Capital Markets and Reinsurance:

When Worlds Collide Tom ToceFMR SeminarApril 13, 1999

Agenda

IntroductionEnterprise ReWhen Worlds CollideRedefining the Actuary EPS Protection DebateWrap Up

Introduction

ConvergenceConsolidationConfusionControversyCompetition

Enterprise Re

New kind of companyJoint venture

Morgan StanleyEmployers Reinsurance Corporation (a GE Capital company)The Chubb Corporation

6 actuaries, 2 CPAs, 2 financial analysts, 1 underwriter

Includes financial products company

When Worlds Collide

CAT bondsWeather derivativesEarnings protection coverCoordination/correlation of risk Dual trigger coversCredit default swaps

The Personals

Offshore mutual heavily invested in stocks with a low P/S ratio, seeks surplus protection

Large corporation adequately protected against catastrophe losses or stock market crash, seeks protection in event of double whammy

Successful company under pressure to meet quarterly estimates, seeks earnings smoothing

Whither the Actuary

Current Focus Future Focus

Liabilities

Optimal Return

Pricing

Earnings Protection Debate

ProEarnings protection is

ultimate risk coordination

Right kind and amount of insurance could be only cover needed

Con Investors already diversify;

they“don’t care if earnings are hurt by uncontrollable events”

Volatility not an issue to stockholder; “only the average matters”

Wrap Up

Embrace changeDevelop new skillsApply actuarial skills in new areas