Reinsurance InvestingPrepared by Aon Hewitt Global Investment Management Group

June 2015

Aon HewittConsulting | Investment Consulting Practice

Risk. Reinsurance. Human Resources.

Reinsurance — overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

What is catastrophe reinsurance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Accessing the economics of reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . 5

Reinsurance: diversification and return . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The size of the reinsurance market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Reinsurance market dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Manager dispersion of return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

What are the risks? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Manager selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Investing in reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Appendix: cumulative and annual performance – indices . . . . . . . . . . 14

Table of Contents

Aon Hewitt 3

Reinsurance — overview

• Investments in catastrophe insurance can generate attractive returns which are generally uncorrelated with financial markets, a feature made particularly attractive for investors following the 2008 financial crisis.

• This lack of correlation suggests reinsurance can play a key part in the construction of a diversified portfolio; providing investors are prepared to take on modest illiquidity and are comfortable embracing risk of loss due to severe weather or other natural disasters.

• Returns generated by investments in catastrophe reinsurance depend on underlying risks which are very different to those of traditional assets. This is a highly unique characteristic.

• The underlying risks are catastrophic perils such as hurricanes, storms, earthquakes and floods, in addition to man-made perils such as marine or aviation disasters.

4 Reinsurance investing

What is catastrophe reinsurance?

Catastrophe reinsurance is the reinsurance of insurance

written on catastrophic perils. Having underwritten

such disasters, the Insurer may wish to reduce its risk,

and seek to pass it over to other insurance companies.

Reinsurance is not a new activity. The earliest known

reinsurance contract is a 1370 treaty covering the most

dangerous part of a sea journey from Italy to Belgium.

This treaty meets one of the key criteria of reinsurance in

that the risk was transferred from the original insurer to a

reinsurer without the involvement of the original insured.

Reinsurance appeared as a dedicated business subsequent

to the Great Hamburg Fire of 1842, when Cologne Re

was founded in 1846. Swiss Re and Munich Re, two of the

biggest modern day reinsurers, followed in 1863 and 1880.

Investors are able to access returns on the process

of reinsurance, through an array of different financial

instruments called Insurance-linked Securities (“ILS”).

Specialist fund managers seek this out by buying Catastrophe

Bonds, also known as “Cat bonds” or securitised notes, where

collateral is paid in return for an annual insurance premium.

To the investor this works very much like fixed income bonds,

where a nominal amount is paid to a company in return for

an annual coupon. In the event of no perils occurring over

a pre-specified period of time, the collateral is repaid in full.

In the event that the company does not default over a pre

specified period of time, the nominal will be returned in full.

The successful operation of an insurance business is

predicated upon the ability to diversify risk. An insurance

company in Florida, for example, can underwrite

homeowner’s policies on thousands if not millions of homes.

The probability that all of the policies will suffer loss at the

same time from theft or fire is quite low since the company

has a diversified book of policies. However, if there is a large

hurricane that makes landfall in the state, the odds that losses

occur across the entire portfolio of policies are high. This risk

has not been diversified hence, the insurance company will

look to “reinsure,” or purchase insurance on, some of the

company’s exposure. Reinsurance is a key tool in managing

the risk of an insurance company as it effectively passes

along exposure to other entities to reduce their potential

for loss due to specific natural disaster, incident or peril.

Reinsurance contracts were predominately private

contracts between insurers and reinsurers until the

mid-1990s. After the devastation of Hurricane Andrew

in 1992, it became apparent that the capital provided by

traditional reinsurance companies was insufficient to meet

the demand for reinsurance. In an attempt to broaden the

access to capital, Cat bonds were issued to transfer risk

from insurance companies to the broader capital markets.

By expanding the access to capital, Cat bonds achieved

one of the primary purposes of reinsurance: risk is spread

so widely that even very large risks can be accommodated

without unduly burdening individual insurers.

Aon Hewitt 5

Accessing the economics of reinsurance

The majority of the annual demand for reinsurance is satisfied through traditional

reinsurance contracts between insurers and reinsurers — the private side. The

remainder is accessed through the capital markets with instruments of varying

degrees of liquidity, access and complexity. These latter instruments have been

securitised in some way and represent the public side of the market. The table below

summarises the various ways to access the economics of the reinsurance market.

Reinsurance Company Equity Investment in the equity of a reinsurance company. Examples of reinsurance

companies include Renaissance Re, Munich Re and Swiss Re.

Catastrophe Bonds (“Cat Bonds”)

Bonds issued by insurance/reinsurance companies that take losses when certain

perils occur. The principal returned to investors is reduced by losses as determined

by formula outlined in the indenture. Maturities typically range from 3–5 years.

“Sidecars” Vehicles set up by reinsurance companies to offload exposure to specified

contracts; these vehicles themselves can then create capital structures of securities.

These can also be called Quota shares.

Industry Loss Warranties (“ILWs”) An ‘over the counter’ derivative contract between two parties. One party pays

the other party (typically a reinsurance company or asset manager) a premium

in return for a payout should a pre specified event occur. The payout occurs if

a specified event causes industry wide losses that exceed a specified threshold.

Maturities are typically one year.

Private Collateralised Reinsurance Contracts

Privately structured agreements to insure a specific portfolio of insurance contracts

against losses from certain perils. Typically one year in maturity.

Retrocessional Reinsurance (“Retro”) Reinsurance provided to reinsurance companies.

To illustrate how the returns for collateralised reinsurance transactions may work,

we have provided an example below.

• Example: Named windstorm reinsurance policy for a Texas insurance company

• Notional limit of $5.0 mm

• Private deal with an exposure to losses from a storm, pre-specified in terms of

potential event loss and region

• Attachment = $10.0mm, exhaustion at $15.0mm

— If event loss is less than $10.0mm = no loss paid

— If event loss is greater than $15.0mm = notional limit of $5.0mm paid

— If event loss is between $10.0mm and $15.0mm = pro rata payment

• Expected Return Calculation

— Premium net of expenses = $1.4mm

— Collateral Posted = $5.0mm-$1.4mm = $3.6mm

— Expected Loss (model-predicted or estimated) = $0.5mm

— Expected Profit = $1.4mm-$0.5mm = $0.9mm

— Expected Return on Collateral = $0.9mm/$3.6mm = 25%

6 Reinsurance investing

Reinsurance: diversification and return

The rationale behind investing in

reinsurance is quite simple: returns and

diversification! Illustrated to the right,

proxied by the Swiss Re Index of catastrophe

bonds, is that reinsurance has produced a

strong return at a very low level of volatility

during the time period indicated. The

time period reflects the longest common

time period for which we have index

returns for the asset classes shown.

While the Swiss Re Cat Bond index used

below represents a proxy for the broader

reinsurance asset class, investors should

expect less liquid reinsurance investments

to have even lower correlation to more

traditional capital market investments. This

is due to the lower likelihood of contagion

across common investor bases and factors.

Additionally, the Swiss Re Cat Bond index,

as well as a similar index calculated by Aon

Securities, has a high concentration in U.S.

peak peril risks, and does not have the

degree of diversification an investor could

achieve through an active ILS manager.

The table to the right illustrates the

correlations between the Cat bond

index and other major asset classes. As

can be seen, the Cat bond has relatively

low, albeit positive, correlation with the

other asset classes. Interestingly, the

Cat bond index had a lower correlation

to broader investment grade bond

indices than it did to equity markets.

While the Cat bond indices represent a

portfolio of traded reinsurance-linked

securities, as previously discussed,

direct reinsurance exposure may be

even less correlated with other asset

classes since it is shorter in term, not

traded, and possibly exposed to different

perils or disaster risks than those that

dominate the Cat bond indices.

The Appendix to this paper shows

cumulative and annual returns. Investors

in reinsurance should expect the asset

class to struggle during years with

significant or frequent natural disasters.

Risk and return — 1 February 2002 to December 2014

Correlation matrix

Swiss Re Cat Bond Total Return index

BarclaysAggregate

DJ U.S. TotalStock Market

Citigroup 3 Month T-Bill

Barclays Long Gov/Credit

Barclays Corp High Yield

MSCI ACWIEx-US HFRI Fund Weighted

Composite

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

An

nu

aliz

ed r

etu

rn

Annualized risk

Aon Securities Inc. (ASI) publishes a series of indices designed to track the broad insurance linked securities(ILS) markets. One of these indices, Aon Benfield All Bond Index (Bloomberg ticker symbol AONCILS), isdesigned to track all outstanding catastrophe bonds in the market and includes both price and couponreturn. Bloomberg calculates all ASI indices based on methodology and pricing from ASI. ASI is a brokerdealer, an affiliate of Aon Hewitt, and is a wholly owned subsidiary of Aon plc. ASI acts as a broker offering a variety of services in connection with insurance-linked securities (ILS), including catastrophe bonds, and may act as a broker for certain funds that invest in ILS products. ASI is generally paid a commission when it provides those services, such amounts payable by the party sponsoring the transaction or receiving the capital investment. ABSI was not, however, involved in the research or writing of this paper and has not had any review or input, other than the charts attributable to ASI. ASI has limited oversight over certain employees of Aon Hewitt’s investment consulting business unit related to our Delegated business line. Although ASI is part of the Aon organization, it operates independently from Aon Hewitt’s investment consulting business unit; we have limited knowledge or information on the clients they serve.

Correlations from 1/2/2002 to 31/12/2014

Swis

s Re

Cat

Bon

d T

otal

Re

turn

Ind

ex

Barc

lays

Ag

gre

gat

e In

dex

Dow

Jone

s U

S To

tal S

tock

M

arke

t In

dex

Cit

igro

up 3

Mon

th T

-Bill

Barc

lays

Lon

g

Gov

ernm

ent/

Cre

dit

Ind

ex

Barc

lays

Cor

por

ate

H

igh

Yiel

d In

dex

MSC

I AC

Wor

ld

Ex-U

S In

dex

(net

)

HFR

I Fun

d W

eig

hted

C

omp

osit

e In

dex

Swiss Re Cat Bond Total Return Index 1.00

Barclays Aggregate Index 0.18 1.00

Dow Jones US Total Stock Market Index 0.20 -0.07 1.00

Citigroup 3 Month T-Bill 0.07 0.00 -0.07 1.00

Barclays Long Govern- ment/Credit Index 0.15 0.93 -0.07 -0.07 1.00

Barclays Corporate High Yield Index 0.26 0.19 0.71 -0.12 0.16 1.00

MSCI AC World Ex-US Index (net) 0.21 0.05 0.89 0.03 0.03 0.73 1.00

HFRI Fund Weighted Composite Index 0.25 -0.02 0.82 0.04 -0.04 0.73 0.91 1.00

Aon Hewitt 7

The size of the reinsurance market

The adjacent chart also shows the

growth over the years of global reinsurer

capital (capital available for insurers to

trade risk) and includes both traditional

and alternative forms of reinsurer

capital. The collateralised portion

reflects that part of reinsurance which

has been collateralised in some way

— either securitised by the issuance of

bonds or by the issue of collateralised

reinsurance notes. This portion of

reinsurer capital is also shown below.

Change in reinsurer capital

Source: Aon Securities, Inc.

Source: Aon Securities, Inc

The composition of the collateralised reinsurance

 Col Re  Col ILW  Sidecar  Bonds

$410B$340B

$400B$470B $455B

$505B $540B $575B

-17% 18%

18%-3% 11%

7%6%

2007 2008 2009 2010 2011 2012 2013 2014

70

60

50

40

30

20

10

0

USD

bill

ion

s

20022003

20042005

20062007

20082009

20102011

20122013

2014

8 Reinsurance investing

Reinsurance market dynamics

While the reinsurance market grows steadily, it would be difficult to capture a reinsurance beta

in which to passively invest. This is because the market is highly diverse with reinsurer capital

deployed across differing regions, perils and risk targets. Overall opportunities do not tend

towards a homogeneous universe represented by an index.

The Cat bond indices represent the Cat bond universe currently in issue and are the most

accessible way to passively invest in the reinsurance market. However, replicating the index

passively in a portfolio is not practical because many Cat bonds are locked up and held

to maturity by investors. Even if this was achieved, passively investing here would lead to

overexposure to peak perils where the tail risks are highest due to the type of Cat bond issuance.

Some 60% of the indices comprise peak perils which relate to US Wind and Quake exposure.

The chart below shows how annual insured losses compare across the regions. These are highest

within the US (the peak peril region) due to the amount of reinsurance covered and the high cost

of the underlying infrastructure insured there.

Rates charged for reinsurance are cyclical and tend to increase after major catastrophes. For

example the chart below shows the events of Hurricane Andrew in 1992 and Hurricane Katrina

in 2005 and how the Rate on Line increased after the events. The Rate on Line can be thought

of as yield and the chart also shows how yield has been falling for the reinsurance market.

Annual insured losses by region

 2013  2014  2004-2013 Avg.

Source: Aon Securities, Inc

0

5

10

15

20

25

30

35

40

45

UnitedStates

NorthAmerica

(Non-U.S.)

SouthAmerica

Europe Africa Asia Oceania

USD

bill

ion

(20

13)

Aon Hewitt 9

Reinsurance broking firm Guy Carpenter estimates

reinsurance rates fell further by 11% over 2014.

This cyclicality in premium occurs after an event as higher

premiums are needed to attract capital back into the market.

Furthermore, investors tend to become more risk averse post

an event, compounding the need for premiums to rise and

attract capital. This potential spike in premiums does offer

investors an entry point to invest in the market. For existing

investors, the short maturity of ILS, typically 1-3 years,

potentially offers a rolling maturity profile which enables

investors to reinvest into rising premiums post an event,

so recouping losses more quickly. That said as the market

deepens, the magnitude of potential spikes will likely reduce.

In principle, an active manager can seek to manage the

premium cycle by for example, slightly increasing risk at

the portfolio level in a softening market (premiums fall)

and reducing risk in a hardening market (premiums rise).

Supply and demand factors are also an important

consideration in the reinsurance market. The cyclicality

of premiums can also be influenced by capital flows and

institutional investors have allocated record levels of capital

to ILS as an asset class. This has created the softening

market seen over the past two years and this softening

of premiums will likely continue in the absence of any

sizeable catastrophic events occurring. Demand for ILS

assets has been met in part by high issuance of Cat bonds

leading to a growing market, as illustrated below. This

supply has partially relieved pressure on premiums.

 Risk capital issued  Risk capital outstanding at year end

Global Property Catastrophe ROL Index, 1990 to 2015

 ROL Index

Source: Guy Carpenter

Source: Guy Carpenter

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000 2001

2002 2003

2004 2005

2006 2007

2008 2009

2010

2011 201

2 201

3 201

4 201

5

100

50

150

200

250

300

350

400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

5,701.77,083.0

5,855.3

4,107.14,599.9

3,396.03,009.9

7,187.0

4,614.7

1,499.01,142.81,988.2

989.5966.9

1,142.01,052.5

4,289.05,085.0

7,677.0

13,416.4

12,538.6

12,508.2

12,195.712,342.8

14,8393

18.5769

20,542.8

847.2948.2

5000

10000

15000

Risk

Cap

ital

Am

ount

(U

SD m

illio

ns)

20000

25000

0

10 Reinsurance investing

Manager dispersion of returns

The chart below shows the dispersion of manager returns since 2004. Over this period, more

managers and products came to the market and the returns shown are for those products and

managers available per year, targeting the risk profile commensurate with approximately cash

plus 6% per annum. Looking at manager dispersion, the range of returns can be significant

in any one year. In the year 2011 for example, which was one of the more expensive years in

terms of ILS losses, the choice of manager meant the difference between the lowest performing

manager in 2011 producing -5%, while the best performing manager returned +11%.

The styles and resource of these managers varies depending on their investment philosophy

and skills. Some will invest in Cat bonds only promoting their liquidity and ability to trade, some

value the private side only and others will blend both private and public, using the market cycle

as an additional benefit for a portfolio.

25%

20% 21%

15%

5%

12%

6%

1%

17%

13%11%

16%

10%

7%

11%12%

9%6%

12%

9%

6%

9%

6%5%

3%

-5%

15%

An

nua

lised

ret

urn

10%

5%

-5%

2007 2008 2009 2010 2011 2012 2013 2014-10%

0%

Source: Aon Hewitt and respective ILS managers

Manager dispersion of returns:

 Lower return  Average return  Upper return

Aon Hewitt 11

What are the risks?

Returns for reinsurance over recent years have been attractive

and the volatility of returns has typically been low as each

month/year, coupons/premiums are collected without

a catastrophe to which the portfolio is exposed, occurs.

However, in a year where an event occurs, losses will be

incurred and will depend on the extent to which the fund is

exposed, both in terms of concentration and diversification.

Returns therefore need to be seen in the context of tail

risks and the possibility of an event being triggered on the

portfolio. Managers will offer a range of ILS funds, offering

higher targeted returns for funds with an increased risk

(probability) of triggering an event and therefore loss. Risk

in reinsurance is therefore discussed in terms of tail risk

— the risk of losses being incurred due to an event being

triggered. The probability of an event being triggered

is remote and usually referred to as being a one in one

hundred or one in two hundred year event. The tail risk is

often measured by Value at Risk at the different confidence

levels and can range between ca 20% to 60% from the

95% to the 99.5% confidence levels. Losses therefore

can therefore be significant and only referring to tail risks

shows the true risk return profile of the asset class.

The Expected Loss (EL) is often referred to as a measure

of risk in the reinsurance instrument. EL presents itself as

an average (e.g.: 2%) and is a measure which includes

all tail risks over a 100 year period. In any one year

therefore, it is unlikely the level of EL will occur. The

relevance of the number is to give an indication of the tail

risks and can be thought of as follows: if all the possible

and likely events over a long period were ever to occur,

the EL is the total annualised loss over the period.

Managers will quote the performance target of a portfolio on

the basis of no losses (i.e. gross of EL) but will still consider

the fund to be within range if in any one year the fund

performance returns its performance target less the EL.

A manager will seek to mitigate the risk of event losses on

a portfolio by diversifying portfolio investments across

both region and peril. The likelihood of different events

occurring across regions at the same time is small. They are

independent events and diversifying in this way therefore

limits losses at any one time. Some managers will limit

exposure of the portfolio to both region and peril at an

aggregate level, by percentage, in a fund’s guidelines.

The tower of risk which reinsurers and insurers offer,

in terms of ceded risks, allows fund managers to pick

and choose their risks, so optimising the portfolio in

terms of its overall exposure. Different types of trigger

(defining investment criteria causing a loss to be applied

to the investment) can be chosen as well as different

probabilities of attachment per peril. A trigger can have a

high or a low probability of attachment where the point of

attachment is where the first dollar of loss is experienced.

Those contracts which offer the higher returns are where

the probability of triggering an event is higher.

Other risks to consider with reinsurance are:

• Cash entrapment — this is where an event occurs but

the full extent of loss is not yet known. When an event

occurs, it takes time to establish the full loss. Where

triggers indemnify the insurer for example, the ILS

asset invested in could lose all or part if it’s notional

depending on the overall loss of the event. For such

instances the nominal limit of that investment on the

portfolio may be withheld until the full loss is known.

At this point, fund managers will usually create a side

pocket for existing investors until such a time when

the full loss is known. Where the loss is known the

value of the fund will be marked down accordingly.

• Counterparty risk is limited as collateral (cash up to the

nominal limit insured) for each ILS asset is placed in a

trust account and invested in high quality assets or cash.

12 Reinsurance investing

Manager selection

Investing in reinsurance

The profile of global catastrophe losses illustrates the skewed

nature of the risk and return profile of reinsurance returns.

As discussed above, an investor can expect to collect an

annual premium, the risk is that in any one year, losses could

be significant if an event occurs. The probability of an event

risk is low and known as tail risk. Managing tail risk is key to

managing a portfolio of reinsurance exposure and one reason

why attempting to capture market beta blindly is not a good

alternative to choosing a specialist manager.

Specialist managers will look to diversify a portfolio as

much as possible in order to reduce a portfolio’s tail risk.

Sophisticated risk modelling is undertaken by the industry’s

modelling agencies, RMS and AIR are the two standard

agencies – in order to measure and value tail risk and

managers of ILS assets will use agency software and output.

In order to diversify a portfolio, a manager needs to be able

to find as many independent, paying risks as possible across a

broad array of choices covering peril, region, ILS instrument,

trigger type, attachment probability and reinsurer/insurer. In

selecting an ILS manager, the following attributes are critical

to manager selection:

• Expertise, experience and market reach for opportunities

and origination is a prerequisite.

• The ability to invest in both the private and the public side of

the market is preferable.

• Licensing software to enable the manager to model risk,

return and loss profiles of a portfolio.

• Duration and strength of track record. Continuity, depth and

experience of the team.

• Strong partners with well aligned economic interests.

The reinsurance market is cyclical, with coverage being

written at the beginning of the year and midyear for peak

peril coverage for the following 12 months. The pricing of

reinsurance is also highly cyclical as premiums for reinsurance

coverage are driven, in large part, by insurers’ recent

loss experience.

Reinsurance is a unique asset class and exposure can be

accessed in a number of ways. Investors seeking more liquid

reinsurance exposure (monthly) can invest in a portfolio of

catastrophe bonds only. Investors able to take on a degree of

illiquidity (quarterly) and complexity can seek out specialist

managers able to blend both Cat bonds and collateralised

reinsurance contracts depending on where most value is

to be had. Private equity vehicles also exist that provide

exposure to reinsurance and insurance. Lastly, sophisticated

clients could also engage directly in providing collateralised

reinsurance to insurance companies.

Investors with experience in alternative or non-traditional

investments should consider reinsurance primarily as a

diversifying asset class. While it is an evolving asset class and

not right for all investors, institutions interested in reinsurance

could gain access in a number of ways, including: 1) creating a

portfolio allocation to reinsurance as a separate asset class, 2)

allocating to reinsurance as part of a diversified growth fund

or 3) allowing hedge fund or other experienced reinsurance

managers to allocate to reinsurance within a broader asset

class such as hedge funds or fixed income. In the case of the

first option, we would recommend a small initial allocation

with a view to building the allocation up to ca 5% of a

portfolio. Timing is difficult to assess in the ILS market as it is

event driven. An investor would ideally be placed to invest

after an event had occurred given the possibility of a rise in

premiums. An investor who had already familiarised itself with

the asset class and a preferred manager, would be best placed

to increase its allocation at this time according to a preferred

risk return tolerance profile.

Aon Hewitt 13

Summary

The reinsurance market itself is a large, diverse market which is expanding beyond the sphere of traditional reinsurance companies. The demand for reinsurance capital has increased significantly over recent years and it is now possible for investors to access this market through various avenues. Importantly, the returns and risks of catastrophe reinsurance are generated through the occurrence and severity of peak perils: hurricanes, windstorms, earthquakes, etc. This less-correlated return stream, with true independence of risk, provides much needed diversification within a portfolio of more traditional financial assets which are subject to common and potentially systemic macroeconomic risks.

14 Reinsurance investing

Appendix: cumulative and annual performance – indices

As of 31 December 2014

Comparitive performance

1 quarter Year-to-date

1 year 3 years 5 years 7 years 10 years Since inception

Inception date

Swiss Re Cat Bond Total Return Index

0.84% 6.42% 6.42% 9.43% 8.55% 8.38% 8.76% 8.43% 01/02/2002

Barclays Aggregate Index 1.79% 5.97% 5.97% 2.66% 4.45% 4.77% 4.71% 7.87% 01/01/1976

Dow Jones US Total Stock Market Index

5.23% 12.47% 12.47% 20.44% 15.72% 7.64% 8.10% 10.39% 01/01/1987

Citigroup 3 Month T-Bill 0.01% 0.02% 0.02% 0.06% 0.07% 0.33% 1.46% 5.07% 01/01/1978

Barclays Long Government/Credit Index

5.60% 19.31% 19.31% 5.77% 9.81% 8.45% 7.36% 8.84% 01/01/1973

Barclays Corporate High Yield Index

-1.00% 2.45% 2.45% 8.43% 9.03% 8.76% 7.74% 9.25% 01/07/1983

MSCI AC World Ex-US Index (net)

-3.87% -3.87% -3.87% 9.00% 4.43% -0.63% 5.13% 8.37% 01/01/1970

HFRI Fund Weighted Composite Index

0.14% 2.97% 2.97% 6.12% 4.45% 2.80% 5.11% 10.60% 01/01/1990

As of 31 December 2014

Comparitive performance

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Swiss Re Cat Bond Total Return Index

6.39% 1.52% 12.30% 15.73% 2.28% 13.91% 11.29% 3.33% 10.51% 11.44% 6.42%

Barclays Aggregate Index 4.34% 2.43% 4.34% 6.97% 5.24% 5.93% 6.54% 7.84% 4.21% -2.02% 5.97%

Dow Jones US Total Stock Market Index

12.48% 6.38% 15.78% 5.62% -37.23% 28.59% 17.49% 1.08% 16.38% 33.47% 12.47%

Citigroup 3 Month T-Bill 1.24% 3.01% 4.76% 4.74% 1.80% 0.16% 0.10% 0.06% 0.09% 0.06% 0.02%

Barclays Long Government/Credit Index

8.56% 5.34% 2.72% 6.60% 8.44% 1.92% 10.16% 22.49% 8.78% -8.83% 19.31%

Barclays Corporate High Yield Index

11.14% 2.74% 11.86% 1.87% -26.16% 58.21% 15.12% 4.98% 15.81% 7.44% 2.45%

MSCI AC World Ex-US Index (net)

20.91% 16.62% 26.65% 16.65% -45.53% 41.45% 11.15% -13.71% 16.83% 15.29% -3.87%

HFRI Fund Weighted Composite Index

9.03% 9.30% 12.89% 9.96% -19.03% 19.98% 10.25% -5.25% 6.36% 9.13% 2.97%

ContactsAngela Cantillon Associate Partner, Liquid Alternatives+1-312-381-1255angela.cantillon@aonhewitt.com

Mette Charles Senior Investment Research Consultant+44 (0)207 086 9050mette.charles@aonhewitt.com

Lennox Hartman – Partner Global Head of Fixed Income Research+44 (0)20 7086 9127lennox.hartman@aonhewitt.com

Peter Hill – Partner Global Head of Liquid Alternatives Research+1-312-381-1243peter.hill@aonhewitt.com

About Aon Hewitt

Aon Hewitt empowers organisations and individuals to

secure a better future through innovative talent, retirement

and health solutions. We advise, design and execute a wide

range of solutions that enable clients to cultivate talent to

drive organisational and personal performance and growth,

navigate risk while providing new levels of financial security,

and redefine health solutions for greater choice, affordability

and wellness. Aon Hewitt is a global leader in human resource

solutions, with over 30,000 professionals in 90 countries

serving more than 20,000 clients worldwide. For more

information on Aon Hewitt, please visit: aonhewitt.com

Follow Aon on Twitter: twitter.com/Aon_plc

Sign up for News Alerts:

http://aon.mediaroom.com/index.php?s=58

About Aon Aon plc (NYSE:AON) is a leading global provider of

risk management, insurance brokerage and reinsur-

ance brokerage, and human resources solutions and

outsourcing services. Through its more than 69,000

colleagues worldwide, Aon unites to empower results

for clients in over 120 countries via innovative risk

and people solutions. For further information on our

capabilities and to learn how we empower results for

clients, please visit: http://aon.mediaroom.com/

© 2015 Aon Hewitt Limited. All rights reservedAon Hewitt Limited is authorised and regulated by the Financial

Conduct Authority.

aonhewitt.co.uk

Registered in England & Wales No. 4396810

Registered office:The Leadenhall Building, London, EC3V 4AN

This report and any enclosures or attachments are prepared on the

understanding that it is solely for the benefit of the addressee(s).

Unless we provide express prior written consent no part of this report

should be reproduced, distributed or communicated to anyone else

and, in providing this report, we do not accept or assume any respon-

sibility for any other purpose or to anyone other than the addressee(s)

of this report.

This document and any enclosures or attachments are prepared on

the understanding that it is solely for the benefit of the addressee(s).

Unless we provide express prior written consent, no part of this docu-

ment should be reproduced, distributed or communicated to anyone

else and, in providing this document, we do not accept or assume

any responsibility for any other purpose or to anyone other than the

addressee(s) of this document.

Notwithstanding the level of skill and care used in conducting due

diligence into any organisation that is the subject of a rating in this

document, it is not always possible to detect the negligence, fraud,

or other misconduct of the organisation being assessed or any weak-

nesses in that organisation’s systems and controls or operations.

This document and any due diligence conducted is based upon

information available to us at the date of this document and takes no

account of subsequent developments. In preparing this document we

may have relied upon data supplied to us by third parties (including

those that are the subject of due diligence) and therefore no warranty

or guarantee of accuracy or completeness is provided. We cannot be

held accountable for any error, omission or misrepresentation of any

data provided to us by third parties (including those that are the sub-

ject of due diligence). This document is not intended by us to form a

basis of any decision by any third party to do or omit to do anything.

Any opinions or assumptions in this document have been derived

by us through a blend of economic theory, historical analysis and/or

other sources. Any opinion or assumption may contain elements of

subjective judgement and are not intended to imply, nor should be

interpreted as conveying, any form of guarantee or assurance by us of

any future performance. Views are derived from our research process

and it should be noted in particular that we can not research legal,

regulatory, administrative or accounting procedures and accordingly

make no warranty and accept no responsibility for consequences aris-

ing from relying on this document in this regard.

Calculations may be derived from our proprietary models in use at

that time. Models may be based on historical analysis of data and

other methodologies and we may have incorporated their subjective

judgement to complement such data as is available. It should be

noted that models may change over time and they should not be

relied upon to capture future uncertainty or events.

aonhewitt.co.uk

Risk. Reinsurance. Human Resources.