ALTERRA AMERICA INSURANCE COMPANY

Transcription

1 ALTERRA AMERICA INSURANCE COMPANY A ALTERRA EXCESS & SURPLUS INSURANCE CO A ALTERRA REINSURANCE USA INC. A ASSOCIATED INTERNATIONAL INSURANCE COMPANY A DEERFIELD INSURANCE COMPANY A- ESSENTIA INSURANCE COMPANY A ESSEX INSURANCE COMPANY A EVANSTON INSURANCE COMPANY A FIRSTCOMP INSURANCE COMPANY B++ MARKEL AMERICAN INSURANCE COMPANY A MARKEL BERMUDA LIMITED A MARKEL EUROPE PLC A MARKEL INSURANCE COMPANY A MARKEL INTERNATIONAL INSURANCE COMPANY LIMITED A Back Top 2014 A.M. Best Company, Oldwick, NJ Printed June 2, Page 1 of 72

2 Ultimate Parent: Markel Corporation ALTERRA AMERICA INSURANCE COMPANY Wilmingn, DE 4521 Highwoods Parkway, Glen Allen, VA Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A Outlook: Stable Best s Financial Size Category: XIV RATING RATIONALE Rating nale: The rating of Markel Bermuda Limited (formerly Alterra Bermuda Limited) has been extended Alterra America Insurance Company based on its role in the organization s operations. This position is further supported by common ownership, common management, implicit support and internal reinsurance. Bermuda Limited (AMB# ). In May of 2013, Alterra Capital Holdings Limited (Alterra) was acquired by Markel Corporation (Markel), and the integration is ongoing. Both Alterra and Markel are specialty-focused underwriters. In addition recognizing its new ownership under Markel, the rating also reflects Markel Bermuda s solid financial performance and strong risk-adjusted capitalization. Markel Bermuda s existing platforms and operations in major global underwriting markets also provide broad diversification as well as additional flexibility in optimizing its underwriting portfolio composition. Being part of Markel, revenue and earnings prospects are likely be enhanced over time while leveraging existing business relationships and efficiencies may also be gained. Partially offsetting these positive rating attributes are the effects of the prolonged soft market in U.S. casualty classes, which represents a significant portion of Markel Bermuda s portfolio, and the challenging investment climate that places increased pressure on underwriting profitability. While no rating enhancement is afforded Markel Bermuda at this time, the rating for Markel Bermuda takes in consideration the future benefits be derived from the transaction as well as some of the immediate benefits gained in terms of enhanced scale, reach, the Markel brand, distribution platform and its leadership position in the excess and surplus lines marketplace in the United States. The rating also considers no material changes business profile, capitalization, performance as well as intercompany reinsurance. Rating facrs that could lead an upgrade in the rating includes continued favorable operating profitability coupled with maintenance of a strong risk-adjusted capital level and/or explicit or implicit support from Markel that would materially enhance capital along with its role in the new organization. Alternatively, facrs that could lead a downgrade in the rating and/or a revised outlook negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative peers, significant adverse loss reserve development or a material decline in its risk-adjusted capital. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/21/14 A 09/07/10 A 08/09/13 A 05/13/10 A 06/20/12 A 03/04/10 A- u 08/05/11 A KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus ,401 2, ,514 19, ,150 5, , , ,606 9,461-4,680-3, , , ,250 15,425-5,085-4, ,424 93, ,353 21,296-4,810-4, , ,257 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Commercial Casualty Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Bermuda Limited (AMB# ). Markel Bermuda is the Bermuda-based operating unit of Alterra. Alterra was a publicly traded company on the NASDAQ exchange prior being acquired by Markel on May 1, Alterra was formed as a result of the amalgamation between Max Capital Group Ltd. (Max) and Harbor Point Limited in May The holding company and all of the subsidiaries were rebranded with the Alterra name. The integration of Alterra s operations in Markel is currently ongoing. Through Alterra s operating subsidiaries, traditional reinsurance and insurance of both long-tailed and short-tailed liabilities are provided. Affiliated operating companies distribute products for the group in the U.S., Europe, Canada, Japan, Latin America, Australia and New Zealand. Underwriting operations provide a diversified and balanced mix of short-tail and long-tail insurance and reinsurance capacity. Covered risks include the (re)insurance of general casualty, professional lines, workers compensation, accident and health, medical malpractice, property, agriculture, aviation, credit/surety, and marine and energy. The Reinsurance segment products are offered on both excess of loss and quota share basis, and are generally written on market terms where the company participates alongside other reinsurers. Whole account coverage is underwritten with a focus on casualty risk exposures. The U.S. Insurance lines segment (formerly known as Alterra Excess & Surplus) provides access the U.S. excess and surplus lines market with coverage in property, casualty, marine, umbrella and excess liability the middle market. In June 2008, Alterra America Insurance Company was acquired. This company offers the same type of coverage but on an admitted basis. In November 2008, Imagine Group (UK) Limited (Imagine Lloyd s), a Lloyd s insurance operation, was acquired by Max from Imagine Insurance Company Limited. It had been rebranded as Alterra at Lloyd s Limited form the Lloyd s segment and through Lloyd s Syndicate 1400 offers a diverse portfolio of specialty risks, which includes accident and health, agriculture, aviation, international casualty, financial institutions, marine, professional indemnity, property, employers and public liability, and surety. The Lloyd s syndicates complement underwriting operations in Bermuda, Ireland and the U.S. Markel Bermuda also owns Alterra Europe plc, which is a (re)insurance company domiciled in Ireland. This company has been rebranded as Markel Europe plc A.M. Best Company, Oldwick, NJ Printed June 2, Page 2 of 72

3 TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) ,401 21, , , , , , , , , , NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , Terriry: The company is licensed in the District of Columbia and all states BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Oth Liab CM 70, , , Inland Marine 52, , Oth Liab Occur 51, , Com l MultiPeril 35, , Ocean Marine 15, , All Other Total 226, , , Business NPW Retention Product Line ($000) (%) (%) Oth Liab CM 5, Inland Marine 5, Oth Liab Occur 5, Com l MultiPeril 3, Ocean Marine 1, All Other Total 21, BY-LINE RESERVES ($000) Product Line Oth Liab CM 4,378 1, Inland Marine 3,760 3,526 1, Oth Liab Occur 5,863 2, Com l MultiPeril 3, Ocean Marine 1,938 2,932 1, All Other 1,253 2, Total 20,446 13,071 4,467 1, GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) New York 42,304 29,566 15,119 5,858 3,727 Texas 31,686 23,081 13,952 7,044 2,380 Florida 19,811 14,819 14,196 10,396 4,600 California 14,330 8,701 4,434 3,324 2,088 Illinois 11,385 6,209 2,860 1, New Jersey 10,264 6,180 3,915 2, Louisiana 9,021 8,538 5,545 3,806 1,079 Hawaii 6,956 5,491 5,130 4,646 2,347 Ohio 6,472 4,032 2,124 1, Pennsylvania 5,655 2,878 1, All Other 68,469 44,755 25,561 11,617 5,724 Total 226, ,250 94,606 52,150 24,401 RISK MANAGEMENT Bermuda Limited (AMB# ). Alterra s enterprise risk management (ERM) framework permeates all levels of the organization. There were several committees set up oversee the various operational and risk functions as well as delegated authority. Underwriting and investing activities were modeled on an integrated basis and proprietary and non-proprietary models were used analyze risk characteristics of its liabilities and assets. It is expected that ERM will continue support Alterra although going forward the ERM of Alterra will be under the umbrella of Markel. This is viewed be a positive rating attribute. OPERATING PERFORMANCE Bermuda Limited (AMB# ). Operating Results: The combined ratio has been relatively stable and profitable over the five-year period; however, overall operating performance has experienced some volatility. Results in 2013 were impacted by the Markel acquisition and Markel s approach reserve setting. Since the acquisition, Markel Bermuda has eliminated its hedge fund holdings and will gradually adapt an allocation in line with Markel s investment strategy. The current investment posture coupled with the financial market rebound in 2009 has aided in strengthening the balance sheet. Consequently, longer-term return measures have been skewed as a result of the significant investment losses in Since the amalgamation in 2010 through the acquisition in 2013, operating performance has been relatively steady and stable. In 2011, losses from global catastrophes were on the lower side relative peers, which A.M. Best expected given its risk profile. However, it is also worth noting that the losses from the global catastrophes, including the Japanese and New Zealand earthquakes and flooding in Thailand were within its stated risk lerance which speaks its catastrophe risk management. operating income for 2012 improved in comparison 2011 primarily due the significant decline in property catastrophe losses. Operating income for 2012 was however adversely impacted by the recording of a valuation allowance related deferred tax asset of the US operating subsidiary and a decline in investment income due lower investment yields on new investment purchases. Back Top 2014 A.M. Best Company, Oldwick, NJ Printed June 2, Page 3 of 72

4 PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return , ,680-3,041-3,031-2, ,085-4,155-4,032-23, ,810-4,810-4,816-2,520 5-Yr Total -15,521-12,361-11,628-25,479 INVESTMENT GAINS Company Realized Unrealized Inv Capital Capital Year Income Gains Gains , , ,296 5-Yr Total 1, ,851 Back Top Company Industry Composite Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating Inv Inc Inv Return on Total Inv Inc Inv ROR on ROR on Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg Yr Avg UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind BALANCE SHEET STRENGTH Income ($000) Pure Loss LAE Loss LAE & Other Comm. Exp. Total Exp. Div. Pol. Comb. Comb Bermuda Limited (AMB# ) , , Capitalization: Markel Bermuda s risk-adjusted capitalization is at an , excellent level and remains commensurate with its rating and business profile , per A.M. Best s risk-based capital model. Following the amalgamation of Max 5-Yr Total/Avg -17, Capital Group Ltd. and Harbor Point Limited in May 2010, shareholders equity for the consolidated organization was roughly $3 billion. Given that the integration with Markel is currently ongoing, it is possible that the capital within certain operating subsidiaries may be right sized reflect their future business positions within the group. Capital contributions, including additional capital provided via distributions made by Markel International, helped fortify the balance sheets of the member companies. In the past, the parent company has shown the willingness draw down on its available credit facility ensure that enough capital is on hand support the group s business plan. BY-LINE LOSS RATIO Product Line 5-Yr Avg Oth Liab CM Inland Marine Oth Liab Occur Com l MultiPeril Ocean Marine All Other Total DIRECT LOSS RATIO BY STATE 5-Yr Avg New York Texas Florida California Illinois New Jersey Louisiana Hawaii Ohio Pennsylvania All Other Total CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains , , , , , , ,296 5-Yr Total -15, ,160-13,851 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes ,176-6,624 91, ,680 4, ,720-22, ,000-1,054 56, Yr Total 155, , A.M. Best Company, Oldwick, NJ Printed June 2, Page 4 of 72

5 QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , ,176-3, , ,176-21, ,176-24,919 Year-End Conditional Adjusted Year ,934 19, , , , , ,831 93, , ,257 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW NPW Current BCAR: CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total , REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates... 65, ,821 92, ,365 US Insurers... 4,306 7,824 12,130 Total (ex US Affils)... 4,306 7,824 12,130 Grand Total... 65, , , ,495 * Includes Commissions less Funds Withheld LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Orig. Developed Develop. Develop. Develop. Unpaid Unpaid Loss Res. Thru 13 Orig. (%) (%) NPE Develop. (%) Calendar Year ,678 2, , ,400 3, , ,582 12, , ,687 19, , LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 13 Develop. Orig. (%) Acc. Yr Loss Acc. Yr Comb ,480 2, , ,387 2, , ,309 9, , ,440 11,440 11, Bermuda Limited (AMB# ). Liquidity: Hisrically, the vast majority of fixed income securities have been held in highly liquid and highly rated investments. Fixed income securities fund insurance reserves and related claim payments. LIQUIDITY ANALYSIS Company Industry Composite Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,007 9, ,769-4,972-7, ,437-1, ,976 8,810 3, ,177-4,533 1, Yr Total ,590-1,873 Investments: The company s investment portfolio allocations have been held in highly liquid and highly rated investments, which A.M. Best views as relatively conservative. Bermuda Limited (AMB# ). Markel Bermuda s investment portfolio allocation is similar that of most Bermuda market companies, which A.M. Best views as relatively conservative. As part of the current integration with Markel, the investment strategy will change better optimize the tal asset portfolio of the larger organization. INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Scks Inv. Bonds Scks INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total A.M. Best Company, Oldwick, NJ Printed June 2, Page 5 of 72

6 Bonds (000) 7,209 4,319 9,727 15,906 11,735 US Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues 0.0 Public Issues Bond Quality (%) Class Class INVESTMENTS - EQUITIES Scks (000) 143,087 80, ,531 91,920 Affiliated Common INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 6,234 5,068 1,216 1,333 8,908 Cash Short-Term HISTORY This company was originally incorporated under the laws of Indiana become successor Mor Indemnity Association, a reciprocal exchange formed in Originally organized write aumobile physical damage insurance, the company s charter powers were subsequently broadened and, since 1961, have permitted the handling of all property and casualty lines. Effective February 10, 1986, the company name was changed from Emmco Insurance Company Associates Insurance Company. The name was changed Citicapital Insurance Company in September 2001 and on May 30, 2002, the company reverted back the former title, Associates Insurance Company. The name was changed Commercial Guaranty Casualty Insurance Company on September 1, 2004 and Max America Insurance Company on July 9, In May 2010, Max Capital Group Ltd. and Harbor Point Limited amalgamated form Alterra Capital Holdings Limited. The amalgamated company was rebranded as Alterra Capital Holdings Limited and all operating subsidiaries were rebranded as well. Following the amalgamation, Max America Insurance Company was renamed Alterra America Insurance Company and redomesticated Delaware. On May 1, 2013, Markel Corporation, a publicly traded holding company that trades on the NYSE under ticker symbol MKL acquired Alterra Capital Holdings Limited and all of its subsidiaries including the company. MANAGEMENT Officers: President, F. Michael Crowley; Senior Vice President, Richard R. Whitt, III; Vice President, Treasurer and Chief Financial Officer, Anne G. Waleski; Vice Presidents, Deidre I. Balbuena, Nora N. Crouch, Dewey M. Jones, Robin Russo, Bryan W. Sanders; Controller, Robert G. Whitt III. Direcrs: Gerard Albanese, Jr., F. Michael Crowley, Britn L. Glisson, Bradley J. Kiscaden, Richard R. Whitt, III. REGULATORY An examination of the financial condition was made as of December 31, 2010, by the insurance department of Delaware. The 2013 annual independent audit of the company was conducted by KPMG, LLP. The annual statement of actuarial opinion is provided by G. Chrispher Nyca, FCAS, MAAA. REINSURANCE The largest net amount insured on any single risk is $4 million. The group provides reinsurance coverage third party insurance and reinsurance companies and also purchases reinsurance protection for its insurance and reinsurance operations. On an internal basis, Markel Bermuda provides reinsurance coverage its operating affiliates in the U.S. and Europe through respective quota share agreements. Markel Corporation arranges catastrophe coverage for all property Insurance units within Markel North America including Global Ocean Marine and Global Inland Marine divisions of Markel North America, resulting in higher limits and more cost effective coverage. At May 1, 2013, coverage for wind and earthquake was placed on a traditional and non-traditional basis. The traditional reinsurance coverage is placed 80% of the combined layer of $225 million excess of $100 million and 27.14% of the layer $175 million excess $325 million. The non-traditional reinsurance coverage is placed at 80% of the layer of $50 million excess of $50 million and $50 million part of the layer $175 million excess of $325 million or $50 million excess of $50 million 2nd, 3rd event cover. The non-traditional reinsurance is a p and drop reinsurance cover that affords a tal of $80 million in limit. Additionally, a 50% quota share was placed with a maximum $225 million occurrence limit. The company s principal non-affiliated reinsurer is ULLICO Labor CAPTIVE, IC. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/13 12/31/12 13% 12% Bonds... 7,209 4, Cash & short-term invest... 6,234 5, Investments in affiliates ,087 80, Total invested assets ,530 90, Premium balances... 36,741 21, Accrued interest All other assets... 29,116 33, Total assets , , LIABILITIES & SURPLUS ($000) 12/31/13 12/31/12 13% 12% Loss & LAE reserves... 20,446 13, Unearned premiums... 10,297 7, All other liabilities... 41,419 30, Total liabilities... 72,161 51, Capital & assigned surplus , , Unassigned surplus ,919-21, Total policyholders surplus ,257 93, Total liabilities & surplus , , SUMMARY OF 2013 OPERATIONS ($000) Funds Provided from Statement of Income 12/31/13 Operations 12/31/13 Premiums earned... 18,796 Premiums collected... 13,953 Benefit & loss-related pmts Losses incurred... 13,354 11,621 LAE incurred Undrw expenses incurred LAE & undrw expenses paid 9,411 10,510 underwriting income -4,912 Undrw cash flow... -8,177 investment income Investment income... 2,781 Pre-tax cash operations Pre-tax oper income... -4,810-5,396 Realized capital gains Income taxes incurred... Income taxes pd (recov) income... -4,816 oper cash flow... -4, A.M. Best Company, Oldwick, NJ Printed June 2, Page 6 of 72

7 Ultimate Parent: Markel Corporation ALTERRA EXCESS & SURPLUS INSURANCE CO Wilmingn, DE 4521 Highwoods Parkway, Glen Allen, VA Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A Outlook: Stable Best s Financial Size Category: XIV RATING RATIONALE Rating nale: The rating of Markel Bermuda Limited (formerly Alterra Bermuda Limited) has been extended Alterra Excess & Surplus Insurance Company based on its role and affiliation with Markel Bermuda Limited. This position is further supported by common ownership, common management, implicit support and internal reinsurance. Bermuda Limited (AMB# ). In May of 2013, Alterra Capital Holdings Limited (Alterra) was acquired by Markel Corporation (Markel), and the integration is ongoing. Both Alterra and Markel are specialty-focused underwriters. In addition recognizing its new ownership under Markel, the rating also reflects Markel Bermuda s solid financial performance and strong risk-adjusted capitalization. Markel Bermuda s existing platforms and operations in major global underwriting markets also provide broad diversification as well as additional flexibility in optimizing its underwriting portfolio composition. Being part of Markel, revenue and earnings prospects are likely be enhanced over time while leveraging existing business relationships and efficiencies may also be gained. Partially offsetting these positive rating attributes are the effects of the prolonged soft market in U.S. casualty classes, which represents a significant portion of Markel Bermuda s portfolio, and the challenging investment climate that places increased pressure on underwriting profitability. While no rating enhancement is afforded Markel Bermuda at this time, the rating for Markel Bermuda takes in consideration the future benefits be derived from the transaction as well as some of the immediate benefits gained in terms of enhanced scale, reach, the Markel brand, distribution platform and its leadership position in the excess and surplus lines marketplace in the United States. The rating also considers no material changes business profile, capitalization, performance as well as intercompany reinsurance. Rating facrs that could lead an upgrade in the rating includes continued favorable operating profitability coupled with maintenance of a strong risk-adjusted capital level and/or explicit or implicit support from Markel that would materially enhance capital along with its role in the new organization. Alternatively, facrs that could lead a downgrade in the rating and/or a revised outlook negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative peers, significant adverse loss reserve development or a material decline in its risk-adjusted capital. FIVE-YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/21/14 A 09/07/10 A 08/09/13 A 05/13/10 A 06/20/12 A 03/04/10 A- u 08/05/11 A KEY FINANCIAL INDICATORS ($000) Statury Data Direct Premiums Written Premiums Written Pre-tax Operating Income Income Total Admitted Assets Policyholders Surplus ,445 23,636-11,683-8, , , ,436 43, , ,372 89, ,245 50,022 12,554 8, , , ,719 43,530-21,947-18, ,115 80, ,816 52,124-1, , ,087 Profitability Leverage Liquidity Comb. Inv. Yield (%) Pre-tax ROR (%) NA Inv Lev NPW Overall Liq. (%) Oper. Cash flow (%) Yr (*) Within several financial tables of this report, this company is compared against the Surplus Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statury statement. BUSINESS PROFILE Bermuda Limited (AMB# ). Markel Bermuda is the Bermuda-based operating unit of Alterra. Alterra was a publicly traded company on the NASDAQ exchange prior being acquired by Markel on May 1, Alterra was formed as a result of the amalgamation between Max Capital Group Ltd. (Max) and Harbor Point Limited in May The holding company and all of the subsidiaries were rebranded with the Alterra name. The integration of Alterra s operations in Markel is currently ongoing. Through Alterra s operating subsidiaries, traditional reinsurance and insurance of both long-tailed and short-tailed liabilities are provided. Affiliated operating companies distribute products for the group in the U.S., Europe, Canada, Japan, Latin America, Australia and New Zealand. Underwriting operations provide a diversified and balanced mix of short-tail and long-tail insurance and reinsurance capacity. Covered risks include the (re)insurance of general casualty, professional lines, workers compensation, accident and health, medical malpractice, property, agriculture, aviation, credit/surety, and marine and energy. The Reinsurance segment products are offered on both excess of loss and quota share basis, and are generally written on market terms where the company participates alongside other reinsurers. Whole account coverage is underwritten with a focus on casualty risk exposures. The U.S. Insurance lines segment (formerly known as Alterra Excess & Surplus) provides access the U.S. excess and surplus lines market with coverage in property, casualty, marine, umbrella and excess liability the middle market. In June 2008, Alterra America Insurance Company was acquired. This company offers the same type of coverage but on an admitted basis. In November 2008, Imagine Group (UK) Limited (Imagine Lloyd s), a Lloyd s insurance operation, was acquired by Max from Imagine Insurance Company Limited. It had been rebranded as Alterra at Lloyd s Limited form the Lloyd s segment and through Lloyd s Syndicate 1400 offers a diverse portfolio of specialty risks, which includes accident and health, agriculture, aviation, international casualty, financial institutions, marine, professional indemnity, property, employers and public liability, and surety. The Lloyd s syndicates complement underwriting operations in Bermuda, Ireland and the U.S. Markel Bermuda also owns Alterra Europe plc, which is a (re)insurance company domiciled in Ireland. This company has been rebranded as Markel Europe plc A.M. Best Company, Oldwick, NJ Printed June 2, Page 7 of 72

8 TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS DPW Reinsurance Prem Assumed Reinsurance Prem Ceded ($000) (% Chg) ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , , , , , , Yr CAGR NPW NPE ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Terriry: The company is licensed in Delaware. It also operates on a surplus lines or non-admitted basis in the District of Columbia, Puer Rico, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY BY-LINE BUSINESS ($000) Reinsurance Reinsurance DPW Prem Assumed Prem Ceded Product Line ($000) (%) ($000) (%) ($000) (%) Oth Liab CM 45, , , Allied Lines 81, , Oth Liab Occur 27, , , Earthquake 28, , Fire 21, , Inland Marine 8, , , Homeowners 14, , All Other , , Total 227, , , Business NPW Retention Product Line ($000) (%) (%) Oth Liab CM 14, Allied Lines 13, Oth Liab Occur 9, Earthquake 4, Fire 3, Inland Marine 2, Homeowners 2, All Other Total 52, BY-LINE RESERVES ($000) Product Line Oth Liab CM 24,358 12,811 9,782 5,064 2,094 Allied Lines 20,564 14,257 8,362 2, Oth Liab Occur 34,655 24,246 20,323 13,318 6,815 Earthquake 3,858 3, Fire 4,630 4, Inland Marine 1,374-1,832 1,126 2, Homeowners 1,085 1, All Other -1,266 2, Total 89,258 62,216 40,267 25,373 11,724 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 36,528 37,826 44,433 42,989 34,872 Florida 33,500 39,775 48,452 45,287 43,118 Texas 21,990 25,247 31,378 31,205 31,394 New York 13,819 13,162 15,932 15,467 14,039 New Jersey 10,497 10,255 14,328 15,145 14,764 Illinois 9,050 12,640 9,708 7,586 5,679 South Carolina 8,930 8,858 8,857 10,736 10,911 Louisiana 8,142 7,824 10,780 11,159 13,130 Georgia 6,579 5,946 4,890 5,757 4,957 Pennsylvania 5,406 5,440 6,219 5,545 5,964 All Other 73,374 77,746 85,267 80,560 68,618 Total 227, , , , ,445 RISK MANAGEMENT Bermuda Limited (AMB# ). Alterra s enterprise risk management (ERM) framework permeates all levels of the organization. There were several committees set up oversee the various operational and risk functions as well as delegated authority. Underwriting and investing activities were modeled on an integrated basis and proprietary and non-proprietary models were used analyze risk characteristics of its liabilities and assets. It is expected that ERM will continue support Alterra although going forward the ERM of Alterra will be under the umbrella of Markel. This is viewed be a positive rating attribute. OPERATING PERFORMANCE Bermuda Limited (AMB# ). Operating Results: The combined ratio has been relatively stable and profitable over the five-year period; however, overall operating performance has experienced some volatility. Results in 2013 were impacted by the Markel acquisition and Markel s approach reserve setting. Since the acquisition, Markel Bermuda has eliminated its hedge fund holdings and will gradually adapt an allocation in line with Markel s investment strategy. The current investment posture coupled with the financial market rebound in 2009 has aided in strengthening the balance sheet. Consequently, longer-term return measures have been skewed as a result of the significant investment losses in Since the amalgamation in 2010 through the acquisition in 2013, operating performance has been relatively steady and stable. In 2011, losses from global catastrophes were on the lower side relative peers, which A.M. Best expected given its risk profile. However, it is also worth noting that the losses from the global catastrophes, including the Japanese and New Zealand earthquakes and flooding in Thailand were within its stated risk lerance which speaks its catastrophe risk management. operating income for 2012 improved in comparison 2011 primarily due the significant decline in property catastrophe losses. Operating income for 2012 was however adversely impacted by the recording of a valuation allowance related deferred tax asset of the US operating subsidiary and a decline in investment income due lower investment yields on new investment purchases A.M. Best Company, Oldwick, NJ Printed June 2, Page 8 of 72

9 PROFITABILITY ANALYSIS ($000) Company Pre-tax After-tax Operating Operating Total Income Income Income Return ,683-8,285-8,053-8, ,199-3,761-2, ,554 8,353 8,353 8, ,947-18,260-18,003-18, ,009-1, ,712 5-Yr Total -22,959-20,401-21,920-18,057 INVESTMENT GAINS Company Realized Unrealized Inv Capital Capital Year Income Gains Gains , ,425-2,562 1, , , , ,168 5-Yr Total 19,802-1,519 3,864 Back Top Company Industry Composite Company Industry Composite Pre-tax Return Operating Pre-tax Return Operating Inv Inc Inv Return on Total Inv Inc Inv ROR on ROR on Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg Yr Avg UNDERWRITING EXPERIENCE Undrw Loss s Expense s Ind BALANCE SHEET STRENGTH Income ($000) Pure Loss LAE Loss LAE & Other Comm. Exp. Total Exp. Div. Pol. Comb. Comb , Bermuda Limited (AMB# ) , , Capitalization: Markel Bermuda s risk-adjusted capitalization is at an , excellent level and remains commensurate with its rating and business profile , per A.M. Best s risk-based capital model. Following the amalgamation of Max 5-Yr Total/Avg -47, Capital Group Ltd. and Harbor Point Limited in May 2010, shareholders equity for the consolidated organization was roughly $3 billion. Given that the integration with Markel is currently ongoing, it is possible that the capital within certain operating subsidiaries may be right sized reflect their future business positions within the group. Capital contributions, including additional capital provided via distributions made by Markel International, helped fortify the balance sheets of the member companies. In the past, the parent company has shown the willingness draw down on its available credit facility ensure that enough capital is on hand support the group s business plan. BY-LINE LOSS RATIO Product Line 5-Yr Avg Oth Liab CM Allied Lines Oth Liab Occur Earthquake Fire Inland Marine Homeowners All Other Total DIRECT LOSS RATIO BY STATE 5-Yr Avg California Florida Texas New York New Jersey Illinois South Carolina Louisiana Georgia Pennsylvania All Other Total CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-tax Realized Unrealized Operating Capital Income Capital Year Income Gains Taxes Gains , , , , , , , , , ,168 5-Yr Total -22,959-1,519-2,558 3,864 Source of Surplus Growth Change % Chg Contrib. Other in in Year Capital Changes , ,644 2,823-28, ,202 10, ,761-19, , , Yr Total 31,379 2,208 15, A.M. Best Company, Oldwick, NJ Printed June 2, Page 9 of 72

10 QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,000-31, ,356-31, ,156-14, ,179-34, ,179-32,092 Year-End Conditional Adjusted Year , , , , , , , , , ,245 LEVERAGE ANALYSIS Company Industry Composite Res. Res. NPW NPW Current BCAR: CEDED REINSURANCE ANALYSIS ($000) Company Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Industry Composite Bus. Reins. Ceded Ret. Recov. Reins. (%) (%) (%) Ceded Reins. Total , , , ,053, ,156, REINSURANCE RECOVERABLES ($000) Paid & Unpaid Losses IBNR Unearned Premiums Other Recov* Total Reins Recov US Affiliates Foreign Affiliates , , , ,316 US Insurers... 45,263 47,815 11, ,477 Other Non-US... 47,416 39,729 12, ,462 Total (ex US Affils) , , , ,255 Grand Total , , , ,562 * Includes Commissions less Funds Withheld LOSS & ALAE RESERVE DEVELOP.: CALENDAR YEAR ($000) Orig. Developed Develop. Develop. Develop. Unpaid Unpaid Loss Res. Thru 13 Orig. (%) (%) NPE Develop. (%) Calendar Year ,537 7, , ,622 15, , ,089 30, , ,858 57, , ,112 75, , ,499 86, , LOSS & ALAE RESERVE DEVELOP.: ACCIDENT YEAR ($000) Accident Year Orig. Loss Developed Thru 13 Develop. Orig. (%) Acc. Yr Loss Acc. Yr Comb ,142 6, , ,427 9, , ,027 17, , ,031 34, , ,144 34, , ,738 27,738 27, Bermuda Limited (AMB# ). Liquidity: Hisrically, the vast majority of fixed income securities have been held in highly liquid and highly rated investments. Fixed income securities fund insurance reserves and related claim payments. LIQUIDITY ANALYSIS Company Industry Composite Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) Quick Liq. (%) Current Liq. (%) Overall Liq. (%) Agents Bal. (%) CASH FLOW ANALYSIS ($000) Company Industry Composite Underw Oper Underw Oper Underw Oper Cash Cash Cash Cash Cash Cash Cash Year Flow Flow Flow Flow (%) Flow (%) Flow (%) Flow (%) ,387-30,066-2, ,828 22,566 8, ,304 13,803 3, ,159-14,657 6, ,063 84, , Yr Total 45,649 75, ,856 Investments: The company s investment portfolio allocations have been held in highly liquid and highly rated investments, which A.M. Best views as relatively conservative. Bermuda Limited (AMB# ). Markel Bermuda s investment portfolio allocation is similar that of most Bermuda market companies, which A.M. Best views as relatively conservative. As part of the current integration with Markel, the investment strategy will change better optimize the tal asset portfolio of the larger organization. INVESTMENT LEVERAGE ANALYSIS (% OF ) Industry Company Composite Class Real Other Non-Affil. Class 3-6 Estate/ Invested Common Inv. Affil. 3-6 Common Bonds Mtg. Assets Scks Inv. Bonds Scks A.M. Best Company, Oldwick, NJ Printed June 2, Page 10 of 72

11 INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Total Bonds (000) 75,942 98, , , ,270 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class INVESTMENTS - EQUITIES Scks (000) 43,037 29,957 Unaffiliated Common Affiliated Common INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 127,670 21,531 15,006 11,091 2,366 Cash Short-Term All Other HISTORY The company was originally incorporated as Monticello Insurance Company May 13, 1973, under the laws of Delaware and began operating on July 20, In 1999, the company received approval from the New York State Department of Insurance withdraw its New York admitted license and operate as a surplus lines carrier in New York. The company was acquired by Max Capital Group Ltd, on April 3, 2007, with a subsequent name change Max Specialty Insurance Company. In May 2010, Max Capital Group Ltd. amalgamated with Harbor Point Limited form Alterra Capital Holdings Limited, and all operating subsidiaries were rebranded under the Alterra name. In September 2010, the company changed its name Alterra Excess & Surplus Insurance Company. On May 1, 2013, Markel Corporation, a publicly traded holding company that trades on the NYSE under ticker symbol MKL acquired Alterra Capital Holdings Limited and all of its subsidiaries including the company. MANAGEMENT REINSURANCE The largest net amount insured on any single risk is $5 million. The group provides reinsurance coverage third party insurance and reinsurance companies and also purchases reinsurance protection for its insurance and reinsurance operations. On an internal basis, Markel Bermuda provides reinsurance coverage its operating affiliates in the U.S. and Europe through respective quota share agreements. Markel Corporation arranges catastrophe coverage for all property Insurance units within Markel North America including Global Ocean Marine and Global Inland Marine divisions of Markel North America, resulting in higher limits and more cost effective coverage. At May 1, 2013, coverage for wind and earthquake was placed on a traditional and non-traditional basis. The traditional reinsurance coverage is placed 80% of the combined layer of $225 million excess of $100 million and 27.14% of the layer $175 million excess $325 million. The non-traditional reinsurance coverage is placed at 80% of the layer of $50 million excess of $50 million and $50 million part of the layer $175 million excess of $325 million or $50 million excess of $50 million 2nd, 3rd event cover. The non-traditional reinsurance is a p and drop reinsurance cover that affords a tal of $80 million in limit. Additionally, a 50% quota share was placed with a maximum $225 million occurrence limit. The company s principal non-affiliated reinsurers are: Lloyd s Syndicate 4000, Odyssey Reinsurance Company, Lloyd s Syndicate 2003, Swiss Reinsurance America Corporation, Aeolus Re Ltd., Munich Reinsurance America Inc., Tokio Millennium Re AG, Everest Reinsurance Company, General Reinsurance Corporation and Validus Reinsurance, Ltd. BALANCE SHEET ADMITTED ASSETS ($000) 12/31/13 12/31/12 13% 12% Bonds... 75,942 98, Common sck... 43, Cash & short-term invest ,670 21, Other non-affil inv asset Total invested assets , , Premium balances... 49,682 55, Accrued interest All other assets ,179 88, Total assets , , LIABILITIES & SURPLUS ($000) 12/31/13 12/31/12 13% 12% Loss & LAE reserves... 89,258 62, Unearned premiums... 27,014 24, Conditional reserve funds All other liabilities ,624 97, Total liabilities , , Capital & assigned surplus , , Unassigned surplus ,092-34, Total policyholders surplus ,087 80, Total liabilities & surplus , , Back Top Officers: President, F. Michael Crowley; Senior Vice President, Richard R. Whitt, III; Vice President, Treasurer and Chief Financial Officer, Anne G. Walseki; Vice Presidents, Nora N. Crouch, Dewey M. Jones, Bryan W. Sanders; Secretary, Richard R. Grinnan; Controller, Robert G. Whitt, III. Direcrs: Gerard Albanese, Jr., F. Michael Crowley, Britn L. Glisson, Bradley J. Kiscaden, Richard R. Whitt, III. REGULATORY An examination of the financial condition was made as of December 31, 2010, by the insurance department of Delaware. The 2013 annual independent audit of the company was conducted by KPMG, LLP. The annual statement of actuarial opinion is provided by G. Chrispher Nyce, FCAS, MAAA A.M. Best Company, Oldwick, NJ Printed June 2, Page 11 of 72