Michael Symonds, FSA, MAAALehman BrothersInsurance Products Group(212) 526-9525michael.symonds@lehman.com

Actuaries on Wall StreetPD-1 – CIA Annual Meeting

June 28, 2007

Introduction

Roles of actuaries at investment banks

Emergence of “Insurance Capital Markets”

Deep Dive: Insurance Securitization

Actuaries on Wall Street—the survey

Discussion points – the “how?”

Conclusions – the “why?” (and why not!)

Q&A

The past few years has seen an “actuarial employment boom” on Wall Street. Investment banks have been hiring unprecedented numbers of actuaries.

This presentation will discuss:

1

Roles of Actuaries at Investment BanksThere are a number of traditional areas of finance that might be thought of as appealing to the actuarial skill set…

Research

Sales & Trading

Investment Banking

Corporate

Structured Finance

Enterprise Risk Management?

Insurance Industry Research?Other Quantitative Research?

Traditional Corporate Finance/M&A?

Trading?

Quantitative Trading Support?

2

Research

Sales & Trading

Investment Banking

Corporate

Structured Finance

Roles of Actuaries at Investment BanksHowever a new area has emerged that is driving the recent actuarial boom

Enterprise Risk Management?

Insurance Industry Research?Other Quantitative Research?

Traditional Corporate Finance/M&A?

Trading?

Quantitative Trading Support?

Insurance Capital Markets

3

Insurance Capital Markets encompasses aspects of traditional corporate finance, sales & trading as well as structured finance

Insurance Capital Markets

Comprehensive approach to insurance Coordinate capital markets and capital management touch-points In-house professionals allow bank to leverage knowledge of

industry-specific considerations in developing tailored solutions Investment and trading strategies Hedging strategies / ALM Asset restructuring Economic capital / capital management strategies Securitization of insurance risk Financial reinsurance Run-off solutions

Coverage

Capital Markets Products

Insurance Products

4

Insurance Securitization Market

Cumulative Life Insurance Securitization (by Issuance Amount)

3.6 4.2 4.3 4.3

1.5 2.23.7

5.5

8.4

14.116.0

1.5

8.2

3.40.6

9.4

1.82.7

2.1

0.80.4 0.4

2.11.8

$0

$2

$4

$6

$8

$10

$12

$14

$16

Redundant Reserve Embedded Value Mortality Cat Bonds Total

2003 2004 2005 200620022001 2007 YTD

$ Billions

5

Securitization Capital Structure

Normal Deviation from Economic Reserve

Moderate Deviation from Economic Reserve

Extreme Deviation from Economic Reserve

Equity Financing(Economic Capital)

MezzanineFinancing

Debt Financing

Liability Value Capital Structure

Economic Reserve Self-Financing

6

Sample Securitization Structure

Special Purpose Reinsurer (“SPR”)

Non-Recourse Notes

Proceeds

Investors

Reinsurance1

2

Downstream Structure Transaction Steps1. The Operating Company enters into

a reinsurance contract, ceding a specific book of business to the SPR.

2. The SPR raises statutory capital through the issuance of Non-Recourse Notes to the capital markets.

3. The SPR deposits the proceeds of the capital markets offering into a trust, which is pledged to the Operating Company to secure reinsurance reserve credit.

Equity

Cash

Proceeds 3

Reserve

Credit Trust

Operating CompanyFor the benefit of

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Transaction Constituents

Issuer in-house Third party actuary Banking advisor in-house

Investor/monoline in-house Investor/monoline third party Rating agency in-house Regulatory in-house/ext

Pricing, valuation, reinsuranceIndependent expertiziationTransaction structuring,negotiation, distribution

Actuaries Involved

Risk analysis

Structuring a capital markets solution for an insurance company requires finding the common ground between the Issuer, Investors, Rating Agencies and Regulators

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Survey

A short questionnaire was developed and circulated to a number of actuaries

working in various capacities at various Wall Street firms

Over 20 responses were received, with representation from 7 different investment

banks

The overwhelming majority of respondents can be characterized as working

within Insurance Capital Markets

In “past lives” 75% worked in the life industry, the balance were from consulting

Survey is not scientific!

In order to provide broad feedback an “Actuaries on Wall Street” survey was conducted

9

Survey Says…

How long have you worked on Wall Street?

45%

18%

32%

5%

0%

10%

20%

30%

40%

50%

0-2 Years 2-5 Years 5-10 Years Over 10 Years

10

Survey Says…

Choices listed in order of importance of based on a composite weighted ranking

1.8

2.9

3.2

3.5

2.2

0 5Rank

Specific opportunity that was appealing

Entrepreneurial nature/accelerated career

development

Desire to try something new

Longstanding desire to work on Wall Street

Desire to more effectively leverage insurance industry background

What drew you to Wall Street?

11

Survey Says…

How did you transition to Wall Street?(Participants asked to select all which apply)

Responded to posting seeking actuary 48%

Professional relationship contributed 28%

Responded to non-actuarial position 16%

Transitioned via MBA 4%

Personal relationship contributed 4%

12

Survey Says…

How important are your actuarial credentials to clients, management and colleagues?

0%

20%

40%

60%

80%

100%

Clients Management Colleagues

Somewhat Important Somewhat

Important Somewhat Important

Very Important Very

ImportantVery

Important

92% 86%

73%

13

Survey Says…

How valued are actuarial credentials on Wall Street? How technical is your role?

Not Valued

9%Highly Valued

18%

Valued 73%

Somewhat

Not Technical

9%

Highly Technical

32%

Technical59%

Somewhat

14

Survey Says…

Choices listed in order of importance of based on a composite weighted ranking

1.7

1.9

2.2

3.5

3.9

0 5Rank

Technical/finance/accounting skills learned in insurance industry job

Technical/finance/accounting skills learned since moving to Wall Street

Math/statistics/actuarial skillslearned in college

Business/accounting/corporate finance skills learned in college

Materials learned through writing actuarial exams

Which of the following best prepared you for your current role?

15

Survey Says…

What is the likelihood you will one day work again directly in the insurance industry?

Not Likely50%Somewhat Likely

45%

Highly Likely5%

16

Survey Says…

How satisfied are you with your move to Wall Street?

Highly Satisfied95%

Satisfied5%

No participant expressed dissatisfaction with move to Wall Street!

17

Discussion Points

Survey says:

1. Industry experience

2. Relationships

3. Exams?

Experience is #1, but what kind of experience?

– Quantitative finance / ALM?

– Financial reporting / corporate?

– Product development / valuation / risk management?

– Reinsurance / M&A?

The survey provided valuable feedback in a number of areas. But how does this relate to the topic “How to become an investment [banking] actuary?”

18

Conclusions

Wall Street viewed as a great place to work

High intensity, innovative, entrepreneurial environment

– Talent and creativity are highly valued

Insurance Capital Markets is one of the hottest areas

Transition, for an actuary, is possible like never before

And “why become an investment [banking] actuary?”

BUT WAIT...

50% of respondents felt it was likely they would return to the industry!?

– Extremely volatile

– Intensity comes with a price

– Grass is always greener on the other side!

19

Q&A…

20

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