Investment Management Team Retained With New Conning Mandate Assures

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Page 1 Investment Management Team Retained With New Conning Mandate Assures Smooth Transition And Expands Firms Capabilities By Alex McCallum, Editor Insurance Asset Manager April 24, 2006
Conning Asset Management, a top-tier manager of insurance company assets that has
been expanding its business globally for the past two years, achieved a major coup at the
start of 2006 by announcing a huge $8 billion mandate right on its own doorstep, in
Hartford, Connecticut.

The mandate? The assets of Citigroup affiliates consisting of Primerica Life Insurance
Co., American Health & Life Insurance and CitiFinancial International.

A mandate this size is not an every day event, for sure (it increased Connings non-
affiliated assets under management by 15%), but, at the same time, it is a good
illustration of the considerable opportunities that are occurring at a time of major
strategic and structural change in the field of insurance asset management, both
domestically and internationally.

In recent months, for example, the insurance asset management sector in the U.S. has
been an important part of blockbuster asset swap transactions between BlackRock Inc.
and Merrill Lynch & Co, and between Citigroup, Inc. and Legg Mason, Inc. BlackRock
and the Western Asset Management unit of Legg Mason are leading insurance asset
managers that compete head-to-head with Conning.

Abroad, there are tangible signs that European insurance companies are becoming
increasingly disposed to outsourcing their investment management requirements, a trend
that the large U.S.-based insurance asset managers are already moving to capture.

In the midst of these trends, Conning itself looks to be well-placed because it has become
an increasingly important part of Swiss Re since its acquisition by the Zurich-based
reinsurer in 2001. Emphasizing this point, Swiss Re handed over its European third-party
insurance mandates to Conning in 2004 and agreed that Conning could use its own name,
instead of the Swiss Re name, not only in Europe but around the world.

Hometown Relationship Helped Win Mandate
Leading the team winning the hometown Citigroup mandate was Salvatore (Sal) Correnti,
Connings president and CEO. In an April interview with Insurance Asset Manager, he
related how Conning had enjoyed a long-standing relationship with Travelers that pre-
dated its merger with Citicorp in 1998 that formed Citigroup, Inc. Travelers was founded
in 1864, Conning in 1912. We knew a lot of the investment professionals at Travelers,
and our proposal to bring 15 to 20 of them on board helped, we feel, to create the best
value proposition. Alex McCallum, Insurance Asset Manager, April 24, 2006 Page 2

David R. Miller, the leader of the portfolio management team that migrated to Conning,
added his own comment that a common philosophy about how best to manage insurance
company assets and customer relationships was an attractive proposition, made much
simpler by geographical proximity. It was very easy for us to become functional from
day one, and not have a learning curve to climb, he commented.

Landing the $8 billion mandate wasnt plain sailing by any means, however, turning out
to be a long, competitive process. Initial discussions began in May 2005, followed by
submission of the RFP (request for proposal) in July, and culminating with intensive
negotiations in the Fall. In the final analysis, we view it as a win for all parties, said
Correnti.

For Conning, in terms of raw numbers, the Citigroup mandate has given the firm an
impressive increase in non-affiliated insurance assets, but the professional staff acquired
from Travelers (20 was the final number) has also brought a lot of talent, says
Correnti, that fits with Connings strategy to strengthen and expand across-the-board,
from front-office to mid-office to back-office.

The numbers show that Connings total of non-affiliated insurance assets increased to
$63 billion as of March 31, 2006, from $53 billion as of Dec. 31, 2005, a 19% increase.
Along with the $8 billion mandate, a further $2.5 billion in more traditionally-sized
mandates was added in January.

The results have given Conning a strong hold on third position in the rankings of
insurance asset managers, behind Deutsche Asset Management and BlackRock, Inc., and
ahead of Wellington Management Co., General Re-New England Asset Management,
and Western Asset Management. These six managers are the heavyweights in this
specialized field, accounting for approximately 75% of non-affiliated insurance assets.

Capabilities Expand In Three Conning Sectors
The new staff members at Conning have expanded the firms capabilities in three primary
sectors: investment products, applied technology, and investment accounting. In the
front-office area, experts in high yield and private placements have expanded Connings
menu of asset classes. On the mid-office side, the focus was on acquiring people with
quantitative skills to develop investment technology applications. In the back-office area,
Conning had a vacancy for the top job -- head of the investment accounting and reporting
team -- and this has been filled by John Calcagni, who held the same position in the
insurance investment department at Citigroup and brought several colleagues with him.

On the one hand, said Correnti, we wanted people in these areas so that we could be
sure of meeting the clients expectations, and we have done this. But we have also added
people with the objective of expanding and enhancing our capabilities across all of our
functions.
Alex McCallum, Insurance Asset Manager, April 24, 2006 Page 3 The Conning CEO singled out the newly-acquired technology capabilities for special
mention, noting that risk management modeling for insurers has been enjoying a boom,
helped by the asset managers like Conning who specialize in the insurance industry. We
buy off the shelf if the tools we need are available, but in many cases we develop
customized versions, Correnti said.

Associated with all that we do nowadays, he emphasized, is how you monitor and
manage risk, so risk management is one of the keys to an asset management firms
success. And increasingly, he added, technology skills are a vital part of prospecting for
new business, so we have been very focused on technology that allows our managers to
do a better job of understanding the risks and running the portfolios.

Europe Migrating To The U.S. Outsourcing Model
Although the giant Hartford mandate brought Conning back to its roots in no uncertain
way, Correnti is quick to emphasize that the firm is very committed to its international
expansion program, not least because he senses that European insurers are starting to
migrate toward a U.S. outsourcing model. By this, he means the entire function where
we are doing the ALM (asset liability management) advisory, portfolio management and
investment accounting.

Already, he said, a few large European insurance companies have outsourced their entire
portfolio management programs. Outsourcing the entire function is not as widespread
as in the U.S., but we are seeing some positive indications that it is moving that way,
according to Correnti, who added: And when you consider mid- to small-sized insurance
companies, in any region of the world, its difficult for them with this size to have the
same level of portfolio management, advisory and investment accounting capabilities that
third-party managers like Conning can provide.

Correnti said Conning had a great year in 2005 in Europe, after an acclimatizing first
year there in 2004. Three new multicurrency mandates pushed non-affiliated insurance
assets in Europe up to $2.5 billion dollars as of Dec. 31, 2005, compared with $1.1 billion
a year earlier.

Connings multicurrency capabilities, which are executed out of Dublin, Ireland, under
the direction of Richard L. Sega, Connings Hartford-based chief investment officer, also
paid off last year with mandate increases for two of its Bermuda-based clients, Correnti
reported.

Asia-Pacific Next Stop
After only two years in Europe, Conning is starting to take its first steps in Asia-Pacific,
following in the wake of parent Swiss Re which is undertaking a major strategic thrust in
the region, and recently named Martyn Parker a 30-year veteran of the reinsurance
industry -- to become the new CEO for its Asia Division, effective June 1, 2006, based in
Hong Kong.
Alex McCallum, Insurance Asset Manager, April 24, 2006 Page 4 Conning is currently in the process of opening an office in Hong Kong staffed by two
professionals who have been initially assigned to help Swiss Re with the launch of an
asset management company in which it has a 10% ownership. We are at the infancy
stage, Correnti said, but we are optimistic that we can leverage this initial step, assisted
by Swiss Re, into a growing local currency capability in the region.

Looking To The Future
Reflecting on the outlook for Conning, Correnti said the firm is going to keep a focus on
what we can improve, enhance and offer to the insurance marketplace, and keep an
open mind. Five years ago, he related, you could have polled our entire company and
nobody would have predicted that in 2006 wed have offices in Dublin and London, and
be in the process of opening one in Hong Kong.

In the same vein, he noted ever-increasing interest in new products, including
alternatives, on the part of Connings insurance clients and prospects, especially the
larger companies that have in-house staffs to make evaluations. While insurer
commitment to these product areas is still relatively low, Conning has been actively
developing product lines in anticipation of greater growth going forward, including a cat
bond fund, a hedge fund, and insurance securitizations, to name a few, some of them
connected to product development by Swiss Re.

As Conning increasingly manages insurance assets globally, Correnti concluded, winning
the big $8 billion Citicorp insurer mandate locally in hometown Hartford will serve as a
strong reminder that success comes by fostering close relationships and providing our
services on a highly-customized basis, no matter how large the mandate or the client. Its
a model that we have long cultivated and plan to continue.

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