EFTA01101193.pdf

APOLLO Elysium Re Investment Overview June 2014 EFTA01101193 Table of Contents 1. Overview of Elysium Re 2. Business Plan Overview 3. Investment Portfolio & Rating Agency Overview 4. Key Next Steps EFTA01101194  A p O L [. O Overview of Elysium Re EFTA01101195  APOLLO Elysium Re Business Model Overview ➢ Elysium Re will establish itself with $750-1,000 million of capital — 50% in cash, 50% in other equity capital (existing assets such as Apollo stock, fund positions, other cash flowing assets) ➢ On this capital base, Elysium Re will then write $300-500 of premium per year (in a conservative base case model) — Premium will be written in a variety of different property and casualty lines - opportunistic areas where rates are hardening and pricing is attractive ➢ Elysium Re will then earn a -9-10% annual investment yield on these assets — both the equity capital and the income on the premium written — Equity capital invested in alternatives earning —10-15% Premium income invested in a diverse mix of liquid credit, real estate, and structured securities earning —3-5% ➢ Over time Elysium Re will incur losses on the premium its writes at an estimated 50-60%of premium written —known as the loss ratio" — These incurred losses will not all actually be paid out when incurred, but rather over the course of 2-3 years from the time of being incurred ➢ Elysium Re will also absorb additional brokerage and SG&A expenses associated with the writing of premium and the managing of claims and day-to day business operations Brokerage costs of -20-25% of premium written — known as "acquisition or brokerage ratio" Other SG&A costs of -10% of premium written — known as "SG&A or cost ratio" ➢ To the extent that its combined ratio — the sum of the loss ratio, the brokerage ratio, and the cost ratio — is less than 100%, Elysium Re will generate additional earnings from underwriting income — as it will effectively be borrowing money at a negative costs of funds where the underwriting cash flows received are greater than underwriting cash flows paid out ➢ Elysium Re will thus generate value from several different sources — Return on invested capital — Underwriting income / Negative cost of funds • Best-in class underwriting with targeted loss ratio of 50-60% of premium written • Operating structures with combined brokerage and SG&A costs of 30-35% of premium written - Return on float ( float is the time between which an insurance policy is written and when it is paid out) EFTA01101196  APOLLO Elysium Re Business Model Overview (Cont'd) > Elysium Re will try to combine the twin principles of value underwriting and value investing, that seeks the best value opportunities available on both sides of the balance sheet - Value Underwriting: Hire a management team that underwrites based on a value-oriented, "margin-of-safety" approach across a variety of property and casualty business lines and that can consistently produce overall combined ratios below 100% - generating leverage with a negative cost of funds • Opportunistic liability sourcing in a broad range of property and casualty businesses, with a focus on more flexible and price-attractive E&S / non-admitted business - Value Investing: Hire Apollo/Athene (or another leading asset manager) with a proven track record of outperformance and a diversified and broad investing platform in liquid credit - Opportunities on Both Sides of Balance Sheet: Elysium Re will seek the best value opportunities on both the asset and liability sides of the balance sheet. > Elysium Re will be further complemented by additional operating and structural enhancements - Non-Correlated Risk: Property and casualty insurance is a non-correlated source of value that is not heavily exposed to capital market based volatility - Clean Balance Sheet: De novo structure with no exposure to harmful legacy investments or liabilities - Broker-Based Operating Model: Broker-focused operating model that allows management to pursue its strategy with fewer employees and less fixed costs - Tax & Regulatory Efficient Structure: Elysium Re will be [domiciled as a Caymans / Bermuda entity, allowing it further enhance returns through tax and regulatory optimization] > Elysium Re will target an A- financial strength rating from A.M. Best in line with other highly capitalized and well-respected property and casualty insurers and reinsurers — Rating underpinned by a diversified book of business and by rigorous stress testing on both sides of the balance sheet EFTA01101197  APOLLO P&C Liability Funding: Negative Cost of Funds A key aspect of the investment thesis is producing underwriting income and thereby a negative cost of funds — Combined ratio / cost of funds will vary by line of business, but Elysium Re will target a -90% combined ratio over 3-5 years, which equates to a - (10)% cost of funds ➢ If the combined ratio of the premium written is below 100% (negative cost of funds), Elysium Re can earn even more significant profits by earning on both sides of the balance sheet $ in millions Key Assumptions Initial Premiwn Written $ 250 Life of Liabilities 4.00 Combined Loss Ratio 55% Ratio Brokerage Ratio 25% SO&A 10% 90% Annual Pay-Out (Premium/ WAL) 34 Year Year Year Year Cash Cost of Funds Projections (0-3) 0 1 2 3 Premium Written $ 250 $ 250 $ 250 $ 250 Brokerage Costs (63) (63) (63) (63) Other SG&A Costs (25) (25) (25) (25) Losses & Loss Adjustment Expense (34) (69) (103) (138) Total Underwriting Cash Flows $ 128 $ 94 $ 59 $ 25 Year Year Year Year Cash Cost of Funds Projections (4-7) 4 5 6 7 Total Premium Written $ - $ - $ - $ - $ 1,000 Brokerage Costs (250) Other SG&A Costs (100) Losses & Loss Adjustment Expense (103) (69) (34) (550) Total Underwriting Cash Flows $(103) $ (69) $ (34) $ 100 Cost of Ftuxts EFTA01101198  APOLLO P&C Liability Funding: Float Generation • Elysium Re will utilize the concept of float to generate consistent liability funding with a relatively long WAL • Float is the time between which an insurance policy is written and when it is paid out — Float will vary by line of business, but Elysium Re will target 3-5 years of WAL on its liabilities, resulting in -$400 million of run-rate float • By utilizing float, Elysium Re can efficiently finance its investments • Even when the combined ratio of the premium written is 100% (i.e. 0% cost of funds) or above 100% (positive cost of funds), Elysium Re can still earn significant profits just by earning a higher yield on its invested assets $ in millions Key Assumptions Initial Prenium Written $ 250 Life of Liabilities 4.00 Investment Yield 10% Combined Loss Ratio 65% Ratio Brokerage Ratio 25% SG&A 10% 100% Premium, Related to Policyholder Pay-Out $ 163 Annual Pay-Out (Premium / WAL) 41 Year Year Year Year 0 1 2 3 Float Waterfall Projections $ 163 S 122 $ 81 $ 41 163 122 81 163 122 163 Total Float $ 163 $ 284 $ 366 $ 406 Cash Flow Projections BoP Cash $ 163 $ 301 $ 405 Plus: Float Generation / (Reduction) 122 81 41 Plus: Investment Income Generated on Float 16 23 35 EoP Cash $ 163 $ 301 $ 405 $ 481 Run-Rate Float From Prenium -$400 % of Initial Premium Written 160% Cost of Funds 0% Annual Run-Rate Profit on Float $ 40 EFTA01101199  APOLLO P&G Re: Illustrative High-Level Business Projections D Elysium Re will generate value from three core value sources — Underwriting income / negative costs of funds — Return on float — Return on invested capital D This business model enables Elysium Re to be both a spread lender at a negative cost of funds and an efficient user of float arbitrage Underwriting Brom / Negative Return on Float With 4 Year Life of Liabilities dial Cost of Funds at 90% Combined 10% Investment Ykld Rath Premium Written / Equity Overall ROE With 10% Leverage on $1 Bilkm Premium Written Prolit ROI1 Impact I:k)a1 11:.)(11 Imp.1.1 Return on Invested Capital Capital Base a 0.25x $250 S, 5 S400 S40 4.0' 16.5 0.50x 500 5.115 S00 SO 8.01i 23.01I 0.75x 75(1 75 7.5% 1.200 120 12.0% 29.51I 1.00x 1.000 100 10.0(i 1.600 160 16.0rc 36.0'I EFTA01101200  APOLLO Fixed Annuity (Re) Insurance vs. P&C (Re) Insurance: Comparative Overview Fixed Annuity (Re) Insurance P&C (Re) Insurance Varied: key ratios include assets / equity (2-3x) and Underwriting Leverage 11-15x assets / equity premiums written / avg. equity (0.1-1.0x) 1-3 years for property catastrophe: 4-6 years for WAL of Liabilities 5-10 years commercial / liability - 4-8% depending on crediting rate and policyholder Vanes depending on line of business and underwriting ability Cost of Funds behavior (combined ratio): can range from (25%) to 10% Depends on i.) average life of liabilities and ii.) focus on Investment Yield 5-7% asset vs. liability risk: focus on asset performance (10.15%) vs. underwriting performance (2-7%) Shorter 'NAL. need more liquidity: Less regulatory Longer WAL, less liquid assets permitted: More regulatory Investment Flexibility ovens -ant on nvestmerts: Less oorre!ation between assets & oversight on investments. Greater focus on ALM liabilities Pnmanly focused on liabilities and asset liquidity: Need A- Regulation Pnmanly focused on assets rating to compete Compemior Le :e Low Medium to High Business Model Spread Lending Float Arbitrage I Spread Lending / P&C Underwriting Primary Liability Sourcing Ceitiants brokers Key Risks Longevity. Rate Underwriting. Asset Performance EFTA01101201  APOLLO Elysium Re Structure Elysium Re would ideally be set up as an entity that could both fund its own operations, as well as produce additional cash flow for investments unrelated to Elysium Re's business Can retain cash at insurance HoldCo or dividend up to non- Elysium Holding Co. insurance HoldCo for funding of other non- insurance investments Elysian Non-Insurance Elysian Non-Insurance Elysian Non-Insurance Elysium Re Holding Co. Investment #1 Investment #2 Investment #3 (Bermuda / Caymans) Can retain cash flow at insurance OpCo or dividend up to insurance HoldCo Elysium Re Insurance Co. (Bermuda / Caymans) Athene Asset Investment Management Agreement Management or Other Asset Manager Insurance company planning to write 53004500 million of annual premium with a \VAL of 3-5 years EFTA01101202  APOLLO Business Plan Overview EFTA01101203  APOLLO Overview of Business Plan: Overall Approach ➢ Will need to hire a full management team with significant insurance experience to run general business and underwriting operations — Outsource asset management to AAM or another third-party asset manager ➢ Value on both sides of balance sheet — value underwriting and value investing — Assets and liabilities will compete for capital; depending on market dynamics, either investing or underwriting could be the business's value driver — and capital allocation will shift as environments change — A- rating with at least $750 million of starting capital ➢ Operations will based on a broker-focused model — less reliance on direct model — Lean operating team that concentrates primarily on underwriting and utilizes extensive broker networks to minimize agency-based fixed costs — Layer of distance between customer and P&C Re (e.g. Munich Re, Swiss Re) — makes it easier to "say no" — Greater flexibility to be opportunistic and move in and out of different markets as pricing environments shift ➢ Flexibility with regard to underwriting structures, lines of business, and geographies • Open to any opportunities as long as they offer attractive risk / reward and a sufficient "margin of safety" • Collateralized and non-collateralized structures (mostly non-collateralized at first) ➢ Focus more on E&S and non-admitted business where regulation is less strict and rates are more fluid — Prefer to stay away from the admitted business / commodity products — Don't want to take on large balance sheets (i.e. Travelers, ACE); rather, looking to take advantage of the niches 10 EFTA01101204  APOLLO Overview of Business Plan: Overall Approach (Cont'd) ➢ Underwriting will target an overall combined ratio of 80-90% - - 50% loss ratio with a standard deviation of 20-30% • Large upside, but significant "margin of safety" provides downside protection • Concept of "present value of combined ratio" key determinant of underwriting and development of float • Finding the right team of disciplined, but risk tolerant underwriters in crucial - 20-30% expense ratio trending downwards as business matures • Additional OpEx expenses upfront to hire good talent and invest in right underwriting systems — Compensation structure should be based on return on equity / profits, not premium volume • Broker-focused model minimizes fixed costs and will be key driver for expense optimization • Broker-focused model makes it much easier to move in and out of the markets with brokers than direct model...but must be prudent with broker relationships (who hold a lot of power inherently with their distribution networks) — Put limits on (in hard and soft markets), so business isn't moving brokers around all the time and can build some credibility • Migrate out over time when markets soften and new entrants enter • Migrate in when markets harden and favorable supply / demand dynamic develops (easier to get data requests from brokers because they need you more) • Team should also establish a rigorous risk management function — Chief Risk Officer / Chief Actuary — AM Best BCAR maintenance and analysis — including key focus on a diversified book — Oversight from Black Family / Elysium Partners 11 EFTA01101205  APOLLO Overview of Business Plan: Organizational Straw Man ➢ Organization needs to be driven by a culture of underwriting sophistication and by an opportunistic mindset ➢ Broker-focused model that help minimize fixed costs and allows core team to focus on underwriting with most back-office functions being outsourced ➢ Compensation structure will be based on return on equity / profits, not premium volume ➢ Especially for top underwriters, may consider paying more per person for top talent, but fewer overall employees (12-15 people initially) - Estimate -$11 million of starting compensation expenses ➢ Post initial upfront costs for systems, target a mid to low 20's expense ratio — in line with the better peer comparables (like Ren Re) CEO I Accounting / Underwriting team Claims Officer I COO/CFO Risk Officer (3-4 people) General Counsel Accounting IT Officers Officer (1-2 people) 12 EFTA01101206 Overview of Business Plan: Lines of Business • Underwriting will target an overall combined ratio of 80-90% with a 20-30% standard deviation on loss ratio > Diverse business mix so that overall volatility is mitigated > Will need to develop an updated detailed block by block business plan with management that balances risk level, type of insurance, duration of claims, and frequency & severity of claims • For sample reference, attractive opportunities that existed in the market when AGM explored P&C Re 18 months ago included: - Property CAT • Direct Reinsurance in the US: Focus on more super regional writers, including substantial exposure to Florida stand alone companies • Direct Reinsurance ex-US: Focus on areas that have suffered losses in 2011 and 2010 and for which rates have not come down that significantly (yet). Book will be heavily targeted to Japan, Australia, NZ and Caribbean • Retrocessional Treaties: Focus on more bespoke treaties where exposure is being curtailed by the client or where a client sustained a loss in 2011. The attachment point would be at a relatively significant level for outside-the-US events to avoid small 'nuisance' cats - Mortgage Insurance • Significant opportunities to write quota shares for distressed US based monoline companies and some non-US treaties - Crop and MPCI • The poor experience of 2012 should open up opportunities for any entrant. A combination of quota share and XOL, at the lower attachment points is where management team would look to write business — Specialty Casualty lines • Some quality high excess D&O insurance providers, select few D&O/E&O middle markets programs and more unique lines (e.g. Environmental Liability) will be considered. There is some rate increase in the sector and the best way to participate will be side-by-side with clients, on a quota share basis — Terror, Political Risk and War • Smaller niche markets that allow some value-added underwriting; typically these are London based product lines 13 EFTA01101207  APOLLO Overview of Business Plan: Lines of Business (Cont'd) ➢ Previous plan with AGM contemplated a flexible approach with a focus on traditional reinsurance and insurance ➢ There could be attractive additional growth opportunities to explore, once the base business has been fully established — Additional potential opportunity in alternative, more bespoke structures include: • Legacy run-off blocks — Estimated European Non-Life run-off market is currently more than $200 billion — Key opportunities in asbestos trusts and related ailment XOL treaties (i.e. Mesothelioma) — Deals in this segment are hard to predict, model and plan for. Estimate that a few large transactions can be done over the next 4 to 5 years — their occurrence will be unpredictable. Expertise in the segment is key in identifying opportunities and there are only a few players in the segment (including an existing Apollo investment in Catalina) - expertise is a high barrier to entry • Third party P&C asset management (i.e. sidecars) — The market for "alternative capital" has clearly evolved significantly in recent years — Over the last 5 years, most traditional rated reinsurers that have tried to build third party managed funds have been wholly unsuccessful (Ren Re is the one exception). We believe that having both a rated vehicle and un-rated vehicle from the outset will provide P&C Re with a significant advantage • Non-annuity life insurance products — Simple products like term and whole life insurance with fixed liability structure, and which don't compete with Athene — Would likely require significant additional cost in terms of infrastructure and separate team of life insurance underwriters 14 EFTA01101208  APOLLO Overview of Business Plan: Operating Expenses ➢ Upfront non-compensation operating expenses of -$10 million ➢ —$1 million in spend on CAT modeling technology and analytics ➢ —$9 million in other operating expenses — $2 million for information & technology (very important to have best-in-class systems) — $1 million to outsource back-office functions — $3-4 million in T&E, other office operations, and taxes — $2 million in general other (cushion for start-up costs of business) ($ in millions) OpEx For Models Cat modeling $1,000 Other OpEx IT $2,000 Outsource 1,000 T&E 1,500 Office Operations 1,500 Taxes 700 Other 2,000 Sub-Total: Other Opex $8,700 15 EFTA01101209  APOLLO Overview of Business Plan: Overview of Operating Model ). General — Assumes stable underwriting environment where rates do not further harden — Cost optimization from broker-focused model Y Underwriting Revenue - — $260 million in premium written in Year 1 ramping up to —$2 billion Year 5 as balance sheet grows and underwriting leverage increase from —0.25x to - 1.00x equity - Premium earned over a two year period - —$400 million of run-rate float premium — -2.4 WAL of liabilities written Loss Expenses - 60-65% of premium earned — Paid out over a three year period (25%, 50%, 25%) Acquisition Expenses — 10-15% of premium written paid to brokers in year written SG&A Expenses - —15% of premium written in Year 1 — primarily due to elevated OpEx from investments in core underwriting systems — Trends down to -5% of premium written as business matures and fixed costs optimized due to broker-focused model Y Investment Income - Allocation: 1% Cash, 49% Non-Alternatives, 49% Alternatives — NIER: 0.30% Cash, 4.00% Non-Alternatives, 10.00% Alternatives • In Apollo NIER Cases: 0.30% Cash, 4A % Non-Alternatives, 15% Alternatives Taxes & Other — 1% excise tax, no federal income tax - LOC charge of 50 bps - $200 million liquidity facility with 100 bps commitment fee, 450 bps interest rate on drawn capital 16 EFTA01101210  APOLLO Operating Model Projections $ in millions Balance Sheet Key Asp. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Assets Cash & Cash Equivalents 1.00% $10 $13 $17 $23 $31 $39 Non-Alternatives Portfolio 49.50% 495 619 826 1,119 1,531 1,946 Alternatives Portfolio 49.50% 495 619 826 1,119 1.531 1.946 Total Assets $1,000 $1,251 $1,669 $2,261 $3,093 $3,931 Liabilities Loss & LAE Reserves $0 $70 $225 $445 $754 $1.057 Unearned Premium Reserves 0 104 229 395 627 764 Total Liabilities $0 $174 $455 $841 $1,381 $1,821 Equity Common Equity $1.000 $1.000 $1,000 $1,000 $1.000 $1.000 $1.000 Retained Earnings 0 77 215 420 713 1,110 Total Equity $1,000 $1,077 $1,215 $1,420 $1,713 $2,110 Total Liabilities & Equity $1,000 $1,251 $1,669 $2,261 $3,093 $3,931 Key Statistics Underwriting Leverage Premium Written /Average Equity 0.25x 0.50x 0.75x 1.00x 1.00x Loss & LAE Reserves / Equity 0.06x 0.19x 0.31x 0.44x 0.50x All Reserves / Equity 0.16x 0.37x 0.59x 0.81x 0.86x Assets / Equity 1.16x 1.37x 1.59x 1.81 x 1.86x Profitability Loss Ratio 59.9% 60.2% 61.3% 62.7% 63.7% Expense Ratio 35.1% 28.5% 27.5% 26.7% 25.3% Combined Ratio 95.0% 88.7% 88.9% 89.4% 89.0% Earned Premium / Total Revenue 67.4% 82.0% 86.2% 88.1% 88.3% Return on Average Equity 7.4% 12.0% 15.6% 18.7% 20.8% NIER 6.9% 6.9% 6.9% 6.9% 6.9% 17 EFTA01101211  APOLLO Operating Model Projections (Cont'd) $ in millions Income Statement Key Assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Premium Written $260 $573 $988 $1,566 $1,911 Less: Change in UPR (104) (125) (166) (231) (138) Premium Earned $156 $448 $822 $1,335 $1,773 Incurred Loss & LAE (93) (269) (504) (837) (1,130) Acquisition Expenses (23) (74) (143) (242) (308) General & Administrative Expenses (32) (54) (84) (115) (140) Federal Excise Tax (3) (6) (10) (16) (19) Sub-Total: Underwriting Income $5 $45 $82 $125 $176 Investment Income - Cash & Cash Equivalents $0 $0 $0 $0 $0 Investment Income - Non-Alternatives 22 28 38 51 67 Investment Income - Alternatives 54 70 94 128 168 Sub-Total: Investment Income $76 $98 $132 $180 $236 Total Operating Income $81 $143 $214 $305 $412 LOC & Liquidity Facility Charge (3) (6) (8) (13) (16) Tax 0 0 0 0 0 Total Net Income $77 $137 $205 $293 $397 18 EFTA01101212  APOLLO Operating Model Projections (Cont'd) $ in millions Cash Flow Statement Key Assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Memo: Target Underwriting Leverage (PW /Avg. Equity) 0.25x 0.50x 0.75x 1.OOx 1.OOx Premium Written $260 $573 $988 $1,566 $1,911 Loss & LAE Paid (23) (114) (284) (529) (827) Acquisition Costs Paid (23) (74) (143) (242) (308) General & Administrative Costs Paid (32) (54) (84) (115) (140) Start-Up Expenses 0 0 0 0 0 Federal Excise Tax Paid Liq. Fac. 1.00% (3) (6) (10) (16) (19) LOC & Liquidity Facility Charge 1.00% 0.50% (3) (6) (8) (13) (16) Investment Income - Cash & Cash Equivalents 0 0 0 0 0 Investment Income - Non-Alternatives 22 28 38 51 67 Investment Income - Alternatives 54 70 94 128 168 Tax 0.00% 0 0 0 0 0 Total Cash Flow $251 $418 $591 $833 $837 All-In Cash Flows Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 CASH FLOWS $1,000.0 $251 $418 $591 $833 $837 CASH ON CASH RETURNS 25.1% 41.8% 59.1% 83.3% 83.7% PAYBACK % 25.1% 66.9% 126.1% 209.3% 293.1% 19 EFTA01101213  APOLLO Overview of Key Risks Liabilities ➢ Disintermediation / Liquidity — accident events occur and Elysium Re does not have ample liquidity to pay for losses — Mitigated by the time lag between the incurrence of an event and the actual pay-out of an event > Pricing — Business mispriced and Elysium Re does not have sufficient premium and investment income to fund losses - Mitigated by ability to re-price out of soft markets in short order as premiums / pricing typically set annually - Catastrophe risk and other low frequency / highs severity business lines are particularly exposed to large iris-pricings and large subsequent losses Assets ➢ Credit — Investments perform significantly worse than expected and impair Elysium Re's balance sheet and earnings power Capital > Solvency — Elysium Re's capital ratios fall below sufficient levels > Regulatory — Regulators force Elysium Re to hold more capital against the risks in its business, resulting in reduced underwriting leverage and return on equity Ratings r Rating Agency — Rating agencies downgrade Elysium Re's ratings and / or refuse to give Elysium Re an A- rating and thereby substantially impair Elysium Re's ability to write incremental premium and i I1N est in higher yielding assets Taxes > Regulatory — New regulations force Elysium Re to lose the tax advantages of its off-shore structure Mitigants > Diversified book of business — less volatility > Non-correlated returns EFTA01101214  A () I. I. () Investment Portfolio & Rating Agency Overview EFTA01101215  APOLLO Overview of Elysium Re Investment Portfolio ➢ As with Athene, Elysium Re will look to utilize Apollo and AAM (or another third-party asset manager) to take advantage of arbitrages in market illiquidity and industry asset regulation (i.e. RMBS, CML), as well as by leveraging Apollo's alternative asset expertise and overall investment acumen Liquidity and Shorter Duration ➢ However, unlike Athene, Elysium Re will be dealing with a regulatory and rating system (AM Best being the most powerful agency) that puts much greater focus on liquidity and shorter duration While property and casualty liabilities offer Elysium Re the chance to source liabilities at a potentially much lower cost of funds than Athene can source with life and annuity liabilities, the greater uncertainty of the property and casualty liabilities' payout patterns cause regulators and rating agencies to focus more heavily on having ample liquidity and often shorter duration in assets ➢ As evidenced by vehicles like Greenlight Re and SAC Re, it is possible for P&C insurers to invest in riskier and more volatile assets — but this is much easier to do with highly liquid, short-duration, assets than with illiquid, long-duration, assets For example, Greenlight Re's investment guidelines require that at least 80% of the invested assets will be held in publicly traded debt or equity, governments, cash, cash equivalents and gold • — 75% of Greenlight Re's portfolio is currently invested in listed equity securities Asset Leverage ➢ Additionally, so as to please regulators and rating agencies, these same vehicles sometimes also appear to give up some underwriting leverage in exchange for putting more heavily risk-weighted assets on their balance sheets — and effectively rely more heavily on outsized investment returns and are less able to leverage the benefits of a spread-lending model For example, Greenlight Re is levered at less than lx equity • Allocates finite amount of volatility allowed by rating agencies to asset side of balance sheet so as to invest in high-return, hedge-fund type assets Hedging ➢ Lastly, the precedents for alternative asset managers in the P&C reinsurance space are mostly hedge funds — who get some credit from rating agencies for the risk benefits of a "hedged" portfolio — an attribute that Elysium Re's portfolio might not get credit for The challenge will be finding a way to generate yields in assets that are more liquid and of.shorter duration, but at the same time can produce enough yield to sustain returns that will not have the benefit of 10-14x embedded leverage (although these returns will have the advantage of a low /negative cost offunds) — as a result, model requires additional "return juice" on underwriting side and may also require that Elysium Re migrate to higher risk, and more liquid assets than what Athene holds zz EFTA01101216  APOLLO P&C Re Sponsor: Hedge Fund vs. Elysium Re Hedge Fund Sponsored P&C Vehicle Elysium P&C Vehicle — Illustrative Straw Man > Highly liquid portfolio > - $1 billion starting total balance sheet D Asset portfolios with 0-2 year in duration (heavy weighting to > — $500 million in equity capital — existing alternatives equity) - -$250 million in illiquid alternatives D Focus on shorter-duration securities - -$250 million in liquid / hedge fund alternatives D Focus on publicly traded securities - 15% investment yield D Limited longer duration investments — WAL of 3-7 years D Limited illiquid investments > — $500 million in cash to be invested in a diversified portfolio of > Modest leverage (for some like Greenlight Re) credit, real estate, and structured securities > Benefit of a "hedged" portfolio - Yield range of 3.0-5.5% • WAL range of 3-7 years > Total portfolio expected to yield 9-10% 23 EFTA01101217