1. XXIII Annual ASSAL General Meeting US Risk-Based Supervision Director Christina Urias April 23, 2012

2. US Solvency Framework • Primary goal is to ensure financial health of insurers for purposes of protecting policyholders • Work with companies to remedy areas of concern • More severe interventions if company continues to deteriorate e.g. regulators will run off or liquidate the insurer if necessary to ensure protection of existing policyholders • A zero insolvencies goal would require a different system • Additional goals include availability and affordability of insurance, stable and competitive markets

3. US Solvency Framework • Pillar 1 • Laws and Regulations • Risk-Based Capital (RBC) • Pillar 2 • Regulatory Oversight, Assessment and Monitoring • Pillar 3 • Public and Regulatory Reporting Requirements for Insurers

4. US Solvency Framework • Licensing • Each state of operation requires compliance with its lawsand regulations (subject to NAIC accreditation requirements);not a passport system • Domiciliary state, typically first state of licensure, is lead regulator • Adequate business plan required to apply • Fixed minimum capital or simple capital calculation must be met, and subject to RBC once up and running • Fit and proper management checked for licensure • Criminal background check • Proper experience, skills • Guaranty fund participation • Unique State-based policyholder protection system • Remaining insurers in the sector are assessed a portion of the shortage of policyholder liabilities less assets

5. US Solvency Framework • Notice of Material Transactions, including intra-group transactions: • Acquisition/disposition of assets • Revisions to reinsurance agreements • Material guarantees/transactions • Acquisition/change of control of insurer is approved or rejected by the insurance commissioner • Investment limitations • Prudent person approach • Defined limits approach • Derivative use plan requirements • Asset adequacy tests and asset/liability matching requirements for life products

6. US Solvency Framework • RBC Overview • Developed in early 1990s; Finalized formulas: • Life RBC 1993 • Property/Casualty RBC 1994 • Health RBC 1998 • Maintained and evaluated continuously with eye toward predominant risks for each industry segment • The formula considers the entity’s size, structure and risk profile • Standardized approach, mainly factor based but with some stochastic and full modeling (predominantly Life RBC) upgrades over the years • Not all risks are accounted for – only material categories of risks • RBC formulas are uniform among the states • Largely tied to annual financial reporting for verifiability • Annual modifications occur, both maintenance and enhancements

7. US Solvency Framework • Risk-Based Capital (RBC) Results • RBC is a baseline tool for providing legal authority for specific regulator action • Provides 4 action level triggers based on minimum regulatory capital levels - NOT a target capital level or intended as a financial strength indicator above the action levels • RBC is supported by a number of Pillar II and Pillar III tools • Used in concert with other analysis and exam findings • Augmented by robust annual and quarterly financial reporting and State authority for supplemental reporting or data submission • Not totally accurate for all companies but reasonably accurate for most companies • Found to be highly effective in HELPING to identify weakly capitalized insurers

8. RISK BASED CAPITAL CALCULATION • See attached handout

9. US Solvency Framework • SMI review of RBC: • Purpose of RBC in U.S. Regulatory Framework • US regulators’ response: • Maintain RBC as one of many analytical tools, not a target capital level • Rely upon RBC for explicit actions authorized by statute • RBC Enhancements • Assess missing risks - considering a catastrophe component for property/casualty RBC • Partial Internal Models for RBC • Life RBC currently uses modeling for variable annuities with certain guarantees and similar products • Considering expansion to other life products • Principle-Based Reserve project will increase RBC models