Numerix Leading Hedge Integrated ALM and Hedging Platform

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1 Numerix Leading Hedge Integrated ALM and Hedging Platform E nd-to-end risk management & hedging of VAs & FIAs Value assets & liabilities in a single framework V aluation of principle based reserves & capital for hedging and financial reporting GAAP, IFRS, Statutory, and Solvency II Higher-order Greeks/Future Greeks Nested stochastic projection framework I ndustry-leading asset model library, including Hybrids Grid and Cloud-computing enabled

2 NUMERIX LEADING HEDGE Leading Hedge s new module enabled Transamerica to reduce end-to-end run time from 40 hours to 6 hours while improving modeling precision. In addition, Leading Hedge is setting the stage for additional uses for nested stochastic projections. Hunt Blatz, Vice President and Head of Model Development, Transamerica Capital Management The Numerix platform plays a central role in elevating our risk management infrastructure and analytics. We have realized significant advances in flexibility, expandability, reduced run-time and transparency Empowering our insurance clients with one centralized platform, Numerix Leading Hedge can be used to perform everything from capital and reserve valuation to hedging and financial planning. Numerix Leading Hedge paves the way for model consistency across the investment and liability sides of your business. The Numerix model library is the foundation of many of the world s largest trading and risk platforms and can be easily utilized for product design of VAs and FIAs. By combining Numerix derivative valuation and risk analysis capabilities with a flexible insurance liability simulation engine, Leading Hedge can also value and measure the risk of any insurance liability. Numerix Leading Hedge provides end-to-end risk management of insurance and annuity products specializing in Variable Annuities (VAs) and Fixed Index Annuities (FIAs). With Numerix Leading Hedge, a single platform is all you need for: with the adoption of Numerix Planning and Forecasting Leading Hedge. Insurance Product Pricing Michael DeWeirdt, Senior Vice President, Financial Risk Management at Ohio National Trading and Hedging Risk and Capital Management Financial Reporting

3 NUMERIX LEADING HEDGE CAPABILITIES Leading Hedge enables users to: Hedge, price and value insurance products: by leveraging the powerful CrossAsset platform Value assets and liabilities on the same platform for greater consistency Quickly structure any liability product: from the most simple Life product to the most complex Variable Annuity through Leading Hedge revolutionary scriplet technology Support for modeling risk-managed fund overlays, such as target volatility and capital protections Value liabilities in a controlled production environment: set controls on user access; keep track of all projections, inputs, and all changes to models and projection settings Model variable annuity living benefit guarantees (VAGLBs): such as GLWB, GMWB, GMAB, GMIB, and GMDB Model popular indexed annuity crediting structures: such as Point-to-Point, Asian, Cliquet, Digital, Rainbow, including guaranteed living benefit riders Hedge variable annuities in-house: calculate Greeks including key rates Greeks, higher-order Greeks, and cross Greeks Create rapid projections of decremented account values across stochastic scenarios: incorporate partial withdrawals, lapses, mortality, dynamic policyholder behavior, rider election rates, and other factors Generate Variable Annuity policy projections stochastically: using unified hybrid model framework and deterministically using external prescribed scenarios Run projections on the Cloud: reduce calculation times and need for an internal grid Calculate Future Greeks and valuations along a given path to analyze hedging strategy or perform financial planning Produce a liability trading grid: across a variety of market shocks for rebalancing hedge assets and intra-day rebalancing, with supporting trading models Numerix Scripting Language with Master Script: Scriplets and Macros Regulatory Reserve and Capital Calculations GAAP / IFRS Valuation: FAS 133 SOP 03-1 FAS 157 FAS 97 DAC Scriptlet technology leads to faster modeling, prototyping, and reduced time-to-market for VAs & FIAs. Statutory Reserves: AG43 AG33/35 Regulatory Capital: RBC C-3 Phase II Total Asset Requirement (TAR) Solvency II: MCEV SCR

4 NUMERIX LEADING HEDGE BENEFITS Consistency Between Assets and Liabilities Project assets and liabilities using the same market models, reducing basis, and increasing accuracy of Greeks and hedge effectiveness Market-standard models for all major asset classes, including rates, equity, FX, credit, hybrids, inflation, commodity, volatility, and life Accurate asset valuations and option budgets lead to more accurate insurance product pricing Transparency & Flexibility Tiered user access and easy-to-follow audit trails assist in model governance and controls View and modify any model parameter or payoff function. Export model into Excel to view implementation in full detailed granularity. Data agnostic implementation allows for integration with any inforce system Ease of Use and Quick Results Automate daily valuations, trading grid production, and attributions Cloud computing reduces calculation times, and support for internal grid hardware can be eliminated leading to reduced cost Easily integrates with other ESGs, enabling enhanced flexibility and effectiveness Comprehensive and Advanced Analytics Attribution Profile exposes primary risk drivers and uncovers potential hedging strategy leaks Future Greeks assist in creating asset allocation, hedging strategies and financial planning Value assets with market models and conventions consistent with counterparties to more effectively estimate hedge costs and valuations Incorporate risk premium for real world scenarios using Numerix real world models Risk Profile Multiple methods are available for each of the Greeks, giving flexibility to users

5 NUMERIX LEADING HEDGE FEATURES Unique hybrid model framework: most robust hybrid model in the industry, enabling accurate pricing and Greek calculations for products consisting of multiple underlyings from different asset classes Scripting language: intuitive and easy to learn syntax provides users ability to price any exotic option or liability. Utilize scriplets to optimize for projection speed, modularize code, and reuse existing functionality. Real world scenarios for equity, interest rate, and credit models Scalable high performance computing: distribute calculations to an internal grid or cloud platform, such as Microsoft Azure for large projections Low-discrepancy ( quasi ) random number generator: native variance reduction leads to faster convergence and fewer scenarios Audit trail: all changes and runs leave an audit trail in the database, recording all information needed Risk Profile: creates Greeks and trading grid as a batch process, while providing flexibility in methodology and assumptions Attribution Profile: attributes changes in liability value to various factors and exposes largest risk exposures Assets: project and value assets using Numerix analytics or user-defined payoff scripts, while applying the same models and projection settings as liabilities Future Greeks: project risk neutral valuations and Greeks at future timesteps in a nested stochastic framework Batch processing and automation: Greeks and Risk Profiles run as a batch. Valuations, Greeks, Attribution and trading grid can be automated through the command line with minimal user input User extensions: write custom functions for use in Leading Hedge for further flexibility Attribution Profile Multiple attribution shocks are compiled into a single Attribution Profile.

6 NUMERIX LEADING HEDGE CROSSASSET XL WORKBENCH The Numerix Leading Hedge CrossAsset XL Workbench is an extremely flexible and powerful actuarial workbench for the design and pricing of insurance products and hedge assets. It provides a single unified platform for the most basic to exotic designs including all types of Variable Annuities, Index Annuities and hedge assets. CrossAsset Excel Workbench includes models across all asset classes including credit, equities, rates, foreign exchange, commodities and inflation. We also provide the industry s most comprehensive hybrid model framework, which incorporates complex stochastic process for capturing correlation in a way that is consistent with market-observed behavior. Add-on Reporting Module CrossAsset Excel Workbench Leading Hedge Platform Grid Plug-ins (HPC, DS) MODEL CONSISTENCY ACROSS LIABILITY AND INVESTMENT SIDES OF YOUR BUSINESS Many companies are faced with the challenges of instilling a capital markets focused framework for both their product design and investment groups. Numerix model library is the foundation of many of the world s largest trading and risk platforms and this infrastructure can be easily utilized for product design of Vas and FIAs enabling companies to institute a consistent price framework and enhance the effectiveness of their hedges. NUMERIX HYBRID MODEL The key to hedging risk in a way that is consistent with market-observed behavior is bringing together interest rate, equity, volatility, credit and other factors within a unified, efficient model framework. To accomplish this, it is necessary to incorporate stochastic processes across multiple asset classes and factors. This requires a simultaneous calibration process to accurately capture correlation between volatility factors. Numerix has developed a unique hybrid model framework that provides a structure for designing and calibrating such a model. Numerix hybrid model framework helps hedge risk that is consistent with market-observed behavior, bringing together all risk factors.

7 NUMERIX INSURANCE SERVICES Numerix provides a highly experienced global team of financial engineers and actuaries well-versed in the complex regulatory, hedging and modeling issues that today s insurance practitioners are currently facing. VA/FIA MODELING Our modeling services include designing the right set of cashflow logic to model variable annuities, fixed annuities, equity index annuities and other investmentlinked insurance products. We utilize appropriate market model combinations with consistent calibrations and Economic Scenarios to appropriately capture the various aspects of market risk (economic capital, pricing, designing a new rider, producing trading grids, etc.) HEDGE ANALYSIS Our hedge analysis experts will examine an institution s liability portfolio and its corresponding hedging program and then perform in-depth analysis and back testing. Numerix financial engineers then analyze the overall profitability and overall success rate and examine how the hedges are actually matching (or not matching) the underlying positions, and advise accordingly. REGULATORY REPORTING Our team of insurance quantitative experts will help clients to meet evolving regulatory reporting requirements related to Solvency II, GAAP, IFRS, AG 43, and all other mandates relating to the insurance industry. ESG SERVICES Our ESG Services involve taking the Numerix Economic Scenario Generator and implementing it using the right set of factors, the right set of data assumptions and the right set of model assumptions. The ESG validation and best practices are then tailored by our team of actuaries and financial engineers to meet the specific requirements of the customer. Real World Calibration services are also available, to estimate model parameters and risk premia from historical market data in order to generate real world scenarios. Overall #1Technology Vendor #1 in Pricing and Analytics: Cross-Asset Credit Foreign Exchange Rates Technology Innovation of the Year Numerix #1 in Risk Management: Market Credit Copyright 2015 Numerix LLC. All rights reserved. Numerix, the Numerix logo, and CrossAsset are either registered trademarks, or trademarks, of Numerix LLC in the United States and/or other countries.

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