), which compares to our projection of total operating income of roughly $5.9 billion for the largest U.S. life insurer. To us, that’s kind of important. So we decided to dig a little deeper on the subject.

Blue Books. Our journey took us to the statutory filings for life insurers or “Blue Books,” a term lost to the digital age. Life insurers are required to file financial statements with various states of domicile that are prepared in accordance with statutory accounting principles. Statutory statements vary in many ways with GAAP statements; but for investments, we think they offer a more complete view of a life insurer’s investment portfolio. Using a contract database that includes more data than an actual Blue Book, we took a look at the consolidated alternative investment portfolios for some of our covered life insurers (LNC, MET, PFG, PRU, and VOYA), as well as the portfolios of a couple of covered non-life insurers with substantial life operations (AIG and HIG). For all the companies that we reviewed, our work touches upon only their domestic life insurance operations – a limitation of statutory accounting. Further for AIG and The Hartford, our review also does not consider the investment portfolios supporting their respective non-life insurance companies.

Reams of data. A tremendous amount of information is collected in a life insurer’s statutory filings related to invested assets. Life insurers are required to report each individual investment bought, held, and sold during the course of a year. To appreciate the sheer scale of the data reported, find the Blue Book for Metropolitan Life Insurance and just thumb through the hundreds of pages of disclosure with bond after bond listed by CUSIP number. Investments are reported by asset class with each major asset class reported on a specific schedule. For instance, Schedule A is for real estate, Schedule B is for mortgage loans, Schedule D is for bonds and stocks, Schedule DB is for derivatives, Schedule DL is for securities lending collateral, and Schedule E is for cash. Anything that does not fit these investment categories is placed on Schedule BA – the statutory home for reporting alternative assets.

So what is Schedule BA? According to the National Association of Insurance Commissioners (NAIC), the Schedule BA for other long-term invested assets is a catch-all schedule that includes only those classes of invested assets, which are not clearly or normally included on any other invested asset schedule. In addition, the Schedule BA should include any assets previously written off for book purposes, but that still have a market or investment value. As the phrase “other” implies, Schedule BA encompasses an assortment of long-term investments including private equity and hedge funds, common stock, real estate, housing tax credits, fixed income instruments, surplus debentures, collateral loans, mortgage loans, and transportation equipment, as well as oil and gas production and mineral rights.

An increasing level of granularity. In the past, Schedule BA assets lacked much, if any classification or definition beyond their inclusion on the schedule. At present, Schedule BA listed assets are subdivided into 22 different categories, which allows us to determine the rough allocation of asset types held on the schedule. For almost all of these categories, there is also a sub-classification for affiliated investments, which swells the total to 43 different categories in total. In particular for private equity and hedge fund investments, there are also data available on the allocations to and returns generated from various investment strategies.


6

Short takes – What did we find?

In general, the allocation of investment assets to Schedule BA classifications is on the rise. What was once 2.4% of life insurance industry invested assets in 2005 has steadily moved up to 4.5% in 2015.

The alternative investment portfolios tend to be larger, in both absolute and percentage terms, at bigger life insurance companies. Mutual insurance companies also seem to have a greater appetite for alternative investments.

While private equity and hedge fund investments tend to account for less than 33% of total Schedule BA assets, they are the predominant contributors to alternative asset returns (in excess of 50% for full-year 2014).

In the aggregate, industry return expectations for Schedule BA assets tend to be in a range of 6-9%. In 2014, the life insurance industry return on Schedule BA assets was within the expected range at 6.3%. In particular for private equity and hedge fund investments, returns were above the expected range at 10.1%.

Private equity performance has been strong and has added to net investment income yields, while hedge fund performance has been less favorable.

Several of our covered life insurers appear to have capacity to boost their exposure to the alternative investments that populate Schedule BA. The companies on this list would include Aflac, Allstate, Ameriprise, Lincoln National, Principal, and Voya. To the best of our knowledge, Aflac, Allstate, and Lincoln National have all signaled an interest in raising their respective exposures to alternative investments.

AIG, MetLife, and Prudential all have above industry average exposure to alternative assets reported on Schedule BA. We think there is only a limited capacity for any of these three companies to boost exposure to this asset class.

We think life insurers with mature portfolios of Schedule BA assets that include private equity are not being paid full value for them. Private equity, in particular, is an investment with a longer gestation period. To build a substantial private equity portfolio, a life insurer must be willing to forego current income today in the hope of stronger returns in the future. The seeds of the private equity investments generating net investment income now were planted five or ten years ago. And to maintain those returns, new private equity investments must continue to be made to replenish the natural portfolio run-off.

Exhibit 1. Categories Of Schedule BA InvestmentsCategory Line Number Category Description

1 199999/299999 oil and gas production2 399999/399999 transportation equipment3 599999/699999 mineral rights4 799999/899999 bonds5 999999/1099999 fix/var mortgage loans6 1199999/1299999 other fixed income instruments7 1399999/1499999 fixed income8 1599999/1699999 common stock9 1799999/1899999 real estate10 1999999/2099999 JV, LLC mortgage loans11 2199999/2299999 other12 2399999/2499999 surplus debentures, etc.13 2599999/2699999 collateral loans14 2799999/2899999 non-collateral loans15 2999999/3099999 capital notes16 3199999/3299999 guaranteed Federal low income housing tax credit17 3399999/3499999 non-guaranteed Federal low income housing tax credit18 3599999/3699999 guaranteed State low income housing tax credit19 3799999/3899999 non-guaranteed State low income housing tax credit20 3999999/4099999 all other low income housing tax credit21 4199999 working capital finance22 4299999/4399999 any other class of assets

Source: Company statutory filings, NAIC annual statement instructions, and Wells Fargo Securities, LLC


7

Analyzing The U.S. Life Industry’s “Other Long-term Invested Assets”

Notable industry observations. Based on our industry Schedule BA analysis, we think there are several notable observations for the U.S. life insurance industry:

In general, the allocation of investment assets to Schedule BA classifications is on the rise. What was once 2.4% of life insurance industry invested assets in 2005 has steadily moved up to 4.5% in 2015.

The alternative investment portfolios tend to be larger, in both absolute and percentage terms, at bigger life insurance companies. Mutual insurance companies also seem to have a greater appetite for alternative investments.

While private equity and hedge fund investments tend to account for less than 33% of total Schedule BA assets, they are the predominant contributors to alternative asset returns (in excess of 50% for full-year 2014).

In the aggregate, industry return expectations for Schedule BA assets tend to be in a range of 6-9%. In 2014, the life insurance industry return on Schedule BA assets was within the expected range at 6.3%. In particular for private equity and hedge fund investments, returns were above the expected range at 10.1%.

Private equity performance has been strong and has added to net investment income yields, while hedge fund performance has been less favorable.

A growing allocation to Schedule BA assets; size of general account matters. Historically, asset allocations to other long-term invested assets in the life insurance industry were below 30% of total adjusted capital, including asset valuation reserves. In 2007, allocation to Schedule BA assets in the life insurance industry increased substantially, to 33.7% of total adjusted capital (from 27.5% in 2006), including asset valuation reserves. This rising trend continued and at year-end 2014, allocation to Schedule BA assets further increased to 40.6% of total capital, including asset valuation reserves. (See Exhibit 2.)

Exhibit 2. A Growing Allocation To Schedule BA Assets In The U.S. Life Insurance Industry($ in billions)

$281 $295

$312

$273

$311 $336 $348

$370 $378 $405

24.3%27.5%

33.7%38.7%

34.7% 34.2%36.4% 37.6% 39.1% 40.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

BA Assets As A % of Total Adjusted Capital Total Adjusted Capital

2.4%2.8%

3.6% 3.5% 3.5% 3.6% 3.8%4.1% 4.3%

4.5%

$2,800 $2,873 $2,952 $3,020 $3,072 $3,191

$3,364 $3,406 $3,481 $3,630

0%

1%

2%

3%

4%

5%

6%

7%

8%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

BA Assets As A % of Total Gross Investments Total Gross Investments

Notes: 1. Value of Schedule BA assets based on book or adjusted carrying value less encumbrances2. Total adjusted capital includes asset valuation reservesSource for both charts: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimatesSNL DISCLAIMER: SNL FINANCIAL LC. CONTAINS COPYRIGHTED AND TRADE SECRET MATERIAL DISTRIBUTED UNDER LICENSE FROM SNL. FOR RECIPIENT’S INTERNAL USE ONLY


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In addition, life insurers with larger general accounts tend to have higher allocations to Schedule BA assets. In 2014, the top 10 life insurers (by general account assets) accounted for roughly 49% of total general account assets and almost 70% of total Schedule BA assets. (See Exhibit 3.)

Exhibit 3. Select Life Insurers In The United States, 2014

Rank Entity Name

General Account

Assets ($B)

% of Total General Account

Assets

Schedule BA Assets

($B)

% of Total

Schedule BA Assets

1 MetLife Inc. $348.7 9.1% $22.0 13.4%2 TIAA-CREF $240.7 6.3% $26.2 15.9%3 New York Life Insurance Group $219.1 5.7% $17.3 10.5%4 Prudential Financial Inc. $210.6 5.5% $8.9 5.4%5 Northwestern Mutl Life Ins Co. $203.0 5.3% $12.5 7.6%6 American International Group $190.5 5.0% $11.5 7.0%7 Massachusetts Mutl Life Ins Co $142.6 3.7% $7.2 4.4%8 Manulife Financial Corp. $117.6 3.1% $6.5 4.0%9 Aflac Inc. $101.8 2.7% $0.4 0.2%

10 Lincoln National Corp. $98.7 2.6% $1.9 1.2% Total Of Top 10 Life Insurers $1,873.2 48.8% $114.3 69.5%

13 Voya Financial Inc. $86.6 2.3% $1.5 0.9%14 State Farm Mutl Automobile Ins $64.4 1.7% $1.2 0.7%16 Genworth Financial Inc. $61.7 1.6% $0.6 0.4%18 Principal Financial Group Inc. $59.1 1.5% $3.2 1.9%

Total Of Top 20 Life Insurers $2,556.7 66.7% $130.6 79.4%25 Unum Group $38.8 1.0% $0.6 0.4%27 Hartford Financial Services $37.2 1.0% $1.7 1.0%28 Allstate Corp. $37.2 1.0% $3.2 1.9%29 American Equity Investment $36.5 1.0% $0.5 0.3%32 Ameriprise Financial Inc. $31.7 0.8% $0.0 0.0%35 Reinsurance Group America Inc. $27.8 0.7% $0.5 0.3%37 Symetra Financial Corp. $24.8 0.6% $0.3 0.2%39 CNO Financial Group Inc. $22.4 0.6% $0.2 0.1%44 Sun Life Financial Inc. $19.7 0.5% $0.1 0.1%46 Fidelity & Guaranty Life Group $18.9 0.5% $0.4 0.3%50 Torchmark Corp. $16.6 0.4% $0.5 0.3%

Total Of Top 50 Life Insurers $3,429.9 89.4% $156.3 95.0% Life Industry $3,836.0 100% $164.5 100%

Notes: SNL Life Groups; value of Schedule BA assets based on book or adjusted carrying value less encumbrances; bold denotes covered company within Wells Fargo Securities, LLC Insurance UniverseSource for both charts: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimates

Strong growth in LBO private equity and long/short equity and multi-strategy hedge funds. The U.S. life industry’s investments in private equity and hedge funds grew at compound annual growth rates (CAGR) of 33% and 36%, respectively, from 2005 to 2014. (See Exhibit 4.) These investments remained more heavily weighted to leveraged buyout private equity assets, as well as long/short equity and multi-strategy hedge funds. Given the strong growth in private equity and hedge fund investments, they accounted for roughly 33% of total Schedule BA assets in 2014, up from roughly 5% in 2005. (See Exhibit 5.)


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Exhibit 4. Hedge Funds And Private Equity In Schedule BA Assets($ in billions)

$0.9 $1.5 $2.5 $1.8 $1.6 $2.6 $3.2 $5.5

$8.8

$12.3

$2.5

$5.7

$9.3

$12.1

$16.2

$20.4

$25.4

$32.4

$37.7

$41.4

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Hedge Funds Private Equity

From 2005-2014:Hedge funds assets grew at a CAGR of 33%;Private equity assets grew at a CAGR of 36%

Note: Value of Schedule BA assets based on book or adjusted carrying value less encumbrancesSource: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimates

Exhibit 5. Life Insurers’ Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0%Distressed securities 0.0% 0.0% 0.1% 0.1% 0.1% 0.3% 0.3% 0.7% 1.1% 1.1%Emerging markets 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0% 0.2% 0.3%Fixed income arbitrage 0.0% 0.1% 0.2% 0.1% 0.2% 0.4% 0.3% 0.3% 0.3% 0.3%Futures/Options/FX arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Global macro 0.0% 0.0% 0.0% 0.0% 0.1% 0.2% 0.2% 0.2% 0.3% 0.3%Long/short equity 0.1% 0.2% 0.6% 0.3% 0.2% 0.2% 0.5% 1.2% 1.7% 2.6%Merger arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1%Multi-strategy 1.2% 1.5% 1.3% 1.1% 0.8% 1.0% 1.0% 1.4% 2.0% 2.2%Sector investing 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.3% 0.6%Hedge Funds Total 1.3% 1.8% 2.4% 1.7% 1.5% 2.3% 2.5% 4.0% 5.9% 7.5%Leveraged buyout 1.8% 4.6% 4.5% 4.9% 8.2% 10.0% 12.2% 13.8% 16.0% 16.1%Mezzanine financing 0.8% 1.2% 2.0% 3.5% 4.4% 3.9% 3.5% 4.4% 4.9% 4.2%Venture capital 1.1% 1.1% 2.4% 3.1% 2.4% 3.8% 4.4% 5.1% 4.6% 4.9%Private Equity Total 3.6% 7.0% 8.9% 11.5% 15.1% 17.7% 20.1% 23.3% 25.5% 25.2%Total HF and PE assets 4.9% 8.8% 11.2% 13.2% 16.6% 20.0% 22.6% 27.3% 31.4% 32.7%Total Schedule BA assets ($B) $68 $81 $105 $105 $108 $115 $127 $139 $148 $165

Note: BACV - Sum of carrying value in Schedule BA assetsSource: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimates

Earnings volatility stemming from alternative investments. While private equity and hedge fund investments tend to account for less than 33% of total Schedule BA assets, they are the predominant contributors to alternative asset returns (in excess of 50% for full-year 2014). Historically, returns from alternative investments tend to fluctuate significantly for the life insurance industry, with a range of 1.4% (in 2005 and 2009) to 6.3% (in 2014). Life insurance companies currently have a long-term expected return assumption in the range of 6-9% for alternative investments, including hedge funds and private equity.


10

Exhibit 6. Schedule BA Asset Returns; Estimated Actual Versus Expected

9.0%

10.3%

11.4%

4.1%

2.0%

5.9%

7.5%7.9% 7.7%

10.1%

1.4%1.9%

2.9%

2.1%

1.4%

3.0%3.6%

4.6%5.4%

6.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total HF and PE Returns Total Schedule BA Asset Returns

Expected returns of 6-9%

Note: Returns estimated using investment income/carrying value Source: Company data and Wells Fargo Securities, LLC estimates

In particular, leveraged buyout private equity investments generated the highest returns (19.5% in 2007 and 13.0% in 2014). Hedge funds returns in general were only slightly profitable (low- to mid-single digit) in the past ten years. In 2009, long/short equity hedge funds generated double-digit returns of 11.8%. Merger arbitrage hedge funds also generated strong returns of 15.3% in 2014.

Exhibit 7. Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Distressed securities 21.5% -1.0% 0.0% 0.4% 9.8% 0.0% 0.6% 1.9% 1.4% 2.4%Emerging markets - 0.0% 0.0% 0.0% 1.0% 6.0% 6.7% 14.0% 1.5% 1.7%Fixed income arbitrage 0.0% 0.0% 0.0% 4.6% -17.0% 1.3% 1.3% 3.7% 2.2% 3.3%Futures/Options/FX arbitrage 5.7% 18.1% - - - - - - 0.0% 0.0%Global macro - - 6.6% 6.7% 1.0% 1.0% 0.3% 0.3% 0.0% 0.5%Long/short equity 6.0% 2.3% 0.5% 2.7% 11.8% 3.3% 5.0% 1.3% 4.9% 2.6%Merger arbitrage 0.0% - - - - - - - 0.0% 15.3%Multi-strategy 5.2% 5.8% 5.1% 1.5% 0.4% 3.9% 1.4% 0.9% 0.8% 1.1%Sector investing 0.0% 8.2% 0.0% 11.0% 0.0% 0.0% 0.0% 34.2% -0.1% 1.6%Hedge Funds Total 5.6% 4.9% 3.0% 1.8% 0.7% 2.6% 1.9% 2.0% 2.1% 2.0%Leveraged buyout 12.7% 15.5% 19.5% 5.0% 2.7% 7.0% 8.3% 8.9% 9.7% 13.0%Mezzanine financing 15.5% 5.5% 7.7% 3.4% 1.6% 6.5% 8.8% 10.0% 8.9% 9.3%Venture capital 2.5% 2.6% 7.7% 4.9% 1.4% 4.5% 7.3% 8.3% 6.5% 13.5%Private Equity Total 10.2% 11.7% 13.6% 4.5% 2.2% 6.4% 8.2% 9.0% 9.0% 12.5%Total HF and PE Returns 9.0% 10.3% 11.4% 4.1% 2.0% 5.9% 7.5% 7.9% 7.7% 10.1%Total Schedule BA Asset Returns 1.4% 1.9% 2.9% 2.1% 1.4% 3.0% 3.6% 4.6% 5.4% 6.3%Contribution from HF and PE 31.4% 47.7% 43.8% 26.6% 23.6% 40.2% 46.6% 47.4% 45.1% 52.4%

Note: Contribution from HF and PE is calculated using absolute return in dollars from hedge funds and private equity divided by total absolute return in dollars from Schedule BA assetsSource: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimates


11

Analyzing The Schedule BA’s Of Select Life And Non-Life Insurance Companies

Notable individual company observations. Based on our individual Schedule BA analysis, we think there are several notable observations for some of our coverage companies:

There has been a stable to growing allocation to Schedule BA assets in the past ten years, in particular for bigger life insurers and non-life insurers with substantial life operations. As a result, AIG, MetLife, and Prudential all have above industry average exposure to alternative assets reported on Schedule BA. We think there is only a limited capacity for any of these three companies to boost exposure to this asset class.

In particular for MetLife, the company has increased its exposure to private equity and hedge funds in recent years, due to the continued low interest rate environment. However, MET does not expect this portfolio to continue to grow as it has already reached the company’s target in regulatory capital commitment (from 3.5% of capital during crisis to roughly 5% of capital at the moment). In addition, private equity returns could decline modestly given significant cash distribution.

In 2012, Prudential saw its investments in private equity increase significantly, driven by jumbo-sized pension risk transfer (PRT) deals. As the company maintains its dominating position in the jumbo PRT market, we expect there should still be some increase in the company’s exposure to alternative assets (private equity in particular) on an absolute basis.

As for The Hartford, there has been a continued increase in the allocation to private equity and hedge fund investments within its life subsidiaries. Still, we think HIG should see these Schedule BA assets decline over time as it continues to wind down its life business.

Several of our covered life insurers appear to have capacity to boost their exposure to the alternative investments that populate Schedule BA. The companies on this list include Aflac, Allstate, Ameriprise, Lincoln National, Principal, and Voya. To the best of our knowledge, Aflac, Allstate, and Lincoln National have all signaled an interest in raising their respective exposures to alternative investments.

In particular for Lincoln National, the company has $1.2 billion in alternative investments (majority in private equity and hedge funds), which are around 1.2-1.3% of the overall portfolio, and underweight versus peers’. Over time, the company thinks it could move to roughly 1.5% of overall portfolio. In the past couple of years, they have been growing at around $100 million per year.

Historically returns from alternative investments tend to fluctuate significantly from low-single-digit to high-double-digit. Leveraged buyout private equity investments, on average, generated the highest returns, while hedge fund investments, on average, were modestly profitable, generating low- to mid-single-digit returns.

There has been strong growth in leveraged buyout private equity and multi-strategy and long/short equity hedge funds in the past ten years. We think life insurers with mature portfolios of Schedule BA assets that include private equity are not being paid full value for them. Private equity, in particular, is an investment with a longer gestation period. To build a substantial private equity portfolio, a life insurer must be willing to forego current income today in the hope of stronger returns in the future. The seeds of the private equity investments generating net investment income now were planted five or ten years ago. And to maintain those returns, new private equity investments must continue to be made to replenish the natural portfolio run-off.


12

American International Group (NYSE: AIG); Rating: Market Perform

Key takeaways from our analysis:

On a consolidated basis, AIG’s U.S. life companies had general account assets of $190.5 billion at year-end 2014, ranked No. 6 in U.S. life insurers, and accounted for roughly 5.0% of total general account assets in the life industry. Further, the U.S. life companies had $11.5 billion of other long-term invested assets, which were filed on Schedule BA and represented around 7.0% of the U.S. life industry’s total Schedule BA assets.

At year-end 2007, the company’s asset allocation to other long-term invested assets rose to 74.9% of total adjusted capital including asset valuation reserves (from 39.2% at year-end 2006). Historically, fluctuations of this ratio are as much a function of capital movements. AIG’s Schedule BA assets further increased to 84.8% of total adjusted capital including asset valuation reserves at year-end 2008, followed by a decrease to a recent low in 2011 (51.8%) and an increase to a recent high in 2014 (88.4%). Perhaps a better metric to look at, in our view, would be the ratio of Schedule BA assets to total gross investments, which has stayed relative stable within a band of roughly 5-6% since 2007.

AIG’s investments in hedge fund and private equity grew at CAGRs of 51% and 30%, respectively, from 2005 to 2014. The company’s alternative investments remained more heavily weighted to long/short equity, distressed securities, and multi-strategy hedge funds, as well as leveraged buyout private equity assets.

Historically, returns from alternative investments tend to fluctuate significantly for AIG, with a range of -0.2% (in 2005) to 7.2% (in 2014). In general, leveraged buyout private equity investments generated the highest returns (23.0% in 2014 and 13.0% in 2013). Hedge funds returns in general were only slightly profitable (low-single-digit) in 2011 to 2014. In 2009, AIG’s investments in long/short equity hedge funds generated a strong, double-digit return of 17.6%. The company currently has a long-term expected return assumption of 8% for alternative investments, including hedge funds and private equity.

A stable allocation to Schedule BA assets. At year-end 2007, AIG’s asset allocation to other long-term invested assets rose to 74.9% of total adjusted capital, including asset valuation reserves (from 39.2% at year-end 2006). Historically, fluctuations of this ratio are as much a function of capital movements. The company’s Schedule BA assets further increased to 84.8% of total adjusted capital, including asset valuation reserves at year-end 2008, followed by a decrease to a recent low in 2011 (51.8%) and an increase to a recent high in 2014 (88.4%). Perhaps a better metric to look at, in our view, would be the ratio of Schedule BA assets to total gross investments, which has stayed relative stable within a band of roughly 5-6% since 2007.

Exhibit 8. AIG’s Stable Allocation To Schedule BA Assets($ in billions)

107.6%

39.2%

74.9%84.8%

61.8%55.3% 51.8% 56.3% 60.3%

88.4%

$16.0 $16.1 $16.4

$12.2

$13.8

$15.9$16.9

$18.2 $18.4

$13.0

0%

20%

40%

60%

80%

100%

120%

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


8.1%

3.2%

6.5% 6.1%5.1% 5.1% 4.9%

5.6% 5.9% 6.3%

$213.1

$196.9$189.2

$170.8 $166.0 $171.1 $177.2$184.0 $187.2 $183.2

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0

$50

$100

$150

$200

$250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Notes: 1. Value of Schedule BA assets based on book or adjusted carrying value less encumbrances2. Total adjusted capital includes asset valuation reservesSource for both charts: Company statutory filings, SNL Financial, and Wells Fargo Securities, LLC estimates


13


Growth in long/short equity, distressed securities, and multi-strategy hedge funds, as well as LBO private equity. AIG’s investments in hedge fund and private equity grew at compound annual growth rates (CAGR) of 51% and 30%, respectively, from 2005 to 2014. The company’s alternative investments remained more heavily weighted to long/short equity, distressed securities, and multi-strategy hedge funds, as well as leveraged buyout private equity assets.

Exhibit 9. Hedge Funds And Private Equity In AIG’s Schedule BA Assets($ in billions)

$0.13

$0.44

$1.45

$0.96 $0.90 $1.16

$1.55

$2.38

$3.78

$5.09

$0.21 $0.38 $0.63 $0.71

$1.02

$1.56

$2.00

$2.57 $2.35 $2.24

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




Exhibit 10. AIG’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Distressed securities 0.5% 4.8% 4.2% 2.9% 5.1% 7.1% 8.4% 8.9% 12.6% 12.6%Emerging markets 0.1% 0.3% 0.3% 0.2% 0.3% 0.1% 0.0% 0.0% 0.5% 1.8%Fixed income arbitrage 0.2% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Futures/Options/FX arbitrage 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Global macro 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Long/short equity 0.0% 1.5% 7.3% 6.1% 5.1% 5.7% 8.5% 12.3% 16.4% 24.7%Merger arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Multi-strategy 0.0% 0.0% 0.0% 0.0% 0.0% 0.3% 0.8% 1.9% 4.5% 5.2%Sector investing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Hedge Funds Total 0.7% 7.0% 11.8% 9.2% 10.5% 13.2% 17.8% 23.2% 34.0% 44.4%Leveraged buyout 1.2% 5.6% 4.8% 6.5% 11.3% 17.0% 21.8% 22.8% 19.3% 17.8%Mezzanine financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Venture capital 0.1% 0.3% 0.3% 0.3% 0.7% 0.8% 1.0% 2.3% 1.9% 1.7%Private Equity Total 1.2% 6.0% 5.1% 6.8% 12.0% 17.8% 22.9% 25.1% 21.2% 19.5%Total HF and PE assets 1.9% 13.0% 16.9% 16.1% 22.5% 31.0% 40.7% 48.3% 55.2% 63.9%Total Schedule BA assets ($B) $17.3 $6.3 $12.3 $10.4 $8.5 $8.8 $8.7 $10.2 $11.1 $11.5



14


Earnings volatility stemming from alternative investments. Historically returns from alternative investments tend to fluctuate significantly for AIG, with a range of 0.2% (in 2005) to 7.2% (in 2014). In general, leveraged buyout private equity investments generated the highest returns (23.0% in 2014 and 13.0% in 2013). Hedge funds returns in general were only slightly profitable (low-single-digit) in 2011 to 2014. In 2009, AIG’s investments in long/short equity hedge funds generated a strong, double-digit return of 17.6%. The company currently has a long-term expected return assumption of 8% for alternative investments, including hedge funds and private equity.

Exhibit 11. AIG’s Alternative Investment Returns, 2005-2014

4.2%

2.8%2.5%

-0.6%

4.8%

4.8%

6.4%

7.5%6.8%

7.7%

0.2% 0.5%0.9%

0.4%

1.6%2.1%

3.7%4.4%

5.2%7.2%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total HF and PE Returns Expected return of 8%

Total Schedule BA Asset Returns


Exhibit 12. AIG’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities 3.3% -0.1% 0.0% -0.4% 1.0% 0.9% 0.2% 1.8% 1.5% 1.8%Emerging markets -2.6% -0.5% 0.0% 0.0% 0.0% 133.2% 0.0% 0.0% 0.1% 0.0%Fixed income arbitrage 0.0% 0.0% - - - - - - - -Futures/Options/FX arbitrage 5.7% 18.1% - - - - - - - -Global macro - - - - - - - - - 17.5%Long/short equity - 0.0% 0.0% -1.1% 17.6% 2.2% 3.1% 0.4% 4.0% 0.9%Merger arbitrage - - - - - - - - - -Multi-strategy - - - - - 0.0% 0.0% 0.0% 1.3% 1.4%Sector investing - - - - - - - - - -Hedge Funds Total 2.0% 0.2% 0.0% -0.8% 9.0% 2.0% 1.6% 0.9% 2.6% 1.2%Leveraged buyout 6.0% 6.6% 8.5% -0.3% 1.2% 7.2% 10.5% 12.7% 13.0% 23.0%Mezzanine financing - 65.5% 18.7% 0.0% 7182.1% - - - - -Venture capital -2.4% -3.8% 5.7% -2.1% -2.1% 1.4% 2.5% 23.0% 17.9% 19.0%Private Equity Total 5.6% 6.0% 8.3% -0.3% 1.1% 7.0% 10.1% 13.6% 13.5% 22.7%Total HF and PE Returns 4.2% 2.8% 2.5% -0.6% 4.8% 4.8% 6.4% 7.5% 6.8% 7.7%Total Schedule BA Asset Returns 0.2% 0.5% 0.9% 0.4% 1.6% 2.1% 3.7% 4.4% 5.2% 7.2%Contribution from HF and PE 49.6% 81.1% 47.0% -23.3% 65.0% 71.4% 70.3% 82.9% 71.7% 68.6%



15

The Hartford (NYSE: HIG); Rating: Outperform


On a consolidated basis, HIG’s life companies had general account assets of $37.2 billion at year-end 2014, ranked No. 27 in U.S. life insurers, and accounted for roughly 1.0% of total general account assets in the life industry. Further, the life companies had $1.7 billion of other long-term invested assets, which were filed on Schedule BA and represented around 1.0% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially, to 22.3% of total adjusted capital including asset valuation reserves (from 12.6% at year-end 2005). This increase in asset allocation continued and HIG’s Schedule BA assets further increased to 28.2% of total adjusted capital including asset valuation reserves at year-end 2012. However, since 2013, the company's asset allocation to other long-term invested assets has decreased substantially (to roughly 23% total adjusted capital including asset valuation reserves at year-end 2014).

A rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 1.3% at year-end 2005 to 4.9% at year-end 2014. In addition, we think the surge in 2013 and 2014 was largely driven by HIG’s ongoing business restructuring, which lowered total gross investments.

HIG’s investments in hedge fund and private equity grew at CAGRs of 15% and 19%, respectively, from 2006 to 2014. The company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular) and multi-strategy hedge funds.

Historically returns from alternative investments tend to fluctuate significantly for HIG, with a range of 0.6% (in 2005) to 5.3% (in 2012). In general, mezzanine financing private equity investments generated the highest returns (16.1% in 2010 and 12.6% in 2014). Multi-strategy hedge funds also generated a strong return of 26.7% in 2013. The company currently has a long-term expected return assumption of 6% for alternative investments, including hedge funds and private equity.

A growing allocation to Schedule BA assets. Historically, HIG’s asset allocation to other long-term invested assets was below 20% of total adjusted capital including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 22.3% of total adjusted capital (from 12.6% in 2005), including asset valuation reserves. This increase in asset allocation continued and HIG’s Schedule BA assets further increased to 28.2% of total adjusted capital including asset valuation reserves at year-end 2012. However, since 2013, the company's asset allocation to other long-term invested assets has decreased substantially (to roughly 23% total adjusted capital including asset valuation reserves at year-end 2014). A rising trend can also be observed in Schedule BA assets as a percentage of total gross investments, which increased from 1.3% at year-end 2005 to 4.9% at year-end 2014.

Exhibit 13. HIG’s Growing Allocation To Schedule BA Assets($ in billions)

12.6%

22.3%

26.2%23.4%

18.8%17.2%

21.8%

28.2% 27.4%

22.7%

$4.7

$5.3

$6.3$6.1 $6.0

$6.7$7.0

$6.2 $6.1

$7.5

0%

5%

10%

15%

20%

25%

30%

$0

$1

$2

$3

$4

$5

$6

$7

$8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


1.3%2.5%

3.1%2.3% 2.1% 2.2% 2.6% 3.0%

4.5% 4.9%

$43.4$47.5

$52.9

$61.6

$52.9 $52.6

$58.8 $57.9

$37.3$34.8

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0

$10

$20

$30

$40

$50

$60

$70

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




16


Growth in LBO private equity and multi-strategy hedge funds. HIG’s investments in hedge funds and private equity assets grew significantly from 2006 to 2014, with annual asset growth rates compounding at 15% and 19%, respectively. In addition, the company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular) and multi-strategy hedge funds. During 2014, hedge fund investments increased sharply in both absolute and relative terms compared to 2013.

Exhibit 14. Hedge Funds And Private Equity In HIG’s Schedule BA Assets($ in billions)

$0.17

$0.32

$0.16

$0.09

$0.05 $0.04 $0.03 $0.03

$0.52

$0.12 $0.13

$0.22

$0.33 $0.33

$0.37

$0.50 $0.53 $0.51 $0.52

$0.0

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




Exhibit 15. HIG’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




17


Earnings volatility stemming from alternative investments. Historically returns from alternative investments tend to fluctuate significantly for HIG, with a range of 0.6% (in 2005) to 5.3% (in 2012). In general, mezzanine financing private equity investments generated the highest returns (16.1% in 2010 and 12.6% in 2014). Multi-strategy hedge funds also generated a strong return of 26.7% in 2013. The company currently has a long-term expected return assumption of 6% for alternative investments, including hedge funds and private equity.

Exhibit 16. HIG’s Alternative Investment Returns, 2005-2014

0.8%

2.5%

5.9%

5.0%

1.4%

9.1%

8.0%

12.6%

9.9%

4.3%

0.6%1.1%

2.9%2.4%

1.2%

4.1% 3.9%

5.3%

4.2%

4.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Total HF and PE Returns Expected return of 6%



Exhibit 17. HIG’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities - - - - - - - - - -Emerging markets - - - - - - - - - -Fixed income arbitrage - - - - - - - - - -Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - - - - - - -Long/short equity - - - - - - - - - -Merger arbitrage - - - - - - - - - -Multi-strategy - 0.0% 1.2% 1.2% 0.6% 6.6% 14.1% 16.1% 26.7% 0.8%Sector investing - - - - - - - - - -Hedge Funds Total - 0.0% 1.2% 1.2% 0.6% 6.6% 14.1% 16.1% 26.7% 0.8%Leveraged buyout 0.5% 8.0% 12.2% 5.9% 1.0% 8.9% 7.1% 11.3% 9.4% 7.8%Mezzanine financing 1.8% 2.6% 8.4% 5.5% 5.2% 16.1% 12.2% 11.2% 11.3% 12.6%Venture capital 0.0% 3.4% 22.8% 17.7% 0.7% 0.5% 4.0% 26.3% 2.6% 2.8%Private Equity Total 0.8% 5.9% 12.7% 6.8% 1.7% 9.4% 7.5% 12.4% 9.0% 7.7%Total HF and PE Returns 0.8% 2.5% 5.9% 5.0% 1.4% 9.1% 8.0% 12.6% 9.9% 4.3%Total Schedule BA Asset Returns 0.6% 1.1% 2.9% 2.4% 1.2% 4.1% 3.9% 5.3% 4.2% 4.3%Contribution from HF and PE 25.6% 57.8% 66.2% 71.4% 44.5% 81.9% 71.8% 76.2% 76.3% 60.6%



18

Lincoln National (NYSE: LNC); Rating: Outperform


On a consolidated basis, Lincoln’s life companies had general account assets of $98.7 billion at year-end 2014, ranked No. 10 in U.S. life insurers and accounted for roughly 2.6% of total general account assets in the life industry. Further, the company had $1.9 billion of other long-term invested assets, which were filed on Schedule BA and represented around 1.2% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially to 14.1% of total adjusted capital including asset valuation reserves (from 9.5% at year-end 2005). This increase in asset allocation continued and LNC’s Schedule BA assets further increased to 26.7% of total adjusted capital including asset valuation reserves at year-end 2012.

A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 0.8% at year-end 2005 to 2.3% at year-end 2012. However, since 2013, the company’s asset allocation to other long-term invested assets has decreased and stabilized (to roughly 22% total adjusted capital, including asset valuation reserves and 2.0% of total gross investments).

Based on the Schedule BA filing for 2014, the company's alternative investments were more heavily weighted to private equity assets (leveraged buyout and mezzanine financing in particular). Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint Lincoln’s investments in hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could be an increasing shift toward long/short equity and multi-strategy hedge funds.

Given the lack of details on investments in the company’s Schedule BA filings prior to 2014, we were not able to estimate LNC’s returns on hedge funds and private equity assets between years 2005 and 2013. In 2014, total Schedule BA asset returns were 9.9%, aided by strong returns from investments in private equity (11.3%) and hedge funds (13.6%).

A stabilizing allocation to Schedule BA assets. Historically, LNC’s asset allocation to other long-term invested assets was below 10% of total adjusted capital including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 14.1% of total adjusted capital (from 9.5% in 2005), including asset valuation reserves. This increase in asset allocation continued and LNC’s Schedule BA assets further increased to 26.7% of total adjusted capital including asset valuation reserves at year-end 2012. A similar rising trend can also be observed in Schedule BA assets as a percentage of total gross investments, which increased from 0.8% at year-end 2005 to 2.3% at year-end 2012. However, since 2013, the company’s asset allocation to other long-term invested assets has decreased and stabilized (to roughly 22% total adjusted capital including asset valuation reserves and 2.0% of total gross investments).

Exhibit 18. LNC’s Stabilizing Allocation To Schedule BA Assets($ in billions)

9.5%

14.1%

17.9%20.8% 22.1% 22.6%

24.9%26.7%

22.3% 21.6%

$5.8 $5.7$6.0

$5.1

$6.7$7.1

$7.6 $7.6$8.0

$8.8

0%

5%

10%

15%

20%

25%

30%

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


0.8% 1.2% 1.6% 1.6% 2.0% 2.0% 2.2% 2.3% 2.0% 2.0%

$70.0 $68.4 $68.2 $68.6$74.8

$79.1

$87.0$90.2 $89.6

$94.6

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




19


Alternative investments more heavily weighted to private equity. Based on the Schedule BA filing for 2014, the company's alternative investments were more heavily weighted to private equity assets (leveraged buyout and mezzanine financing in particular). Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint Lincoln’s investments in hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could be an increasing shift toward long/short equity and multi-strategy hedge funds.

Exhibit 19. Hedge Funds And Private Equity In LNC’s Schedule BA Assets($ in billions)

$0.27

$0.44

$0.0

$0.1

$0.1

$0.2

$0.2

$0.3

$0.3

$0.4

$0.4

$0.5

$0.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


From 2005-2014:Not enough information to determine the CAGRs of hedge funds and private equity assets.


Exhibit 20. LNC’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Distressed securities 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.3%Emerging markets 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.5%Fixed income arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.4%Futures/Options/FX arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Global macro 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.4%Long/short equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.2%Merger arbitrage 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.2%Multi-strategy 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2%Sector investing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Hedge Funds Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 14.2%

Leveraged buyout 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 17.4%Mezzanine financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 6.0%Venture capital 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.0%Private Equity Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.4%Total HF and PE assets 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 38.6%Total Schedule BA assets ($B) $0.6 $0.8 $1.1 $1.1 $1.5 $1.6 $1.9 $2.0 $1.8 $1.9



20


Double-digit returns from private equity and hedge funds in 2014. Given the lack of details on investments in the company’s Schedule BA filings prior to 2014, we were not able to estimate LNC’s returns on hedge funds and private equity assets between years 2005 and 2013. In 2014, total Schedule BA asset returns were 9.9%, aided by strong returns from investments in private equity (11.3%) and hedge funds (13.6%).

Exhibit 21. LNC’s Alternative Investment Returns, 2005-2014

12.1%

0.0% 0.2% 0.1% 0.4% 0.5%

2.8%

1.5% 1.5% 1.9%

9.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


From 2005-2014:Not enough information to estimate the returns on hedge funds and private equity assets.


Exhibit 22. LNC’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities - - - - - - - - - 0.0%Emerging markets - - - - - - - - - 0.0%Fixed income arbitrage - - - - - - - - - 151.3%Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - - - - - - 0.0%Long/short equity - - - - - - - - - 2.5%Merger arbitrage - - - - - - - - - 33.9%Multi-strategy - - - - - - - - - 12.0%Sector investing - - - - - - - - - -

Hedge Funds Total - - - - - - - - - 13.6%

Leveraged buyout - - - - - - - - - 11.8%Mezzanine financing - - - - - - - - - 11.0%Venture capital - - - - - - - - - 4.2%Private Equity Total - - - - - - - - - 11.3%Total HF and PE Returns - - - - - - - - - 12.1%Total Schedule BA Asset Returns 0.0% 0.2% 0.1% 0.4% 0.5% 2.8% 1.5% 1.5% 1.9% 9.9%Contribution from HF and PE - - - - - - - - - 47.2%



21

MetLife (NYSE: MET); Rating: Outperform


On a consolidated basis, MetLife’s life companies had general account assets of $349 billion at year-end 2014, the largest in U.S. life insurers and accounted for roughly 9.1% of total general account assets in the life industry. Further, the life companies had $22 billion of other long-term invested assets, which were filed on Schedule BA and represented around 13.4% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially to 61.6% of total adjusted capital including asset valuation reserves (from 48.6% at year-end 2005). This increase in asset allocation continued and MetLife’s Schedule BA assets further increased to 86.7% of total adjusted capital including asset valuation reserves at year-end 2014.

A similar rising trend can also be observed in Schedule BA assets as a percentage of total gross investments, which increased from 3.1% at year-end 2005 to 6.6% at year-end 2014.

MetLife’s investments in hedge fund and private equity grew at compound annual growth rates (CAGR) of 27% and 14%, respectively, from 2006 to 2014. The company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular), but there was also an increasing shift toward multi-strategy and long/short equity hedge funds.

Historically returns from alternative investments tend to fluctuate significantly for MetLife, with a range of 0.5% (in 2005) to 4.9% (in 2007). In general, leveraged buyout private equity investments generated the highest returns (41.5% in 2007 and 17.2% in 2014).

Multi-strategy hedge funds returns were more favorable in 2009 and 2010 (4.3% and 7.9%, respectively), but only slightly profitable in 2012-14. In addition, MetLife’s investments in long/short equity hedge funds generated a strong return of 9.7% in 2014, up significantly versus returns of 1.0% in 2012 and 2.0% in 2013.

A growing allocation to Schedule BA assets. Historically, MetLife’s asset allocation to other long-term invested assets was below 50% of total adjusted capital including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 61.6% of total adjusted capital (from 48.6% in 2005), including asset valuation reserves. This increase in asset allocation continued and MetLife’s Schedule BA assets further increased to 86.7% of total adjusted capital including asset valuation reserves at year-end 2014. A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 3.1% at year-end 2005 to 6.6% at year-end 2014.

Exhibit 23. MetLife’s Growing Allocation To Schedule BA Assets($ in billions)

48.6%

61.6%67.3%

79.4% 76.1% 74.1% 74.9% 75.1%86.6% 86.7%

$19.1$20.4

$24.3 $23.7$22.1

$23.9

$26.0$27.2

$24.2$25.4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0

$5

$10

$15

$20

$25

$30

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


3.1%3.8%

4.7%5.4%

4.8% 4.9% 5.1%

6.4% 6.7% 6.6%

$299.7$327.7

$346.4 $351.1 $347.8$363.5

$383.1

$318.6 $314.9$333.3

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




22


Growth in LBO private equity and multi-strategy and long/short equity hedge funds. MetLife’s investments in hedge funds and private equity assets grew significantly from 2006 to 2014, with annual asset growth rates compounding at 27% and 14%, respectively. In addition, the company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular), but there was also an increasing shift toward multi-strategy and long/short equity hedge funds.

Exhibit 24. Hedge Funds And Private Equity In MetLife’s Schedule BA Assets($ in billions)

$0.31 $0.36 $0.36 $0.49

$0.60 $0.79

$0.98

$1.60

$2.06

$1.42

$1.71 $1.76

$2.77 $2.92

$3.45 $3.56

$4.03 $4.14

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




Exhibit 25. MetLife’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




23


Earnings volatility stemming from alternative investments. Historically returns from alternative investments tend to fluctuate significantly for MetLife, with a range of 0.5% (in 2005) to 4.9% (in 2007). In general, leveraged buyout private equity investments generated the highest returns (41.5% in 2007 and 17.2% in 2014). Multi-strategy hedge funds returns were more favorable in 2009 and 2010 (4.3% and 7.9%, respectively), but only slightly profitable in 2012 to 2014. In addition, MetLife’s investments in long/short equity hedge funds generated a strong return of 9.7% in 2014, up significantly versus returns of 1.0% in 2012 and 2.0% in 2013.

Exhibit 26. MetLife’s Alternative Investment Returns, 2005-2014

22.8%

31.4%

5.3%

1.9%

7.7% 8.2%9.8% 9.6%

11.2%

0.5%

4.0% 4.9%

1.7%

0.7%

4.3%2.9%

4.7% 4.0% 4.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Exhibit 27. MetLife’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - 0.0% 0.0% 0.0% 0.0% - -Distressed securities - - - - - - - - - -Emerging markets - 0.0% 0.0% 0.0% 0.0% 0.0% - 109.5% 0.2% 0.1%Fixed income arbitrage - - - 0.0% -26.9% 2.9% 0.0% 0.0% 0.0% 0.0%Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - 1.0% 1.0% 0.3% 0.4% 0.0% 0.2%Long/short equity - - - - 0.0% 0.0% 0.0% 1.1% 2.0% 9.7%Merger arbitrage - - - - - - - - - -Multi-strategy - 0.0% 0.0% 0.0% 4.3% 7.9% 2.1% 0.5% 0.5% 0.3%Sector investing - - - - - - 0.0% - 0.0% 0.0%Hedge Funds Total - 0.0% 0.0% 0.0% -7.7% 2.6% 0.7% 1.1% 0.7% 3.0%Leveraged buyout - 29.6% 41.5% 6.0% 3.1% 9.1% 11.2% 13.2% 14.4% 17.2%Mezzanine financing - 14.3% 8.0% 9.1% 6.4% 8.4% 7.6% 9.7% 9.8% 6.8%Venture capital - 4.6% 10.3% 5.1% 4.0% 2.7% 2.3% 6.4% 6.4% 11.1%Private Equity Total - 27.8% 38.0% 6.4% 3.6% 8.8% 10.2% 12.2% 13.0% 15.2%Total HF and PE Returns - 22.8% 31.4% 5.3% 1.9% 7.7% 8.2% 9.8% 9.6% 11.2%Total Schedule BA Asset Returns 0.5% 4.0% 4.9% 1.7% 0.7% 4.3% 2.9% 4.7% 4.0% 4.3%Contribution from HF and PE - 77.7% 80.4% 34.4% 52.5% 35.4% 62.6% 46.6% 64.2% 73.6%



24

Principal Financial Group (NYSE: PFG); Rating: Market Perform


On a consolidated basis, PFG’s life insurance companies had general account assets of $59.1 billion at year-end 2014, ranked No. 18 in U.S. life insurers and accounted for roughly 1.5% of total general account assets in the life industry. Further, the life companies had $3.2 billion of other long-term invested assets, which were filed on Schedule BA and represented around 1.9% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially to 62.2% of total adjusted capital including asset valuation reserves (from 40.0% at year-end 2005). This increase in asset allocation continued through 2012 and PFG’s Schedule BA assets further increased to 76.3% of total adjusted capital including asset valuation reserves at year-end 2012.

A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 3.4% at year-end 2005 to 6.1% at year-end 2012. However, since 2013, the company’s asset allocation to other long-term invested assets has decreased substantially and stabilized (to roughly 64% total adjusted capital including asset valuation reserves and 5.6% of total gross investments).

Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint PFG’s investments or returns associated with hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could be an increasing shift toward multi-strategy hedge funds.

Alternative asset returns tend to fluctuate year to year significantly for Principal, with a range of 0.2% (in 2005) to 9.7% (in 2013). In 2014, total Schedule BA asset returns were 7.6%. Due to limited information available on PFG’s Schedule BA filings, we were not able to estimate the historical returns of the company’s investments in private equity and hedge funds. In addition, the company’s private equity and hedge fund investments grew from roughly 0% in 2005 to 9.8% of total other long-term invested assets in 2014.

A stabilizing allocation to Schedule BA assets. Historically, Principal’s asset allocation to other long-term invested assets was below 50% of total adjusted capital including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 62.2% of total adjusted capital (from 40.0% in 2005), including asset valuation reserves. This increase in asset allocation continued and PFG’s Schedule BA assets further increased to 76.3% of total adjusted capital including asset valuation reserves at year-end 2012. A similar rising trend can also be observed in Schedule BA assets as a percentage of total gross investments, which increased from 3.4% at year-end 2005 to 6.1% at year-end 2012. However, since 2013, the company’s asset allocation to other long-term invested assets has decreased substantially and stabilized (to roughly 64% total adjusted capital including asset valuation reserves and 5.6% of total gross investments).

Exhibit 28. PFG’s Stabilizing Allocation To Schedule BA Assets($ in billions)

40.0%

62.2% 65.8% 64.3%71.5% 71.5% 72.3% 76.3%

63.4% 63.8%

$4.5$4.5

$4.6

$5.1

$4.9

$4.7$4.8

$4.6

$4.8

$5.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$4

$4

$4

$5

$5

$5

$5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


3.4%

5.1% 5.2% 5.3%6.0% 6.0% 6.0% 6.1%

5.3% 5.6%

$52.4

$55.2

$58.4

$61.8

$58.7

$56.7$57.2

$58.2$57.4 $57.4

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$46

$48

$50

$52

$54

$56

$58

$60

$62

$64

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




25


Not enough information; but potentially a shift to multi-strategy hedge funds. Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint PFG’s investments associated with hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could be an increasing shift toward multi-strategy hedge funds. In addition, the company’s private equity and hedge fund investments grew from roughly 0% in 2005 to 9.8% of total other long-term invested assets in 2014.

Exhibit 29. Hedge Funds And Private Equity In PFG’s Schedule BA Assets($ in billions)

$0.00 $0.00 $0.00 $0.00 $0.00 $0.00

$0.30

$0.01

$0.0

$0.1

$0.1

$0.2

$0.2

$0.3

$0.3

$0.4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


From 2005-2014:Not enough information to determine the CAGRs of hedge funds and private equity assets.


Exhibit 30. PFG’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




26


Fluctuating alternative investment returns. Alternative asset returns tend to fluctuate year to year significantly for Principal, with a range of 0.2% (in 2005) to 9.7% (in 2013). Due to limited information available on PFG’s Schedule BA filings, we were not able to estimate the historical returns of the company’s investments in private equity and hedge funds. In 2014, total Schedule BA asset returns were 7.6%.

Exhibit 31. PFG’s Alternative Investment Returns, 2005-2014

0.0% 0.0% 0.0% 0.0% 0.0%

9.7%

0.0%0.2%

2.4%

8.7%

7.6%

4.4%4.9%

7.4%

9.1%

9.3% 7.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


From 2005-2014:Not enough information to estimate the returns on hedge funds and private equity assets.


Exhibit 32. PFG’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities - - - - - - - - - -Emerging markets - - - - - - - - - -Fixed income arbitrage - - - - - - - - - -Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - - - - - - -Long/short equity - - - - - - - - - -Merger arbitrage - - - - - - - - - -Multi-strategy - - - - - - - - - 0.0%Sector investing - - - - - - - - - -Hedge Funds Total - - - - - - - - - 0.0%Leveraged buyout - - - - - - - - - 0.0%Mezzanine financing - - - - - - - - - -Venture capital - - - 0.0% 0.0% 0.0% 0.0% 0.0% 9.7% 0.0%Private Equity Total - - - 0.0% 0.0% 0.0% 0.0% 0.0% 9.7% 0.0%Total HF and PE Returns - - - 0.0% 0.0% 0.0% 0.0% 0.0% 9.7% 0.0%Total Schedule BA Asset Returns 0.2% 2.4% 8.7% 7.6% 4.4% 4.9% 7.4% 9.1% 9.3% 7.6%Contribution from HF and PE - - - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%



27

Prudential Financial (NYSE: PRU); Rating: Outperform


On a consolidated basis, Prudential’s life companies had general account assets of $211 billion at year-end 2014, ranked No. 4 in U.S. life insurers and accounted for roughly 5.5% of total general account assets in the life industry. Further, the life companies had $8.9 billion of other long-term invested assets, which were filed on Schedule BA and represented around 5.4% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially to 27.3% of total adjusted capital including asset valuation reserves (from 15.1% at year-end 2005). This increase in asset allocation continued and Prudential’s Schedule BA assets further increased to 56.8% of total adjusted capital including asset valuation reserves at year-end 2014.

A similar rising trend can also be observed in Schedule BA assets as a percentage of total gross investments, which increased from 1.0% at year-end 2005 to 4.5% at year-end 2014.

Prudential’s investments in hedge fund and private equity grew at compound annual growth rates (CAGR) of 43% and 38%, respectively, from 2005 to 2014. We think the significant increase in private equity assets in 2012 was largely driven by the jumbo-sized pension risk transfer deals with GM and Verizon, which included some alternative investments in the transferred asset portfolio. The company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular), in addition to a fluctuating allocation to multi-strategy hedge funds.

Historically returns from alternative investments tend to fluctuate significantly for Prudential, with a range of 0.5% (in 2010) to 8.1% (in 2014). In general, leveraged buyout private equity investments generated the highest returns (18.4% in 2014 and 17.6% in 2005).

Multi-strategy hedge funds returns were only modestly profitable in recent years (0.2% in 2014, 0.1% in 2013, and 0.2% in 2012).

A growing allocation to Schedule BA assets. Historically, Prudential’s asset allocation to other long-term invested assets was below 20% of total adjusted capital including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 27.3% of total adjusted capital (from 15.1% in 2005), including asset valuation reserves. This increase in asset allocation continued and Prudential’s Schedule BA assets further increased to 56.8% of total adjusted capital including asset valuation reserves at year-end 2014. A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 1.0% at year-end 2005 to 4.5% at year-end 2014.

Exhibit 33. Prudential’s Growing Allocation To Schedule BA Assets($ in billions)

15.1%

27.3%31.5% 32.6% 33.4% 34.9%

41.8%

59.6% 61.9%56.8%

$11.0$10.0

$11.4

$9.7

$13.9$12.9 $12.6

$13.2

$14.3

$15.6

0%

10%

20%

30%

40%

50%

60%

70%

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


1.0%1.6% 2.1% 1.8%

2.7% 2.6% 3.0%4.3% 4.6% 4.5%

$162.6$172.2 $172.9 $174.2 $171.9 $171.6 $175.3

$182.7$192.4 $198.2

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0

$50

$100

$150

$200

$250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




28


Growth in LBO private equity and a fluctuating allocation to multi-strategy hedge funds. Prudential’s investments in hedge funds and private equity assets grew significantly from 2005 to 2014, with annual asset growth rates compounding at 43% and 38%, respectively. We think the significant increase in private equity assets in 2012 was largely driven by the jumbo-sized pension risk transfer deals with GM and Verizon. The company’s alternative investments remained more heavily weighted to private equity assets (leveraged buyout in particular), in addition to a fluctuating allocation to multi-strategy hedge funds.

Exhibit 34. Hedge Funds And Private Equity In Prudential’s Schedule BA Assets($ in billions)

$0.01 $0.02 $0.03 $0.02 $0.02

$0.29

$0.57

$0.84

$1.10

$0.27 $0.13 $0.13

$0.33 $0.47 $0.46

$0.71 $0.77

$2.30 $2.33

$2.51

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




Exhibit 35. Prudential’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




29


Earnings volatility stemming from alternative investments. Historically returns from alternative investments tend to fluctuate significantly for Prudential, with a range of 0.5% (in 2010) to 8.1% (in 2014). In general, leveraged buyout private equity investments generated the highest returns (18.4% in 2014 and 17.6% in 2005). Multi-strategy hedge funds returns were only modestly profitable in recent years (0.2% in 2014, 0.1% in 2013, and 0.2% in 2012).

Exhibit 36. Prudential’s Alternative Investment Returns, 2005-2014

12.5%

11.0%

6.1%

2.6%

3.3%

-0.2%

4.3%

2.1%

7.4%

14.8%

2.2%1.3% 1.0%

1.9%1.0%

0.5%

1.8%

1.8%

5.1%

8.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Exhibit 37. Prudential’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities - - - - - - - - - -Emerging markets - - - - - - - - - -Fixed income arbitrage - - - - - - - - - -Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - - - - - - -Long/short equity - - - - - - - - - -Merger arbitrage - - - - - - - - - -Multi-strategy 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.4% 0.2% 0.1% 0.2%Sector investing - - - - - - 0.0% -16.3% 0.0% -Hedge Funds Total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.4% 0.2% 0.1% 0.2%Leveraged buyout 17.6% 11.9% 6.6% 3.1% -1.9% -0.4% 8.8% 2.0% 10.6% 18.4%Mezzanine financing 12.1% 15.5% 8.0% 3.4% 8.1% -0.4% 8.9% 7.9% 12.6% 15.0%Venture capital 19.7% 2.7% 2.2% 0.3% -0.6% 0.0% 0.4% 0.2% 10.0% 8.7%Private Equity Total 13.5% 12.9% 6.5% 2.7% 3.5% -0.3% 7.9% 2.8% 10.9% 16.4%Total HF and PE Returns 12.5% 11.0% 6.1% 2.6% 3.3% -0.2% 4.3% 2.1% 7.4% 14.8%Total Schedule BA Asset Returns 2.2% 1.3% 1.0% 1.9% 1.0% 0.5% 1.8% 1.8% 5.1% 8.1%Contribution from HF and PE 50.5% 49.5% 57.7% 21.6% 36.1% -11.9% 62.5% 48.7% 56.2% 57.4%



30

Voya Financial (NYSE: VOYA); Rating: Outperform


On a consolidated basis, VOYA’s life insurance companies had general account assets of $86.6 billion at year-end 2014, ranked No. 13 in U.S. life insurers and accounted for roughly 2.3% of total general account assets in the life industry. Further, the life companies had $1.5 billion of other long-term invested assets, which were filed on Schedule BA and represented around 0.9% of the U.S. life industry’s total Schedule BA assets.

At year-end 2006, the company’s asset allocation to other long-term invested assets increased substantially to 22.6% of total adjusted capital including asset valuation reserves (from 11.7% at year-end 2005). This increase in asset allocation continued through 2009 and VOYA’s Schedule BA assets further increased to 67.6% of total adjusted capital, including asset valuation reserves at year-end 2009.

A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 1.0% at year-end 2005 to 5.8% at year-end 2009. However, since 2010, the company’s asset allocation to other long-term invested assets has decreased substantially and stabilized after 2012 (to roughly 20% total adjusted capital including asset valuation reserves and 1.8% of total gross investments). It appears as if VOYA divested Schedule BA investments as the company prepared to go public.

Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint VOYA’s investments in hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could be an increasing shift toward long/short equity and multi-strategy hedge funds.

The company’s investments in private equity grew at a compound annual growth rate (CAGR) of 38% from 2005 to 2014. In addition, there was a growing allocation to leveraged buyout private equity investments. Historically returns from private equity investments tend to fluctuate significantly for VOYA, with a range of 1.6% (in 2009) to 37.3% (in 2006). Since 2010, returns from private equity investments have been largely meeting or exceeding VOYA’s expectation (9%), which the company does not expect to recur.

A stabilizing allocation to Schedule BA assets. Historically, VOYA’s asset allocation to other long-term invested assets was below 20% of total adjusted capital, including asset valuation reserves. In 2006, the company’s allocation to Schedule BA assets increased substantially to 22.6% of total adjusted capital (from 11.7% in 2005), including asset valuation reserves. This increase in asset allocation continued and VOYA’s Schedule BA assets further increased to 67.6% of total adjusted capital including asset valuation reserves at year-end 2009. A similar rising trend can also be observed in Schedule BA assets as a percent of total gross investments, which increased from 1.0% at year-end 2005 to 5.8% at year-end 2009. However, since 2010, VOYA’s asset allocation to other long-term invested assets has decreased substantially and stabilized after 2012 (to roughly 20% total adjusted capital including asset valuation reserves and 1.8% of total gross investments).

Exhibit 38. VOYA’s Stabilizing Allocation To Schedule BA Assets($ in billions)

11.7%

22.6%

34.0% 31.4%

67.6%63.5% 49.2%

19.6% 19.5% 20.2%

$7.5

$7.3

$7.9

$6.8$6.9

$7.0

$8.0

$7.9

$7.1

$7.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

$6

$6

$7

$7

$7

$7

$7

$8

$8

$8

$8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


1.0%2.1%

3.2%2.5%

5.8% 5.4%4.6%

1.8% 1.7% 1.8%

$89.1

$78.2

$83.2

$85.3

$80.5

$81.8

$85.7

$84.3

$82.5$83.3

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$72

$74

$76

$78

$80

$82

$84

$86

$88

$90

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




31


Growth in LBO private equity. The company’s investments in private equity grew at a CAGR of 38% from 2005 to 2014. In addition, there was a growing allocation to leveraged buyout private equity investments. Due to limited information provided in Schedule BA filings prior to 2014, we were not able to pinpoint VOYA’s investments in hedge funds between years 2005 and 2013. Still, based on the breakdown of hedge fund investments for 2014 and the historical industry trend, we think there could also be an increasing shift toward long/short equity and multi-strategy hedge funds.

Exhibit 39. Hedge Funds And Private Equity In VOYA’s Schedule BA Assets($ in billions)

$0.16

$0.03

$0.01

$0.06

$0.13 $0.13 $0.12 $0.12

$0.09

$0.07

$0.16

$0.0

$0.0

$0.0

$0.1

$0.1

$0.1

$0.1

$0.1

$0.2

$0.2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


From 2005-2014:Private equity assets grew at a CAGR of 38%


Exhibit 40. VOYA’s Various Private Equity And Hedge Fund InvestmentsBACV by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014




32


Earnings volatility stemming from alternative investments. Historically returns from private equity investments tend to fluctuate significantly for VOYA, with a range of 1.6% (in 2009) to 37.3% (in 2006). The company currently has a long-term expected return assumption of 9% for alternative investments, including hedge funds and private equity. Since 2010, returns from private equity investments have been largely meeting or exceeding VOYA’s expectation, which the company does not expect to recur.

Exhibit 41. VOYA’s Alternative Investment Returns, 2005-2014

8.0%

37.3%

10.4%

1.7% 1.6%

14.2%

8.5%

31.4%

10.3%

7.2%0.3% 0.4% 0.3%0.6% 0.1%

2.1% 3.0%

11.5%

7.8%

13.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Total HF and PE Returns Expected return of 9%



Exhibit 42. VOYA’s Returns From Hedge Funds And Private Equity InvestmentsEstimated Returns by Strategy 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Convertible arbitrage - - - - - - - - - -Distressed securities - - - - - - - 0.0% 0.0% 6.2%Emerging markets - - - - - - - - - 0.0%Fixed income arbitrage - - - - - - - - - 0.0%Futures/Options/FX arbitrage - - - - - - - - - -Global macro - - - - - - - - - 0.1%Long/short equity - - - - - - - - - 12.4%Merger arbitrage - - - - - - - - - -Multi-strategy - - - - - - - - - 0.7%Sector investing - - - - - - - - - 0.0%Hedge Funds Total 0.0% - - - - - - 0.0% 0.0% 4.5%

Leveraged buyout 13.0% 52.4% 14.2% 0.2% 0.2% 11.5% 4.0% 42.6% 12.6% 8.5%Mezzanine financing 6.4% - 6.3% 3.3% 2.9% 17.9% 9.5% 11.1% 7.6% 15.0%Venture capital 0.0% 8.2% 0.0% 0.0% 0.0% 0.0% 195.2% 0.0% 0.0% 19.6%Private Equity Total 8.0% 37.3% 10.4% 1.7% 1.6% 14.2% 8.5% 31.5% 10.4% 10.2%Total HF and PE Returns 8.0% 37.3% 10.4% 1.7% 1.6% 14.2% 8.5% 31.4% 10.3% 7.2%Total Schedule BA Asset Returns 0.3% 0.4% 0.3% 0.6% 0.1% 2.1% 3.0% 11.5% 7.8% 13.4%Contribution from HF and PE 100.0% 44.9% 89.6% 18.5% 48.3% 19.0% 8.9% 15.3% 7.0% 11.6%



33

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I certify that:1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report.

Wells Fargo Securities, LLC maintains a market in the common stock of Prudential Financial, Inc., American International Group, Inc., Chubb Corporation, ACE Limited, Everest Re Group, Ltd., The Allstate Corporation, The Progressive Corporation, The Hartford Financial Services Group, Inc., Arch Capital Group Ltd., AFLAC Inc., Genworth Financial, Inc., Lincoln National Corp., MetLife, Inc., Principal Financial Group, Inc., Ameriprise Financial, Inc., Assurant, Inc., The Travelers Cos., Inc., Marsh & McLennan Companies, Inc., Voya Financial, Inc., United Insurance Holdings Corp., Willis Group Holdings plc.

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34

Assurant, Inc., Brown & Brown, Inc., Torchmark Corp., Ameriprise Financial, Inc. Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in

the next three months from an affiliate of Ameriprise Financial, Inc., Principal Financial Group, Inc., Lincoln National Corp., Voya Financial, Inc., Willis Group Holdings plc, Aon Corporation, Marsh & McLennan Companies, Inc., Arch Capital Group Ltd., Axis Capital Holdings Limited, The Allstate Corporation, Everest Re Group, Ltd., ACE Limited, American International Group, Inc., Prudential Financial, Inc.

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ACE: Risks to achieving the valuation range include large cat losses, increased competition, and a deterioration in loss costs.ACGL: Risks to achieving the valuation range include large catastrophe and investment losses, increased competition, and a deterioration in loss costs.AFL: Risks to our valuation range include U.S. and Japanese sales weakness, higher-than expected loss costs, a weaker yen, and asset quality deterioration.AIG: Risks to the downside of our valuation range include declining investment income, rising catastrophe exposure, business retention and soft pricing conditions.AIZ: Risks to our valuation range include deteriorating asset quality, prolonged retail weakness, sustained improvement in housing markets, declining net investment income, and catastrophes or other large losses.AJG: Risks include a material deterioration in economic conditions, a significantly slowing of P&C rates, and acquisitions either falling to materialize in the future or deals missing expectations.ALL: Risks to achieving the valuation range include large cat losses, regulatory constraints in key states, widening credit spreads, reserve strengthening, irrational competition in personal lines, and deterioration in loss cost trends.AMP: Risks to our range include investment spread compression, credit losses, falling investment income, weak equity markets, and advisor turnover.AON: Risks to achieving the valuation range include tough economic conditions, a slowdown of the P&C rating improvement, foreign exchange risk, pressure on expenses from investments Aon is making, and volatility associated with its pension plan.AXS: Risks to achieving the valuation range include large catastrophe and investment losses, increased competition, and a rise in claims for D&O (directors and officers) and other credit issues.BRO: Risks to achieving the valuation range include tough economic conditions which would pressure organic growth, a slowdown and leveling off of the P&C rating improvement, and the completion and successful integration of acquisitions.CB: Risks to achieving our valuation range include large catastrophe losses, adverse reserve development, increased competition, a deterioration in loss costs, and a rise in D&O claims.GNW: Risks to achieving our range include rising home mortgage delinquencies, liquidity constraints, credit losses, and the need to raise capital.HIG: Risks to achieving the range include catastrophe losses, potential reserve additions, competition, rising interest rates, and falling equity markets.LNC: Risks to our valuation range include investment spread compression, falling investment income, weak equity markets, rising capital needs, and credit losses.MET: Risks to our valuation range include investment spread compression, falling investment income, weak equity markets, and credit losses.MMC: Risks to achieving the valuation range include tough economic conditions, a slowdown and leveling off of the P&C rating improvement, foreign exchange risk, and volatility from expenses associated with its pension plan.PFG: Risks to our valuation range include spread compression, credit losses, and weak equity markets.PGR: Risks to achieving our valuation range include intense competition in the personal auto market, cat losses, and regulatory constraints in key states.PRE: Risks to achieving our valuation range include large cat losses, greater competition, and higher loss costs.PRU: Risks to achieving our valuation range include spread compression, credit losses, weak equity markets, and equity capital issuance.RE: Risks to achieving the valuation range include large catastrophe losses, adverse reserve development, and increased competition.RNR: Risks to achieving the valuation range include large catastrophe losses, increased competition, and a rise in claims for D&O and other credit issues.TMK: Risks to our valuation range include adverse mortality, credit losses, and falling interest rates.TRV: Risks to achieving our valuation range include large catastrophe losses, adverse reserve development, increased competition, a deterioration in loss costs, and a rise in D&O claims.UIHC: Risks to achieving our valuation range include intense competition in the homeowners' insurance market, catastrophe losses, and regulatory constraints in key states.VOYA: Risks to our range include exposure to CBVA, differentiated reporting, competition in the Retirement market, spread compression, and liquidity.WSH: Risks to our Under Perform rating include faster-than-expected integration of its merger with Towers Watson, a stronger non-life insurance rating environment, improving economic conditions globally, and if private healthcare exchange enrollment and


35

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STOCK RATING1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL

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earnings are stronger-than-expected.


36

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This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments named or described in this report. Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information. The information in this report has been obtained or derived from sources believed by Wells Fargo Securities, LLC, to be reliable, but Wells Fargo Securities, LLC does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment ofWells Fargo Securities, LLC, at this time, and are subject to change without notice. For the purposes of the U.K. Financial Conduct Authority's rules, this report constitutes impartial investment research. Each of Wells Fargo Securities, LLC andWells Fargo Securities International Limited is a separate legal entity and distinct from affiliated banks. Copyright © 2015Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Diane Schumaker-KriegGlobal Head of Research, Economics & Strategy │ 212-214-5070 / 704-410-1801

[email protected]

Sam J. PearlsteinCo-Head of Equity Research │ 212-214-5054

[email protected]

Paul Jeanne, CFA, CPAAssociate Director of Research

443-263-6534 / 212-214-8054 / [email protected]

Todd M. WickwireCo-Head of Equity Research

410-625-6393 / [email protected]

Lisa HausnerGlobal Head of Publishing │ 443-263-6522

[email protected]

CONSUMERBeverage/Convenience Stores/Tobacco

Bonnie Herzog 212-214-5051Adam Scott 212-214-8064

Cosmetics, Household & Personal CareChris Ferrara, CFA, CPA 212-214-8050Joe Lachky, CFA 314-875-2042Zachary Fadem, CPA 212-214-8018

FoodJohn Baumgartner, CFA 212-214-5015

Mariya Morgaylo 212-214-5028Leisure

Timothy Conder, CPA 314-875-2041Karen Tan 314-875-2556Marc J. Torrente 314-875-2557

Restaurants & FoodserviceJeff Farmer, CFA 617-603-4314

Imran Ali 617-603-4315Jordan Kohn 617-603-4207

RetailMatt Nemer 415-396-3938Trisha Dill, CFA 312-920-3594

Stephanie Xu 415-396-3054

ENERGYExploration & Production

David R. Tameron 303-863-6891Gordon Douthat, CFA 303-863-6920

Jamil Bhatti, CFA 303-863-6880Mark A. Engelmeyer 303-863-4754Jay M. Mondrick, CFA 303-863-5859

Master Limited PartnershipsMichael J. Blum 212-214-5037Sharon Lui, CPA 212-214-5035Praneeth Satish 212-214-8056

Eric Shiu 212-214-5038Ned Baramov, CFA 212-214-8021Nicholas Daly 212-214-8012

UtilitiesNeil Kalton, CFA 314-875-2051Sarah Akers, CFA 314-875-2040

Jonathan Reeder 314-875-2052Glen F. Pruitt 314-875-2047Peter Flynn 314-875-2049

Oilfield Services and EquipmentJudson E. Bailey, CFA 713-577-2514Daniel Cruise 713-577-2515Coleman W. Sullivan, CFA 713-577-2510

International E&Ps/Independent RefinersRoger D. Read 713-577-2542

Lauren Hendrix 713-577-2543

FINANCIAL SERVICESBDCs

Jonathan Bock, CFA 704-410-1874Finian P. O’Shea 704-410-1990Joseph Mazzoli, CFA 704-410-2523

Brokers/Exchanges/Asset ManagersChristopher Harris, CFA 443-263-6513

Robert Ryan, CFA 212-214-5025Insurance

John Hall 212-214-8032Elyse Greenspan, CFA 212-214-8031

Kenneth Hung, CFA, ASA 212-214-8023Rashmi H. Patel, CFA 212-214-8034

Specialty FinanceJoel J. Houck, CFA 443-263-6521Vivek Agrawal 443-263-6563

Charles Nabhan 443-263-6578Max Maier 443-263-6573

U.S. BanksMatt H. Burnell 212-214-5030Jason Harbes, CFA 212-214-8068Jared Shaw 212-214-8028

Timur Braziler 212-214-5048

HEALTH CAREBiotechnology

Matthew J. Andrews 617-603-4218Healthcare Facilities

Gary Lieberman, CFA 212-214-8013Ryan Halsted 212-214-8022

Healthcare IT & DistributionJamie Stockton, CFA 901-271-5551Stephen Lynch 901-271-5552

Nathan Weissman 901-271-5553Life Science Tools, Services, & Diagnostics

Tim Evans 212-214-8010Sara Silverman 212-214-8027

Managed Care/Ancillary BenefitsPeter H. Costa 617-603-4222

Polly Sung, CFA 617-603-4324Brian Fitzgerald, CFA 617-603-4277

Medical TechnologyLarry Biegelsen 212-214-8015Craig W. Bijou 212-214-8038

Lei Huang 212-214-8039Adam C. Maeder 212-214-8042

INDUSTRIALAerospace & Defense

Sam J. Pearlstein 212-214-5054Gary S. Liebowitz, CFA 212-214-5055

Ronald Hou 212-214-5056Automotive/Electrical and Industrial Products

Rich Kwas, CFA 410-625-6370David H. Lim 443-263-6565

Deepa Raghavan, CFA 443-263-6517Ronald Jewsikow 443-263-6449

ChemicalsFrank J. Mitsch 212-214-5022

Rory Blake 212-214-8011Containers & Packaging

Chris D. Manuel 216-643-2966Gabe S. Hajde 216-643-2967Derek Jose 216-643-2968

Diversified IndustrialsAllison Poliniak-Cusic, CFA 212-214-5062

Michael L. McGinn 212-214-5052Machinery

Andrew Casey 617-603-4265Justin Ward 617-603-4268

Sara A. Magers, CFA 617 603-4270Engineering & Construction

Justin Ward 617-603-4268Shipping, Equipment Leasing, & Marine MLPs

Michael Webber, CFA 212-214-8019Donald D. McLee 212-214-8029Hillary Cacanando, CFA, CPA 212-214-8040Donald Bogden 212-214-8037

TransportationCasey S. Deak, CFA 443-263-6579

MEDIA & TELECOMMUNICATIONSAdvertising

Peter Stabler 415-396-4478Steve Cho 415-396-6056Blake Nelson 415-396-4064

Media & CableMarci R. Ryvicker, CFA, CPA 212-214-5010Eric Katz 212-214-5011Stephan Bisson 212-214-8033

John Huh 212-214-8044Satellite Communications

Andrew Spinola 212-214-5012Telecommunication Services - Wireless/Wireline

Jennifer M. Fritzsche 312-920-3548Caleb Stein 312-845-9797Eric Luebchow 312-630-2386

REAL ESTATE, GAMING & LODGINGGaming

Cameron McKnight 212-214-5046Robert Shore 212-214-8009

Healthcare/Manufactured Housing/Self-StorageTodd Stender 562-637-1371

Philip DeFelice, CFA 443-263-6442Jason S. Belcher 443-462-7354

Lodging/Multifamily/RetailJeffrey J. Donnelly, CFA 617-603-4262

Dori Kesten 617-603-4233Robert LaQuaglia, CFA, CMT 617-603-4263

Tamara Fique 443-263-6568Office/Industrial/Infrastructure

Brendan Maiorana, CFA 443-263-6516Young Ku, CFA 443-263-6564Blaine Heck, CFA 443-263-6529

TECHNOLOGY & SERVICESApplied Technologies

Andrew Spinola 212-214-5012Communication Technology

Jess Lubert, CFA 212-214-5013Michael Kerlan 212-214-8052

Gray Powell, CFA 212-214-8048Priya Parasuraman 617-603-4269

E-commerceMatt Nemer 415-396-3938Trisha Dill, CFA 312-920-3594

Stephanie Xu 415-396-3054Information & Business Services

William A. Warmington, Jr. 617-603-4283Bill DiJohnson 617-603-4271

InternetPeter Stabler 415-396-4478

Steve Cho 415-396-6056Blake Nelson 415-396-4064

Internet InfrastructureGray Powell, CFA 212-214-8048

Priya Parasuraman 617-603-4269IT & BPO Services

Ed Caso, CFA 443-263-6524Richard Eskelsen, CFA 410-625-6381

Tyler Scott, CFA 443-263-6540IT Hardware – Wireless Equipment

Maynard Um 212-214-8008Munjal Shah 212-214-8061Jason Ng 212-214-8007

SemiconductorsDavid Wong, CFA, PhD 212-214-5007

Amit Chanda 314-875-2045Transaction and Business Services

Timothy W. Willi 314-875-2044Robert Hammel 314-875-2053Alan Donatiello, CFA 314-875-2054

STRATEGYEquity Strategy

Gina Martin Adams, CFA, CMT 212-214-8043Peter Chung 212-214-8063

Strategic IndexingDaniel A. Forth 704-410-3233

ECONOMICSEconomists

John E. Silvia, PhD 704-410-3275Mark Vitner 704-410-3277Jay H. Bryson, PhD 704-410-3274Sam Bullard 704-410-3280Nick Bennenbroek 212-214-5636Eugenio J. Alemán, PhD 704-410-3273Anika Khan 704-410-3271Azhar Iqbal 704-410-3270Tim Quinlan 704-410-3283Eric Viloria, CFA, CMT 212-214-5637Michael A. Brown 704-410-3278Sarah Watt House 704-410-3282

RETAIL RESEARCH MARKETINGRetail Research Marketing

Colleen Hansen 410-625-6378

September 23, 2015

www.wellsfargoresearch.comCopyright © 2015 Wells Fargo Securities, LLC

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