Argenta Private Capital Limited Lloyd s Syndicate Profiles 2015

Transcription

1 Argenta Private Capital Limited Lloyd s Syndicate Profiles 215

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3 Lloyd s Syndicate Profiles September 215 Contents Introduction and Changes to Ratings 3 Explanatory Notes 6 Syndicate Profiles 21 Managing Agent Profiles 147 Appendix A Forecast Results 213 Account Forecast Results Account Forecast Results / 216 Account and Long Term Average (LTA) Forecast Results 176 Appendix B Financial Ratios Syndicate Fees and Profit Commission Terms 179 Average Funds as percentage of Capacity 181 IBNR percentage of Net Outstanding Claims 182 RITC In as percentage of Capacity 183 Reinsurance Premiums as percentage of Gross Premium 184 Underwriting Account Results as percentage of Capacity 185 Pure Year Underwriting Result as percentage of Capacity 186 Prior Year Underwriting Result as percentage of Capacity 187 Operating Expenses as percentage of Capacity 188 Average Auction Prices Auction Prices and Volumes 19 Gross Premium Utilisation 191 LTA and Earnings Ratio 192 Capital Ratios 193 Appendix C Business Forecast Ratios Split of Account by Category of Business 195 Source of Business as percentage of Gross Income 196 Geographic Split as percentage of Gross Income 197 Gross Realistic Disaster Scenarios 198 Net Realistic Disaster Scenarios 199 Appendix D Class of Business Description 2 Appendix E Glossary of Terms 22 Argenta Private Capital Limited 1

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5 Introduction and Changes to Ratings This section summarises Argenta s ratings for syndicates available to third party capital. An explanation of these ratings is shown on pages 11 to 13. The Rating Changes section details any changes to our ratings from last year. Syndicates included in this book 95 syndicates traded in 215 with 32 of these supported by third party capital members. Of the syndicates open to third party capital, three (1729, 214 and 4242) are on a Limited Tenancy Capacity (LTC) basis and six (613, 614, 615, 617, 6111 and 6117) are Special Purpose Syndicates (SPS). Syndicates 4242 and 6117 are not currently available to APCL members. The remaining 3 syndicates are covered in this profile book. Ratings Summary Quality Rating Risk Rating Return Rating Capital Rating Syndicate 33 A M C M C+ LM B MH B+ MH B+ M B VH A M A MH B MH C M B+ VH C+ MH C H C MH C+ MH C H A MH C MH B MH B MH D H A MH B+ M B M D H B+ VH B+ VH B VH B+ M Catastrophe Rating Tail Rating Cost Rating Scarcity Rating 3

6 Rating Changes Quality Rating Rating Outlook Risk Rating Syndicate 214/15 215/16 214/15 215/16 214/15 215/16 33 A A Stable Stable M M 218 C C Watch Watch M M 38 B C+ Watch Stable LM LM 318 C+ B Stable Stable MH MH 386 B+ B+ Watch Watch MH MH 51 B+ B+ Stable Stable M M 557 B B Stable Watch VH VH 69 A A Stable Stable M M 623 A A Stable Stable MH MH 727 B B Stable Stable MH MH 779 D C Watch Watch MH M 1176 B+ B+ Stable Stable VH VH 12 C C+ Stable Stable MH MH 1729 C C Positive Positive H H 1884 C C Positive Positive MH MH 1969 C+ C+ Positive Positive MH MH 1991 C C Positive Positive H H 21 A A Stable Stable MH MH 214 C C Watch Watch MH MH 2121 B B Stable Stable MH MH 2525 C+ B Stable Stable MH MH 2526 D D Watch Watch H H 2791 A A Stable Stable MH MH 42 B+ B+ Stable Stable MH M 4444 C B Positive Positive MH M 582 D D Watch Watch H H 613 B+ B+ Stable Stable VH VH 614 B+ B+ Stable Stable VH VH 617 B B Stable Stable VH VH 6111 B+ B+ Stable Stable M M Any changes to Quality, Risk or Outlook are highlighted in the table above. Note that the 214/15 ratings for syndicates 42 and 4444 and those for syndicates 615 and 958 respectively. Explanation of the rationale for any changes is included within each syndicate s profile. Syndicates not recommended for support for 216 We do not currently recommend that members support the following syndicates for 216. This list is under continuous review: Syndicate Underwriter Managing Agency 779 Garner ANV 214 Indge Pembroke 2526 Sibthorpe Asta 582 Whitmee ANV 4

7 Syndicates ceasing at 31 December 215 Syndicate Underwriter Managing Agent Reason 958 Gargrave Canopius Business being transferred to Syndicate ARK SPS ARK Participation will be offered on host Syndicate 42 5

8 Explanatory Notes Sample Syndicate Profile Page One See Note 1 See Note 2 See Note 3 6

9 Sample Syndicate Profile Page Two See Note 4 See Note 5 See Note 6 See Note 8 See Note 7 See Note 9 See Note 11 See Note 1 See Note 12 See Note 13 See Note 14 See Note 15 See Note 16 See Note 18 See Note 17 7

10 Sample Syndicate Profile Page Three See Note 19 See Note 2 See Note 21 8

11 Sample Syndicate Profile Page Four Class of Business Split Combined Ratio by Class of Business See Note 22 Accident & Health Aviation Energy Liability Liability Treaty Life Marine Property Property Treaty UK Motor Aviation Casualty Energy Life Marine Motor Property Reinsurance Whole Account See Note Business Written 216 % of Note: These are annual accounting ratios See Note 24 Realistic Disaster Scenarios Largest Net Losses 211 to Gross Net Gross Net Two Events 88% 18% 88% 18% Information not supplied.% US Terrorism - Rockefeller Center 44% 17% 44% 17% Gulf of Mexico Windstorm 57% 11% 57% 11% Vancouver Earthquake 39% 11% California Earthquake - Los Angeles 47% 1% 47% 1% North East Windstorm 47% 9% 47% 9% Florida Windstorm - Miami Dade 41% 9% 41% 9% 216 See Note 25 See Note 26 Net Incurred Loss Ratios 9% 8% 7% 6% 5% 4% 3% 2% 1% % Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q1 Q11 Q12 UK Europe (ex UK) North America Americas (other) Asia Pacific Middle East & Africa Worldwide Geographic Split 1.4% 3.2% 38.8% 3.8% 4.5% 2.1% 46.3% See Note See Note 28 Key Ratios Gross Premiums % Capacity Reinsurance Premium % Gross Premiums Pure Year Underwriting Result % Capacity Prior Years Underwriting Result % Capacity RITC received % Capacity IBNR % Net Outstanding Claims Operating Expenses % Capacity

12 Sample Managing Agency Profile See Note 29 See Note 3 1

13 The following notes refer to the numbered specimen profiles on pages 6 to 1 and help to explain various aspects of the information contained in the profiles. Syndicate Profiles 1 Argenta Assessment The Assessment contains a distillation of APCL s current views, as elaborated upon in the Strengths/Opportunities and Weaknesses/Challenges analysis that follows. This will include any changes in our recommendation for the syndicate. It is emphasised that developments may cause us to revise our assessment at any time after the publication of these Profiles. 2 Strengths / Opportunities We identify the characteristics that, in our view, give the syndicate competitive advantage and represent the major reasons for supporting it. 3 Weaknesses / Challenges We identify what we believe to be structural weaknesses and potential threats to the syndicate. Not all perceived weaknesses will carry the same weight, nor will certain weaknesses render the syndicate unsupportable; they are an element in the process of arriving at the overall assessment. 4 Rating (outlook) To supplement our overall recommendations, a number of ratings are included per syndicate. The ratings, which range from D (worst), through C, C+, B, B+, A to A+ (best), are largely objective, based on certain key statistical ratios which are combined to give an overall rating for each syndicate. They are designed to respond to current changes in syndicates' operations, including the impact of mergers, pre-emptions and de-emptions. Ratings can and will therefore change, although experience in recent years suggests that few syndicates will move significantly over the year. We consider the following factors to be of major importance in the successful running of a syndicate: Performance Prudence of reserves The potential volatility of underwriting returns The security behind the reinsurance programme The level of delegated authority given by a syndicate to third parties The efficiency and strength of the managing agency Additionally, the rating includes a degree of subjectivity which reflects those factors that cannot easily be quantified (e.g. the strength and depth of the management and underwriting team and the alignment of interest between underwriters and supporting capital). In addition, we have included a rating outlook to indicate the direction in which we expect the rating to move in the future. A Positive outlook indicates that we expect the rating to improve, a Stable outlook indicates that we expect the rating to remain the same. A Watch rating is assigned where there is uncertainty about the syndicate and/or its management such that the direction of any rating movement is uncertain. 11

14 5 Risk Rating The Risk Rating represents APCL s view of each syndicate s trading and management risk. Risk may be defined, in this context, as the likelihood of the syndicate suffering a large, above average, loss as assessed by reference to a number of quantitative and qualitative criteria as follows: The Syndicate Capital Requirements produced by Lloyd s (reflecting the volatility of the business written) The volatility of past results Exposure to catastrophic loss (as determined by syndicates Realistic Disaster Scenarios) The exposure to reinsurance failure The quality of the managing agent The Risk Rating is not a measure of potential profitability. Nor does the fact that a syndicate has a lower rating mean that it will not suffer a large loss. Rather, that based on a number of objective tests, followed by a subjective assessment, it is thought less likely to suffer an abnormally large loss. Insurance is inherently a high risk business and therefore the emphasis of this analysis is relative risk. The ratings used are as follows: Lower Lower to Medium Medium Medium to Higher Higher Very High L LM M MH H VH 6 Return Rating This rates syndicates based on their expected return on capacity. It uses APCL s Long Term Average (LTA) Return. These are then scored between 1 to 1, with a score of 1 representing the lowest returns on capacity and 1 the highest. Further details of the LTAs are contained in Appendix A. 7 Capital Rating This rates syndicates based on their marginal capital requirement, being the amount of additional capital that would be required to add additional capacity on a syndicate to a portfolio. It assumes a member underwrites a 1,, portfolio with the same allocation split as the Third Party market and uses the additional capital required for adding a further 25, line on a given syndicate. These are then scored between 1 to 1, with 1 representing the highest marginal capital requirements and 1 the lowest. Further details of the Capital Ratios are shown in Appendix B. 8 Catastrophe Rating This rates syndicates based on their expected exposure to a 1 in 3 year catastrophe. It uses the average of syndicates 1 in 3 year Aggregate Exceedance Probability (AEP) figures from their 216 SBFs as a percentage of syndicate capacity. These are then scored between 1 to 1, with 1 representing the highest exposure, and 1 the lowest. These 1 in 3 AEP figures are shown in Appendix C alongside the Gross and Net Realistic Disaster Scenarios information. 12

15 9 Tail Rating This rates the length and amount of a syndicates tail. It uses both the level of claims paid at the end of 36 months as a percentage of ultimate claims and the level of a syndicate s reinsurance to close as a percentage of net premiums. These are then scored between 1 to 1, with 1 representing the longest tail and 1 the shortest. 1 Cost Rating This rates the cost of purchasing capacity on a syndicate in the auctions. It assumes the lower the price, the better. Each syndicate s 214 adjusted average auction price is scored between 1 to 1, with 1 representing the highest auction price and 1 the lowest. Syndicates which do not trade at the auctions, such as Special Purpose Syndicates are given a score of 1. Details of auction prices are shown in Appendix B. 11 Scarcity Rating This rates the availability of capacity on a syndicate via the auction process or otherwise (e.g. for limited tenancy or SPS capacity). It uses a measure of the capacity available on a syndicate compared to the amount of capacity supported by third party capital. These are then scored between 1 to 1, with 1 representing the least availability (scarce) and 1 the most (not scarce). 12 Auction Volume and Average Price This graph shows the volumes of capacity traded on each syndicate together with the average price paid in the 21 to 214 auctions. The bars show the volumes traded in each of the three main auctions and are measured against the left hand axis. The line is measured against the right hand axis and shows the average weighted price paid to acquire capacity on the syndicate across the three auctions in each year. 13 Auction Commentary We provide a commentary on the price and auction activity for each syndicate in order to provide insight into the whys and wherefores of the auction prices and the demand and supply of capacity. 14 Syndicate Capacity This graph provides the constitution of the capacity of the syndicate by year of account, separated between Argenta, Other Third Party, and Aligned (dedicated, including direct corporate participations). The breakdown for 216 assumes the ratio between the various types of capital remain the same as for 215 unless we have been advised otherwise by the managing agent. 15 Gross and Net Capacity Utilisation This graph shows the amount of income written on a gross and net basis compared to a syndicate s capacity. The net premium income utilisation is after deduction of brokerage and other acquisition costs and outwards reinsurance. The inclusion of the syndicate s reinsurance spend gives the syndicate s gross premium income utilisation (after deduction of brokerage and other acquisition costs). Figures for the 212 account are actual figures. For 213 to 216, they are based on APCL s forecasts. 13

16 16 Summary of Results / Forecasts Gives a summary of each syndicate s results for the 28 to 212 closed years of account and APCL s forecasts for the 213 to 216 years of account. The closed year results are taken from syndicates Annual Report and Accounts, including illustrative personal expenses. APCL s forecasts are based on our own assessment of the syndicate s likely performance as described in Appendix A. Summaries of all syndicates percentage results and forecasts (together with the managing agents own forecasts) are shown in the Appendices. Operating expenses include exchange rate gains. This explains why these figures are positive in certain instances. 17 Forecasts Commentary We provide a commentary on the forecasts for the open years of each syndicate, based on our own forecasts and expectations. 18 Syndicate Forecast Trend This graph shows how each syndicate s forecasts develop as a year of account matures towards closure. It could be viewed as an indicator of a managing agent s ability to forecast the syndicate s result. An upward line indicates that the forecast and final result have improved over time whereas a downward line shows that the forecast has deteriorated. 19 Description This provides a brief description of the syndicate and the type of business it underwrites. 2 Syndicate Business Forecast This section contains a commentary on the 216 business plan for each syndicate. Any material changes are highlighted and where appropriate a commentary on recent performance to plan is provided. 21 Significant Points This highlights major changes and significant developments within the syndicate/managing agency over the past year, incorporating details contained in the Report and Accounts as at 31 st December Class of Business Split The categories used are broad classes of business based on the expected split of account supplied by syndicates in their 216 business forecasts. The initial risk codes supplied by syndicates are numerous; therefore APCL combines these initial codes into the broader categories shown. A more detailed breakdown is shown in the appendices. 23 Combined Ratio by Class of Business This table shows how each of the main classes of business written by a syndicate has performed a lower ratio indicating a better performance. The ratio is the annual accounting combined ratio (as opposed to underwriting year of account). The combined ratios for smaller classes of business are not captured. Therefore, a blank does not indicate that a syndicate does not write a particular class of business at all. The Whole Account ratio is likely to encompass classes of business not included above. 24 Realistic Disaster Scenarios (RDS) 14

17 The top seven net RDS for 216 are shown for each syndicate. The figures for each different RDS are based on each syndicate's 216 business forecast. The gross RDS for each is also shown, as are the comparative figures for 215. Details of the individual Lloyd s RDS and how each is treated for the purpose of this publication are given below. In addition to showing the specific scenarios in the individual syndicate profiles we have also tabulated syndicates RDS in Appendix C on a standardised basis. This is to allow for ready comparison between syndicates and is also as shown in the Personal Portfolio Analysis (PePA) reports provided to Members during the year. Where a prescribed scenario has more than one sub-set (e.g. there are two Florida Windstorm scenarios; three Political Risks scenarios; seven Liability scenarios) we have taken the largest of each. Whilst these may not strictly aggregate we believe it provides a worst case position. We do not show the Major Risk Loss scenario as these represent a different loss scenario for each syndicate and cannot be aggregated for the purpose of the PePA. The figures for each scenario are given Gross (i.e. before reinsurance recoveries) and Net (after reinsurance recoveries). It is important to bear in mind that syndicates with a large Gross exposure to an event face the risk of cash flow difficulties after an event (possibly giving rise to cash calls on the Members) as well as the risk of reinsurers defaulting on the contract or disputing a claim when made. The percentages shown represent a guide as to the potential cost to each syndicate in the event of the occurrence of one of these loss scenarios, and not the overall "bottom line" result for a year of account. Other non-aggregating sections of the account could produce profits to mitigate such catastrophe losses. They could also, of course, produce further losses. We stress that the figures should be treated as indicative, as actual losses are likely to be different, particularly in the event of multiple losses of similar magnitude occurring in the same period. Furthermore, it should be noted that a number of syndicates set the level of RDSs to represent the maximum expected exposure or even the maximum appetite for exposure to each event. A number of managing agents have expressed the view that Lloyd s Underwriting Performance Directorate (UPD) views the RDS as per the agreed plan as a limit rather than guidance to capital and they have said that they would rather build in headroom than have to approach UPD to agree a revised plan. We believe that these RDS exposures are overstated. Aviation Collision Assumes a collision between 2 aircraft over a major city, anywhere in the world, using the syndicate s two highest airline exposures. Assumes a total liability loss of up to US$4 billion, comprising of up to US$2 billion per airline and any balance up to US$1 billion from an air traffic control liability policy(ies) and/or a major product manufacturer s product liability policy(ies), where applicable. California Earthquake Syndicates are required to return both of the following scenarios. i) Los Angeles Earthquake - Assumes a US$78 billion Industry Property (shake and fire following) Loss, gross of take-up rates and including consideration of demand surge, from an earthquake causing major damage to Los Angeles. ii) San Francisco Earthquake - Assumes a US$78 billion Industry Property (shake and fire following) Loss, gross of take-up rates and including consideration of demand surge, from an earthquake causing major damage to San Francisco. European Windstorm Based upon a low pressure track originating in the North Atlantic basin resulting in an intense windstorm with maximum/peak gust wind speeds in excess of 2 metres per second (45 mph or 39 knots). The strongest winds occur to the south of the storm track, resulting in a broad swathe of damage across southern England, France, Belgium, Netherlands, Germany and Denmark. This event results in an estimated Industry Property Loss of Euro 23bn. Florida Windstorm Syndicates are required to return both of the following scenarios: i) Miami, Dade County - A US$125bn Industry Property Loss, including consideration of demand surge 15

18 and storm surge, from a Florida Hurricane landing in Miami-Dade County. ii) Pinellas County - A US$125bn Industry Property Loss, including consideration of demand surge and storm surge, from a Florida Hurricane landing in Pinellas County. Gulf of Mexico Windstorm A US$111 billion Industry Loss from a Gulf of Mexico Hurricane resulting in offshore energy losses of approximately US$4.5 billion and mainland property losses of US$17 billion including the consideration of demand surge and storm surge. Japanese Earthquake This event is based on the Great Kanto event of 1923 with an estimated Industry Property Loss of Yen 5trn. Japanese Typhoon This event is based on the Isewan ( Vera ) typhoon event of As a guide, the estimated Industry Property Loss from this event would be Yen 1.5trn. Liability Risks Syndicates are required to report two internally modelled liability loss scenarios. Although syndicates scenarios under this heading cannot be accurately aggregated it provides an indication of the maximum impact of a liability loss to a syndicate. i) A professional lines scenario; for example: Mis-selling of a financial product Failure / collapse of a major corporation Failure of a merger Failure of a construction project Recession-related losses ii) A non-professional lines scenario; for example: Industrial / transport incident Multiple public / products losses Loss of Major Complex Assumes a total loss to all platforms and bridge links of a major complex. Includes property damage, removal of wreckage, liabilities, loss of production income and capping of the well. Marine Event Syndicates are required to return both of the following scenarios. i) A fully laden tanker calling at Prince William Sound, Alaska, is involved in a collision with a cruise vessel carrying 5 passengers and 2 staff and crew. The incident involves the tanker spilling its cargo and loss of lives aboard both vessels. Assumes 7% tanker owner / 3% cruise owner apportionment of negligence and that the collision occurs in US waters. Also assumes that the cost to the tanker and cruise vessel owners of the oil pollution is US$2 billion and that there are 125 fatalities, 125 persons with serious injuries and 25 persons with minor injuries (average compensation being US$1.5m, US$2.5m and US$.5m respectively). ii) A US owned cruise vessel is sunk or severely damaged with attendant loss of life, bodily injury, trauma and loss of possessions. Claims to be heard in a Florida court. Assumes 5 passenger fatalities and 1,5 injured persons with average compensation of US$2m and US$1m respectively. 16

19 Also assumes an additional Protection and Indemnity loss of US$5m for costs such as removal of wreck and loss of life and injury to the crew. New Madrid Earthquake Assumes a US$47 billion Industry Property (shake and fire following) Loss, gross of take-up rates and including consideration of demand surge from an earthquake causing major damage within the New Madrid Seismic Zone. Political Risks Syndicates are required to return Political Risk loss scenarios that generate losses above a de minimis reporting level set by Lloyd s from time to time. Examples include: i) An economic downturn in South East Asia. ii) An economic crisis in South America. iii) A political crisis in the Middle East. iv) An economic downturn in Turkey. v) An economic downturn in the Russian Federation. vi) An economic and social disintegration leading to Civil War in Nigeria Satellite Risks Syndicates are required to return information relating to the largest loss from any one of four different scenarios. i) A Solar Energetic Particle Event such as a solar flare or coronal mass ejection produces a vast outpouring of protons, electrons and other charged particles which will cause permanent damage to semiconductor devices. A single large event (or a number of smaller events in close succession) has the potential to affect all geosynchronous satellites and could result in a loss of power on a majority of satellites. All live exposures in this orbit will be affected by the proton flare. Syndicates should assume a 5% insurance loss to all affected policies. ii) Design Deficiency - assumes that a design deficiency leaves a particular geosynchronous satellite type vulnerable to space weather events. Such a deficiency should be assumed to leave the satellite, or component part thereof, prone to the effects of deep di-electric charging, surface charging, electrostatic discharge, total radiation dose or other similar effect which could be triggered by a large solar energetic particle event or related disturbances in the Earth s geomagnetic field. Syndicates should include exposures to all live policies covering geosynchronous satellites. iii) Generic Defect An undetected generic defect in a number of operational satellites has the potential to cause significant losses to the space insurance market. During the time it takes for a generic defect to emerge, many more satellites of the same model/variant may have been launched. Syndicates are required to report on a prescribed set of satellite models and damage levels. iv) Space Debris - A satellite break-up or collision in low Earth orbit (LEO) resulting in the generation of a cloud of debris that progresses around, above and below the orbit. The debris cloud then poses an increased threat for other satellites in LEO. Syndicates are required to report on prescribed groups of satellites. 17

20 Terrorism Syndicates are now required to complete returns for the two following scenarios. a. Rockefeller Center Event - The Midtown Manhattan area, New York, at 11:am on 1 st January suffers a 2-tonne bomb blast attack causing collapse and fire following within a radius of 2m, massive debris damage to surrounding properties up to a radius of 4m and light debris damage to surrounding properties up to a radius of 5m. 1, blue/white collar worker deaths and 2,5 injuries in total. b. Exchange Place Event - The lower Manhattan area, New York, at 11:am on 1 st January suffers a 2-tonne bomb blast attack causing collapse and fire following within a radius of 2m, massive debris damage to surrounding properties up to a radius of 4m and light debris damage to surrounding properties up to a radius of 5m. 1, blue/white collar worker deaths and 2,5 injuries in total. Two Events Syndicates are required to model on an as if basis the occurrence of a South Carolina hurricane in the immediate aftermath of a North East US hurricane. Assumes that these events fall in the same reinsurance year and that there has not been sufficient time between events to purchase additional reinsurance protection. Syndicates are required to return losses to both events separately. This provides us with two scenarios: The cost of a North East US hurricane and the combined cost of the two events. Both are shown where they feature in the top seven events for a syndicate. i) North East US Windstorm - A US$78bn Gross property Industry Loss including consideration of demand surge and storm surge from a north-east hurricane making landfall in New York State. The hurricane also generates significant losses in the States of New Jersey, Connecticut, Massachusetts, Rhode Island and Pennsylvania. ii) South Carolina hurricane - A US$36bn Gross property Industry Loss from a hurricane making landfall in South Carolina, including consideration of demand surge and storm surge. UK Flood Assumes an Industry Insured Loss of 6.2bn. This scenario is based on a heavy rainfall event causing extensive flooding of the River Thames and surrounding areas covering 194 km 2 from western London to Oxford. Average 3 Year AEP Shown only in the RDS tables in Appendix C is the average of syndicates gross and net 1 in 3 year Aggregate Exceedance Probability Loss for either a major hurricane or earthquake. Alternative RDS A & B Syndicates are required to report two further realistic events not included under other prescribed scenarios that represent a potential material impact to the syndicate. For example: earthquakes outside of California, New Madrid and Japan; a major flood incident; a Caribbean/US hurricane clash; pandemic risk; terrorism accumulations excluding Manhattan; a Selby-type liability loss; an accumulation of sports team members. Where these are similar in nature to one of the prescribed scenarios we have categorised them as such and the highest net loss is taken. Otherwise they are shown as a specific scenario as described by the syndicate. The percentages shown represent a guide as to the potential cost to each syndicate in the event of the occurrence of one of these loss scenarios, and not the overall "bottom line" result for a year of account. Other non-aggregating sections of the account could, depending on their profitability, produce profits to mitigate such catastrophe losses. They could also, of course, produce further losses. We stress that the figures should be treated as indicative as actual losses are likely to be different, particularly in the event of multiple losses of similar magnitude occurring in the same period. 18

21 25 Largest Net Losses 211 to 215 This table details the largest seven net losses sustained by each syndicate. These are based on the major losses reported in each syndicate s Quarterly Monitoring Report (QMR) as at 31 March 215 and is calculated using the total reported loss as a percentage of the syndicate s capacity in the year the loss occurred. It is useful to assess these by reference to each syndicate s RDS. Where a syndicate has not sustained an individual loss of sufficient size to trigger the minimum reporting level these are shown as No classified major losses. 26 Net Incurred Loss Ratios This graph shows the development of the syndicate s net incurred loss ratio for each of the 21 to 214 years of account. It also shows how each year is developing against others. The information is taken from syndicates QMRs as at 3 June Geographic Split This table shows a breakdown of each syndicate s premium income by geographic location. This provides a useful insight as to where in the world the syndicate s exposures lie. In addition, it also provides an indication of a syndicate s possible exposure to US situs funding issues in the event of US losses. Syndicates are no longer required to report these figures in the first submission of their 216 business plan. However, most syndicates have. For those that have not we have used their 215 figures as there is unlikely to be much change from last year. 28 Key Ratios This section shows a number of key ratios for each syndicate. These ratios are described in Appendix B which also contains comparison tables for all syndicates. Managing Agent Profiles 29 The financial data included in the Managing Agent Profiles is annual accounting data (as opposed to underwriting year of account data shown in the Syndicate Profiles). It is the aggregate of all syndicates operated by the managing agent reporting in each calendar year and shows the annually accounted performance of the managing agent s Lloyd s operation. 3 The text provides general information about the managing agent, including its structure, ownership and any overseas platforms. 19

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24 Syndicate 33 Hiscox Syndicates Limited Paul Lawrence Although the market continues to be very competitive, Hiscox insists that brains do matter and that it is more than possible to pick your way through the market. The reinsurance programme for the syndicate involves writing in conjunction with other entities, including the insurance linked security fund, Kiskadee, and Special Purpose Syndicate 614. This provides the syndicate with non-risk bearing income and helps it to maintain relevance when line size and speed of response are important for the broker and the cedant. Meeting client needs continues to be a major driver and will insulate the syndicate from the worst of the rate war, although in order to maintain premium income volumes Hiscox has shown that it is not afraid to participate in major brokers facilities on the current very competitive terms. In the current spate of M&A activity, Hiscox has attracted its share of rumour-mongering, but we are not aware of any developments of substance. We consider this syndicate to be a core ingredient of our portfolio of syndicates and recommend that it forms a meaningful part of all our advised members underwriting. Strengths / Opportunities: Highly profitable, over the past seven closed years the syndicate has declared a total profit in excess of 1.2 billion. Despite medium risk profile, the capital requirement is relatively low. Increasing use is made of pro rata reinsurance arrangements, which pay ceding commissions and overriders to the syndicate. Increases in the levels of these commissions have been sought and largely achieved in the current soft market and they have made a sizeable contribution to the bottom line, reducing expenses by an average of almost 5% of capacity in the last four closed years. The structure also allows the syndicate to expand and contract without needing to develop sufficient premium to pay fixed levels of premium for excess of loss contracts. The syndicate s profile benefits from the high visibility television and media campaign by Hiscox Insurance Company for homeowners and small commercial business. Consistently and conservatively reserved. The syndicate s declared result has exceeded the estimate as at quarter 6 by an average of almost 15% of capacity over the past seven closed years. Releases from reserves have contributed more than 6% of capacity. Reserving levels have continued to improve, with the ratio of IBNR to outstanding claims increasing to 99% at the close of 212. A leader in almost all areas of the syndicate s operation, with a focus on shorter tail lines. Weaknesses / Challenges: The 216 business plan is more aggressive than we expected, with premium volumes increasing in some lines despite fiercer competition. In particular, Hiscox is growing its longer tail element by around 25%, having recruited new underwriters. Catastrophe exposures are up: some of the main critical catastrophe exposures are substantially higher for 216, for example the Miami hurricane RDS increases from 55m to 91m. In part this is a consequence of the change in the value of sterling against the US dollar, but it seems to reverse the de-risking of the book in 213 and 214. Although expenses are mitigated by profit commissions, overall expenses are high. The budget for 216 is 73m. A share of any deficit in the group s defined benefit pension fund is charged to the syndicate. In 214 this came to 11m, after a surplus of 4.5m in 213. Given its obligations as a listed company not to disseminate price sensitive information, Hiscox provides us with a fairly limited data set for both business plans and the regular quarterly updates. In particular, it does not provide incurred or ultimate loss data for major catastrophes. As a listed insurer, the business has not been immune to rumours of takeover in the current round of merger and acquisition activity. 22

25 Rating (outlook): A (stable) Risk Rating: Medium Return Rating: 7 Capital Rating: 8 Catastrophe Rating: 6 Tail Rating: 5 Cost Rating: 2 Scarcity Rating: 2 Auction Volume and Average Price Auction Commentary s 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, p/ 1 of capacity Prices fell in from Auctions One to Three despite a reduction in the volume of capacity traded. Capacity that was tendered at prices in excess of 63p in Auction One, 58p in Auction Two and 54p in Auction Three remained unsold. The syndicate has broad third party support, almost all non-aligned members have a share. Hiscox has not increased its share of capacity since 24 and has not bid for capacity since 29. Clients of all three members agents were buyers and sellers of capacity. Argenta clients were the largest sellers, although this related to a single very large seller Auction 1 Auction 2 Auction 3 Ave Price Syndicate Capacity Gross and Net Capacity Utilisation 1,2 8% 1, 7% 8 6% 5% millions 6 4 4% 3% 2 2% 1% Argenta Other Third Party Aligned % Net Premium Reinsurance Premium Summary of Results / Forecasts Capacity ( m) , 1, 1, Gross Premiums Net Premiums Pure Year Result Prior Year Result Operating Expenses Investment Return Result (Est) m % 15% 31% 7% 8% 17% 13% 1% 5% 5% Estimates in blue are APCL's own forecasts. Please see Appendix A for a full description and the caveats on page 215. Forecasts Commentary Hiscox syndicate results have traditionally come in well above the preliminary forecasts as reserving on open and prior years is conservative. The increase in the liability element of the account will lengthen the tail. As the original gross result improves, profit commissions on the quota share reinsurances increase in quantum, thereby creating a doubling effect on the overall result. We continue to expect reserves to produce surpluses. Reserve releases have been around 6% of capacity on average. Our model halves the level of future release to 3%, but this may prove to be conservative. % of Capacity Syndicate Forecast Trend Q5 Q6 Q7 Q8 Q9 Q1 Q11 Q

26 Syndicate 33 Hiscox Syndicates Limited Paul Lawrence Description: Syndicate 33 writes large complicated risks that rely on the London subscription market, as well as smaller risks bundled together under delegated underwriting arrangements. Homogenous risks, with smaller profit margins and reliant on efficient processing, are not written. Hiscox runs a UK insurance company for this type of business. The major divisions of the syndicate are currently (in declining order of projected premium volume) property, reinsurance, aerospace & specialty, marine & energy, casualty and art & private client. A separate, and currently small operating team, was established to write business under the emerging broker facilities. Syndicate 614 operates as a quota share reinsurer of the reinsurance division, and pays an overriding commission to Syndicate 33. Syndicate Business Forecast: Income on the 215 year of account is likely to be substantially ahead of plan, a variance only partially explained by the movement in rates of exchange. The plan is essentially flat for 216, with an overall average expectation of rates 5.5% lower than in 215. There is growth in the reinsurance, aerospace & specialty and casualty divisions, compensated for by reductions in property and marine & energy. Some of the growth is from newly recruited underwriting teams displaced by recent merger activity. Hiscox is leader on one section of the Willis 36 market facility and a follower on parts, although premium volumes have been lower than anticipated in 215. The reinsurance programme has been restructured over the past decade with far more proportional cover. This cover pays an overriding commission to the syndicate, as well as a large profit commission contribution if results are good. Aggregate exposures are broadly up on last year, some, including critical catastrophe RDSs, by as much as 6%. Significant Points: a) No change is planned to the current capacity of 1 billion for 216. b) Mike Krefta was appointed joint Active Underwriter with Paul Lawrence in September 214. Mike is also Director of Non-Marine Underwriting for Hiscox Re in London while Paul is Chief Underwriting Officer of Hiscox London Market. c) Syndicate funds currently total 1.3 billion with an average duration of 18 months. d) The reinsurance book is written as Hiscox Re, a combination of the underwriting platforms in Bermuda, London and Paris. The Hiscox ILS fund, Kiskadee, participates as a reinsurer of Hiscox Re. 24

27 Class of Business Split Combined Ratio by Class of Business Accident & Health Aviation Energy Liability Liability Treaty Life Marine Property Property Treaty UK Motor % of Business Written Aviation Casualty Energy Life Marine Motor Property Reinsurance Whole Account Note: These are annual accounting ratios Realistic Disaster Scenarios Largest Net Losses 211 to Gross Net Gross Net Two Events 88% 18% 88% 18% Information not supplied US Terrorism - Rockefeller Center 44% 17% 44% 17% Gulf of Mexico Windstorm 57% 11% 57% 11% Vancouver Earthquake 39% 11% California Earthquake - Los Angeles 47% 1% 47% 1% North East Windstorm 47% 9% 47% 9% Florida Windstorm - Miami Dade 41% 9% 41% 9% 216 Net Incurred Loss Ratios 9% 8% 7% 6% 5% 4% 3% 2% 1% % Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q1 Q11 Q UK Europe (ex UK) North America Americas (other) Asia Pacific Middle East & Africa Worldwide Geographic Split 1.4% 3.2% 38.8% 3.8% 4.5% 2.1% 46.3% Key Ratios Gross Premiums % Capacity Reinsurance Premium % Gross Premiums Pure Year Underwriting Result % Capacity Prior Years Underwriting Result % Capacity RITC received % Capacity IBNR % Net Outstanding Claims Operating Expenses % Capacity

28 Syndicate 218 ERS Syndicate Management Limited Mark Bacon ERS Syndicate 218 has obeyed the first maxim of a loss making business stop losing money. The 212 result and the 213 and 214 accounts are broadly breakeven. The UK legal environment continues to present challenges and it is clear that recent regulatory reforms have not delivered the expected benefits to insurers. There are signs that rates are beginning to increase in the UK motor sector, and merger activity is likely to produce interesting opportunities for the syndicate. Much has been achieved in the past few years: the new IT system has been implemented, reducing the expense base by 1m; the head office has been relocated to London and the branch offices closed. In addition, head count has been halved and the syndicate has cleared Solvency II hurdles. The business forecast presented to Lloyd s is the first in recent years to show a meaningful profit at 5% of the increased capacity for 216. We continue to recommend support. Strengths / Opportunities: The account has been transformed, with ERS now positioned as a broker only/motor only insurer, focused on specialist segments of the market where barriers to entry exist and where price competition is less intense. The management sees growth opportunities in these segments, especially if there is to be consolidation in the UK motor sector, with the possibility of the syndicate acquiring portfolios of business. The putative merger of RSA with Zurich could bring major opportunities to the syndicate if it were to take place. There is evidence of a gradual strengthening of the rating environment, with increasing rates in private car business a recent confused.com survey reported prices up 3.6% in the past twelve months. Although the focus of the ERS account is on specialist segments, this upward momentum will be beneficial to ERS. The remediation programme is now complete: new IT systems have been implemented, Solvency II hurdles have been cleared and the office has been relocated to London, which it is believed will enable recruitment of higher calibre personnel. All of these initiatives have required management resource and secondment of the underwriting team away from their principal roles. All key staff can now focus on their primary roles. Reserving practices have been overhauled, with far more robust provisions. Reserves are now held at a margin of 1% over actuarial best estimates. The 212 account produced a reserve release of 12m and the 213 account currently is forecast to have a release of 7m (as at Q2). Weaknesses / Challenges: Lloyd s remains an expensive place for a motor insurer to trade. ERS states that the cost of trading at Lloyd s adds 3 percentage points to the expense ratio. ERS would argue that little of this cost benefits the syndicate materially. Although strides have been made to reduce the expense base, the syndicate expense ratio is forecast to be 32% of net premium (down from 35% for the 215 year of account and 38% for 214). Although comparisons with volume insurers can be misleading, the UK motor market achieved an expense ratio of 3.6% in 214. Recent changes in the legislative landscape have not produced the predicted benefits to insurers. These include the LASPO reforms, and the banning of referral fees. This has introduced additional uncertainties into the 214 account, with improvements in claims settlement statistics, but a deterioration in the outstanding losses. Changes in the composition of the account, coupled with changes in legislation and in the syndicate s claims practices, mean that inter year comparisons of underwriting statistics can be misleading. Relations with the Lloyd s PMD had become frosty, with recent years plans scaled back, leading to proposals to write part of the account into a non-lloyd s insurance company (where Lloyd s would not have rights of veto over the premium volumes to be written by the company). We believe that the decision to shelve this proposal is a sign of both parties attempting to foster a better working relationship. The Chancellor of the Exchequer increased insurance premium tax from 6.5% to 9% in his July 215 budget statement. This could make it more difficult for the syndicate to achieve planned rate increases. Although equally it could result in more customers seeking alternative quotes for their business as they are presented with price increases irrespective of the actions of their insurer. 26

29 Rating (outlook): C (watch) Risk Rating: Medium Return Rating: 2 Capital Rating: 9 Catastrophe Rating: 1 Tail Rating: 7 Cost Rating: 8 Scarcity Rating: 5 Auction Volume and Average Price Auction Commentary s 25, 2, 15, 1, 5, p/ 1 of capacity Auction prices increased from less than 3p in Auction One to more than 6p in Auction Three as ERS increased the price it was bidding. Having been unsuccessful in Auction One with 4 bids for 5m at prices of.5p, 1.p, 1.5p and 2.p, it revised its strategy, buying 1.4m in Auction Two at 4.p (it bid for 3m in total) and another 1.9m (of another bid for 3m) in Auction Three at 6.p. ERS bought 38% of the capacity changing hands, although both Argenta and Alpha were also strong buyers, buying 25% and 28% respectively of the capacity traded. The sales were distributed across all three of the members agents Auction 1 Auction 2 Auction 3 Ave Price Syndicate Capacity Gross and Net Capacity Utilisation % 1% millions % 6% 4% 1 5 2% Argenta Other Third Party Aligned % Net Premium Reinsurance Premium Summary of Results / Forecasts Capacity ( m) Gross Premiums Net Premiums Pure Year Result Prior Year Result Operating Expenses Investment Return Result (Est) m % -56% -28% -21% -13% % % % 1% 4% Estimates in blue are APCL's own forecasts. Please see Appendix A for a full description and the caveats on page 215. Forecasts Commentary The published statistics can be misleading both due to changes in the account' in claims settlement practices. However, it is apparent that the syndicate has increasingly got a better handle on its pricing and planning, with recent years having largely delivered the plan approved by Lloyd s. We are expecting Lloyd s to curb the initial 216 plan, with a revised version submitted before approval is given, although the projected rate increases in the July 215 plan are lower than those reported in the wider market. Our model does not assume any credit for reserve releases beyond those currently forecast for the 213 year by ERS % of Capacity Syndicate Forecast Trend Q5 Q6 Q7 Q8 Q9 Q1 Q11 Q