CASACT Conference Current Developments in the Catastrophe Bond / - - PowerPoint PPT Presentation

SLIDE 1

CASACT Conference Current Developments in the Catastrophe Bond / ILS Space ILS Space

October 4, 2012

SLIDE 2

Introduction Capital Markets-Based Risk Transfer Protection vs. (Re)insurance

Premium Premium

Insurance and Reinsurance Transactions Capital Markets

Insurance Company Reinsurance Company

Policy backed by fi i l t th Contract backed by financial strength y financial strength

D di d

Interest Premium

Insurance Company Dedicated Reinsurer

• r

Fronting

Premium C h Interest Payment*

• r ROL

Capital Markets Investors g Reinsurer

Policy backed by financial strength Contract fully backed by collateral Cash

Investors

* Based on Premium payment (plus investment earnings on collateral)

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SLIDE 3

Introduction Summary of Solutions Supporting Catastrophe Risk

Source: Eskatos Capital Management

SLIDE 4

Introduction State of the P&C Catastrophe Bond Market

14,024.2 12,508.8 12 185 0 14,024.5 $13,000 $14,000 $15,000 s) 12,043.6 12,185.0 12,139.1 $10,000 $11,000 $12,000 $13,000 U.S.$, Millions Risk Capital Issued 6,996.3 8,541.6 $6 000 $7,000 $8,000 $9,000 tal Amount (U Risk Capital Outstanding at Year End 1 729 8 1 991 1 4,693.4 2,729.2 3,391.7 4,600.3 4,108.8 3,966.6 4,040.4 4,904.2 $3,000 $4,000 $5,000 $6,000 Risk Capi 633.0 846.1 984.8 1,139.0 966.9 1,219.5 1,729.8 1,142.8 1,991.1 $0 $1,000 $2,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3

Source: GC Securities Proprietary Database, as of Oct 4, 2012 (1) Excludes private transactions (2) 4Q11 includes $200M of two Mariah tranches that fully paid out as a result of loss events

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

SLIDE 5

Introduction Typical Cat Bond Features

• –

Qualified Institutional Investors (Rule 144A or Private Placements) Typical Cat Bond Features – Annual expected losses between 0.2% and 8% (EL around 1-2% is most frequent) – Notional limits between $50 million and $1 billion – 1- to 5-year tenor – Quantifiable and observable risk (modeled) S M ti ti I t M ti ti – Most efficient for peak perils – Separation of roles: Risk analysis and rating completed by third parties

• –

Full collateralization – Multi-year fixed pricing – Diversification of risk capital source

• –

Source of diversification in an investment portfolio Potentially attractive investment returns Sponsor Motivations Investor Motivations Diversification of risk capital source

• Limit risks of capacity constraints and

price volatility in the traditional reinsurance market – Leverage reinsurance market by demonstrating access to alternati e capacit – Potentially attractive investment returns – Ability to further diversify within sector – Depending on type of execution, independent third party risk analysis may available demonstrating access to alternative capacity source available

SLIDE 6

Introduction General Structural Schematic (Catastrophe Bond)

Sponsor Spo so

Risk Premium Reinsurance Agreement or Financial Contract

Dedicated Reinsurer (SPV)

Interest: Permitted Investments Yield + Interest Spread Return at the Redemption Date of Outstanding Principal Amount

Capital Markets

Proceeds

Highly Rated Permitted

Proceeds Interest Spread

Collateral Account

Capital Markets Investors

Permitted Investments Yield

Permitted Investments

SLIDE 7

Introduction Major Cat Bond Trigger Types

• Indemnity – Triggered by actual loss of sponsor
• Index – Triggered by insured damaged for entire industry

P t i T i d b t t

• Parametric – Triggered by event parameters
• Modeled Loss – Triggered by modeled results of sponsor portfolio

ency

Parametric

Transpare

Modeled Loss Index Indemnity

Basis Risk

SLIDE 8

Introduction Estimated Composition of Property Catastrophe Limits Outstanding

Traditional Reinsurance, $223B, 84% Alternative M k t Markets, $42B, 16%

7

Source: GC Securities Proprietary Database (estimates only), Swiss Re sigma and Standard & Poor’s, Business Insurance.

SLIDE 9

Introduction Global Non-Traditional Property Catastrophe Limits

Traditional Reinsurance, $223B, 84%

$60

Alternative Markets, $42B, 16%

$ 8.0 $50 $ 9.0 $ 11.0 $ 6.0 $30 $40 USD $B $ 12.0 $ 15.0 $20 U $ 14.5 $ 17.0 $0 $10 $0 Sep-12 2015 (Projected)

Catastrophe Bonds Collateralized Reinsurance Retrocession Industry Loss Warranties

8

Source: GC Securities Proprietary Database and Guy Carpenter & Company LLC. Estimates only.

SLIDE 10

Introduction General Structure Schematic (Collateralized Reinsurance)

Protection Buyer Licensed Reinsurer Investor(s)

Premium Premium Coverage Coverage Reinsurance Contract Derivative Contract

Collateral Option #1 – Trust Account

Reinsurer’s obligation is secured by permitted assets that are held in a collateral account whose Collateral Security interest Trust account g g Pledge collateral collateral account whose release is governed by a trust agreement

Collateral Option #2 Protection Buyer Licensed Reinsurer Investor(s)

Premium Premium Coverage Coverage Reinsurance Contract Derivative Contract

Collateral Option #2 – Letter of Credit

Reinsurer’s obligation is secured by a Letter of Credit issued by a financial institution mutually agreed upon by protection buyer LOC Beneficiary status / Right to draw on LOC Financial Institution Issued by a financial institution on behalf of Investor upon by protection buyer and the investor.

Protection Buyer

Highly Rated Fronting Reinsurer

Investor(s)

Premium Premium Covergae Reinsurance Contract Derivative Contract

Structural Option #3 – Highly Rated Reinsurer

Protection buyer faces a highly rated reinsurer. Reinsurer’s obligation is

Buyer esto (s)

Covergae Coverage Reinsurer s obligation is secured by its credit rating, not by an LOC or collateral account. Collateral Funding

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SLIDE 11

Introduction Risk Adjusted Returns vs. Liquidity and Transparency

High g

C ll t li d Retrocession

rns

Industry Collateralized Reinsurance

usted Retu

Cat Bonds / ILS Industry Loss Warranties

Risk Adj High Low Low

ILS

10

Liquidity, Data Quality, Transparency

SLIDE 12

Introduction Growth of Non Traditional Reinsurance

Supported by market trends…

Product Innovation Diversification Regulatory Developments Counterparty Risk Catastrophe Models Balance Sheet Management

What about pricing?

11

SLIDE 13

Introduction 2010-2012 YTD Catastrophe Bond Pricing (Multiple vs. EL)

Blue Danube ‐ A (4/12)

10.0x 11.0x s)

Mythen Ltd E (5/12)

8.0x 9.0x ate / Expected Los

Embarcadero Re 2012‐2 (7/12) Long Point Re III (6/12) Mythen Ltd A (5/12) East Lane Re V ‐ A (3/12) Everglades Re (4/12) Mystic Re III ‐ A (2/12) Blue Danube ‐ B (4/12) Residential Re 2012‐I Class 3 Kibou (2/12)

6.0x 7.0x

• ver Reference Ra

Ibis Re II Series 2012‐1 A (1/12) East Lane Re V ‐ B (3/12) Successor X 2012‐1 Class V‐D3 (1/12) Pelican Re (4/12) (5/12) Mystic Re III ‐ B (2/12) Queen Street V Re Ltd. (2/12) Mythen Ltd H (5/12) Queen Street VI Re Ltd (7/12) Akibare II (4/12)

4.0x 5.0x Multiple (Spread o

Embarcadero Re 2012 (2/12) Ibis Re II Series 2012‐1 B (1/12) Q ( / ) Eurus III (9/12)

2.0x 3.0x 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50 3.75 4.00 M 12

Source: GC Securities Proprietary Database, 2012; Secondary market data

Expected Loss

2012 Initial Issuance 2012 Initial Issuance 2011 Initial Issuance 2010 Initial Issuance Sep 21 Secondary

SLIDE 14

Introduction Market Risk / Return Levels (1997 through 2012 YTD)

10.43 10.29 7 46x 7.97x 8.00x 9.00x 10.00 11.00 ad) 8.48 6 82 7.37 8.87 7.46x 6.12x 5.64x 5.91x 5.49x 6.00x 7.00x 7.00 8.00 9.00 eighted Avergae Sprea and Spread) 5.19 4 36 4.76 5.87 5.35 4.66 4 42 5.34 5.61 5.87 6.82 4.60x 5.16x 4.01x 4.16x 4.07x 3.95x 4.30x 4.81x 3 79 3.75x 4.00x 5.00x 5.00 6.00 ge Expected Loss / We ains to Expected Loss a 2 08 2.17 2.37 4.36 4.42 3.79x 2.00x 3.00x 2 00 3.00 4.00 iple (Weighted Averag Percent (Perta 0.70 0.71 1.03 1.04 0.67 0.79 0.86 1.33 1.35 2.08 1.49 1.58 2.17 1.94 1.87 0.00x 1.00x 0.00 1.00 2.00 Mult

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Source: GC Securities Proprietary Database, 2012

(1)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD Weighted Average Expected Loss Weighted Average Spread Multiple

SLIDE 15

Introduction 2011 – 2012 YTD Issuance Statistics

19% 5%

Sponsor Type (by risk principal) 2012 YTD 2011

11% 19% U.S. Insurer European Insurer Other Insurer 52% 36% U.S. Insurer European Insurer Reinsurer 64% 6% Other Insurer Reinsurer 7% Reinsurer Corporate 19% 15% 0% 6% 5%

Bond Tenor (by risk principal) 2012 YTD 2011

2 year 3 year 4 year 22% 2 year 3 year 4 year 66% 5 year 67% 5 year

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Source: GC Securities Proprietary Database, 2012

SLIDE 16

Introduction 2011 – 2012 YTD Issuance Statistics

Trigger Type (by risk principal) 2012 YTD 2011

I d it 14% Indemnity 30% 30% Indemnity Parametric PCS (Index) PERILS (Index) Modeled 11% 3% 3% Indemnity Parametric PCS (Index) PERILS (Index) M d l d 5% 20% 9% 6% Modeled Various 61% 8% Modeled Various 6% 2% 0% 1% 0% 0%

Peril Type (by risk principal) 2012 YTD 2011

26% 11% U.S. Earthquake U.S. Hurricane European Wind Japan Earthquake 39% 17% U.S. Earthquake U.S. Hurricane European Wind Japan Earthquake 55% Japan Earthquake Japan Typhoon Other 43% Japan Earthquake Japan Typhoon Other

15

Source: GC Securities Proprietary Database, 2012

SLIDE 17

Introduction Representative Primary Insurers Using the Catastrophe Bond Market

apital illions)

1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400

2012 OUTSTANDING HISTORICAL ISSUANCE

Risk Ca ($US M

200 400 600 800 1,000 1,200 1,400 1,600 ,

U S H i NA EQ Other Multi Peril US Only

Risk Profile of Risk Capital Outstanding by Peril for Insurers

U.S. Hurricane NA EQ

Expected Loss

Other Multi Peril – US Only 33.94% 5.49% 6.15% 0.93% 80% 90% 100% 500 1000 bps 45.31% 100.00% 66.06% 50.19% 48.84% 38.82% 30% 40% 50% 60% 70% 80% 500 ‐ 1000 bps 300 ‐ 500 bps 150 ‐ 300 bps 75 ‐ 150 bps 16 4.78% 51.16% 39.53% 5 3 % 0% 10% 20% 30% U.S. Hurricane NA Earthquake Multi‐Peril ‐ US Only Japan Euro Wind 0 ‐ 75 bps

SLIDE 18

Introduction Summary of Solutions Supporting Cat Bond Limit

Investors prefer a wider selection of collateral solutions / providers to avoid concentrations; Use of U.S. Treasury Money Market Funds has been most prevalent since 2009 Collateral Solutions in 2010 (based on Risk Capital Issued) Collateral Solutions in 2011 (based on Risk Capital Issued)

15% 11% TMMF Tri‐party Repo 74% 8% 18% TMMF Tri‐party Repo 74% Putable Bond 74% Putable Bond

Collateral Solutions in 2012 YTD (based on Risk Capital Issued)

0% 0% 19% 0% TMMF Putable Bond

17

Source: GC Securities Proprietary Database, 2012

81%

SLIDE 19

Introduction State of the ILS Investor Base

Investor Characteristics Geographic Distribution

Dedicated ILS Funds Money Managers Level of Participation 50% of the investor capacity is located in the US / North Pension Funds Life Insurers Reinsurers Dedicated ILS M M P i F d Lif I R i H d F d Risk Profile Spectrum

Low Rated / No Ratings Highly Rated

America 45% of the investor capacity is located in Europe 5% of the investor capacity is located in Asia-Pacific Hedge Funds n Dedicated ILS Funds Money Managers Pension Funds Life Insurers Reinsurers Hedge Funds

• Have become more

significant in aggregate

• Must invest in this

sector Generall prefer

• Motivation is relative

value / uncorrelated diversification

• Some care only about

spread/E(L) ratio;

• thers look at portfolio
• Can be allocated from

fixed income portfolios

• r alternative asset

bucket

• Fixed income

allocation tends to be

• Spread buyers;

generally prefer multi

• vs. single buyers for

this reason

• Motivation is

ncorrelated

• Current participation

has recently increased

• Less stable capacity

source, opportunistic funds

• Current participation

substantially reduced due to financial crisis

• Least stable capacity

source, opportunistic f nds

Description

• Generally prefer

single peril

• Interested in higher

coupon bonds

• thers look at portfolio

effect

• Some prefer BB- or

higher rated tranches

• nly
• Liquidity can be

important for multi- year deals allocation tends to be looking for higher rated paper

• Alternative asset

funds can play in high risk layers

• Direct investors as

well as through uncorrelated diversification / attractive risk versus return profile

• Buy and hold

investors looking to receive “liquidity premium” funds

• Prefer higher E(L)

structures

• Liquidity can be

important

18

year deals well as through dedicated ILS funds premium

• Prefer BB- or higher

rated tranches

Source: Based on GC Securities Transaction Activity and Market Intelligence. Estimates Only.

SLIDE 20

Introduction Investor Base Composition – Historical View

23% 20% 15% 12% 8% 20% 25% 25% 20% 25% 28% 30% 30% 30% 20% 10% 5% 6% 10% 10% 10%

80% 90% 100%

10% 10% 8% 9% 11% 2% 2% 2% 2% 2% 2% 5% 5% 7% 5% 7% 9% 20% 20% 20%

60% 70% 80%

20% 30% 10% 10% 5% 2% 5% 5% 5% 65% 58% 55% 55% 45% 40% 30% 25% 20%

40% 50% 60%

55% 55% 60% 60% 60% 10% 10% 15% 15% 5% 5% 2% 5% 5% 5% 5% 5% 5% 5%

20% 30%

5% 7% 7% 10% 12% 15% 20% 20% 25% 33% 33% 5% 5% 5% 5% 8% 3% 5% 5% 5% 5%

0% 10%

Source: Based on GC Securities Transaction Activity and Market Intelligence. Estimates Only.

19 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD Dedicated ILS Managers Multi‐Strategy Hedge Funds Other Pension Funds Reinsurers Traditional Asset Managers

SLIDE 21

Introduction Characterization of Activity / Risk Appetite by Region : Stable Money Inflows

North America Europe M.E. Asia Pacific Current Activity Level

Becoming more active, Hedge Funds, Traditional Managers, Life Insurers Active Becoming more active Highly active Primarily allocations “Stable” Very stable,

Composition of Inflows

y from alternative strategies of traditional managers, seeking relative value, yield and diversification “Three to Five Year” Money, Primarily Pensions Sovereign Wealth, Opportunistic y , conservative inflows, yield and fee conscious institutional investors, strong distribution networks Middle to Yi ld f i i i

Risk Appetite

Varied; conservative from Life Insurers, can be aggressive from Hedge Funds Middle to High Single Digit Return Targets Aggressive 20 percent and higher, Yield focus is increasing in current investment environment, but consistent focus on low volatility levels remains

20

SLIDE 22

Introduction Correlation Analysis – ILS vs. Traditional and Non-Traditional Assets

260%

Correlation Matrix (Monthly Returns, January 2002 through August 2012) ILS S&P 500 HEDGNAV GLOBAL Corp CCI INDEX ILS 100.0% 20.7% 31.9% 34.2% 18.7% S&P 500 100.0% 68.3% 26.8% 39.9% HEDGNAV 100.0% 35.8% 66.7% GLOBAL Corp 100.0% 33.0% CCI INDEX 100 0%

160% 210%

CCI INDEX 100.0%

110% 160% Commodites ILS Global Corporates S&P 500 60% Global Corporates S&P 500 Hedge Fund Index ‐40% 10%

Notes Source: Bloomberg. Tickers: ILS: SRCATTRR; S&P 500 = SPX ; Hedge Fund Index = HEDGNAV; Global Corporates = G0BC; Commodities = CCI. Returns are calculated on a monthly basis and do not reflect fees

SLIDE 23

Introduction Monthly Return / Variance Analysis (January 2002 – August 2012)

ALL BB Hedge Fund BB Global ILS ILS S&P 500 Index Corporates Corporates Commodites Mean Return 0.67% 0.59% 0.28% 0.54% 0.64% 0.52% 1.00% M di R t 0 61% 0 60% 1 00% 0 74% 1 00% 0 56% 1 51% Median Return 0.61% 0.60% 1.00% 0.74% 1.00% 0.56% 1.51% Max Return 3.08% 2.90% 10.77% 4.06% 7.31% 7.04% 12.39% Min Return

• 3.92%
• 4.89%
• 16.94%
• 6.55%
• 15.04%
• 5.54%
• 18.31%

Volatility 0.85% 0.98% 4.55% 1.67% 2.51% 1.41% 4.63% 78 48% 60 06% 6 09% 32 19% 25 60% 37 11% 21 56% Mean / Volatility 78.48% 60.06% 6.09% 32.19% 25.60% 37.11% 21.56% 95th percentile 2.04% 1.79% 7.25% 2.71% 3.85% 2.52% 6.94% 5th percentile

• 0.14%
• 0.29%
• 8.11%
• 2.24%
• 2.72%
• 1.13%
• 6.05%

1st percentile

• 2.16%
• 3.96%
• 11.00%
• 5.74%
• 7.48%
• 3.95%
• 13.35%

Notes Source: Bloomberg. Tickers: ILS: SRCATRR; BBILS = SRBBTRR; S&P 500 = SPX ; Hedge Fund Index = HEDGNAV; BB Corporates = H5A1; Global Corporates = G0BC; Commodities = CCI. Returns are calculated on a monthly basis and do not reflect fees.

SLIDE 24

Introduction Average Annual Returns for Catastrophe Bond Market

15.7% 13.9% 14.0% 15.0% 16.0% 17.0% 12.3% 11.3% 11.0% 12.0% 13.0% 14.0% 7.1% 8.4% 8.0% 9.0% 10.0%

Average of Annual Returns: 8.2%

6.4% 3 3% 4.0% 5.0% 6.0% 7.0% 1.5% 2.3% 3.3% 1.0% 2.0% 3.0%

Notes

Source: Bloomberg. Ticker: SRCATTRR

0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD (9/21/2012)

SLIDE 25

Introduction Catastrophe Bond Market – Study of “Anchor Investor Effect”

90.0% 100.0% gest Accounts)

Zone 2: Final Pricing Above Midpoint of Initial Range / Relatively Large Reliance on Anchor Investors

70.0% 80.0% Attributed to Two Larg 50.0% 60.0% tage of Each Tranche A 40.0% nvestor Factor (Percent 20.0% 30.0% ‐20.00% ‐15.00% ‐10.00% ‐5.00% 0.00% 5.00% 10.00% 15.00% 20.00% Anchor In i i ( i l i i f h h l i id i f i i l id )

Zone 1: Final Pricing Below Midpoint of Initial Range / Relatively Small Reliance on Anchor Investors

Notes Source: GC Securities Proprietary Database, 2012

Price Execution (Final Pricing for each Tranche Relative to Midpoint of Initial Guidance Range) Off Peak Peril Transactions Peak Peril Transactions

SLIDE 26

Introduction Overview of Alternative Capital Activity and Composition

The evolving capital markets and continual growth of alternative risk transfer markets has changed the competitive landscape and has had a muting effect on the reinsurance market cycle in recent years

Andrew WTC KRW IKE / Financial Crisis Tohoku / Other Int’l Events

$11 260 $12,081 300 350 400 $12 000 $14,000 $16,000 Capital

Crisis Int l Events

$7,667 $11,260 $9,881 $5,252 $5,889$5,379 150 200 250 300 World ROL Index $6,000 $8,000 $10,000 $12,000 Contribution by Cla $365 $3,023 $633 $846 $1,620$1,489 $2,585$2,280$2,151 $4,052$3,688 50 100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $0 $2,000 $4,000 ass ($MM) Start-Ups Catastrophe Bonds Sidecar Total Capital ROL Index

2001 2005 2011- 2012

SAC Re

1992 Start-Ups

25

Note: Source, GC Securities Proprietary Database, 2012; SNL Financial, Company filings and Insurance insider.

S

SLIDE 27

Disclosure

Securities or investments, as applicable are offered in the US through GC Securities, a division of MMC Securities Corp. (“MMCSC”), a US registered , pp g , p ( ), g broker-dealer and member FINRA/SIPC. Main office: 1166 Avenue of the Americas, New York, NY 10036. Phone: 212.345.5000. Securities or investments, as applicable are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd., and Guy Carpenter, LLC are affiliates owned by Marsh & McLennan Companies (“MMC”). Reinsurance intermediary services are offered through Guy Carpenter & Company, LLC. This information was prepared by MMCSC and/or Guy Carpenter & Company, LLC. (“Guy Carpenter” or ”GC”), the reinsurance brokerage arm of MMC. All statistical tables, charts, graphs or other illustrations contained herein were prepared by MMCSC or GC unless otherwise noted. Results from i l ti d j ti f ill t ti l d b d t i ti Th f th i i t h ld t l d simulations and projections are for illustrative purposes only and are based on certain assumptions. Therefore the recipient should not place undue reliance on these results. Past performance does not guarantee future results. Neither MMCSC nor GC is a legal, tax or accounting adviser and makes no representation as to the accuracy or completeness of any data or information gathered or prepared by MMCSC or GC hereunder. Your company should therefore consult with its own tax, accounting, legal or other advisers and make its own independent analysis and investigation of the proposed transaction, as well as the financial and tax consequences thereof, the creditworthiness of the parties involved and all other matters relating to the transaction, prior to its own independent decision whether or not to enter into any agreements in connection with any transaction. This document contains indicative terms for discussion purposes only. MMCSC and GC give no assurance that any transaction will be consummated on the basis of these indicative terms and no specific issuer is obligated to issue any security or instrument on such indicative terms. This presentation does not constitute an offer to sell or any solicitation of any offer to buy or sell any security or instrument or to enter into any transaction on such indicative terms. An investment in insurance linked securities is speculative, involves a high degree of risk and should be considered only by institutional investors who can bear the economic risks of their investments and who can afford to sustain the loss of their investments. Noteholders may lose all or a portion of their investment. Institutional investors should thoroughly consider the information contained herein. This document is not intended to provide the sole basis for any evaluation by you of any transaction, security or instrument described herein and you p y y y y y y agree that the merits or suitability of any such transaction, security or instrument to your particular situation will be independently determined by you including consideration of the legal, tax, accounting, regulatory financial and other related aspects thereof. Opinions and estimates constitute MMCSC’s and/or GC’s judgment and are subject to change without notice. In particular, neither MMCSC nor GC owes duty to you (except as required by the rules

• f the Securities and Exchange Commission, Financial Industry Regulatory Authority, Financial Services Authority, and/or any other regulatory body

having proper jurisdiction) to exercise any judgment on your behalf as to the merits or suitability of any transaction, security or instrument. The information contained herein is provided to you on a strictly confidential basis and you agree that it may not be copied, reproduced or otherwise distributed by you (other than to your professional advisers) without our prior written consent. This material provides general and conceptual information about certain financial strategies and does not discuss or refer to any specific securities or This material provides general and conceptual information about certain financial strategies, and does not discuss or refer to any specific securities or

• ther financial product. This presentation is not intended as marketing, solicitation or offering any security or other financial product in Japan.

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