Benfield Bermuda Quarterly FY 2007 Balancing Act March 2008

Transcription

1 Benfield Bermuda Quarterly FY 2007 Balancing Act March 2008

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3 BENFIELD GROUP LIMITED March 2008 Benfield Bermuda Quarterly FY 2007 Balancing Act Benfield Research Leon Janeke T: +44 (0) F: +44 (0) E: Angela Coad T: +44 (0) F: +44 (0) E: Benfield Research T: +44 (0) F: +44 (0) E: BENFIELD GROUP LIMITED Benfield Group Limited (Benfield) has used due care in the preparation of this document. Our information has been obtained from sources we consider reliable, but its accuracy and/or completeness is not guaranteed. The content of this document is made available on an "as-is" basis and neither Benfield (nor any member of its group of companies) will accept any liability whatsoever to any person for loss or damage caused by or resulting from any reliance placed on that content. Benfield (for itself and on behalf of each member of its group of companies) reserves all rights to the content of this document. Benfield Limited is authorised by the Financial Services Authority under the reference number

4 CONTENTS Chapter page Balancing act 3 Premium income 4 Market share and business mix 4 Earnings 7 Underwriting performance 7 Investment income 8 Sub-prime SCA(rs) 9 Net income 13 Return on equity 14 Market outlook 15 Balance sheet 17 Reserve development 17 Capital 18 Capital management 20 Pastures new 21 Credit ratings 24 Appendix 1 Aggregate balance sheet 28 Appendix 2 Reinsurance summary 29

5 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 3 Balancing act A fine line The bottom-line impressed again in 2007 as the Benfield Bermuda Quarterly (BBQ) group posted USD11.2bn of net income. Although most companies reported higher profits there is an increasingly fine line to be drawn between the favourable and adverse influences at play. Reserve releases, share buybacks and potential of diversification benefits have been counter-balanced by softening markets, declining top-lines and sub-prime concerns. Reserve releases The trend of reserve releases continued and culminated in a six percentage point (p.p.) benefit to the aggregate combined ratio for the 2007 year. Every company in the BBQ group benefited to a greater or lesser extent and USD2.7bn flowed through the collective income statement. It is unlikely that favourable prior year reserve adjustments will feature to the same extent in Sub-prime sca(rs) Very few companies within the BBQ group escaped unscathed from sub-prime related losses. Initial concerns focussed on the asset side of the balance sheet through investment in affected businesses. Now many also expect losses to arise, albeit within most current loss picks, through the underwriting of D&O and E&O business. The losses may have left some with scars from the experience, but overall the BBQ group is strong and as well capitalised as ever. Soft market Management of most companies would argue that pricing remains broadly technically adequate for the time being. They would also agree that pricing trends are on a downward trajectory. With ever-increasing primary retentions, the shift from proportional to excess of loss and increased competition, the outlook for the top line remains challenging. Growth and giving back BBQ group shareholders funds increased to USD73.3bn (+11%) despite USD4.6bn of share buybacks in Capital management was very much a two pronged affair with many also establishing new platforms as they foraged for new markets and lines of business. Return on equity still fell four p.p. to 16% and would have been three p.p. lower still but for the boost from reserve releases. Balancing act The 2008 outlook suggests that the BBQ group will need to balance a challenging pricing environment, the opportunities for diversification, and shareholder expectations during a time when large catastrophe losses could arise and further possible sub-prime related developments are difficult to predict.

6 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 4 Premium income Total gross premiums written were broadly static in 2007 at USD59.1bn (USD59.2bn). Strong growth from several of the newcomers was not quite enough to offset stalling premium levels from many of the more established markets. Increased competition plus higher retentions by the primary sector and reinsurer underwriting discipline all contributed to the restrained revenue levels. Market share and business mix Total gross premiums written decreased by 0.3% to USD59.1bn in Validus entered the BBQ ranking for the first time, bringing total coverage to eighteen companies. Only seven BBQ companies advanced premium income in 2007, while two, Platinum and Montpelier posted double p.p. reductions. ACE remains the largest company with a 30% share of the BBQ group s aggregate GPW, doubling the share of the nearest competitor, XL. Only five of the BBQ group reported GPW of less than USD1bn in Chart 1 Business Mix of 2007 GPW, Benfield Research Total GPW USD59.1bn ACE 30% XL 15% White Mountains 7% Arch 7% Everest 7% PartnerRe 7% Axis 6% Aspen 3% RenaissanceRe 3% Endurance 3% AWAC 3% Platinum 2% Max Capital 2% Validus 2% Lancashire 1% Montpelier 1% Flagstone 1% The distribution of business is shown in Chart 2. For Ace, the largest in the group, reinsurance represented only 7% of total GPW and Appendix 2 details a company by company analysis of reinsurance activities. Chart 2 also illustrates the increasing appetite for primary insurance business which has characterised much of the strategic activity in the past 12 months. Property and casualty insurance business increased to represent 57% (55%) of the total with the reinsurance segment giving up the difference. Pressures to diversify by segment and geography, stemming principally from the rating agencies, has led many players to seek alternative platforms.

7 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 5 Chart 2 Distribution of 2007 and 2006 GPW 2007 GPW: USD59.1bn 2006 GPW: USD59.2bn, Benfield Research P&C Insurance 57% Life & Fin Products 4% P&C Insurance 55% Life & Fin Products 4% P&C Reins. 39% P&C Reins. 41% 2007 represented a tale of two distinct groups in terms of premium income: the established companies generally reported a declining top-line while the relative newcomers forged ahead, albeit from a lower base. Table 1 shows the percentage change in GPW. Within the first group Max Capital was an exception with a 25% growth in premiums, but this reflected the lumpy life reinsurance, which increased from USD45mn to USD302mn in Montpelier reported a double digit decline of 10% with decreases in property specialty (-31%) and collateralised property cat retro business (-55%) as Blue Ocean ceased underwriting in the second half of The 16% increase in property cat business was not enough to offset this declining trend. Several companies described higher client retentions, which coupled with underwriting discipline, combined to limit growth in revenues. Within the less established group of BBQ players, several posted considerable growth in line with the continuing expansion of operations. Flagstone and Validus reported gains of 91% and 83% respectively. Flagstone cited the larger capital base and growth in its franchise as the reason for increased participations on programmes from existing clients and the addition of new clients. The acquisition of a controlling interest in Island Heritage was another positive factor. The acquisition of Talbot was the principle driver of growth at Validus in 2007, adding USD287mn to GPW. Underlying trends were also strong at Validus Re (+30%) as property (+34%) and marine (+31%) moved ahead.

8 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 6 Table GPW, Benfield Research USDmn Change 2006/7 ACE 14,637 16,094 16,811 17,401 17,740 2% XL 9,706 11,124 11,849 9,786 8,998-8% White Mountains 3,823 4,792 4,602 4,312 4,190-3% Arch 3,226 3,668 4,015 4,282 4,140-3% Everest 4,574 4,704 4,109 4,001 4,078 2% PartnerRe 3,625 3,888 3,665 3,734 3,810 2% Axis 2,274 3,012 3,394 3,609 3,590-1% Aspen 1,307 1,586 2,093 1,946 1,819-7% RenaissanceRe 1,382 1,544 1,809 1,944 1,810-7% Endurance 1,602 1,711 1,669 1,790 1,781 0% AWAC 1,573 1,708 1,560 1,659 1,506-9% Platinum 1,198 1,660 1,765 1,275 1,140-11% Max Capital 1,010 1,044 1, ,078 25% Validus N/A N/A N/A % Lancashire N/A N/A N/A % Montpelier % Flagstone N/A N/A N/A % IPC % Total 51,069 57,750 60,037 59,230 59,056 0%

9 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 7 Earnings Forecasts for record earnings in 2007 were clouded towards the year end as sub-prime concerns emerged. Indeed, what was a record year for many proved not to be the case in aggregate as several players suffered sub-prime related charges. Aggregate net income for the BBQ group receded from USD11.9bn to USD11.2bn. Results included an additional USD1.5bn of investment income and USD2.7bn of reserve releases which were nearly four times greater than The fall in ROE from 20.0% to 16.1% reflected not only the slippage in net income but an increase in net assets. Underwriting performance Chart 3 illustrates the aggregate combined ratio for the BBQ group which fell from 86.1% to 85.2% in This decrease masked an expense ratio that edged upwards as aggregate expenses rose USD400mn on a flat premium base. Conversely, the loss ratio reached a five year low despite an increase in both frequency and severity of catastrophic events. Higher attachment points on many programmes and larger primary insurer retentions moderated 2007 reinsurer losses. Reserve releases, however, were the key feature as the aggregate combined ratio benefited by six p.p. Chart 3 Aggregate combined ratio 140% 120% 100% 91.2% 96.5% 116.6% 86.1% 85.2% 80% 60% 63.8% 68.3% 89.8% 57.3% 56.0% 40% 20% 0% Loss Ratio Table 2 lists results ranked in ascending order by the 2007 combined ratio. Following the improvement post KRW there was relatively little variation in results between 2006 and 2007, with 15 out of 18 companies moving in a 5% range around the 2006 results. A spate of attritional losses were to blame for the 25.3p.p. increase in Flagstone s combined ratio while UK floods were the prime reason for the 17.1p.p. increase at IPC. Nevertheless, both companies still ranked in the top third of BBQ companies by combined ratio. White Mountains was the only company to report a combined ratio above 100% during 2007 as Esurance, which sells personal auto insurance

10 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 8 online, reported a deterioration in combined ratio to 116%. 1 PartnerRe reported the biggest improvement in combined ratio, of 4.2p.p., to 80.4% in 2007, with a 10p.p. fall in the US loss ratio driving the overall result. Table 2 Combined Ratios, Benfield Research 2005 Combined ratio 2006 Combined ratio 2007 Combined ratio 2007 Loss ratio 2007 Expense ratio Lancashire N/A 44.3% 46.4% 23.9% 22.4% IPC 251.8% 32.8% 49.9% 31.9% 18.0% RenaissanceRe 139.7% 54.7% 59.3% 33.6% 25.7% Validus N/A 54.1% 60.5% 33.1% 27.4% Montpelier 200.7% 60.3% 61.3% 31.9% 29.5% Flagstone N/A 47.6% 72.9% 40.4% 32.4% Axis 101.8% 77.2% 75.3% 50.1% 25.2% Endurance 123.5% 81.5% 79.9% 47.0% 32.9% PartnerRe 115.9% 84.6% 80.4% 50.8% 29.6% Platinum 114.6% 83.6% 81.0% 55.9% 25.1% AWAC 124.4% 78.8% 81.3% 58.8% 22.5% Aspen 117.2% 82.4% 83.0% 53.1% 29.9% Arch 95.9% 85.6% 85.3% 55.8% 29.5% ACE 99.6% 88.1% 87.9% 74.4% 13.5% Max Capital 105.3% 86.4% 88.2% 64.0% 24.3% XL 132.9% 88.5% 88.8% 59.8% 29.0% Everest 119.4% 89.7% 91.6% 63.7% 27.9% White Mountains 110.7% 105.9% 102.9% 63.6% 39.3% Weighted average 116.6% 86.1% 85.2% 56.0% 29.2% Investment income Investment income was robust during Net investment income rose from USD7.6bn to USD9.1bn and represented 81% of aggregate net income. Total investment yield climbed marginally from 4.81% to 4.85% for the group. Max Capital continued to exhibit a high proportion of total investment income in the form of realised capital gains derived from its alternative investment portfolio which returned 16.8% over the course of XL announced 2007 total realised losses of USD603.3mn. Within this amount, USD385.1mn of realised losses and impairments were directly associated with the sub-prime market and centred on first lien and second lien sub-prime mortgages. 3 1 White Mountains 10-K filing 2 Max Capital Group Ltd. Earnings conference call, 13 February XL Capital SEC filing 10-K

11 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 9 Sub-prime SCA(rs) As the sub-prime fallout continues, reinsurers have been forced to assess exposures from both an asset and liability perspective. In third quarter reporting, most Bermudian players felt comfortable enough to merely disclose details of exposures on the asset side of the balance sheet. By the end of the fourth quarter of 2007, concern had escalated to such an extent that disclosure extended to the liability side. The damage from sub-prime has now reached beyond write-downs on investments in financial guaranty businesses. Assessment of reserves for potential losses yet to stem from the underwriting or guaranteeing of exposures to such business has now been considered. Chart 4 shows the sub-prime exposed investments as a percentage of shareholder funds (SHF) for the BBQ companies. Exposed assets are generally fixed income in nature and are broadly mortgage-backed securities (MBS) or asset-backed securities (ABS) structures, with some, although modest, exposure to collateralised debt obligations (CDOs). Chart 4 does not include the writedowns on investments in financial guaranty businesses held by some of the BBQ group. These are separately disclosed in Table 3. Chart 4 Sub-prime losses as % of 2006 SHF 25% 20% 15% 10% 5% 0% XL Max Capital Axis Montpelier Arch Validus Platinum Everest ACE Endurance AWAC Aspen Flagstone IPC Lancashire PartnerRe RenaissanceRe White Mountains Weighted average Sub-prime exposed investments were absent from only seven BBQ group balance sheets as at 31 December XL Capital, which had exposure of nearly USD2.1bn or 20.7% of its SHF and approximately 5% of its total invested assets, has been the most exposed. Most of this exposure (93%) was fairly equally split between first lien mortgages and Alt-A mortgages, with the balance in second lien mortgages and ABS CDOs. Regarding the latter two classes, CIO Sarah Street commented These holdings have been particularly impacted by deterioration in the underlying collateral and as such we have recognised the unrealised losses in their entirety. 4 As of 31 4 XL Capital Earnings conference call, 6 February 2008.

12 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 10 December 2007, USD233mn or 60% of recognised losses were associated with these two asset classes. 5 Max Capital s exposure of USD54mn to sub-prime bonds and USD49mn of Alt-A exposed securities represented approximately 6.5% of SHF. The company did not expect any losses from these investments. Axis disclosed exposure of USD211mn, or 4.1% of SHF to sub-prime and Alt- A mortgages through investments but indicated that the majority were rated AAA or had government agency backing. All other companies, besides ACE which had USD135mn of exposed assets or about 1% of SHF, had less than USD100mn of exposure to sub-prime related fixed income assets. Table 3 Investments in Financial guarantors company announcements Company Investment Writedown / Realised loss (USDmn) Carrying value as at 31 December 2007 (USDmn) ACE Assured Guaranty PartnerRe Channel Re 98 0 RenaissanceRe Channel Re XL Security Capital Assurance and Primus 770* 0 * Includes an estimate of USD100mn writedown on investment in Primus Guaranty, given disclosure regarding fair value of Primus stock at approximately USD105mn as at 31 December 2007 XL suffered the largest write-downs for investments in affiliated entities which participated in business severely impacted by the sub-prime fallout. Security Capital Assurance (SCA) was written down to a zero value (as at 31 December 2007) from a value of USD669.8mn as at 30 September 2007 and Primus Guaranty was also written down to a value of zero. Scenarios of zero had seemed until recently very far-fetched. 6 The extent of distress in the credit markets together with the pace of change has taken many by surprise. XL is potentially exposed to further losses from SCA as it guarantees certain subsidiaries of SCA in particular circumstances. These would occur if first, the underlying guaranteed obligation defaults on payments of interest or principal and secondly, the relevant SCA subsidiary (either XL Capital Assurance or XL Financial Assurance) fails to meet its obligations under the applicable reinsurance or guarantee. The guarantee applies only to business which was written prior to the IPO of SCA (August 2006) and concerns approximately USD75.2bn of net par value outstanding. CEO Brian O Hara commented Given that the large majority of topical exposures are post IPO, and that SCA s claimed resources were nearly USD3.5bn as of September 30 th, 2007, we continue to consider the probability of having to make any payments under the guarantee remote. 7 Three class action suits have been filed in the US District Court against XL Insurance Ltd by shareholders who bought SCA shares in a secondary offering of stock (June 2007) and shortly 5 XL Capital SEC filing 10-K 6 XL Capital Earnings conference call, 24 October XL Capital Earnings conference call, 6 February 2008

13 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 11 before. The shareholders allege that the plaintiffs failed to reveal that SCA was materially exposed to extreme risky securities relating to sub-prime real estate mortgages. XL intends to vigorously defend the claims. 8 Partner Re and RenaissanceRe, which owned 20% and 32.7% of Channel Re respectively, both wrote down the value of their investments in the company to zero. They do not provide any guarantees to Channel Re and are therefore limited in exposure to the extent of their written down investments. ACE, which owns approximately 24% of Assured Guaranty, wrote down the value of its investment by USD73mn to USD392mn as at 31 December The write-down represented ACE s share of the USD300mn derivatives mark-to-market losses announced by Assured Guaranty. Similarly to PartnerRe and RenaissanceRe, ACE does not guarantee any of Assured Guaranty s business Exposures to losses on the liability side of the balance sheet from Directors and Officers (D&O) and Errors and Omissions (E&O) business may prove to be a sting in the tail for many of the BBQ players. Table 4 examines the commentary provided by senior executives in 4Q earnings conference calls and information drawn from SEC filing documents, related to business written in the areas of D&O and E&O, most of it specifically in the Financial Institutions (FI) arena. Most companies have indicated that they anticipate any losses stemming from such business to be already reserved. Table 4 Sub-prime related commentary ACE Arch Aspen AWAC Axis Commentary Estimated size of D&O and E&O market premiums total USD3bn to USD4bn premium. ACE net premiums of USD143mn with average net limits of USD7.7mn in D&O and USD3.2mn in E&O. Potential losses are reserved in 2007 loss ratios. US FI market estimated at between USD3bn and USD4bn. Arch exposures not significant. D&O exposure reduction began in 2005 and weighted more to Reinsurance than Insurance. Exposure to top six D&O writers limited to one company. Estimate market share in these lines at between 0.4% and 0.8%. Total Insurance FI premium: USD89mn gross, USD46mn net with average limit of USD4.5mn and attachment of USD60mn in 2006, slightly less in Exposure very small. A few contracts in international casualty reinsurance and one in US casualty reinsurance. Total exposure USD35mn in reserves, comprising USD20mn additional reserves above the USD15mn expected level. Established and expected loss reserve ratios are adequate to meet potential claim activity. Satisfied with excess position (i.e. XoL). Average attachment about USD120mn on FI, and a little bit less on the rest of the portfolio. Sub-prime issues not believed to affect D&O portfolio or other professional liability book adversely. No exposure to large FI business and very limited exposure to primary D&O and E&O writers of Fortune 500 companies loss picks include extra provisions. Exposure manageable in FI area. Participated with money centre banks on a Side A only basis plus high attachments. 9 8 XL Capital SEC filing 10-K 9 Side A provides direct insurance of individual directors and officers, which is triggered if the corporation does not or cannot provide indemnification to its directors and officers.

14 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 12 Endurance Everest Max Capital Montpelier Approx USD115mn premium in professional lines, split USD45mn (Reinsurance): USD75mn (Insurance). Approx USD37mn of Insurance is FI related and approx. USD5mn related to complex banks, about USD2-3mn D&O classes. Received a limited number of notices but not sufficiently developed to case reserve for them. Additional USD13mn loss for sub-prime related exposures. D&O less than 5% of total premium. Reduction of D&O exposures began in Significantly reduced D&O Insurance and Reinsurance exposures in Estimate net loss reserves at USD8mn (Insurance) and USD10mn (Reinsurance). No additional reserves posted during the year. Any future development will not have a meaningful impact owing to reinsurance and retro protection. Minimal E&O business. No D&O business written. PartnerRe Total US D&O market estimated at USD8.5bn (suggesting PartnerRe has 1.2% market share). Approx. USD105mn US D&O premium (USD145mn 3 years ago) and approx. USD25mn NPW in Europe, together represent about 3.5% of W/W book. USD2.5mn average limit. USD1.168bn reserves for US Specialty casualty business (USD687mn for ). Very comfortable with containment of losses in established loss and unearned premium reserves. Estimate US D&O experience at between USD6bn and USD10bn industry event. No estimate for E&O. Platinum RenRe XL Validus Identified six treaties exposed to FI, all XoL basis with generally quite high attachment points. USD1mn average Limit. Maximum exposure to any one insurer estimated at USD6.5mn. Estimates worst case loss scenario to 3 of 4 accounting firms underwritten at USD30mn. Comfortable with reserve position. Some casualty clash business, USD60mn event specific IBNR reserve posted in addition to normal IBNR for line. USD60mn represents a significant portion of limit. Less than two dozen accounts. USD12mn average policy limit for public D&O. Side A only component is 1/3 of GPW in 2007 and 45% by policy limit. FI business managed through limited line sizes, higher attachment points, risk adjusted rate levels and greater use of Side-A only. USD270mn of coverage available in USD35 xs USD15mn layer in professional lines R/I structure. 26 D&O claims or potential claims notices (9 primary, 17 excess policies) received by end 2007 with 3 more by early February. Total net limits associated approx. USD300mn (Side-A USD87mn of that). Assessment is that the lower level of attrition losses and elevated clash losses are contained in loss ratios. For the period between 6 June 2007 (post secondary offering of shares) and 31 December 2007, XL incurred case losses of USD300mn and USD51mn on a NPV basis for XoL and facultative reinsurance agreements related to subsidiaries of SCA. Some exposure to FI business written by Talbot (USD40mn). Small USD1.4mn D&O portfolio. USD14mn Professional indemnity portfolio. E&O portfolio has USD39mn in net limits risk. Portfolio heavily reinsured and carries very high IBNR percentage relative to total limits outstanding.

15 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 13 Net income 2007 aggregate net income totalled USD11.2bn (11.9bn) with all companies reporting profits appeared to be on track at the end of the third quarter, for record net income but sub prime losses in the final quarter undermined results for some was still a very good year for most with only five companies failing to improve on 2006 results as shown in Table 5. XL was the key sub-prime victim and the 84% fall in net income to USD276mn was the principal reason for the 6% fall in net income for the BBQ group as a whole. Excluding XL, aggregate net income increased by 8% in Net income at White Mountains fell 39% as a higher tax charge and lower realised gains (2006 included USD171mn from the sale of One Beacon shares) took their toll. Elsewhere, PartnerRe and RenaissanceRe, both fell foul of sub-prime charges. Lancashire and Validus reported over 100% growth in net income between 2006 and 2007, at 145% and 120% respectively. Table Net Income, Benfield Research USDmn Change 2006/7 ACE 1,153 1,028 2,303 2,578 12% Axis ,092 13% Arch % Everest % PartnerRe % RenaissanceRe % Endurance % Aspen % AWAC % White Mountains % Validus N/A N/A % Lancashire N/A N/A % IPC % Platinum % Montpelier % Max Capital % XL 1,167-1,252 1, % Flagstone N/A N/A % Total 6,048-2,127 11,861 11,182-6% Note: Net income is after tax and net unrealised gains/losses and before preferred share dividends.

16 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 14 Return on equity The 2007 average ROE for the BBQ group of 16.1% is shown in Table 6. Stronger balance sheets, boosted by two years of profitable underwriting, were primarily responsible for the four p.p. drop from the previous year. The 2007 aggregate result would have been lower at around 13% but for the beneficial impact of reserve releases. Only four companies reported higher ROE in 2007 with the uplift at Lancashire and Validus reflecting solid underwriting from enlarged books of business. Table /7 Return on equity*, Benfield Research Lancashire N/A N/A N/A 15.3% 33.2% Validus N/A N/A N/A 16.7% 25.8% Axis 22.2% 16.3% 2.8% 24.3% 22.8% Arch 17.9% 16.1% 10.9% 23.5% 22.5% Endurance 18.4% 20.3% -11.8% 23.9% 21.7% AWAC 15.7% 9.6% -9.0% 24.3% 21.0% Max Capital 17.2% 15.4% 0.6% 16.6% 20.4% Montpelier 28.0% 14.1% -53.6% 23.8% 20.1% Aspen 14.0% 14.0% -10.1% 17.1% 18.8% IPC 18.2% 8.6% -37.8% 21.9% 18.7% Platinum 14.5% 7.7% -10.3% 19.4% 18.5% RenaissanceRe 31.1% 6.6% -10.1% 28.8% 18.1% PartnerRe 21.1% 16.5% -1.6% 21.8% 17.7% ACE 18.8% 12.3% 9.5% 17.7% 16.7% Flagstone N/A N/A N/A 21.6% 16.2% Everest 15.4% 14.4% -4.7% 18.2% 15.6% White Mountains 12.2% 12.2% 7.5% 16.2% 8.9% XL 6.1% 15.9% -15.4% 19.0% 2.7% Weighted average 16.6% 13.6% -4.3% 20.0% 16.1% *ROE = Net income before preference share distributions/((shareholders funds Y + Shareholders funds Y-1)/2) Chart 5 illustrates the relationship between the five-year average ROE of the BBQ companies and respective volatility measured by standard deviation over the same period. The chart is divided into four quadrants. The north-west quadrant (NW) with low standard deviation and high return is the desirable place for investors seeking an acceptable return and relatively low volatility, while the south-east quadrant (SE) with high standard deviation and low return is the worst. Relative newcomers, Validus, Lancashire and Flagstone are excluded due to lack of data over the five year period. Generally, most companies saw a progression upwards (improved five year returns) and to the left (reduced volatility of five year returns) in relation to Aspen, AWAC, Platinum and Max Capital all moved above the return axis during the year while White Mountains and Everest shifted into the desirable NW quadrant.

17 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 15 Chart 5 BBQ 5 Year Risk/Return comparison Company information, Benfield Research 20% 18% 16% Arch Axis RoE average 14% 12% 10% 8% 6% 4% ACE PartnerRe RenaissanceRe Endurance Max Capital AWAC Everest White Mountains Aspen Platinum XL IPC Montpelier 2% 0% Standard Deviation 5 year (PP) Market outlook Commentary regarding the 1/1 renewals and the pricing environment was generally downbeat, offering little optimism that rates will alter from the current downward trajectory. Senior executives spoke of retentions increasing further at primary level, an appetite for shifting proportional contracts to XoL, the importance of customer relationships, fierce competition on large contracts and increased levels of interest and competition in new geographic zones that have provided diversification. Loss affected accounts were the exception, with those hit by Windstorm Kyrill and the UK floods noted in particular. Terms and conditions were seen to be broadly stable with some relaxation in specific clauses such as the broadening of hours for hurricanes. The level of competition was described by Axis CEO John Charman who declared While we ve witnessed many more aggressive quotes than before, we do not believe any single competitor demonstrated consistently more foolish behaviour across the broad spectrum 10 IPC reported an average 9% decline in US property catastrophe, rates as a result of increased retentions, reduced exposures reflecting increasing primary deductibles and more disciplined underwriting by primary insurers. Montpelier estimated average renewal price reductions of 10% comprising an 11% fall in the US and a 9% drop in International accounts. Chris Harris, CEO, reported Incumbent markets did well in retaining desirable programs. Cedents stuck with markets that have 10 Axis Capital Holdings Ltd., Earnings conference call, 6 February 2008

18 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 16 provided support in prior years. 11 The appreciation of the Euro against the US dollar somewhat masked the underlying trend in the international catastrophe markets. RenaissanceRe supported the contention that larger accounts were more competitive, and President Kevin O Donnell observed in general, accounts with growing exposure were in some instances seeing exposure-based reductions approaching 20%, and programs with flat or reducing exposures were seeing exposure-adjusted reductions of between 7.5% and 12.5%. 12 California earthquake pricing was not seen as an opportunity by Renaissance Re given prevailing conditions at the renewals. Validus Chairman Ed Noonan felt that while rates in the US catastrophe market had become more competitive, they were still at very attractive levels and offered the estimate that the probability of losses attaching the reinsurance grew more remote with a 4.6% change year on year as a result of increased retentions and some programs exiting the market altogether. 13 Aspen CFO Richard Houghton estimated that international casualty reinsurance saw reductions of between 2.5% and 10% dependant on the type of business and loss experience but that prices still met Aspen s hurdle return rates. US Casualty reinsurance pricing was specifically reduced by between 10% and 15% in the overall market, although Aspen managed to keep reductions at only 4.5%. Everest CEO Joe Taranto was somewhat less sanguine, declaring that We witnessed a disciplined reinsurance market up until now, we are starting to see some dumb deals getting done and that rates were significantly off their highs of two or three years ago Montpelier Re Earnings conference call, 20 February Renaissance Re Earnings conference call, 6 February Validus Holdings Ltd. Earnings conference call, 13 February Everest Re Group, Earnings conference call 31 January 2008

19 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 17 Balance sheet BBQ group shareholders funds increased by 11.3% to USD73.3bn in 2007 despite USD4.6bn of share buybacks. As premium levels moderate, solvency margin levels are expected to increase further unless significant action is taken on capital management. Concerns regarding the financial credit crisis and overall rate adequacy are likely to discourage some senior executives to hand back money to shareholders too quickly. A summary BBQ aggregate balance sheet is shown in Appendix 1. Total assets increased by 5% to USD270bn at 31 December Bonds remained the largest class of asset representing 54% of the total assets, a one p.p. increase from Equity exposure remained low at 3%, while cash accounted for 9% of balance sheet footings. Liquidity was strong with liquid assets (listed bonds, equities and cash) equivalent to 147% of net technical reserves and showed a marginal four p.p. increase on Reinsurance recoverable continues to represent a proportionately smaller part of the balance sheet, decreasing from 12% to 11% of total assets. Reinsurance recoverable gearing to SHF also reduced further from 46% to 39%, a five year low, further underscoring the strength of the BBQ balance sheet. On the liability side there was a decrease in reserve gearing. Net technical reserves as a percentage of SHF decreased from the peak of 216% in 2005 to 166%. The technical reserve coverage ratio 15 increased from 247% to 259%, a six year high. Debt gearing 16 decreased from 16% to 15%, as the growth of SHF outstripped a marginal increase in debt. Reserve development Chart 6 illustrates the benefit of positive reserve development on the loss/combined ratio. Reserve releases benefited the aggregate combined ratio by a substantial 6.0p.p. in 2007, compared with a 1.6p.p. benefit in The absolute level of aggregate releases ballooned to USD2.7bn against the USD0.7bn in Every company in the group released reserves to a greater or lesser extent. Had reserve development followed a pattern similar to that of 2006, underwriting results would have been weaker and the aggregate combined ratio would have been approximately 90%, materially higher than the 85.2% reported. In aggregate, releases represented nearly 25% of net income for the year. Releases stemmed from a mixture of both short-tail and long-tail business. 15 Technical reserve coverage ratio = Net Technical Reserves/Net Written Premiums. 16 Debt gearing ratio = Debt/(SHF+Debt)

20 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 18 Chart 6 Contribution of reserves releases to 2007 loss ratio, Benfield Research 0% -2% -4% -6% -8% -10% -12% -14% -16% -18% White Mountains Lancashire ACE Flagstone Everest Aspen Arch Montpelier XL IPC Platinum Max Capital Validus Endurance AWAC AXIS PartnerRe RenaissanceRe Positive prior year development at White Mountains was relatively modest and the 0.4p.p. benefit was the lowest in the group as shown in Chart RenaissanceRe, released USD233mn or 16.4p.p., with USD194mn attributable to Reinsurance with the balance arising within Individual risk. Specialty reinsurance reported USD101mn of releases and KRW related releases (USD19mn) also featured. 18 Relative newcomers to the group, Lancashire and Flagstone both reported less than 2p.p. of benefit while Validus reported nearly 8p.p. of positive development, although the vast majority of this (approximately 75%) was attributable to development in the recently acquired and more seasoned book of Talbot. 19 The release of prior year reserves is unlikely to benefit 2008 BBQ group combined ratios to the same extent. Capital Chart 7 illustrates the growth trend of the BBQ group from Despite the existence of large share buy-back programmes in the market, shareholders funds grew from USD65.9bn to USD73.3bn, an increase of 11.3%. Approximately USD1.9bn in common and preference share dividends were paid and allocated during the course of 2007, representing a pay-out ratio 20 of approximately 17%. While many market participants and commentators question the adequacy of the pricing currently inherent within the markets, it is clear that capital has accrued largely on the basis of two very solid underwriting years. 17 White Mountains SEC filing 10-k 18 RenaissanceRe SEC filing 10-k 19 Validus Q4 financial supplement 20 Pay-out ratio calculated as common and preference share dividends / net income

21 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 19 Chart 7 BBQ total capital Benfield Research USD bn Paid-up & additional capital Retained earnings Other shareholders' equity As shown in Table 7, Validus reported a 62% increase in SHF, with net proceeds of USD314mn following its IPO in July accounting for approximately 26p.p. of the increase, the balance as a result of retained profitability. Flagstone, another of the Class of 2005 reported a 40% increase owing similarly to retention of profits, while a third, Lancashire, paid out 61% of net income in the form of dividends. XL was the only company to report a diminution in SHF reflecting sub-prime related charges. Table 7 Shareholders' Funds as at 31 December USDmn Change 2006/7 ACE 8,835 9,845 11,812 14,278 16,677 17% XL 6,937 7,739 8,472 10,131 9,948-2% Everest 3,165 3,713 4,140 5,108 5,685 11% Axis 2,817 3,238 3,512 4,413 5,159 17% White Mountains 2,979 3,884 3,833 4,455 4,713 6% PartnerRe 2,595 3,352 3,093 3,786 4,322 14% Arch 1,710 2,242 2,480 3,591 4,036 12% RenaissanceRe 2,335 2,644 2,254 3,280 3,478 6% Aspen 1,299 1,482 2,040 2,389 2,818 18% Endurance 1,645 1,862 1,872 2,297 2,512 9% AWAC 1,979 2,139 1,420 2,220 2,240 1% IPC 1,569 1,668 1,616 1,991 2,126 7% Platinum 1,067 1,133 1,540 1,858 1,998 8% Validus N/A N/A 1,000 1,193 1,935 62% Montpelier 1,658 1,752 1,058 1,493 1,653 11% Max Capital ,217 1,390 1,584 14% Lancashire N/A N/A 947 1,138 1,216 7% Flagstone N/A N/A ,210 40% Total 41,394 47,628 52,854 65,875 73,309 11%

22 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 20 Table 8 shows the solvency margin ratios (SMR) of the BBQ group. 21 The SMR is a measure of underwriting gearing (the higher the ratio, the lower the gearing) that has decreased substantially during the period. In 2007 the aggregate SMR increased from 139% to 156% as SHF rose and net written premiums decreased. Only three companies, Flagstone, Lancashire and Validus, did not follow this rising trend. This was expected given the expansion of operations through The three catastrophe specialists necessarily feature at the top of the table, given their focus. Table 8 Solvency margin ratios IPC 509% 466% 359% 483% 548% Montpelier 213% 234% 140% 258% 301% RenaissanceRe 203% 196% 146% 214% 242% Flagstone N/A N/A N/A 306% 230% Validus N/A N/A N/A 250% 211% Max Capital 94% 106% 118% 219% 199% AWAC 147% 156% 116% 170% 194% Lancashire N/A N/A N/A 208% 182% Axis 148% 134% 132% 148% 180% Platinum 91% 69% 90% 158% 178% Aspen 119% 109% 124% 144% 176% Endurance 103% 110% 116% 145% 160% Everest 73% 82% 104% 132% 145% XL 91% 86% 88% 133% 140% ACE 86% 86% 100% 119% 139% Arch 62% 75% 79% 119% 139% White Mountains 99% 99% 102% 116% 125% PartnerRe 72% 87% 86% 103% 115% Weighted average 99% 100% 109% 139% 156% Capital management The strength of the collective balance sheet was such that 7%, a significant USD4.6bn, of 1 January 2007 SHF was returned via share repurchases during the year. Current market forecasts for further softening rates, increasing retentions at primary level and undiminished competition raised the question of whether enough capital has been returned. In the absence of a market-altering loss, significantly more capital will have to be returned to maintain the 2008 aggregate ROE at current levels. Table 9 shows share repurchase programmes executed during AWAC, barely 18 months after its IPO, purchased the entire shareholding of one of the founding shareholders, AIG. This transaction amounted to USD563mn and accounted for 25% of SHF as at 31 December Solvency margin ratio = Shareholders funds/net written premiums

23 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 21 The transaction was deemed to sort of right-size their capital and eliminate some overhang. 22 Arch, Endurance, Platinum and XL were all particularly active, purchasing in excess of 10% of 2007 opening SHF balances. ACE, Flagstone and Validus were the only three BBQ companies to shun share repurchases during 2007 in preference for acquisitions and the establishment of new platforms. Table Share repurchases Amount repurchased (USDmn) % of opening SHF 1 Jan 2007 (USDmn) Company announcements AWAC % Arch % Endurance % Platinum % XL 1, % IPC % Lancashire % Montpelier % Max Capital % PartnerRe % Axis % RenaissanceRe % Everest % Aspen % White Mountains % ACE 0 0.0% Flagstone 0 0.0% Validus 0 0.0% Total 4, % Pastures new Many companies adopted business diversification strategies with the establishment of new platforms or the acquisition of niche businesses. Selective top line growth has been seen as an antidote to diminishing returns, BBQ companies have been active in their efforts to diversify their businesses both geographically and by line of business. Diversification away from traditional property-casualty business was generally the direction followed while London, Dubai, Zurich, Latin America and Dublin were attractive locations in the pursuit of change. ACE concluded the year by making two acquisitions, buying Combined Insurance Company of America (Combined) and the Atlantic companies (Atlantic). Combined, which was purchased for USD2.4bn in cash, is active in specialty individual accident and supplemental health insurance while Atlantic specialises in high-net-worth personal lines business. The strategic benefits of the 22 Allied World Earnings conference call, 8 February 2008.

24 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 22 Combined acquisition were described as very important to Latin America and distribution potential in Asia was also noted. The company has a sales force of nearly 7,000 agents and ACE will look to export the franchise to the developing markets of Latin America and the Asia Pacific. 23 Arch formed Gulf Re as a 50/50 joint venture with the Gulf Investment Corporation in the Dubai International Financial Centre (DIFC) to underwrite property and casualty reinsurance leveraging local relationships with Arch s underwriting skills. Arch described the venture as another step in the long-term strategy of gaining further territorial diversification. 24 Lancashire was similarly attracted to opportunities in the region, and opened an office in the DIFC in March Flagstone also opened an office in the Dubai International Financial Centre as well as in Puerto Rico and South Africa, where it entered a technical underwriting agreement with Imperial Reinsurance, subsequently taking a majority stake in that company. The acquisition of a majority stake in Island Heritage Holdings Ltd. which specialises in Caribbean insurance constituted a further geographical diversification. Mark Byrne commented We re serious about building the most diversified book of business possible and we don t believe that can be done sitting in Bermuda waiting for the doorbell to ring. 25 Aspen s new office in Dublin was formed in November 2007 to underwrite construction and global risk managed programmes and compliments the company s existing operations in Specialty lines. An office in Zurich was opened earlier in the year to form a hub for Aspen s reinsurance activity. 26 Elsewhere the group has entered professional liability insurance market from Aspen s UK office and is looking to write business principally in the UK and Australia. AWAC agreed to purchase Converium Insurance (North America) in December The deal enables AWAC to write insurance and reinsurance in 49 states and the District of Columbia and is expected to close in Q This extension of the AWAC s US platform was intended to strengthen the company s ability to service its US based reinsurance clients 27 while complementing and spreading the risk of the portfolio and broadening the product base. 28 AXIS acquired Media/Professional Insurance, a managing general underwriter (MGU) which specialises in professional liability lines, in March Max Capital formed a new MGU, Max Managers, to focus on specialty casualty business. It also completed the purchase of a US based excess and surplus lines company through Max USA Holdings Ltd in April The new company, Max Specialty Insurance Company operates across two divisions, brokerage and contract binding. 23 ACE press release 17 December Arch Capital, Earnings conference call, 12 February Flagstone, Earnings conference call, 19 February Aspen, Press release, 14 June AWAC, Press release, 10 December AWAC, Earnings conference call, 8 February 2008

25 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 23 Specialty capabilities were strengthened at Endurance through the acquisition of ARMtech Insurance Services, a Texas based underwriter of federally sponsored crop insurance. This added USD42mn of premiums to the group s 2007 results. Specialty activities were also strengthened through the addition of several key individuals to establish new reinsurance offices in Switzerland and Singapore and seven new teams of people to US Insurance operations, each focussed upon a specialty niche with attractive prospects for growth and profit. 29 Montpelier took advantage of a stronger London market with the establishment of Lloyds syndicate 5151 (focusing on non marine property and engineering classes and specialty casualty). The establishment of a marketing office in Zug, Switzerland strengthens activities in Continental Europe. Closer to home, Montpelier acquired a shell company which formed the platform for Montpelier US Insurance Company (MUSIC), an excess and surplus lines company participating in the general liability area. Chris Harris of Montpelier commented, As we have said previously, our expansion is part of a long term plan to broaden our distribution sources and augment our underwriting talent. It is not a get rich quick scheme. 30 PartnerRe moved East and opened a representative office in Beijing. The group also acquired the renewal rights for the international reinsurance business of Mutuelle Centrale de Reassurance, the reinsurance subsidiary of the French Monceau Group. The contracts concerned relate to nonaffiliated companies outside of France. PartnerRe expected some staff to join the company as a result of the transaction. 31 XL announced the acquisition of GAPS, a loss prevention service company in November. CEO O Hara commented that this was part of the ongoing strategy of disciplined growth in and diversification within the property and casualty business. 32 The group also added a Houston office with the intention of servicing the marine and offshore energy insurance business. 33 Validus concluded one of the bigger acquisitions in 2007 through the July 2007 purchase of Talbot in the UK. In contrast to many Bermudians, Validus chose the Lloyd s platform in preference to a direct investment in the US E&S business. Greater scale, diversification both geographically and by line of business and a form of ratings arbitrage (the Validus rating of A- in Bermuda versus the benefit of an A+ rated Lloyds market participant) were listed as immediate benefits. CFO Jeff Consolino commented on the purchase, We earned USD81.8mn after tax with the Talbot segment in the six months since we made the acquisition, before financing costs. This compares with a USD382mn purchase price and an equity contribution to that purchase price of USD182mn Endurance, Earnings conference call, 7 February Montpelier Re, Earnings conference call, 20 February PartnerRe, Press release, 23 May XL Capital, Earnings conference call, 6 February XL Capital, Press release, 21 June Validus Holding, Earnings conference call, 13 February 2008

26 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 24 Credit ratings Rating agency actions were mixed during On one hand they viewed positively the continuance of accretive earnings flow of some, while on the other they were quick to punish those more exposed to specific risks whether that through a perceived lack of diversification or exposure to weakened credit markets. A flurry of action took place in December 2007 and January Standard and Poor s (S&P) upgraded the financial strength rating of RenaissanceRe from A+ to AA- on 13 December S&P commented that the uncertainty that surrounded RenaissanceRe s competitive position, the potential change to its risk profile, and reputational risk as a result of the departure of some of the senior management in 2005 has dissipated. 35 The agency also cited the leadership of Neil Currie, with the company successfully executing its strategy and retaining its very strong competitive position in the property catastrophe market. Other factors seen as beneficial to the upgrade were the company s leadership in underwriting and modelling of catastrophe risk and excellent Enterprise Risk Management (ERM). A.M. Best followed in S&P s footsteps several days later when it upgraded RenaissanceRe from A to A+ on 19 December 2007, citing continued strong capitalisation, superior risk management techniques and exceptional historical underwriting track record. A.M. Best expects the company to prudently manage the cycle and continue to produce returns that are above average relative to its overall risk profile. 36 XL Capital was downgraded from A+ to A by A.M. Best on 25 January The downgrade followed the announcement by XL that it expected to take a Q4 charge of between USD1.5bn to USD1.7bn related to its credit-exposed investments and businesses. The agency commented The downgrade is based on A.M. Best s opinion that XL Capital s risk management controls are below expectations as the company takes an unanticipated charge, albeit below the operating line, continuing the trend established by the litany of NAC Re related reserve charges, the Winterthur acquisition charge and the higher than anticipated charges from the 2005 catastrophe season. The agency went on to warn that further adverse charges relating to these lines of business that were above the agency s expectations, would result in further rating actions. 37 Elsewhere, AXIS remained on positive outlook following the revision from stable by S&P on 30 May 2007, reflecting success in building a well-diversified business. Catlin also remained on positive outlook after the revision from stable on 10 July 2007, with S&P citing its strengthened competitive position. Property catastrophe specialists IPC and Montpelier continued to feel the agencies scorn, with IPC being placed on negative outlook by A.M. Best on 19 December 2007, the agency commented, The revised rating outlook reflects IPCRe s progress regarding ERM as compared to its peer 35 S&P press release 13 December A.M. Best press release 19 December A.M. Best press release 25 January 2008

27 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 25 group. It added that while IPC had made reductions in its risk exposure, its progress in ERM had lagged that of the industry. 38 Montpelier remained on negative outlook with S&P where it has been since September According to S&P The negative outlook reflects Standard & Poor's uncertainty with regards to Montpelier's future earnings given an evolving corporate strategy and business platform coupled with a transitioning management team. 39 Table 9 shows the ratings of the BBQ group. 38 A.M. Best press release 19 December S&P summary 02 January 2008

28 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 26 Table 9 Financial strength ratings Standard & Poor's, A.M. Best Standard & Poor s* A.M. Best * ACE Tempest Re A+ A+ Aeolus NR NR Amlin Bermuda Ltd A A Arch Reinsurance Ltd A A Ariel Reinsurance Ltd NR A- Aspen Ins UK/Aspen Ins Bermuda/Aspen US A/A/NR A/A-/A- AWAC A- A AXIS A A Catlin Insurance Co A- A CastlePoint Reinsurance Company NR A- Endurance A A Everest AA- A+ Flagstone Reinsurance Ltd NR A- Harbor Point Re Ltd A- A Hannover Re Bermuda Ltd AA- A Hiscox Insurance Co (Bermuda) Ltd NR A- IPCRe Ltd A- A Ironshore Insurance Ltd NR A- Lancashire Insurance Ltd NR A- Max Capital NR A- Montpelier Re A- A- New Castle Re NR A- Norton Re NR NR PartnerRe AA- A+ Platinum Underwriters NR A RenaissanceRe AA- A+ Top Layer Re AA A+ Validus Reinsurance Ltd NR A- White Mountains (Folksamerica/Sirius) A-/A- A-/A XL Re Ltd A+ A *Ratings as of 12 March 2008 Chart 8 shows the development of the BBQ group s S&P ratings measured by gross written premiums. Ratings by premium remained broadly stable with some increase in AA- paper given the upgrade of RenaissanceRe.

29 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 27 Chart 8 Rating of BBQ gross written premiums Standard & Poor's, Benfield Research USDbn AA AA- A+ A A- <= BBB+ NR Chart 9 shows the same analysis using A.M. Best ratings, which are contained within a much narrower band. Chart 9 Rating of BBQ gross written premiums A.M. Best, Benfield Research USDbn A+ A A

30 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 28 Appendix 1 Aggregate balance sheet Table 10 Summary balance sheet, Benfield Research Year ending 31 December USDmn Assets Cash & cash equivalents 12,455 21,230 22,544 24,316 Bonds 104, , , ,036 Equities 5,666 6,837 7,896 8,070 Reinsurance recoverable 29,686 34,895 30,093 28,922 Other assets 49,886 55,755 59,049 61,848 Total assets 202, , , ,192 Liabilities Loss & LAE reserves 90, , , ,374 Unearned premiums 22,969 23,235 25,075 24,365 Life funds 6,934 8,339 9,538 10,141 Debt 9,053 11,415 12,320 12,604 Other liabilities 24,307 29,340 29,252 30,853 Trust preferred and minorities 833 1,010 2,363 2,546 Total liabilities 154, , , ,882 Shareholders' Equity Paid-up & additional capital 24,166 33,637 36,972 36,666 Retained earnings 20,472 16,068 26,022 34,574 Other shareholders' equity 2,991 1,602 2,881 2,069 Total shareholders' equity 47,628 51,306 65,875 73,309

31 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 29 Appendix 2 Reinsurance summary The following analysis is focussed on the reinsurance business of the BBQ group based on segmental data as disclosed by the companies. The combined ratio is calculated using net premiums earned as the denominator in both the loss and expense components. Differences in calculation methodology may lead to some variations from the reported results. Chart 10 and Chart 11 are based on the Benfield Research combined ratios. Chart Reinsurance combined ratios *Validus Re Lancashire RenaissanceRe IPC Validus Montpelier Flagstone Arch ACE Axis Endurance Average PartnerRe Platinum Aspen Max Re XL AWAC Everest White Mountains 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% *Validus Re only Chart Reinsurance combined ratios *Validus Re Lancashire IPC RenaissanceRe Flagstone Validus Montpelier ACE Axis Average Arch Aspen Endurance AWAC Platinum XL PartnerRe Everest Max Re White Mountains 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% * Validus Re only

32 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 30 Chart R/I % of total GPW ACE Lancashire XL WMRE AWAC Arch Average Axis Aspen Endurance Max Re Renaissanc Everest Validus PartnerRe Platinum Montpelier IPC Flagstone 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Chart R/I % of total GPW ACE Lancashire XL AWAC WMRE Arch Average Axis Max Re Aspen RenaissanceRe Endurance Everest PartnerRe Validus Platinum Montpelier IPC Flagstone 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

33 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 31 Table 11 ACE reinsurance segment Global reinsurance Life Insurance & R/I Global reinsurance Life Insurance & R/I GPW 1, , NPW 1, , NPE 1, , U/W profit loss NII Net Income Loss ratio 51.1% N/A 51.9% N/A Expense ratio 24.0% N/A 24.2% N/A Combined ratio 75.1% N/A 76.0% N/A R/I % of total GPW 6.9% 2.2% 9.0% 1.6% Table 12 Arch reinsurance segment Benfield Research GPW 1,518 1,704 NPW 1,184 1,365 NPE 1,242 1,481 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 45.6% 52.2% Expense ratio 29.0% 28.5% Combined ratio 74.6% 80.7% % of total GPW 36.7% 39.8%

34 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 32 Table 13 Aspen reinsurance segment Property Reinsurance Casualty Reinsurance Property Reinsurance Casualty Reinsurance GPW NPW NPE U/W profit loss NII N/A N/A N/A N/A Net Income N/A N/A N/A N/A Loss ratio 39.7% 69.9% 43.1% 58.3% Expense ratio 32.9% 24.7% 36.0% 25.1% Combined ratio 72.6% 94.6% 79.2% 83.4% % of total GPW 33.1% 23.7% 32.0% 25.0% Table 14 AWAC reinsurance segment GPW NPW NPE U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 59.7% 55.5% Expense ratio 28.0% 26.6% Combined ratio 87.7% 82.1% % of total GPW 35.6% 34.5%

35 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 33 Table 15 Axis reinsurance segment GPW 1,551 1,539 NPW 1,537 1,529 NPE 1,526 1,389 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 54.8% 56.8% Expense ratio 21.5% 20.8% Combined ratio 76.3% 77.6% % of total GPW 43.2% 42.6% Table 16 Endurance reinsurance segment GPW 1,068 1,372 NPW 1,052 1,328 NPE 1,159 1,447 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 43.4% 48.2% Expense ratio 33.0% 33.3% Combined ratio 76.4% 81.5% % of total GPW 60.0% 76.7%

36 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 34 Table 17 Everest reinsurance segment GPW 3,192 3,135 NPW 3,175 3,122 NPE 3,262 3,091 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 61.1% 61.9% Expense ratio 27.8% 26.6% Combined ratio 88.9% 88.5% % of total GPW 78.3% 78.3% Table 18 Flagstone reinsurance segment GPW NPW NPE U/W profit loss NII Net Income Loss ratio 40.4% 13.9% Expense ratio 32.4% 33.7% Combined ratio 72.9% 47.6% % of total GPW 100.0% 100.0%

37 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 35 Table 19 IPC reinsurance segment GPW NPW NPE U/W profit loss NII Net Income Loss ratio 31.9% 14.7% Expense ratio 18.0% 18.1% Combined ratio 49.9% 32.9% % of total GPW 100.0% 100.0% Table 20 Lancashire segment disclosure Property Energy Marine Aviation Property Energy Marine Aviation GPW NPW NPE U/W profit loss NII N/A N/A N/A N/A N/A N/A N/A N/A Net Income N/A N/A N/A N/A N/A N/A N/A N/A Loss ratio 14.0% 33.2% 55.1% 5.1% 13.4% 16.0% 35.8% 0.0% Expense ratio 11.9% 9.5% 21.6% 14.4% 11.4% 15.3% 18.9% 19.8% Combined ratio 26.0% 42.7% 76.7% 19.6% 24.8% 31.3% 54.7% 19.8% % of total GPW 41.1% 37.5% 10.2% 11.2% 40.7% 40.6% 8.5% 10.3% *The table above reflects all LoB for Lancashire (R/I and Insurance combined)

38 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 36 Table 21 Max reinsurance segment P&C Reinsurance Life Reinsurance P&C Reinsurance Life Reinsurance GPW NPW NPE U/W profit loss NII Net Income Loss ratio 55.4% N/A 70.0% N/A Expense ratio 28.5% N/A 23.8% N/A Combined ratio 83.9% N/A 93.9% N/A % of total GPW 32.0% 28.0% 49.0% 5.2% Table 22 Montpelier reinsurance segment GPW NPW NPE U/W profit loss NII Net Income Loss ratio 31.9% 29.6% Expense ratio 29.5% 30.7% Combined ratio 61.3% 60.3% % of total GPW 100.0% 100.0%

39 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 37 Table 23 PartnerRe reinsurance segment Non-life Non-life GPW 3,210 3,217 NPW 3,185 3,192 NPE 3,203 3,172 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 50.8% 54.9% Expense ratio 29.6% 29.5% Combined ratio 80.4% 84.4% % of total GPW 84.3% 86.2% Table 24 Platinum reinsurance segment Property & marine Casualty Finite Property & marine Casualty Finite GPW N/A N/A N/A N/A N/A N/A NPW NPE U/W profit loss NII N/A N/A N/A N/A N/A N/A Net Income N/A N/A N/A N/A N/A N/A Loss ratio 38.9% 69.7% 46.7% 32.5% 68.4% 74.5% Expense ratio 22.1% 27.5% 26.4% 24.7% 28.2% 24.9% Combined ratio 61.0% 97.2% 73.1% 57.2% 96.6% 99.3% % of total GPW N/A N/A N/A N/A N/A N/A

40 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 38 Table 25 RenaissanceRe reinsurance segment GPW 1,290 1,321 NPW 1,024 1,039 NPE U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 25.2% 15.2% Expense ratio 19.6% 19.3% Combined ratio 44.8% 34.5% % of total GPW 71.3% 68.0% Table 26 White Mountains reinsurance segment Benfield Research GPW 1,295 1,625 NPW 1,096 1,290 NPE 1,147 1,241 U/W profit loss NII Net Income N/A N/A Loss ratio 61.1% 71.3% Expense ratio 34.9% 32.7% Combined ratio 96.0% 104.0% % of total GPW 30.9% 37.7% * Assumption: Reinsurance represented by White Mountains Re segment

41 Benfield Bermuda Quarterly FY 2007 Balancing Act PAGE 39 Table 27 Validus reinsurance segment Validus Re Talbot Validus Re GPW NPW NPE U/W profit loss NII Net Income Loss ratio 31.4% 36.3% 29.8% Expense ratio 18.9% 38.3% 20.8% Combined ratio 50.3% 74.6% 50.6% % of total GPW 80.6% 29.0% 100.0% Table 28 XL reinsurance segment GPW 2,663 3,066 NPW 2,111 2,384 NPE 2,302 2,571 U/W profit loss NII N/A N/A Net Income N/A N/A Loss ratio 54.1% 56.8% Expense ratio 29.9% 27.3% Combined ratio 84.0% 84.1% % of total GPW 29.6% 31.3%

42 Benfield Bermuda Quarterly FY 2007 Balancing Act Benfield Research Benfield Research publications are available at If you wish to subscribe to a free service please contact benfieldresearch@benfieldgroup.com. Recent titles are listed below. Global Reinsurance Market Review January 2008 Changing the Game Benfield European Quarterly November M 2007 Out with the Old Benfield Bermuda Quarterly November M 2007 Return of Capital Lloyd s Update November 2007 With Reserve Benfield Bermuda Quarterly September H 2007 Happy Days Benfield European Quarterly September H 2007 Plus Ça Change Maiden Innings August 2007 Bermuda Class of 2005 Turkey Insurance Market Review July 2007 International Interest