“The analysis of investment strategies in the insurance

sector”

MABISZ ConferenceThe role of insurance in

stimulating the economy

8 October 2013

© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative ("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.

2

Non Life Business: 2014 scenario

Bull Case Bear Case

■ Pricing Drives P&C Premium Growth as Volumes Fall

■ European P&C Insurers Continue to Push Rates Higher

■ New Capacity May Reduce Insurers Reinsurance Costs

■ Rising Yields a Mixed Blessing for Europe's Insurers

■ Falling Bond Values Cut European Insurer Book Values

■ Mark-to-Market Bond Losses May Take Toll on Results

© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative ("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.

3

Non Life Business: Bear and Bull Case

BEAR CASE

The decline in bond values will also reduce book values and hurt the profits of insurers

Falling values reduce the reserves for unrealized gains and losses on investments and cancel out the gains from rising equity markets

The sharp increase in U.S. interest rates may wipe out the gains in bonds

Rising Yields a Mixed Blessing for Europe's Insurers

Falling Bond Values Cut European Insurer Book Values

Mark-to-Market Bond Losses May Take Toll on Results

Pricing Drives P&C Premium Growth as Volumes Fall

European P&C Insurers Continue to Push Rates Higher

New Capacity May Reduce Insurers Reinsurance Costs

Insurers can compensate for lower volumes by raising prices.

Zurich Insurance increased personal insurance pricing by 3% and commercial insurance pricing by 5% on average in 2Q 2013

Abundant traditional capacity will cut the cost of reinsurance for primary insurers

BULL CASE

© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative ("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.

4

Life Business: 2014 scenario

Bull Case Bear Case

■ CDS Spreads for European Insurers Continue Declining

■ Spanish, Italian Bond Yields Stay Below Crisis Levels

■ Major Equity Markets Return to Pre-Crisis Levels

■ Economy Remains Greatest Threat to European Insurers

■ Wider Duration Gap Fuels Interest-Rate Sensitivity

■ Insurers May Face Higher Lapse Rate If Yields Spike

© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative ("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.

5

Life Business: Bear and Bull Case

Economy Remains Greatest Threat to European Insurers

Wider Duration Gap Fuels Interest-Rate Sensitivity

Insurers May Face Higher Lapse Rate If Yields Spike

Market risks remain dominated by the low-yield environment

Life insurers would be particularly vulnerable to any cuts in interest rates

This lapse rate may rise if interest rates climb suddenly, which would prompt unexpected cash outflows for insurers

BEAR CASEBULL CASE

Resolution of Europe's indebtedness may result in rising market confidence

Less distressed valuations of southern European debt may ease the risk to assets held by European life insurers

Stronger equity markets may also help life-insurer balance sheets

CDS Spreads for European Insurers Continue Declining

Spanish, Italian Bond Yields Stay Below Crisis Levels

Major Equity Markets Return to Pre-Crisis Levels

© 2013 KPMG Advisory S.p.A. è una società per azioni di diritto italiano e fa parte del network KPMG di entità indipendenti affiliate a KPMG International Cooperative ("KPMG International"), entità di diritto svizzero. Tutti i diritti riservati.

6

Conclusion

No more “growth at all costs” strategy

Flexibility

European Macroeconomic Recovery is crucial