BIQ WHAT S NEXT AFTER TWO UNEXPECTED YEARS? BERMUDA INSURANCE QUARTERLY YEAR-END RESULTS & ANALYSIS BERMUDA S OWN POWER BROKER

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1 BIQ April 2007 BERMUDA INSURANCE QUARTERLY 2007 Bermuda Media in association with WHAT S NEXT YEAR-END RESULTS & ANALYSIS BERMUDA S OWN POWER BROKER THE MANY FLAGS OF FLAGSTONE Q AFTER TWO UNEXPECTED YEARS? It couldn t get much better than 2006 for the Bermuda market after the misery of the previous year see PricewaterhouseCooper s painstakingly prepared annual figures on pages 12 and 13 but what is in store for us in 2007? We offer a variety of fascinating opinions on pages 1 and 11

2 OPPORTUNITY IN THE EXTREME. There is an artful balance in property catastrophe reinsurance between acting on opportunity and mitigating risk, especially in extreme conditions. At IPCRe, we do both with firm discipline and a solid business model. Our clients work with IPCRe because we've earned their confidence through an experienced and consistent team, a transparent balance sheet, and the added value of excellent service.

3 BIQ BERMUDA INSURANCE QUARTERLY Volume 3, Number 2 April 2007 Editor Charles Barclay Art Director Paul Shapiro Contributing Editor Chris Gibbons Director of Marketing Lissa Fisher Publisher Ian Coles Published by Bermuda Media, Suite 310, The International Centre, 26 Bermudiana Road, Hamilton HM 11, Bermuda. Postal address: PO Box HM 2032, Hamilton HM HX, Bermuda. Tel: Fax: submit@bm.bm. Web: bermudamedia.bm. Printed in Canada. Published four times a year In association with PricewaterhouseCoopers. Cover image courtesy of Getty Images THE QUOTES OF THE QUARTER We are seeing softening in several markets, and discipline will be critical Uncertainty created by recent legislative changes in Florida will reduce demand for some products. We are responding by shrinking in areas that do not meet our standards and growing in areas we find attractive. Neill Currie, RenaissanceRe Our operating return on equity was 20.1%, which was the main driver behind the 19.9% increase in book value for Brian O Hara, XL Record earnings for 2006 [have resulted] in an increase in diluted book value per common share of 25% [Barring] major catastrophic events, we expect 2007 to be very positive. John Charman, AXIS We achieved [record] results in a transitional year [in which] we reduced catastrophe exposures by about 50% while maintaining significant retrocessional spend. This underscores the strengths of our diversified business model. Chris O Kane, Aspen In addition to record earnings, we took significant steps to further expand and balance our book of business through growth in our specialty lines and we significantly reduced our catastrophe risk profile. Kenneth LeStrange, Endurance We are working to maintain our underwriting discipline through the current market conditions, bolstered by a very strong balance sheet, strong financial ratings, and an invested asset base approaching $6 billion. Scott Carmilani, Allied World It s a great place to be again GUEST OPINION: OUTLOOK SUNNY FOR BERMUDA WITH JUST A FEW POTENTIAL CLOUDS THREATENING Bermuda s reinsurance market gets top marks from respected industry publication Reactions for its resilience and recovery from the heavy 2005 losses and also for continuing to be at the forefront of the merging capital markets and insurance. The magazine s annual Ber - muda market review reports that capacity is still pouring into the island and that January s renewals were far more relaxed than last July s tense negotiations when reinsurers pushed through big price hikes ahead of the then imminent but ultimately benign hurricane season. Despite reinsurers being under pressure from increased capital demands by rating agencies and increased loss projections from the risk modellers, programmes were not only filled but oversubscriptions even led some reinsurers to sign-down their risks. The consensus among the island s reinsurers is that underwriters generally agreed on what the correct price should be and buyers looking to get bargains would have struggled. But programmes got done once rates reached levels that were acceptable, the magazine says. This was thanks in part to the capital that has flowed into Bermuda since the 2005 hurricane season. The island is now firmly established as the go-to place for new reinsurance capital. However, some market veterans are warning that despite the tide of capital increasingly coming from hedge funds there still The Class of 2005 s narrow focus will present it with challenges. Companies will be looking to grow against a background of declining premiums in most markets and we will need to find areas that are profitable [ 1 ] may not be enough capacity for peak risk zones. IPCRe s Jim Bryce says in the magazine: Just because a programme gets placed doesn t mean you have adequate supply. He adds: All this capacity can only be tested by a loss. Even with the crash derby of sidecars and hedge funds, we still don t have enough capacity. A lot of this synthetic capital will probably disappear if there is a severe event. For now, though, the magazine notes that all participants in the Bermuda market, new and old, are raking in the cash. After a catastrophe-free 2006, the island s reinsurance market is looking like a great place to be again. Still, the magazine believes the Class of 2005 start-ups face some challenges if, as expected, the market softens in 2008, comparing them to the Class of 1993, rather than 2001: [Like 1993], the Class of 2005 was set up to capitalise on rocketing catastrophe rates following record insured losses from the 2005 hurricane season. By contrast, the firms set up after September 11 were able to take advantage of rates hardening across almost all insurance lines, and quickly established themselves as multi-line insurance and reinsurance groups. The Class of 2005 s narrow focus will present it with challenges. Companies will be looking to grow against a background of declining premiums in most markets, and will need to find areas that are profitable. For more information, go to

4 NEWS REVIEW Sidecars still revving up BUT THE NEWER MODELS HAVE A DIFFERENCE The race to establish Bermudabased sidecar vehicles shows no signs of letting up with several new companies formed in the last few months. But the new arrivals, focusing on providing back-up to retrocessional business, seem to be starting a new trend in sidecars the name given to flexible financial structures that reinsure one cedant under a quota-share reinsurance agreement. Last December, UK insurer and reinsurer Brit launched Norton Re to write catastrophe retrocessional business while Bermuda reinsurer Harbor Point launched New Point Re, followed in January by Advent Re, set up by Lloyd s firm Advent Capital Holdings, and Triomphe Re, launched by Bermuda reinsurer Paris Re. Meanwhile, insurance broker Marsh has established a Bermuda property cat sidecar, MaRI, which will reinsure ACE on a quota-share basis. Norton Re, with initial capital of $107 million, will use the underwriting expertise of the Brit Insurance retrocessional team operating from Bermuda. Brit CEO Dane Douetil said: Terms and conditions and pricing in the retrocession market have strengthened further and we and our fellow investors regard this as the optimal time to launch the new carrier. This will be our first investment in an offshore underwriting business. [It] is a potential blueprint for other classes of business with similar characteristics. Class 3 reinsurer Advent Re has been set up with $37.5 million in capital to take advantage of attractive market conditions to underwrite a limited number of retrocessional contracts, a segment of the reinsurance market in which the Advent Group has participated as a leading underwriter for over 30 years. Advent Capital (Holdings) is a Lloyd s insurer that manages and participates in Syndicate 780 and for 2007 it will now also be able to write business through Advent Re in Bermuda. Advent s business is Kiln joins Lloyd s exodus Following the lead of Hiscox and Catlin, Kiln is the latest Lloyd s insurance firm set to join the move to Bermuda. Kiln, a Class 3 insurer, will be capitalised at $308.9 million. Kiln will also relocate its HQ to the island where it will be run by present CFO Peter Haynes. Still, many of its executives, including CEO Edward Creasy, will remain based in London. In the past year, the company has opened offices in Hong Kong, Singapore and Belgium, and the Bermuda office will enable Kiln to be closer to the US, where it is considering an onshore presence. Mr Creasey said: Bermuda offers a favourable environment in which to develop as a growing international business and we expect that our new Bermudian operations will be complementary to Kiln s existing Lloyd s business. Lloyd s remains, in our view, a comm - erc ially advant - ageous platform Peter Haynes: which will continue to form an Bermuda heading Kiln in important part of our insurance activities. Meanwhile, Amlin will not follow its rivals and redomicile in Bermuda. CEO Charles Phillips explained: We have 620 people in our London office and 14 people in our Bermudian office. Amlin recently reported an 84% increase in full-year pretax profits to million with 100 million contributed by its Bermuda unit. predominantly short-tail property reinsurance and insurance, specialising in catastrophe coverage. Paris Re will cede 24% of its property catastrophe excess-of-loss and risk excess-of-loss reinsurance business for 2007 and 2008 to Triomphe Re, its new Class 3 Bermuda sidecar. The quota share will be collateralised by a trust established by Triomphe Re that will include the total capitalisation of Triomphe Re, as well as the ceded reinsurance premiums received from Paris Re. Triomphe Re was capitalised with approximately $185 million. Harbor Point says New Point Re, its new Class 3 reinsurer capitalised with approximately $250 million, was formed specifically for writing collateralised retrocessional contracts, including collateralised industry loss warranties (ILWs). Harbor Point also announced the formation of a wholly-owned subsidiary, Harbor Point Agency, to provide all underwriting and management services to New Point Re. John Berger, CEO of Harbor Point, said: This is another opportunity for us to leverage our underwriting expertise while meeting client-specific needs. Marsh, ACE in unique venture Insurance broker Marsh has announced the creation of MaRI (Marsh Risk Innovations), a first-of-its-kind insurance facility designed to provide additional capacity to the depleted property catastrophe insurance market. Marsh says it is unique in that it delivers capital market capacity through an A+ rated insurer with admitted paper directly to major corporations in need of additional property catastrophe coverage. The additional capacity will be made available through reinsurance provided by MaRI, a newly formed Bermuda-based reinsurance sidecar, to ACE. Marsh collaborated with ACE and Morgan Stanley to create MaRI. It provides large corporate clients of Marsh with exclusive access to insurance capacity intended to fill gaps that are creating instability and shortfalls in property catastrophe risk coverage, Marsh said. Traditionally a sidecar allows reinsurers to offer more capacity to their clients, the retail insurers. What makes the MaRI structure innovative is that it provides Marsh clients with direct access to the capital markets through a highly-rated ACE delivery vehicle. Brian Storms, Marsh Chairman & CEO, said: Obtaining sufficient insurance coverage for catastrophic loss has been extraordinarily difficult for many of our clients. In some US regions, property catastrophe insurance rates have quadrupled since the 2005 hurricane season. Marsh expects the ACE/MaRI programme to deliver $400 million in extra capacity to its clients during Q1, 2007 and could provide more than $1 billion over the next year. [ 2 ]

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7 Catlin to offer affordable NCBR coverage Catlin Insurance Company, a subsidiary of Catlin Group, has developed an insurance and reinsurance product that provides affordable coverage for nuclear, chemical, biological or radiological (NCBR) terrorism. Insurers are often reluctant to provide coverage for NCBR events, partly due to the unacceptable accumulation of risk. But Catlin Bermuda says it has developed a product which overcomes this problem by restricting the coverage to NCBR events which occur in a specified geographic area pre-defined by the insured or cedant. It said: The coverage can be provided on an insurance or reinsurance basis and can cover most underlying forms of insurance (such as workers compensation, property damage, business interruption, etc). By restricting the geographic area covered, Catlin Bermuda has created a product whereby significantly more insurance and reinsurance capacity should now be available for NCBR terrorism at much more reasonable pricing levels. RenRe settlement RenaissanceRe has reached a $15 million settlement with the SEC over securities fraud charges stemming from a finite reinsurance deal in Under the settlement, RenRe will pay a civil penalty of $15 million and a $1 disgorgement of ill-gotten gains. The settlement does not affect civil fraud charges pending in a Manhattan court against three former top company executives James Stanard, Martin Merritt and Michael Cash for their alleged roles in the same deal. Scottish Re sale agreed Shareholders of Scottish Re Group, the troubled Bermudabased global life reinsurance specialist, have approved a takeover bid from MassMutual Capital Partners and Cerberus Capital Management. Insurance regulators had threatened to shut the company down if the sale did not go through. Under terms of the deal, MassMutual Capital and Cerberus will each invest $300 million into the company. Upon closing of the deal, NEWS REVIEW MassMutual Capital and Cerberus will have a controlling voting equity interest in Scottish Re. Some investors had opposed the deal, claiming an offering in which current shareholders could buy more would keep Scottish Re afloat and provide them with more value. But company management and its largest shareholder, private equity firm Cypress Group, supported the deal. Scottish Re, which has operating businesses in Bermuda, Grand Cayman, Guernsey, Ireland, Singapore, the United Kingdom and the United States, hit trouble in July 2006 when it announced a large Q2 loss and the resignation of CEO Scott Willkomm. Its stock has plunged from $25.42 in May 2006 to around $4.34 on March 2, TALENT EXPANDS POSSIBILITIES A.M. Best s A - (Excellent) $600M DEAL SAVES IT FROM REGULATORS Fitch A (Strong) At Max Re, we've recruited some extraordinary talent to drive our business. From offices in Bermuda, Ireland and the United States, we underwrite a wide range of Property and Casualty Reinsurance and Insurance transactions, as well as Life and Annuity Reinsurance. Expanding the possibilities with financial strength, focused expertise and new approaches to established convention. BERMUDA IRELAND UNITED STATES INSURANCE/REINSURANCE [ 5 ]

8 NEWS REVIEW A blow for Bermuda Bermuda s property catastrophe companies face losing considerable premium income following controversial changes to Florida s insurance laws. The changes were designed to cut spiralling property insurance rates for Florida s battered homeowners. State-run Citizens Property Insurance Corporation will be allowed to compete with private insurers and big rate increases due this year have FLORIDA MOVE AFFECTS LOCAL REINSURERS been blocked. The legislation also increases the low-cost reinsurance offered to private insurers under the state-run Florida Hurricane Catastrophe Fund from $16 billion to as much as $36 billion, effectively replacing the professional reinsurance market. State regulators estimate that allowing Citizens to be competitive could add as many as 700,000 policies to the 1.4 million it already has about half of the entire property insurance market at year s end. As one local newspaper commentator put it: By then, Florida will not only be in the insurance business. It will be the insurance business. Not surprisingly, the move has been unpopular with the insurance and reinsurance industry, which paid billions of dollars in Florida claims in recent years and was hoping to recoup some of that money by raising prices but now may lose around $2 billion in catastrophe premium. Among the Bermuda reinsurers affected, Everest Re expects to lose $50 million of cat premiums in Florida this year but hopes to hold on to $200 million pro-rata business for Florida homeowners through US clients. Endurance Specialty, meanwhile, estimates it will lose $60 million in Florida premiums. Renaissance Re is also expected to be hit hard. As Endurance Chief Under - writing Officer David Cash pointed out: It s clear there will be an impact on the Bermuda players but if you roll up your sleeves and go and work with some of the companies there I think there will be opportunities as well. He added that Endurance would redeploy capital to direct commercial lines and other personal side reinsurance. Investors misled? Bermuda-based insurer and reinsurer Quanta Capital Holdings stands accused of misleading investors over the company s losses from Hurricanes Katrina and Rita in 2005, according to a class action lawsuit filed in New York in February. It alleges that Quanta released false prospectus statements in connection with a December 2005 offer of nearly 15 million common and preferred shares. Quanta estimated net losses of $68.5 million as a result of the hurricanes in Q but later boosted the losses to $78.7 million. The news prompted Quanta s stock price to plunge nearly 40% the following March. [ 6 ]

9 NEWS REVIEW Even greater innovation expected from Bermuda, says Conning Bermuda has become the place where the capital markets and the market for insurance and reinsurance talent most closely intersect, according to a new study by Hartford-based insurance specialists Conning Research & Consulting, Inc. And thanks to a quiet 2006 hurricane season, the report predicts record net income of around $10 billion for Bermuda firms. Stephan Christiansen, Director of Research at Conning, wrote: By 2004, Bermuda accounted for nearly 12% of the unaffiliated reinsurance ceded from the US market, worth $8 billion, up from just over 9% ($7.1 billion) in The study, Bermuda: The New Capital of Insurance?, reviews this growth, identifies the key characteristics of the Bermuda model and analyses the growth opportunities for Bermuda insurers and reinsurers as well as the threats to Bermuda s prominence. Swift and efficient allocation of capital is at the core of the Bermuda insurance model, and it became even more efficient with the Class of 2005 and the increasing influence of hedge funds, said Mr Christiansen, adding that Bermuda s record earnings for 2006 would help propel [the island] to continue to innovate in risk transfer efficiency with increased usage of capital markets mechanisms such as catastrophe bonds, sidecar reinsurers, and industry loss warrants. Further information from AXIS regroups AXIS Capital has announced a strategic reorganisation des - igned to strengthen the global operations of AXIS Insurance. Dennis Reding, currently Chairman of AXIS Insurance, will move to the new position of Chief Operating Officer of AXIS Capital, reporting to the CEO & President of AXIS Capital, John Charman. AXIS Insurance will have four divisions managed across all geographic locations: Specialty Lines, Professional Lines, Capital Risk Solutions and AXIS Select Markets. Mr Charman said: We have a clear opportunity to enhance our position as a global leader in specialty lines insurance business. This strategic organisational repositioning of AXIS CHARMAN SEES OPPORTUNITY TO ENHANCE POSITION Insurance along areas of expertise regardless of geographic location furthers our ability to continue to achieve this objective in the segment, to continue to provide our international client base [with] multi-product global solutions and to build our position in select new opportunities globally. The reorganisation also sees John Gressier succeed Mr Reding as Chairman of AXIS Insurance. Marshall Turner, previously CEO of AXIS US Insurance, becomes President of AXIS Insurance. The Ultimate Driving Machine Church St. East, tel: [ 7 ]

10 NEWS REVIEW PXRE merges with Argonaut MCS LIMITED The troubled Bermuda-based property reinsurer PXRE has announced a merger with Texan specialty underwriters Argonaut. The new company, Argo Group International Holdings, will become the Bermuda holding company for PXRE s existing insurance subsidiaries, Argonaut Group s US operations, and a new Class 3 Bermuda reinsurer named Peleus Reinsurance. Argo Group will trade on Nasdaq under the Argonaut Group s existing ticker symbol, AGII. Mark Watson, President & CEO of Argonaut Group, will become the President & CEO of Argo Group, subject to obtaining Bermuda regulatory approval. Mr Watson said: Argonaut Group s merger with PXRE is a natural progression in our longterm strategy as a growing specialty underwriter. With combined assets exceeding $5 billion and shareholders equity of approximately $1.3 billion, plus operations based in Bermuda, the United States and Europe, we believe Argo Group will be well positioned to develop and grow a sustainable and profitable global business platform. We view this transaction as a solid investment consistent with our goal of securing the future for our shareholders and clients. Jeffrey Radke, President & CEO of PXRE Group, said: With its financial strength and specialty focus, the new Argo Group will be able to leverage PXRE s substantial assets, international platform and reinsurance capabilities to their fullest on behalf of its newly expanded shareholder base. I haven t the slightest idea who he is. He came bundled with the software. $500M NOTES SALE ACE INA Holdings, a subsidiary of ACE Limited, intends to sell up to $500 million of senior notes. The notes are fully and unconditionally guaranteed by ACE Limited. According to a February 5 statement, net proceeds from the sale will be used to pay off existing debt. The lead underwriters are Banc of America Securities LLC and Deutsche Bank Securities Inc. Solving Your Accounting & Information System Issues MCS Limited provides sophisticated and measurable accounting and information technology solutions to local and international businesses. With over two decades of experience, MCS is professionally staffed in Bermuda, Toronto and Halifax assisting small business to Fortune 500 clientele. Our expertise will guide you in capitalising on your company s strengths and eliminating its weaknesses. The result a stronger, more efficient organisation. Certified Professionals A Microsoft Gold Certified Partner We are among the top 1% of Microsoft s Business Solution Partners worldwide specialising in Microsoft Dynamics GP and CRM. Microsoft Inner Circle award winners for the past two years. We Offer Full-Service, Problem-Solving Expertise Reinsurance Accounting Captive Management Advanced Financial Reporting & Consolidation Management Multicurrency Reporting Real-time Inventory Management Human Resource Management & Bermudian Payroll Project Billing, Professional Services and Job Cost Customer Relationship Management (CRM) Accounting Services Time Clock Solutions For certified, professional service, contact MCS Limited. We provide real solutions. MCS Limited 27 Woodlands Road Hamilton HM 09 Tel: Fax: Robert M. Burns, President Tim Kerr, Vice President Business Development [ 8 ]

11 WHAT S ON May 12 Bermuda Insurance Institute Annual Awards Fairmont Hamilton Princess Bermuda Northern exposure NEWS REVIEW May 20 to 24 American Association of Managing General Agents Annual Meeting Atlantis Paradise Island, Bahamas June 6 to 9 International Reinsurance Summit Fairmont Hamilton Princess Bermuda The ACE Tempest Re Group at ACE Limited has established ACE Tempest Re Canada, a wholly-owned managing underwriter that will write all lines of property and casualty reinsurance for the Canadian market. Constantin Petalas, former CEO of AXA Re, Canada, has been appointed President of the Montrealbased operation. ACE Tempest Re Canada is authorised to write reinsurance on behalf of ACE s licensed and admitted Canadian insurance companies. In addition, it is a Lloyd s approved coverholder and can offer its clients access to Syndicate 2488, a whollyowned ACE syndicate, also licensed and admitted in Canada. Constantin Petalas: heading up ACE Tempest Re Canada September 16 to 19 Bermuda Captive Conference The Fairmont Southampton Bermuda ACE in Peru deal The ACE Group of Companies has acquired Altas Cumbres Life Insurance Company, formerly a wholly-owned Peruvian subsidiary of Grupo Altas Cumbres of Chile. Altas Cumbres is one of Peru s fastest-growing life insurance companies, with more than 700,000 customers, specialising in accident, group and credit life insurance. Distribution channels for its products include captive agencies, brokers and bancassurance through more than 100 branches of Banco del Trabajo, one of Peru s largest banks and owned by Grupo Altas Cumbres. RIMS lends hand Bermuda s delegates at RIMS will get a chance to experience firsthand some of the hardship and devastation wreaked by Hurricane Katrina in 2005 when the group s annual conference is held in New Orleans at the end of April. Although the French Quarter and downtown areas were largely spared, many parts of the city remain too ravaged for residents to return. The Lakeview district is among those areas still in disarray and RIMS is staging a community service day during which participants will help fix homes and clear yards of overgrown vegetation. CREATE A BRIGHTER FUTURE. MAKE PROGRESS. Taking on the responsibility of risk is what we do at ACE. With our expert underwriting, superior claims handling, and local market experience, you can focus on the possibilities, not the liabilities, to make progress in your business. For more on the ACE Group of insurance and reinsurance companies, visit PROPERTY & CASUALTY ACCIDENT & HEALTH LIFE Coverages underwritten by one or more of the ACE Group of Companies. Not all coverages available in all jurisdictions. [ 9 ]

12 NEWS REVIEW Max Re launching US platform Max Re Capital has announced plans to establish a US-based excess and surplus lines platform to complement its existing insurance and reinsurance operations based in Bermuda and Dublin. The new subsidiary, Max Specialty Insurance Company, will be based in Richmond, Virginia with regional offices in Atlanta, San Francisco and Philadelphia. WE CAN T AFFORD TO NOT PARTICIPATE IN A BIGGER WAY Marston Becker, Chairman & CEO of Max Re Capital, said Max Specialty will add a significant new distribution channel and base of potential clients to Max Re Capital s global insurance and reinsurance businesses. He told Reactions: The E&S industry has been the fastestgrowing segment of the US marketplace for more than two decades now. Insurance products have become more targeted and specialised, and many times it is easier to introduce such a product through the E&S market than the admitted market. As Max Re continues to build its global platform, we can t afford to not participate in the US market in a bigger way. President & CEO of Max Specialty will be Stephen Vaccaro, a 30-year insurance industry veteran who oversaw a dramatic growth in Essex Insurance, an affiliate of the Markel Corporation, from 1993 to Mr Becker said: Steve has a proven ability to lead insurance operations and consistently deliver underwriting profits in both soft and hard market conditions. RMS moves on climate change The growing acceptance of climate change as a major risk factor has been highlighted by the fact that leading cat risk modeller Risk Management Solutions has appointed climate scientist Celine Herweijer as Principal Scientist, Future Climate. The California-based company, which has an office in Bermuda, said the appointment reflected its commitment to explore the evaluation of future climate risk for today s economic, business, and political decisions. It said Dr Herweijer is recognised for her work on modelling drought and the impact of oceans on climate. She will lead RMS work around the wide-ranging implications of future climate risk. [ 10 ]

13 ANALYSIS Good times BUT MAJOR CHALLENGES ARE ALREADY APPEARING The European windstorm Kyrill notwithstanding, most of Ber - muda s reinsurers were feeling a lot more comfortable at the end of 2006 than a year earlier. An unusually benign hurricane season and increased rates meant record earnings in most cases but the calm is deceptive. Jim Bryce, President & CEO of IPCRe, is among those who think that, despite impressive underwriting results and relatively orderly January 2007 renewals, the industry is coming to a crossroads. He said: As a result of the excellent earnings generated in 2006, the reinsurance market has more capacity to offer, at the same time that demand for capacity is being impacted by a number of external factors, including recent legislative developments in Florida, which among other things provide for significantly greater reinsurance capacity being offered by the state hurricane catastrophe fund. He felt important decisions would have to be made to maintain underwriting discipline and these might make companies undertake capital management actions to sustain adequate returns to shareholders. The alternative is for the industry to forget or ignore the size of losses that were incurred in 2004 and 2005, and allow market forces to put downward pressure on pricing. Hopefully, Kyrill will have served as a reminder that catastrophic events can occur at any time, anywhere in the world, and pricing levels that will enable us to pay for such events occurring with increased frequency need to be maintained. Benfield, in its January 2007 review of the global reinsurance market, espoused its belief that the post-2005 caution has not disappeared completely. Competition in both property and casualty is being fuelled by the drive for greater diversification, the appetite Property Catastrophe Reinsurance e Catastrophe Exposed Worker s Compensation Aby A.M. Best A+ by Standard &Poor s A2 by Moody s A+ by A.M. Best AA by Standard &Poor s [ 11 ] of newcomers and the determination of established reinsurers to protect market share. Short-term alternative capital structures played a key role in US mid-year renewals and continue to support the retrocession market. The increasing ease with which these vehicles can participate in the reinsurance market may have longer-term implications for the (re)insurance cycle. However, Benfield added that declining prices may reduce their limited influence and said traditional reinsurers are displaying a more prudent approach to capital and underwriting, particularly the management of aggregate exposures, and this should temper competitive pressures. A M Best, in upgrading its 2007 outlook for the global reinsurance sector from negative to stable, cautioned: The eventual outcome always will be based on how well reinsurers manage their Surety Aby A.M. Best A by Standard &Poor s catastrophe exposures relative to capital at risk, given that the benign catastrophe season is unlikely to be repeated in Best felt that market conditions will continue to deteriorate, particularly for non-catastrophe-exposed business lines. Also, many cedents are retaining more risk, which reduces the overall demand for reinsurance. Meanwhile, Ernst & Young s Global Insurance Centre predicted 2007 will see growing importance for better capital management and a drive for innovation, and E&Y saw the Bermuda market leading the way. Winning ng starts s with a clear vision.. Terrorism Medical Malpractice Casualty Other Specialty Lines Risk is as unpredictable as the wind itself. The key to consistent t high performance? Anticipation, ion, good judgment and a full range of skills and tools. At RenaissanceRe, we offer you three top-rated companies to help manage your property catastrophe risk. We also offer a broad spectrum of solutions for your specialty reinsurance needs. All are creatively underwritten and supported with service as good as it gets. No matter what the weather. Risk coverage that adds to your edge. Renaissance House, 8-20 East Broadway Pembroke HM 19 Bermuda Tel: Fax:

14 OPERATING RATIOS ANNUAL LOSS RATIOS ACE 61.2% 74.5% 70.7% Arch 58.1% 67.2% 64.4% Aspen 53.0% 90.1% 58.7% AWAC 59.0% 105.7% 76.5% Axis 52.9% 80.3% 61.4% Endurance 50.5% 95.8% 57.4% Everest Re 63.2% 94.0% 74.4% IPC 14.7% 237.0% 60.8% Max Re 67.7% 98.0% 74.5% Montpelier 29.6% 178.0% 51.4% PartnerRe 55.1% 86.9% 65.4% Platinum 56.9% 87.8% 70.4% Renaissance Re 29.2% 116.6% 81.9% White Mtn 66.1% 75.2% 67.8% XL Capital 60.7% 107.1% 68.6% ANNUAL EXPENSE RATIOS ACE 26.9% 25.0% 25.6% Arch 27.3% 28.6% 27.7% Aspen 29.0% 27.1% 24.7% AWAC 19.8% 18.7% 19.4% Axis 24.4% 21.5% 23.0% Endurance 31.0% 27.7% 28.4% Everest Re 26.5% 26.2% 24.5% IPC 18.1% 14.8% 17.1% Max Re 18.7% 12.7% 18.7% Montpelier 30.7% 22.7% 26.4% PartnerRe 29.5% 29.0% 28.9% Platinum 26.7% 26.7% 26.3% Renaissance Re 25.5% 23.1% 22.5% White Mtn 39.8% 36.4% 42.3% XL Capital 27.8% 25.8% 27.4% ANNUAL COMBINED RATIOS ACE 88.1% 99.5% 96.3% Arch 85.4% 95.8% 92.1% Aspen 82.0% 117.2% 83.4% AWAC 78.8% 124.4% 95.9% Axis 77.3% 101.8% 84.4% Endurance 81.5% 123.5% 85.8% Everest Re 89.7% 120.2% 98.8% IPC 32.8% 251.3% 77.9% Max Re 86.4% 110.8% 93.2% Montpelier 60.3% 200.7% 77.8% PartnerRe 84.6% 115.9% 94.3% Platinum 83.6% 114.5% 96.7% Renaissance Re 54.7% 139.7% 104.4% White Mtn 105.9% 111.7% 110.2% XL Capital 88.5% 132.9% 96.0% FINANCIAL STRENGTH RATINGS A M BEST RATING S&P RATING March 9, 2007 Nov 15, 2006 March 9, 2007 Nov 15, 2006 ACE A+ A+ A+ A+ Arch A A A A Aspen A A A A AWAC A A A A Axis A A A A Endurance A A A A Everest Re A+ A + AA AA IPC A A A A Max Re A A NR NR Montpelier A A A A PartnerRe A+ A + AA AA Platinum A A NR NR Renaissance Re A A A+ A+ White Mtn A A A A XL Capital A+ A+ A+ A+ Notes: NR3 Not rated by AM Best; NR Not rated by S&P 2006 ANALYSIS / PRICEWATERHOUSECOOPERS A detailed look into an extraordinary year Premiums Overall GPW growth was flat for the year. January 1, 2007 renewals were in line with expectations. Although peak zone coverage rates were above the previous year s, there was capacity, and non-peak zone rates were slightly down. Trends were affected by lack of reinstatement premiums and conversion of QS cover into excess of loss/straightforward catastrophe cover. The new Florida legislation on property direct rates is expected to impact negatively on some of the Bermuda cat reinsurers and/or some of the sidecars in Earnings All companies exceeded their earnings estimates due to the low level of catastrophe losses. Combined ratios show significant improvement from 2005, again due to the lack of catastrophe losses. Expense ratios have crept up as expenses did not decline in line with premiums. Investment income was a significant contributor to net income due to increased invested assets, post- KRW capital raising and higher interest rates. Excellent earnings went some way to replenishing capital lost from KRW for several companies. Ratings New S&P capital model was launched for comment in November 2006 and is expected to be finalised shortly. The main changes from the previous model are as expected. Capital management Given the strong results and increased competition, this is expected to get considerable focus in the near future. Founder exits have taken place from some of the existing SEC listed reinsurers and several IPOs are expected from the Class of 2005 during ANNUAL GROSS PREMIUMS WRITTEN $M ACE 17,401 16,811 16,094 Arch 4,282 4,015 3,668 Aspen 1,946 2,093 1,586 AWAC 1,659 1,560 1,708 Axis 3,609 3,394 3,012 Endurance 1,790 1,669 1,711 Everest Re 4,001 4,109 4,704 IPC Max Re 865 1,246 1,044 Montpelier PartnerRe 3,734 3,665 3,888 Platinum 1,275 1,765 1,660 Renaissance Re 1,944 1,809 1,544 White Mtn 4,312 4,602 4,792 XL Capital 9,786 11,849 11,092 ANNUAL NET PREMIUMS EARNED $M ACE 11,825 11,748 11,110 Arch 3,082 2,978 2,916 Aspen 1,676 1,508 1,233 AWAC 1,252 1,272 1,325 Axis 2,694 2,554 2,028 Endurance 1,639 1,724 1,633 Everest Re 3,853 3,963 4,425 IPC Max Re 665 1, Montpelier PartnerRe 3,667 3,599 3,734 Platinum 1,337 1,715 1,448 Renaissance Re 1,530 1,403 1,338 White Mtn 3,713 3,799 3,821 XL Capital 7,570 9,617 8,550 [ 12 ]

15 QUARTERLY EARNINGS DATA Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($) Q Q Q Q Q Q ACE Arch Aspen AWAC 134 (5) (0.11) 0.68 Axis Endurance 195 (52) (0.80) 1.71 Everest Re 206 (162) (2.63) 1.64 IPC 104 (75) (1.28) 0.18 Max Re 95 (11) (0.20) 1.82 Montpelier 122 (61) (0.68) 1.53 PartnerRe 234 (42) (0.76) 2.54 Platinum 83 (103) (1.94) 1.03 Renaissance Re 201 (210) (2.97) 2.66 White Mtn XL Capital 471 (822) (5.51) 2.07 ANNUAL YTD EARNINGS DATA Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($) ACE 2,305 1,028 1, Arch Aspen 378 (178) (2.40) 2.74 AWAC 443 (160) (2.94) 1.30 Axis Endurance 483 (223) (3.60) 5.28 Everest Re 841 (219) (3.79) 8.71 IPC 377 (626) (12.30) 2.87 Max Re Montpelier 303 (753) (10.49) 3.55 PartnerRe 715 (86) (1.56) 8.71 Platinum 319 (138) (3.01) 1.81 Renaissance Re 762 (281) (3.99) 1.85 White Mtn XL Capital 1,722 (1,292) 1, (9.14) 8.13 COMPARISON OF BOOK VALUE & MARKET VALUE PER SHARE ($) December 31, 2006 December 31, 2005 December 31, 2004 BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE ACE Arch Aspen AWAC N/A N/A Axis Endurance Everest Re IPC Max Re Montpelier PartnerRe Platinum Renaissance Re White Mtn XL Capital SHAREHOLDERS EQUITY ($M) at December ACE 14,278 11,812 9,845 Arch 3,590 2,480 2,242 Aspen 2,389 2,040 1,482 AWAC 2,220 1,420 2,139 Axis 4,413 3,512 3,238 Endurance 2,298 1,873 1,862 Everest Re 5,108 4,140 3,713 IPC 1,991 1,616 1,668 Max Re 1,390 1, Montpelier 1,493 1,058 1,752 PartnerRe 3,786 3,093 3,352 Platinum 1,858 1,540 1,133 Renaissance Re 3,280 2,254 2,644 White Mtn 4,455 3,833 3,884 XL Capital 10,131 8,472 7,739 [ 13 ]

16 REGULATION We are upgrading, says Bermuda The Bermuda Monetary Auth - ority, which oversees the island s insurance industry, has taken issue with comments by Evan Greenberg, President & CEO of ACE Limited, that improvements to regulations are not happening fast enough. In a recent speech, Mr Greenberg said Bermuda s regulatory environment was perceived as middle of the pack but needed to be seen as a global leader to match our increasing global market influence. He explained: Investors don t like unpredictable risk, and some perceive risk to the future prosperity of the island. They fear the capricious and potentially damaging actions of politicians who perceive Bermuda as a destination where companies are allowed to game the tax system or where regulation is light. That s why, in part, companies such as mine trade with a so-called Bermuda discount a reduction, I believe, that is undeserved. A strong and enlightened regulatory environment will help validate the legitimacy of Bermuda and ensure its prosperity for many years to come. Global companies such as ACE who are based here and doing business in all of the important jurisdictions around the world are feeling the pressure to have a home regulator at the leading edge. And the long-term competitiveness of Bermuda as an insurance market could be threatened if it is not considered a leader in modern regulation with the improved image of legitimacy this brings. Mr Greenberg said the BMA needed to: Regulate more rigorously and efficiently for solvency, governance and proper risk management of insurance companies; Complete the separation of the private sector from the regulatory process; Adopt minimum international standards such as Solvency 2 in Europe; Appoint an experienced, worldclass regulator as CEO to replace Cheryl Lister, who retires in May. Increase the number and professional standard of its staff; Complete its risk-based capital project as soon as possible. Mr Greenberg s comments stung Finance Minister Paula Cox, who works for ACE as a corporate counsel. She said Bermuda s regulations were efficient and effective and suggested Mr Greenberg was not current with the legislative amendments and operational changes that consistently have been taking place within the BMA. Meanwhile, the BMA said: Bermuda s supervisory approach has been extensively amended, in particular to reflect the continually evolving regulatory requirements being adopted by the global standard-setting body, the International Association of Insurance Supervisors (IAIS). This has resulted in the Authority promoting a series of major amendments to the Insurance Act designed to provide us with the full range of powers that are now needed to ensure effective supervision. The BMA also noted that it has been invited to join the IAIS s Technical Committee, which sets standards worldwide. [ 14 ]

17 IN DEPTH Flagstone s amazing global office HOW A BERMUDA START-UP ACCELERATED FROM ZERO TO 117 STAFF USING THE COMBINED STRENGTHS OF HYDERABAD, HALIFAX, MARTIGNY, ZURICH OH, AND HAMILTON TOO! By Chris Gibbons When Class 4 reinsurer Flag stone Re talks about being a global company, it s no idle boast. From day one, the post-2005 startup had a virtual infrastructure that may become the business model for both future companies and established players. With most of its accountants and IT people in Halifax, Nova Scotia, catastrophe risk modellers and research and development teams in Hyderabad, India, and additional underwriters in Switzerland, at Martigny and Zurich, only about a third of the company s 117 employees work directly out of its Church Street, Hamilton offices. Flagstone CEO David Brown says he and Chairman Mark Byrne decided on the set-up out of both necessity and choice, claiming that today s technology offers the company flexibility, resources and growth potential that it couldn t hope to achieve in Bermuda alone. Having worked here for a long time, both Mark and I realised that in building a company like ours, there just wasn t the local talent in Bermuda for certain skill sets, explained Mr Brown. To have our accounting department here would mean having to hire a number of expats, which is expensive. Obviously, certain things have to be here from a regulation standpoint [key decision makers and underwriters must be based in the domicile, for example] but with certain functions that don t need to be here and for which there isn t a ready supply of local talent, it makes sense to put those somewhere else. The pair had already established a similar and successful setup with West End Capital Management (Bermuda) so extending it to Flagstone was logical. While Flagstone certainly isn t the first local insurer to establish overseas back-offices XL Capital, for example, now employs around 160 people in the Indian cyber city of Gurgaon it is believed to be the first start-up that has set up such an international infrastructure straight away. It does require a certain mindset and commitment to technology on the part of the company to make sure people use tools like video conferencing, Mr Brown pointed out, but for us it has paid dividends and the lower costs have enabled us to get up and running so much quicker. To go from zero to 117 in a year in Bermuda would have been extremely difficult. We have far more people for our size of capital than is usual. What we ve done is also socially responsible as it means we as a new company are not putting as much pressure on housing, school places and Bermuda s basic infrastructure. Term limits on work permits make it more difficult to attract good staff and also mean we [ 15 ] can t offer expats a lifelong career but we can in Canada or India. It means a low percentage of our workforce is on work permits which makes for a much more stable workforce, says Brenton Slade, the company s Director of Business Development. Indeed, most of our The quality of people we have in India is phenomenal many have worked for the top modelling companies like RMS or Equecat senior people are either Bermudian, spouses of Bermudians or longterm residents. Mr Brown says Flagstone s setup, while cost effective, was not designed simply to save money but to maximise resources. Neither, he says, is Flagstone simply outsourcing jobs in the way other companies may outsource IT to an overseasbased company or a call centre. The jobs didn t exist in the first place. Yes, we use some outside companies network consulting, for example but everyone in our offices works for Flagstone. They just happen to be in different countries. For example, we have more than 12 people in India who do nothing all day but analyse catastrophe risk for us. That means we can turn around submissions quicker than our competitors. The quality of people we have in India is phenomenal many of our people have worked for the top modelling companies like RMS or Equecat. There is a tremendous culture of education in India and many of the people who work for us are people that have been educated in the US and have gone back to India because of the rapid development taking place. Mr Slade added: When we set up we were always going to be data-driven and very technical. Rather than build up our quantative process, it was there from day one. By having that and focusing on it, we re at the leading edge because we have the resources and the aptitude to do it. Flagstone works hard at maintaining a cohesive office culture across the globe, encouraging employees to fly to other offices to make sure they have a personal connection to a voice or an . It makes it a much more dynamic company because you re learning from other people with different outlooks, Mr Slade pointed out. It is also important, he said, to understand the culture of other places and ensure that the working environment is appropriate. Things move very fast in India, he noted, and people will move on very quickly if they are not treated well or view their environment as simply an outsource centre. You can t just set up something overnight. Although technology shrinks the world in many respects, Mr Brown said the personal touch is crucial. The day we talked, Mark Byrne was in Hyderabad en route to Switzerland. You have to make sure you stay on top of everything, he said, but for us the benefits far outweigh any cost or inconvenience.

18 INSIGHT Ironshore breaks new ground As you would expect from the razor-sharp mind of Bob Clements, the industry legend who helped found ACE, XL, Mid- Ocean, Arch and Integro, new Bermuda-based company Ironshore is something out of the ordinary. On the surface, it seems a story familiar to anyone who has followed the Bermuda property catastrophe market in recent years: $1 billion of clean capital, a team of top industry talent, filling a capacity gap in the property cat market, etc. Except that Ironshore, unsually, will only write primary business. Few people spot and fill a gap in the market quicker than Mr Clements, who formed the Class 4 insurer on January 3 with son John and backing from Bear Stearns Merchant Banking, Corporate Partners, Fremont Partners, Tower Brook Capital Partners and Greenhill Capital Partners. CEO is Robert Deutsch, former CFO of US insurer CAN, who heads a team that includes Chief Underwriting Officer Les Rock (previously with Heritage Syndicate 1200 at Lloyd s) and CFO Mitchell Blaser, who had held a similar position at Swiss Re. Ironshore like its Caymanbased parent Ironshore Inc, named after a particularly tough type of Cayman coral plans to write a worldwide book of property business. Initial focus will be on commercial risks with wind exposures in high-risk regions like US coastal states, the Caribbean and Mexico s Yucatan peninsula as well as earthquake coverage in California. It expects to write $500 million in gross premiums in Mr Clements believes there is still a supply shortage in the coastal US despite a quiet 2006 season and he is banking on the primary cat market remaining hard because of little capital flowing into the primary market at a time when rating agencies are demanding that insurers put up more against cat business and risk modellers are projecting even higher losses. The result is that many insurers, facing higher reinsurance rates, are reducing their cat exposures and writing less business in high-risk areas. In a recent interview, Mr Deutsch said there was a crying need for Ironshore s product. Virtually all of the capital that has been brought into the industry since the storms of 2004 and 2005 has gone into the reinsurance market as opposed to the insurance market. He said the company estimated that less than $1 billion of the estimated $25 billion of post-2005 capital had gone into the primary business. A M Best has already given Ironshore an A rating while warning that the company faces increased competition from both established excess and surplus companies and possibly from recent start-ups entering its targeted markets as a result of the recent Florida insurance legislation. Ironshore may also face a more immediate logistical problem. Primary insurance is more labour intensive than reinsurance and there is little existing primary talent in the island so much of it will have to be imported and that means the company must grapple with two thorny issues: ever-restrictive work permits for foreigners and escalating housing costs. [ 16 ]

19 PROFILE Robert Stubbs, Power Broker! BERMUDIAN SCORES A REMARKABLE TRIUMPH JUST AFTER STARTING HIS OWN BUSINESS. CHRIS GIBBONS REPORTS Robert Stubbs was the only Bermuda-based broker named as one of Risk & Insurance magazine s Power Brokers of the Year. The Bermudian-born Mr Stubbs, President of Foram Brokerage in Hamilton, was one of five brokers honoured in the energy category just a year after setting up his own company. According to the magazine, Mr Stubbs, a former President of JLT Risk Solutions and VP with Triangle Brokerage with nearly 20 years broking experience, has already achieved notable success in what was predicted to be a very difficult year for even the wellestablished large brokers. It continued: Part of the reason is his breadth of experience in many different lines. His operations outside the energy sector often serve as cross-training for the bulk of his business in energy. Not surprisingly, he is active in programme design, not just placement. That includes coverage in casualty, professional liability and property programmes, oftentimes for the same client. More than 350 risk managers were asked to cite specific examples of what a broker accomplished during 2006 to deserve recognition. One client, a major energy player, told the magazine that Mr Stubbs has the ultimate inside track. He is a native Bermudian. He knows absolutely everyone. I have known him for years, and he has handled our excess liability and D&O. We could never work with a start-up under normal conditions, but Robert was able to take care of a very big placement for us soon after forming Foram. Mr Stubbs was unaware he had even been nominated until he received a call from the magazine s editor. It was a surprise, first simply because I had not heard of the Power Broker feature before and then secondly, having looked at recipients from the previous year, they are nearly if not all US-based brokers and I also did not think that a candidate from a new and relatively small brokerage firm would have been included. Indeed, more than 66% of this year s 150 winners across 27 categories came from the four major broking firms with Marsh leading the way with 47 winners, ahead of Aon (33). Mr Stubbs said: Obviously to have been nominated and subsequently recognised by clients on such a high level is a tremendous achievement not only for myself personally but also for my partners with whom I work very closely and our brokerage firm as well. From a business perspective, international recognition in a publication with widespread circulation within the insurance industry will be a huge asset to us both in maintaining the business we have currently but also attracting new business. In the Robert Stubbs: accolade is a huge asset to us both in maintaining the business we have currently but also attracting new business energy industry in particular, we are predominantly dealing with extremely large companies and this accolade will not only help increase the awareness of Foram Brokerage within that industry but validate the decision of those clients who have chosen a smaller but extremely experienced firm to represent them in the Bermuda insurance market. Mr Stubbs added that his almost 20 years as a broker have spanned all lines of business, which is very beneficial as I can talk to and offer our services to clients for all of their coverage needs in the Bermuda market. In addition, despite different management roles, I have always been and will always be what I consider to be a front-line broker, which is one that is always working in the marketplace and instrumental in not only the design but also the placement of insurance programmes. With a track record of excellent results for clients, Mr Stubbs decided that the same if not better results could be achieved working on his own and so he set up Foram, an independent operation named after foraminifera, the single-celled marine creature responsible for the famous pink hue of Bermuda s beaches. Foram currently consists of three Bermudian partners: Mr Stubbs, fellow broker Stephenie Konyec - sni and CFO/COO Peter Card. Mr Stubbs said: Our philosophy is built around three core values: knowledge of the client, experience in the market and service, all of which we have or offer in abundance. It is clear that the broking landscape has changed in the last couple of years and being bigger is no longer necessarily better. Working for a smaller company with no internal distractions allows us not only the liberty to believe in our core values but also the ability to ensure that we have time to adhere to those values and deliver both the service and results that we have promised to our clients and they, rightly, have come to expect from us. [ 17 ]

20 MILESTONES Hello, Allied World AWAC JOINS THE TOP TABLE WITH RECORD RESULTS, A PURPOSE-BUILT HQ AND STRONGER BRANDING Scott Carmilani and Marston Becker: changing perceptions Trott & Duncan 20 Brunswick Street, Hamilton PO Box HM 2094 Hamilton HM HX Telephone: (441) Facsimile: (441) trott&duncan@td.bm Web: Contact: Kim N. Wilson, JP Trott & Duncan provides a comprehensive range of legal services. The firm blends an innovative approach to the practice of law with over 150 years of combined legal knowledge and experience. The firm s client base spans Bermuda, Europe, the United States, the United Kingdom, the West Indies and Canada. After posting record profits, the company formerly known as AWAC has officially opened its new seven-storey offices on the fringes of Hamilton and launched a brand makeover that will now see it referred to as Allied World. Faye Cook, Allied World s AVP, Marketing & Communications, said the launch completes an extensive brand valuation process. We reached out to both our brokers and our employees to evaluate our brand s former look and feel, and to determine if it matched who we were as a company and our existing image in the marketplace. Apparently it didn t, hence the bold new logo and the replacement of the ambiguous AWAC acronym. Meanwhile, the company has moved its 161 Bermuda employees from five offices scattered around Hamilton to its new global HQ on Richmond Road. The company a Class of 2001 insurer formed here in the wake of September 11 now employs over 270 people in Bermuda, Boston, Chicago, Dublin, London, New York and San Francisco. President & CEO Scott Carmilani said: Because we were in five locations, I don t think we were truly recognised as having a large presence as we do in Bermuda. Our new headquarters allows us to have a much more powerful organisation. Meanwhile, Allied World has set aside $2.1 million to cover an anticipated settlement relating to a Civil Investigative Demand from the Texas AG s office in November 2005 that led to the resignation of casualty underwriting manager Jordan Gantz. The investigation concerns possible restraint of trade issues arising Jack Kripl or x 237 Buy Sell Homes Condos BERMUDA REALTY Certified International Property Specialist FIABCI Each office is independently owned and operated. Coldwell Banker Bermuda Realty is a trade name of Bermuda Realty Company Limited. from Allied World s relationships with founders AIG and Chubb as well as insurance brokerage practices. Allied World is involved in another continuing case in New Jersey, in which it is one of 78 named insurers, but the company believes any liability from that case will not be as high as the anticipated Texas settlement. Allied World is also pursuing a civil action in Massachusetts against Lexington Insurance. Lexington secured $15 million of reinsurance from Allied World in 2002 and is seeking to bill for a claim on that contract. Allied World has started court proceedings to have the original agreements nullified, alleging breaches on the part of Lexington. Max is Re-vised Max Re Capital is planning to change its name to Max Capital Group with Max s Bermuda-based operating company, currently known as Max Re, becoming Max Bermuda. The proposal will be put to shareholders at the company s annual meeting on May 4. Chairman & CEO Marston Becker said: Max Capital Group will more closely align the company s name with its products and services now that we have expanded well beyond reinsurance operations. [ 18 ]

21 Why Bermuda? Because it works AN INDUSTRY VETERAN PUTS THE SIMPLE BUT TRUE CASE FOR THE ISLAND MEDIA WATCH What really fosters development in Ber - muda is not tax, it is dysfunctional regulation in other jurisdictions. We started our operations on Dec - ember 16, 2005 and by December 16, 2006 we had $300 million on our books. If I had started in New York, I d still be processing the application and I d still only be in two states. Ariel Re CEO Don Kramer hits back at Bermuda s critics The single limiting factor on large new Bermuda companies at this point is the intellectual talent. Demand and therefore the money are there, and office and residential space can be found, at a price. Locating new market leaders is the problem, together with the knock-on effect if a group of newcomers were to start hiring Bermuda underwriters from their competition. Bermuda Reinsurance magazine on the island s continued growing pains The reinsurance market s rapid recovery from major loss events in 2001 and 2005 suggests that, contrary to received wisdom, it is adapting to the demands imposed by escalating catastrophe losses. This is just as well, as most forecasts suggest that another benign year for catastrophes is unlikely in Benfield Global Reinsurance Market Review They are unicycles, not attached to anything. You have to be careful with unicycles because you occasionally get a clown on them. Jim Bryce, CEO of IPCRe, on unrated firms writing collateralised reinsurance One thing I find humorous is the discussions we were having in March last year, whether with journalists or analysts. They were saying: Are you guys really going to stay in the cat business? Now everyone thinks the cat business is a wonderful place to be. Neill Currie, CEO of RenaissanceRe, in Reactions Bermuda Market Review You cannot attack Bermuda without also attacking Switzerland, Germany and everyone else. It s a globalised industry now. [After Katrina, Rita and Wilma], the US industry lost only $5 billion. That s because it exported $30 billion worth of losses to the rest of the world. XL CEO Brian O Hara reacting to questions about the possibility of future US tax threats to Bermuda LYNDA MILLIGAN-WHYTE & ASSOCIATES BARRISTERS & ATTORNEYS 77 Front Street Hamilton HM 12, Bermuda Tel: 1(441) Fax: 1(441) info@bes.bm Contact: Laura E. Jackson BES LIMITED is a leading provider of permanent and temporary recruitment services to Bermuda s Business Sector. Specializing in a broad range of industries including the insurance and reinsurance business arena, BES provides innovative and flexible recruitment services including comprehensive employment and relocation assistance to new start-up companies. All services are tailored to meet the individual business needs of each client. A full service international business law firm P.O. Box HM 1913 Hamilton, Bermuda HM HX Tel: Fax: lmw@milligan.bm Lynda Milligan-Whyte & Associates is a full service international business law firm with attorneys who have over 20 years of experience in practicing corporate/commercial law in Bermuda and internationally particularly in company and trust formation, insurance registration, mutual fund regulation, civil litigation/insolvency matters and corporate governance/government compliance areas. The law firm was founded by Lynda Milligan- Whyte, J.P., the former U.B.P. Government Leader in the Bermuda Senate. [ 19 ]

22 PEOPLE The opposite of evanescence GREENBERG CONSOLIDATES HIS POWER AT ACE LIMITED ACE: Evan Greenberg, the CEO of ACE Limited, has been elected Chair - man, succeeding Brian Duperreault, who will remain on the ACE board. AIG: Jerry de St Paer, formerly EVP and CFO at XL Capital, has joined AIG as Senior Vice Pres - ident, Finance. Mr de St Paer will report to Chief Fin - ancial Officer Steven Bensinger. AMLIN: Stuart MacKellar has been appointed Managing Dir ector of Amlin Bermuda. AON: Dennis Ma - honey, former CEO of Aon UK, has relocated to Ber - muda to become Chairman of Aon Global, a new business unit designed by the broker to offer clients a unified service platform. Steve McGill will be the new unit s CEO while continuing as CEO of Aon Risk Services Americas, based in Chicago. AXIS: Janet Jordan-Foster has joined as Executive Vice President of AXIS E&S Casualty, which specialises in underwriting commercial liability risks on a primary basis. She will be based in New York City. EVEREST RE: Larry Frakes, President of Everest National Insurance, is to retire. Thomas Gallagher will manage the operation while a replacement is sought. MAX RE CAPITAL: James Tees, previously Senior Vice President, Treasurer & Secretary, has been named Executive Vice President & Chief Risk Officer. Sarene Bourdages, previously Senior Vice President & General Counsel, has been promoted to Executive Vice President & General Counsel. Meanwhile, Keith Hynes, Chief Financial Officer, has retired. He will be succeeded by Joe Roberts, currently Senior Vice President & Controller. MONTPELIER RE: Raymond Barrette has resigned as a director following his recent election as Chairman & CEO of White Mountains Insurance Group. QUANTA CAPITAL HOLD- INGS: William Bolinder is to become a director following the resignation of Nigel Morris. WHITE MOUNTAINS INS - URANCE GROUP: former CEO Ray Barrette succeeds Jack Byrne as Chairman and Steve Fass as CEO. Allan Waters has been elected CEO of White Mountains Re Group, succeeding Tom Hutton, who remains Deputy Chairman and will serve as a Senior Advisor to Mr Waters. XL CAPITAL: Frederick Loeloff has been appointed Senior Vice President of Ratings & Finance Development. Please send Bermuda-related awards, appointments and promotions with digital pictures to cgibbons@cwbda.bm, writing BIQ People in the subject line. [ 20 ]

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24 Our brokers want a fast turnaround. Our clients want a long-term relationship. We deliver. From solid financial ratings, to superior customer service, to a strong global presence. Allied World Assurance Company is uniquely positioned to deliver the insurance and reinsurance solutions you need, when you need them. BERMUDA BOSTON CHICAGO DUBLIN LONDON NEW YORK SAN FRANCISCO Insurance coverage is underwritten by member companies of the Allied World Assurance Group. Coverage is subject to underwriting. Member companies may not be licensed in your state or jurisdiction. To find out if coverage is available, please contact your insurance broker.