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1 Aon Benfield Analytics Market Analysis MarketReView Newsletter Issue #18 December 2016 Welcome to the latest edition of Aon Benfield s MarketReView Newsletter, covering events in the final quarter of With less than a month to go until January 2017 reinsurance placements are finalized, the news-flow shows little sign of slowing. The Q3 reporting season, a variety of natural catastrophe events, a pick-up in M&A activity and a series of new corporate formations have made it a busy few months. Earnings The 9M 2016 reporting season is now complete and reinsurer results are summarized in the table below. Premium income is flat to slightly up on an underlying basis. Combined ratios have generally deteriorated relative to the prior year, reflecting a heavier catastrophe load (see page 2) and a rising trend in attritional losses and expenses. However, investment returns have been boosted by capital gains resulting from falling bond yields, supporting overall profitability. Capital growth has continued, driven by retained earnings and unrealized gains. As a result, return on equity across the sector was broadly unchanged. Company Currency Total GPW P&C GPW Combined Ratio (%) Pre-tax Profit Annualized ROE (%) 9M YoY 9M YoY 9M YoY 9M YoY 9M YoY 9M 2016 Var 2016 Var 2016 Var 2016 Var 2016 Var 2016 Total Equity Alleghany USD 4,407 4, ,105 Allied World USD 2,394 2, ,616 Arch USD 4,047 4, ,187 Argo USD 1,666 1, ,788 Aspen USD 2,541 2, ,904 AXIS USD 4,240 4, ,026 Berkshire USD n.d. -- n.d , ,615 Chubb USD 26,146 24, , ,372 Endurance USD 3,509 3, ,223 Everest Re USD 4,499 4, ,041 Fairfax USD 7,290 7, ,754 Hannover Re EUR 12,454 7, , ,513 Lancashire USD ,321 MAPFRE EUR 17,109 13, , ,286 Markel USD 3,800 3, ,534 Munich Re* EUR 36,782 13, , ,355 PartnerRe USD 4,254 3, ,154 RenaissanceRe USD 2,051 2, ,808 SCOR EUR 10,216 4, ,436 Swiss Re USD 28,097 17, , ,621 Validus USD 2,309 2, ,091 WR Berkley USD 5,764 5, ,962 XL USD 10,811 10, ,593 Average Median Source: SNL, Company press releases YTD Var *P&C Re segment for P&C GPW and combined ratio Market Analysis expects catastrophe losses and rising bond yields in the wake of the US election to have a dilutive impact on reinsurer earnings in 4Q

2 Market News Catastrophe Losses 9M 2016 Impact Numerous high profile natural catastrophe events occurred during 9M 2016, with 2Q being particularly active. However, most reinsurers remained well within their allocated budgets. The table below captures catastrophe losses disclosed by reinsurers as a percentage of P&C net premiums earned (i.e. in combined ratio points). 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 9M 2016 Catastrophe Losses as % of P&C NPE Source: Company reports * 1H 2016 catastrophe losses, **P&C Reinsurance segment Hurricane Matthew Aon Benfield s Impact Forecasting unit puts the economic losses from Hurricane Matthew at north of USD15bn, while private insured losses are estimated at up to USD5bn. Most of the latter will fall to 4Q, given that Florida wasn t impacted until early October. Many reinsurers disclosed their initial loss estimates during 3Q earnings calls. Relative to book value, these are generally modest, as shown below. 3.0% Hurricane Matthew Mid-Point Loss Estimate as % of FY 2015 Total Equity 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Novae Everest Re Hiscox RenRe Validus Hannover Re XL Alleghany Markel AXIS Chubb Arch Third Point New Zealand Kaikoura Earthquake A powerful magnitude 7.8 earthquake and several large aftershocks struck New Zealand s South Island on 14 November. There has been widespread damage to infrastructure in the North Canterbury region, but the areas affected were not densely populated and insured losses are therefore expected to be modest. 2

3 Mergers & Acquisitions Sompo/Endurance On September 5, Sompo announced that it was acquiring Endurance through its subsidiary, Sompo Japan Nipponkoa Insurance, Inc, for approximately USD6.3bn. The transaction is subject to the approval of Endurance s shareholders and regulators and is expected to complete in 1Q A one-pager summarizing the key points of the transaction is available on MarketReView CPPIB/Ascot On September 16, AIG announced that it had agreed to sell its 20% interest in the Ascot managing agency (manager of Syndicate 1414) and 100% interest Ascot Corporate Name Ltd to the Canada Pension Plan Investment Board for net cash proceeds of USD240mn. The deal remains subject to regulatory approvals. Asia Capital Re (ACR) On October 5, ACR announced that its major private equity shareholders had agreed to terms for the 100% acquisition of ACR by Shenzhen Qianhai Financial Holdings Co. Ltd. and Shenzhen Investment Holdings Co. Ltd. The deal remains subject to regulatory approvals and is expected to close around the turn of the year. For more information, please read our market profile on ACR, which is available on MarketReView AmTrust/ANV On November 7, AmTrust Financial (backer of Syndicates 0044, 1206 and 2526) completed the acquisition of ANV Holdings (backer of Syndicates 0779, 1861 and 5820) for ~USD203m in cash. Ariel Re On November 14, Argo Group announced its intention to acquire Ariel Re (backer of Syndicate 1910) for ~USD235mn in cash. Ariel Re is currently owned 50:50 by BTG Pactual and Abu Dhabi Investment Council. The acquisition is subject to regulatory approvals and is expected to complete in 1Q A one-pager summarizing the key points of the transaction is available on MarketReView Ironshore On December 5, Liberty Mutual announced it had signed a definitive agreement to acquire Ironshore from Fosun for ~USD3bn. The transaction is expected to close in 1H 2017, pending regulatory approvals and customary closing conditions. New Reinsurance Security Covéa Coopérations Central body Covéa Coopérations will act as the Covéa Group s sole risk carrier for inwards reinsurance business with effect from January 1, 2017, replacing Assurances Mutuelles de France (GPW: ~EUR150mn). The company has been rated A+ /Stable by S&P since March China Property & Casualty Reinsurance Company Ltd This entity will replace China Reinsurance (Group) Corporation as the risk bearer for China Re s international business effective January 1, 2017, with the exception of business written from the Singapore Branch. CCR Re Caisse Centrale de Réassurance (CCR) is transferring all of its open market reinsurance (OMR) business to a newly-formed subsidiary, CCR Re. From January 1, 2017, all new and renewal OMR business will be underwritten by CCR Re, while CCR will concentrate solely on French public sector reinsurance business. At launch, CCR Re will be operating with economic capital of EUR766mn and an A- rating from S&P. OMR policyholders are being asked to consent to the novation of all existing liabilities from CCR to CCR Re. A Market Analysis Update on CCR Re is available on MarketReView. 3

4 New Lloyd s Syndicates for 2017 Syndicate Number Managing Agent Details 1438 Capita 2689 Asta 2988 Brit 5886 Asta Shariah-compliant Cobalt Syndicate led by Chairman Max Taylor, CEO Richard Bishop and Active Underwriter Anne Plumb (ex-novae). Investors include Capita, Armour Group, Bank of London and the Middle East and staff. Stamp capacity 75m, part supported by reinsurance capital and Names. Verto Syndicate led by Active Underwriter Peter Mills (ex-endurance Re) and backed by Names advised by Hampden. Will provide capital-backed quota share capacity to other syndicates. Third party capital backed Syndicate 2988 will write companion or top-up lines alongside Brit Syndicate 2987 across a broad range of specialty insurance and reinsurance classes. The business will be underwritten by Brit's existing teams stamp capacity 52m. Blenheim Syndicate operated by senior managers formally at Cathedral (CEO Peter Scales, CFO John Lynch, Active Underwriter Nick Destro). Will underwrite US and international treaty, D&F business and some speciality lines. Capacity 150m, supplied by Nephila (~33%), trade capital and Names. Rating Actions Notable rating actions from A.M. Best and/or S&P since October 1 are summarized below. Accompanying statements from the rating agencies can be found on MarketReView. 5 October: S&P placed their A- financial strength rating on Asia Capital Reinsurance Pte Ltd on CreditWatch negative, following the announcement of a potential change of ownership. 5 October: A.M. Best placed their A- financial strength rating on Asia Capital Reinsurance Pte Ltd under review with developing implications. 5 October: A.M. Best placed their A financial strength ratings on Endurance s operating subsidiaries under review with positive implications following the announcement of the agreed acquisition by Sompo. 6 October: S&P affirmed their A /Stable ratings on Endurance, saying the ratings were unaffected by the acquisition by Sompo. 6 October: S&P affirmed their A+ financial strength rating on Sompo Japan Nipponkoa Insurance, Inc. 21 October: S&P affirmed CCR s ratings at AA and revised the outlook to stable from negative, following similar action on their French sovereign rating. 28 October: A.M. Best upgraded their financial strength rating on Triglav Re by one notch to A, reflecting strong recent underwriting performance. 2 November: A.M. Best upgraded their financial strength rating on Houston Casualty by one notch to A++, reflecting strong risk-adjusted capitalization and favourable underwriting and investment results. 3 November: A.M. Best downgraded their financial strength rating on Greenlight Re by one notch to A- and revised the outlook to stable from negative, reflecting less favourable recent underwriting results. 25 November: S&P affirmed Deutsche Rueck s financial strength ratings at A+ and revised the outlook to stable from negative, on improved earnings. 2 December: S&P affirmed RenRe s financial strength ratings at AA-, but revised the outlook to negative from stable, due to sector pressures. 5 December: A.M. Best placed Ironshore s A financial strength ratings under review with developing implications, following the announcement that Liberty Mutual had signed a definitive agreement to acquire the company. 4

5 Stock Movements Year to Date Share Price Movements 55% 45% 35% 25% 15% 5% -5% -15% -25% Share Price Movement (since January 1, 2016) Source: Bloomberg (data as of November 30, 2016) Additional Information The alternative market profiles on MarketReView were updated in October Preliminary indications of 2017 Lloyd s syndicate capacity can be found on MarketReView in the Latest Research section. Don t forget you can activate automated notification of rating changes in MarketReView. Click on Rating Notification Services, select the entities you want covered and click Save. An upcoming MarketReView enhancement in 2017 will see unique Legal Entity Identifier (LEI) codes added to the individual company records. Contact Information Aon Benfield clients can access MarketReView from any web-enabled device 24/7 via For queries and subscription enquiries, please contact marketanalysis@aonbenfield.com, or: Mike Van Slooten Head of Market Analysis (International) mike.vanslooten@aonbenfield.com Mike McClane Head of Market Analysis (Americas) michael.mcclane@aonbenfield.com About Aon Benfield Aon Benfield, a division of Aon plc, is the world s leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com. Aon UK Ltd trading as Aon Benfield (for itself and on behalf of each subsidiary company of Aon Plc) ( Aon Benfield ) reserves all rights to the content of this report. This document is intended as a courtesy to the recipient for general information and marketing purposes only and should not be construed as giving advice or opinions of any kind (including but not Ltd to insurance, tax, regulatory or legal advice). The contents of this document are based on publicly available information and/or third party sources in respect of which Aon Benfield has no control and which have not necessarily been verified. The content of this document is made available without warranty of any kind and without any other assurance whatsoever as to its completeness or accuracy. Aon Benfield disclaims any legal or other liability to any person or organization or any other recipient of this document (together a "Recipient") for loss or damage caused by or resulting from any reliance placed on this document or its contents by such Recipient. 5