10th November 2008

The Art of Risk Management

Regular Solvency Monitoring

Defined Benefit Pension Funds

Today’s Changing and Volatile Landscape

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“Dark and difficult times lie ahead. Soon we must all face the choice between what is right and what is easy.”

- Albus Dumbledore, Headmaster, Hogwarts – Harry Potter and the Sorcerer’s Stone

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Multidimensional Analysis

• Focus on risk reinforces the need to understand and quantify the components and sources of the risks in detail, leading to the development of a risk management policy that:

• Transfers un(der)rewarded risks; • Diversifies rewarded risks, and; • Accesses returns as efficiently as possible.

Risk & Regulation

Regular Solvency Monitoring

Summary

Volatile Markets

-80

-60

-40

-20

0

20

40

60

Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08

Bas

is P

oint

s

Real Yields

UK FTSE100 Index

Flight Deck –

• Risk Dashboard

• Performance Analysis

• Risk Analysis

• Asset Manager Performance

Monitoring the Flight Plan

0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6

0.6 0.6 0.6

0.8 0.8 0.80.8

0.9

0.4 0.4 0.3

0.4 0.4 0.40.4

0.5

1.0 1.0 1.0

1.2 1.2 1.2 1.21.3

0.0

0.5

1.0

1.5

2.0

2.5

Jan Feb Mar April May June July August

Ris

k

VaR Tracker

Equity Interest Inflation Total

* The intention of this material is simply to illustrate the type of analysis that can and should, in our view, be carried out in order to help formulate a

clear strategy for funding, risk management and asset allocation. You should not rely upon any calculations or numbers as correct. They are obtained

from limited publicly available information and are for illustration purposes only.

Regular Solvency Monitoring

iRIS – Dashboard

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Dashboard Trend Status

Funding Level 1 0

Assets 1 0

Liabilities -1 -1

VaR -1 1

Return Asset Performance 1 0

Hedge Performance 0 1

Asset Managers -1 0

PFE -1 -1

-30 -20 -10 0 10 20 30

0 - 11Y

11Y - 21Y

21Y - 31Y

31Y - 41Y

41Y +

Performance - Liabilites plus Hedge

Nominal Inflation

* The intention of this material is simply to illustrate the type of analysis that can and should, in our view, be carried out in order to help formulate

a clear strategy for funding, risk management and asset allocation. You should not rely upon any calculations or numbers as correct. They are

obtained from limited publicly available information and are for illustration purposes only.

Regular Solvency Monitoring

iRIS – Performance Analysis

Returns against benchmarks

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Target Benchmark Cash Liabilities

Equities [x%] [x%] [x%] [x%]

Property [x%] [x%] [x%] [x%]

Credit [x%] [x%] [x%] [x%]

Alternatives [x%] [x%] [x%] [x%]

96%

97%

98%

99%

100%

101%

102%

103%

104%

105%

106%

-3000

-2000

-1000

0

1000

2000

3000

4000

31/12/2007 28/02/2008 30/04/2008 31/06/2008 31/08/2008

Performance Attribution

Bond Equity Property Liabilities Total Surplus/Deficit

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Nominal Inflation Credit Equity Property Alternatives Total

Monthly Performance

-8

-6

-4

-2

0

2

4

6

8

10

12

0 10 20 30 40 50

Curve moves

Nominal shift Inflation shift

Regular Solvency Monitoring

iRIS – Risk Analysis

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-8 -6 -4 -2 0 2 4 6 8

0 - 11Y

11Y - 21Y

21Y - 31Y

31Y - 41Y

41Y +

Interest Rate PV01

Assets Liabilities

-8 -6 -4 -2 0 2 4 6 8

0 - 11Y

11Y - 21Y

21Y - 31Y

31Y - 41Y

41Y +

Inflation PV01 (Current)

Assets Liabilities

4%

0%

5%

2%

5%

8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Risk Attribution

-25%

-20%

-15%

-10%

-5%

0%

5%

25% fall in equity values

1% decrease in interest rates

1% increase in inflation rates

1% increase in credit spread

Mo

ve in

Fun

din

g level

Single Factor Stress Tests

Current Hedged

-25%

-20%

-15%

-10%

-5%

0%

9/11 Black Monday Russian Crisis Credit Crunch

Scenarios

Original Fully Hedged - IR and RPI

-300

-200

-100

0

100

200

300

Jan Feb Mar April May June July August

VaR Backtesting

Monthly MoVe VaR Level

0.3%

-4.3%

0.4%1.3%

0.3%

-1.1% -1.8% -1.9%-0.3% -1.1%

-6.8%

-13.5%

-6.2%

-8.6%-6.7%

-8.9%

-6.2%

-8.5%

-11.1%

-7.7%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Aug-97 Aug-98 Nov-00 Feb-01 Mar-01 Sep-01 Jun-02 Jul-02 Sep-02 Jan-08

Blackstone EF MSCI World Index (USD)

Regular Solvency Monitoring

iRIS – Asset Manager Performance

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-

50

100

150

200

250

Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Blackrock UK Equity Fund

FTSE ALL Share Price Index

3M LIBOR

Blackstone Partners Offshore Sterling

FTSE ALL Share Total Return Index

FTSE Gilts all Total Return Index

Contacts

Dawid Konotey-Ahulu | Partner Direct: +44 (0) 207 250 3415 dawid@redingtonpartners.com Robert Gardner | Partner Direct: +44 (0) 207 250 3416 robert.gardner@redingtonpartners.com Redington Partners LLP 13 -15 Mallow Street London EC1Y 8RD Telephone: +44 (0) 207 250 3331

www.redingtonpartners.com THE DESTINATION FOR ASSET & LIABILITY MANAGEMENT

Contacts

Disclaimer

Disclaimer For professional investors only. Not suitable for private customers.

The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your private information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this analysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment products on your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer to transact. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactions should be treated as preliminary and subject to further due diligence .

Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the sole responsibility of the Trustees' actuarial advisors. Redington Partners will estimate the liabilities if required but will not be held responsible for any loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes that Redington Partners does not owe any party a duty of care in this respect.

Redington Partners are investment consultants regulated by the Financial Services Authority. We do not advise on all implications of the transactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discuss with your professional tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether in respect of tax, accounting, law or of any other nature), should be treated as illustrative only and not relied upon as accurate.

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