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The origin of value

09/03/2018 2

IntroductionDear Clients, dear Partners,DARAG operates as a specialist insurer in the fastest-growing segment in the insurance industry: run-off, which offers amarket potential in Europe of approximately 275 billion euros. We focus on the acquisition of insurance companies’ legacyrisks. By assuming discontinued insurance business, we reveal value directly at its origin, thereby enabling our clients toaccess capital that has been locked up for noncore business.We handle both small transactions and large transactions in the three-digit-million-euro range. With more than 68 years ofcompany history, DARAG is an enterprise with a culture which has evolved and it is financed by independent long-terminvestors. Our business model, which we entirely overhauled seven years ago, makes us a pioneer in continental Europe.To maintain our leading position in our business and to meet future challenges, we will continue to use our experience andexpertise and create the best possible solutions for our clients. 3

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Our IdentityOur niche is the fastest-growing segment in the insurance market. Within this segment of the market,we do not simply participate as another market player; we are the premier reinsurance company incontinental Europe specialising in run-off. Transactions with us enable our clients to release capital andto reduce costs so that they can concentrate on what they do best: their core business.We launched our business model, the assumption of run-off portfolios, seven years ago and it did nottake long to prove its effectiveness. Over the course of this brief period, we have concluded 25transactions in 14 EU member states. No other insurance and reinsurance company can point to acomparable track record, which makes us leaders in our field in continental Europe.Our pioneering and innovative approach to all transactions and our ability to deliver bespoke structuringmakes us true to our foundations and spirit.We apply insurance company principles and put them at the heart of our commercial activities.Preserving the reputation of our clients is of paramount importance to us. 5

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Our journeyDARAG’s roots are in Germany, where the insurance company was established 69 years ago . In 2009,it was restructured and refocused as a legacy acquirer. Our success has led us to establish risk carriersin strategic hubs to accommodate clients’ needs, provide local expertise and provide the service thatclients and policyholders deserve.Now domiciled in Germany, Sweden, Italy and Malta, the DARAG Group has operations across Europe.The Group continues to be regulated by a college of regulators to accommodate its pan-Europeancharacter and the market’s current cross-border environment. DARAG is licensed direct insurance andreinsurance business in virtually all non-life segments of the industry. The EU legislation on Freedom ofServices enables DARAG to operate in 28 member states of the EU. 7

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Our activitiesThe core element of our offering is the legal, operational and financial finality of legacy insurancebusiness. Business underwritten in the past (e.g. in a particular class of business) for which technicalprovisions still exist, but no new business is underwritten and which no longer generates premiumincome, is referred to as run-off or legacy business.When insurers cease underwriting business in particular classes or sectors, usually for economic orstrategic reasons, initially the only impact is a loss of premium income. However, known claims andclaims not yet known still have to be settled. Insurance providers remain at risk and continue to be obligedto maintain technical provisions for outstanding claims on their balance sheet. These provisions need tobe regularly reviewed until the run-off is complete and no further claims are expected. This results incapital being used for this element of the business, capital which could be more usefully and profitablydeployed elsewhere. Equally importantly, this results in additional administrative burden and managementtime, both of which, again, could be used more productively elsewhere for the future of the business.In segments with a high proportion of late claims, segments with long-tail business, this can mean thatclaims may still occur years – and often decades – after underwriting business has ceased, developingunfavourably with negative consequences for subsequent operating results. With the introduction ofSolvency II, these technical risks have to be backed by equity, an obligation which would impose anadditional burden on insurance providers. 9

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Managing run-off To achieve finality, we use three types of transaction structure: portfolio transfers, sale of companies and structured reinsurance solutions, the latter combining the tools available with a view to providing a bespoke solution to each client, thus addressing and resolving particular business objectives. Every transaction approach is based on a full and fair evaluation and valuation of the risks. Portfolio transfer> The ceding insurer transfers all liabilities, including outstanding and expected late specialist insurer: a run-off acquirer. In this process, the technical provisions, the IBNR reserves and the covering assets are transferred from one insurance company to the other; here, from the ceding insurer to the run-off acquirer. For transfers within the EU, it is important to take the legal framework and regulations applicable in each member state into account. Transfer of companies> If a legal entity (e.g. a subsidiary) is in run-off in its entirety, its inactive business can be transferred through the sale of the entire legal entity. The technical (run-off) provisions are transferred automatically as part of the sale.Active management of run-off portfolios According to recent surveys, run-off accounts for up to 43 % of technical provisions for non-life insurers. Most insurance companies therefore have inactive portfolios no longer premium income. In the past, run-off has been almost exclusively managed in-house, whereas in the UK insurance market, transfers to specialist third parties have been part of the normal business cycle for some time. 11

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Our passionAn insurance company’s business is based on three fundamental factors: the quality and thecommitment of the individuals who structure and implement its business and its operations, itscommitment to keeping the promise made to its policyholders and the availability of capital. Thesefactors drive us and form the basis of our business model. We honour our clients’ commitments and, inturn, honour the clients’ commitments to their clients. Insurers have a social and economicresponsibility; it is a promise to be there when something goes wrong. This is a promise which cannotbe compromised.DARAG is not part of a large insurance group and can, therefore, pursue its activities independently.DARAG’s long-term business model is perfectly aligned with the demands and strategies of ourshareholders, who also think long term.The right experts in the right place: a guarantee for the successful commitment of capital, DARAG’steam comprises more than 50 individuals from 12 countries and 17 spoken languages. They are allexperts in their specialist area and contribute their diversity, their dedication, their flair for innovationand their respect for a promise made to the benefit of DARAG and its clients. 13

DARAG Group LimitedWhitehall MansionsTa’ Xbiex SeafrontTa’ Xbiex XBX 1026Valletta, MaltaPhone: +356 213 78349www.darag.euMalta