Aon Benfield. Analytics Market Analysis. Lloyd s Update. October Risk. Reinsurance. Human Resources.

Transcription

1 Aon Benfield Analytics Market Analysis Lloyd s Update October 2015 Risk. Reinsurance. Human Resources.

2 Table of Contents Executive Summary... 3 Lloyd s 1H 2015 Results... 3 Looking Ahead to Interim Results... 4 Premium Income... 4 Underwriting Performance... 5 Investment Return... 5 Pre-Tax Results... 6 Balance Sheet at June 30, Investments... 7 Technical Reserves... 7 Capital... 8 London Market Developments... 9 Target Operating Model... 9 Insurance Linked Securities... 9 Delegated Underwriting... 9 Lloyd s in Mergers & Acquisitions New Entrants and Departures Underwriting Capacity Syndicate / Managing Agent News Market Access Alternative Capital Financial Strength Ratings... 11

3 Executive Summary Lloyd s 1H 2015 Results Gross premiums written totalled GBP15.5 billion in 1H 2015, up 1.4% at constant exchange rates. In the aggregate, risk-adjusted rates fell by 4.6%. Underwriting profit fell by 12% to just under GBP1.1 billion. The combined ratio stood at 89.5% (1H : 87.4%), with major losses contributing 2.7pp (1.4pp). Favourable development of prior year reserves rose by 6% to GBP0.8 billion, benefitting the combined ratio by 8.0pp (8.0pp). On a pure accident year basis, the combined ratio stood at 97.5% (95.4%), with all major reporting classes other than Property and Reinsurance reporting underwriting losses. The investment return halved to GBP339 million, representing an annualised yield of 1.2% (2.6%), driven by economic volatility in Europe in June and the continued low interest rate environment. Pre-tax profit fell by 28% to GBP1.2 billion, representing an annualised return on capital employed of 10.7% (16.3%). Overall net resources fell by 2% to GBP22.8 billion over the six months to June 30, 2015, driven by the distribution of earned profit to members. Funds at Lloyd s supporting members underwriting commitments rose by 3% to GBP16.2 billion, of which 50% was held in the form of letters of credit and bank guarantees. Mutual assets rose by 3% to GBP2.7 billion, including the Central Fund of GBP1.7 billion and subordinated debt of GBP0.9 billion. Looking Ahead to 2016 Lloyd s continues to attract strong interest from new and existing investors, as evidenced by high levels of corporate activity in the market. Five Lloyd s managing agents are likely to change hands in the next few months, as part of broader acquisitions (Amlin, Chubb, HCC, Pembroke and Sirius). Three new syndicates (Probitas 1492, Everest Re 2786 and Credit Suisse 1856) and at least two new special purpose syndicates are being formed for the 2016 year of account. Lloyd s has been considering ways in which structures could be developed that would be attractive to alternative capital. A progress report will be published prior to the end of Lloyd s opened its Beijing office and launched its Dubai platform in March. Since then, the market has received formal permission to open offices in Colombia and Mexico. Lloyd s has submitted its Solvency II internal model application to the Prudential Regulatory Authority and is seeking approval by the year-end. Efforts to streamline operations and reduce costs across the London market have gathered pace over the past year, as leading industry bodies cooperate to drive a five year modernisation plan. Aon Benfield Analytics Market Analysis 3

4 2015 Interim Results Reported premium volumes were boosted by strengthening of the US dollar in 1H 2015, while underwriting and investment results both weakened. Pre-tax profit fell by 28% to GBP1.2 billion, representing an annualised return on capital employed of 10.7%. Exhibit 1: Lloyd s Pro-Forma Results Income Statement GBP (millions) Interim Interim Year Change Gross premiums written 22,592 23,477 25,500 25,616 25,259 14,481 15,513 7% Net premiums written 17,656 18,472 19,435 20,231 20,006 10,908 11,432 5% Net premiums earned 17,111 18,100 18,685 19,725 19,515 9,511 10,037 6% Underwriting result 1,143-1,237 1,661 2,605 2,280 1,199 1,053-12% Investment result 1, , , % Pre-tax result 2, ,771 3,205 3,052 1,652 1,194-28% Key Ratios Interim Interim Year Change Cession Rate 21.8% 21.3% 23.8% 21.0% 20.8% 24.7% 26.3% 1.6pp Combined Ratio 93.3% 106.8% 91.1% 86.8% 88.3% 87.4% 89.5% 2.1pp Investment yield 2.6% 1.9% 2.6% 1.6% 2.0% 1.3% 0.6% -0.7pp Return on capital* 12.1% -2.8% 14.8% 16.2% 14.2% 16.3% 10.7% -5.6pp *Capital and reserves Premium Income Challenging market conditions continue, as global insurance capital continues to exceed demand, particularly in the reinsurance sector 1. Gross premiums written at Lloyd s rose by 7.1% to GBP15.5 billion in 1H The increase was 1.4% at constant exchange rates, driven by new syndicates, emerging risks such as cyber and business transferred from company platforms. In the aggregate, risk-adjusted rates fell by 4.6%. Casualty lines saw the most significant growth, followed by Property (direct and facultative), Marine and Accident & Health. Reductions were seen in Property Treaty and Motor business. The reinsurance cession rate stood at 26.3% in 1H 2015, up from 24.7% in the prior year period. Net premiums written rose by 4.8% on a reported basis, to GBP11.4 billion. Exhibit 3 shows the distribution of 1H 2015 net premiums earned by the seven high-level classes used by Lloyd s for reporting purposes, as well as the three Reinsurance sub-classes. Specialty Reinsurance business of GBP0.9 billion was split Marine (51%), Energy (30%) and Aviation (19%). 1 Aon Benfield estimates that global reinsurer capital totalled USD565 billion as at June 30, Exhibit 2: Lloyd s Gross Premiums Written GBP (billions) Exhibit 3: Lloyd s Business Split Property Casualty Marine Energy Motor Aviation Reinsurance Interim % 1H 2015 Net Premiums Earned GBP10bn 9% 25% 5% 5% 2% Reinsurance 33% Property 48% Casualty 24% Specialty 27% 4 Lloyd s Update October 2015

5 Underwriting Performance Lloyd s underwriting results continue to benefit from relatively benign major loss experience and favourable development of prior year reserves. Technical profit fell by 12% to just under GBP1.1 billion in 1H 2015, driven by pressure on premium rates. This equated to a combined ratio of 89.5% (1H : 87.4%). Exhibit 5: 1H 2015 Combined Ratios by Class Accident Year Combined Ratio (Direct Classes) Accident Year Combined Ratio (Reinsurance Classes) Reserve Releases 91% 97% 89% 90% 106% 104% 85% 95% 92% 77% Exhibit 4: Lloyd s Combined Ratio Major Losses Attritional Losses Expenses Reserve Releases 94% 100% 101% 112% 106% 121% 98% 91% 102% 106% 113.3% 32.4% 88.7% 86.9% 87.4% 89.5% -2% -4% -13% -22% -2% -15% -12% -15% -6% -14% 3.4% 2.4% 1.4% 2.7% 51.5% 55.4% 56.3% 55.9% 55.3% 35.0% 37.2% 36.3% 38.1% 39.5% -5.5% -7.3% -8.1% -8.0% -8.0% 1H H H H 1H 2015 Major losses doubled to GBP268 million in 1H 2015, but remained below the long-term average, adding 2.7pp (1.4pp) to the combined ratio. Notable losses were seen in the offshore energy market, including the Pemex oil rig in Mexico (reserved at GBP173 million) and the Petrobras fire and explosions. The attritional loss ratio in 1H 2015 stood at 55.3% (55.9%). This metric has showed modest (1.0pp) improvement over the last two years, despite weakening pricing. This contrasts with the expense ratio, which has deteriorated by 3.2pp to 39.5% over the same timeframe. In the aggregate, Lloyd s reserves have developed favourably in each of the last eleven years. Releases in 1H 2015 stood at GBP807 million (GBP760 million) and the benefit to the combined ratio was unchanged at 8.0pp. All major classes contributed, as shown in Exhibit 5. Reported combined ratios by segment are shown in Exhibit 5. Two classes reported underwriting losses in 1H 2015: Aviation (influenced by the Germanwings crash) and Motor. On a pure accident year basis, Lloyd s combined ratio rose by 2.1pp to 97.5% in 1H All classes other than Property and Reinsurance reported underwriting losses, the most notable being Aviation (combined ratio: 121%) and Energy (112%). Investment Return Lloyd s total investment return fell by 48% to GBP339 million in 1H 2015, representing an annualised yield of 1.2% (1H : 2.6%). The weaker result was driven by unrealized losses caused by economic volatility in Europe in June and the continued low interest rate environment. The three components of the investment result are shown in Exhibit 6. The return on syndicate-level assets was GBP237 million (annualised yield: 1.4%), the notional return on the capital supporting members underwriting was GBP76 million (1.0%) and the return on centrally-held mutual assets was GBP26 million (1.8%). Exhibit 6: Lloyd s Investment Return 2 Investment return on Society assets* Notional return on Funds at Lloyd's Syndicate investment return GBP (billions) H *Gross invested central assets, stated on IFRS basis The extent of the decline in the investment yield since the onset of the global financial crisis can clearly be seen in Exhibit H 2015 Aon Benfield Analytics Market Analysis 5

6 Exhibit 7: Lloyd s Investment Yield 6% 5% 4% 3% 2% 1% 4.3% 4.7% 5.6% 2.5% 3.9% 2.6% 1.9% 2.6% 1.6% 2.0% 1.2% 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 1H 2015 Pre-Tax Results Lloyd s reported a pre-tax profit of GBP1.2 billion in 1H 2015, a reduction of 28% relative to the prior year period. Exhibit 8 demonstrates that favourable development of prior year reserves has been a significant driver of Lloyd s overall results in recent years. In 1H 2015, reserve releases represented 77% of the market s underwriting profit and 68% of the pre-tax result. Exhibit 8: Lloyd s Pre-Tax Result Underwriting result* Reserve releases Investment result Other H 1H GBP (billions) The annualised pre-tax return on capital was 10.7% in 1H 2015, *Accident year compared with 16.3% in the prior year period. The returns since 2005 are captured in Exhibit 9. Exhibit 9: Lloyd s Return on Capital* 35% 31.4% 29.3% 25% 23.9% 15% 12.1% 14.8% 16.2% 14.2% 10.7% 5% 13.7% -5% -0.9% '05 '06 '07 '08 '09 '10 '11-2.8% '12 '13 '14 1H 2015 *Capital and reserves 6 Lloyd s Update October 2015

7 Balance Sheet at June 30, 2015 Lloyd s balance sheet strength has been recognized by the leading rating agencies. Overall investment allocation remains relatively conservative, capital resources are at near record levels and legacy issues appear contained. Lloyd s has submitted its Solvency II internal model application to the Prudential Regulatory Authority. Exhibit 10: Lloyd s Balance Sheet Summary Balance Sheet GBP (millions) December 2010 December 2011 December 2012 December 2013 December June 2015 Year to Date Change Cash and investments 48,483 51,415 51,767 51,494 54,857 52,537-4% Gross technical provisions 46,428 51,918 51,517 49,277 50,787 52,516 3% Reinsurers share 10,237 12,153 12,439 10,922 10,761 11,940 11% Net technical provisions 36,191 39,765 39,078 38,355 40,026 40,576 1% Net resources* 19,121 19,114 20,193 21,107 23,414 22,844-2% *Capital, reserves, subordinated loan notes and securities Investments Across the Lloyd s market as a whole, cash and investments totaled GBP52.5 billion at June 30, 2015, a reduction of 4% from the end of. The largest component is syndicate-level assets, which were carried at GBP33.4 billion. Investment disposition remained relatively conservative, with bonds representing 79% of the total. Assets held at member-level, or Funds at Lloyd s (FAL), totaled GBP16.2 billion, representing 31% of Lloyd s investments. The asset mix was cash 7%, bonds 29%, equities / other 14% and letters of credit / bank guarantees 50%. Centrally-held mutual assets accounted for the remaining GBP2.9 billion of Lloyd s investments. The asset allocation at June 30, 2015 was bonds 55%, global equities 16%, cash 10%, short-term deposits 7%, hedge funds 5%, senior secured loans 3%, emerging market securities 2% and emerging equity 2%. Exhibit 11: Investment Allocation at June 30, 2015 Technical Reserves Gross provisions for outstanding claims fell by 2% to GBP37.3 billion over the six months to June 30, Reinsurers share fell by 1% to GBP8.7 billion. The ratio of loss reserves to overall net resources was unchanged at 163% on a gross basis and 125% net of reinsurance. Gross unearned premium reserves rose by 21% to GBP15.3 billion over the six months to June 30, Reinsurers share rose by 65% to GBP3.3 billion. Exhibit 12: Lloyd s Outstanding Claims Provisions 60 Reinsurers' share Net claims provision GBP (billions) Total Lloyd's Market Investments: GBP52.5 billion H 2015 FAL investments 31% Central investments* 5% Syndicate level assets 64% Cash & LOCs 28% Equity & other 11% Investment grade bonds 61% The development of the ratios of gross and net claims reserves to Lloyd s overall net resources (capital, reserves and subordinated loan notes and securities) since 2010 is captured in Exhibit 13. *Gross invested central assets, stated on IFRS basis Aon Benfield Analytics Market Analysis 7

8 Exhibit 13: Lloyd s Claims Reserve Leverage 300% 200% 100% 0% Capital 190% 216% 199% 178% Lloyd s is a partially mutualised market and does not hold Gross Net 163% 163% 125% H 2015 conventional equity. The components of the capital base are shown in Exhibit 14. Both FAL and members balances operate on a several liability basis. The Chain of Security The resources available to pay claims at Lloyd s are linked together in a Chain of Security as follows: 1. Syndicate assets: Premium Trust Funds (PTFs) of GBP44.6 billion. All premiums received by syndicates are held in trust as the first resource for paying policyholders claims. Until all liabilities have been provided for, no profits can be released. Every year, each syndicate s reserves for future liabilities are independently audited and receive an actuarial review. 2. Members assets: FAL of GBP16.2 billion. Each member, whether corporate or individual, must provide sufficient capital to support their underwriting at Lloyd s. The capital is held in trust for the benefit of policyholders, but is not available to support the liabilities of other members. Assets supporting FAL requirements must be liquid but may include letters of credit and bank guarantees. Overall net resources fell by 2% to GBP22.8 billion over the six months to June 30, 2015, as a result of the distribution of earned profit to members. Under Solvency 1, assets admissible for solvency purposes were estimated to exceed solvency deficits by GBP3.3 billion. Exhibit 14: Lloyd s Capital Base GBP (billions) Central resources: Society of Lloyd s net assets of GBP1.7 billion, plus subordinated debt of GBP0.9 billion. If the first link needs additional funds, the second link ensures members have resources available. In the rare event that both are insufficient, central resources can be made available at the discretion of the Council of Lloyd s to ensure valid claims are paid. Funds at Lloyd's Members' balances Exhibit 15: Lloyd s Chain of Security at June 30, 2015 Central assets Subordinated liabilities Solvency surplus Subordinated Debt 886m Callable Layer Central Fund 1,668m (=3%) Corporation Assets 101m 782m Mutual 2. Funds at Lloyd's 16,208m Contingent H 2015 FAL, representing capital lodged and held in trust to support members underwriting commitments, grew by GBP0.5 billion to GBP16.2 billion over the six months to June 30, 2015, of which 50% was held in the form of letters of credit and bank guarantees. Members balances represent the net profit/(loss) to be distributed/(collected) by syndicates to/(from) capital providers. The total fell by GBP1.2 billion to GBP4.0 billion during the period, reflecting the distribution of earned profit. Central assets rose by 3% to GBP2.7 billion, including GBP0.9 billion of subordinated debt. Other mutual assets stood at GBP1.8 billion, including the Central Fund at GBP1.7 billion. Source: Lloyd s 1. Premium Trust Funds 44,558m Lloyd s has submitted its Solvency II internal model application to the Prudential Regulatory Authority and is seeking approval by the year-end. Managing agents that remained non-compliant at March 2015 were subject to a 20% capital loading during the mid-year coming-into-line process. Several 8 Lloyd s Update October 2015

9 London Market Developments Target Operating Model The London Matters report, published by the London Market Group (LMG) and The Boston Consulting Group in November, found that London was only tracking global growth in commercial insurance, was losing market share in reinsurance and was failing to capture the opportunity in emerging markets. These conclusions have spurred a raft of initiatives aimed at improving efficiency, promoting London more effectively and addressing regulatory issues holding back growth and the ability to innovate. The LMG is working with the Lloyd s Market Association (LMA), the International Underwriting Association (IUA), the London & International Insurance Brokers Association (LIIBA) and Xchanging to develop a five-year plan to spearhead London market modernisation. A key component of the Target Operating Model is Placing Platform Ltd (PPL), which will provide all parties electing to insure or reinsure through the London market with the choice of using a common infrastructure that supports controlled, auditable negotiation and placing processes. In September 2015, the LMG announced that 16 of the 17 LIIBA members, representing 80% of the premium placed into the London market, had committed to support the new central placing platform and would fund 25% of the start-up costs. A similar commitment is now being sought from the insurer community, via the IUA. The LMG also announced that Deloitte had been engaged to develop a survey to help identify and address skill shortages, with a view to enhancing interaction with potential clients around the world and developing innovative products they want to buy. Plans are also underway to develop a central marketing function to promote and differentiate the London market proposition. Insurance Linked Securities (ILS) The March 2015 Budget delivered by the UK Government included the following statement: Building upon the UK s position as a world leader in the global insurance market, the government will work with the industry and regulators to develop a new competitive corporate and tax structure for allowing insurance-linked securities (ILS) to be domiciled in the UK. This alternative form of reinsurance makes greater use of capital markets and is a key growth opportunity for the sector. The LMG views the expertise and innovation associated with the ILS sector to be vital to the London market s future and aims to develop an intellectual capital base that will allow its preeminent position in the global (re)insurance sector to be maintained. In June 2015, an ILS taskforce was established to consider potential changes to the tax, regulatory and company law regimes that could make the UK a more attractive domicile for ILS business and managers. A series of recommendations will be made in advance of the Chancellor s Autumn Statement in November It is understood that the ILS task force is focusing initially on collateralised reinsurance, rather than catastrophe bonds. Officials at the Treasury are understood to be drafting legislation to allow the creation of protected cell companies in the UK, based on a blend of the Bermuda and Guernsey models. These structures are the most efficient way of setting up insurance special purpose vehicles (SPVs), as they reduce the capital requirements on ILS transactions and cut administrative costs. Targeted changes to the UK tax regime will be required if London is to compete on anything approaching a level playing field with existing ILS hubs. The current expectation is that investors will be taxed when they exit ILS structures, with the applicable tax regime being connected to the investor s domicile and the location of the exposure. In this way, a non-uk-based investor providing capital to insure a risk outside the UK would not be liable to UK tax. The UK also needs to develop a regulatory process that allows SPVs to be established in a timeframe that competes with other domiciles. The desire is for regulation around the ILS framework to be as sophisticated as possible, to allow for future evolution and to ensure the widest possible use. Delegated Underwriting In June 2015, the Financial Conduct Authority released the results of a review of delegated underwriting authority (DUA) business and announced that new guidelines to be introduced in January 2016 would require a greater level of reporting on conduct risk. In July 2015, the IUA formed a new group to work on establishing a code of conduct in this area for the company market. Close to one-third of Lloyd s business is derived from DUAs. In order to facilitate expansion through the cover-holder distribution channel (a key tenet of the Vision 2025 initiative), Lloyd s streamlined audit procedures, introduced reporting standards for premiums and claims and established minimum standards to address conduct risk from the beginning of A further standard on the provision of management information will come into effect at the beginning of Regulatory pressure and more onerous reporting requirements are increasing costs and may result in consolidation of the cover-holder market. Aon Benfield Analytics Market Analysis 9

10 Lloyd s in 2016 Mergers & Acquisitions The inherent advantages of operating at Lloyd s continue to draw strong interest from new and existing investors alike. In the current environment, the market s strong access to diversified business, coupled with the efficiencies afforded by the partiallymutualized capital structure, are very attractive attributes. Buying an existing Lloyd s business continues to be a popular way of gaining access to the market. Mitsui Sumitomo s planned acquisition of Amlin will reduce the number of listed Lloyd s companies to four, namely Beazley, Hiscox, Lancashire and Novae. A summary of corporate activity in 2015 is shown in Exhibit 16. Exhibit 16: Recent Corporate Activity at Lloyd s News Date Closing Date Acquirer Target Related Syndicates Jul Feb 2015 BTG Pactual Ariel Re 1910 Nov Apr 2015 Hamilton Sportscover 3334 Jan 2015 May 2015 XL Catlin 1209, 2003, 3002 Feb 2015 Jun 2015 Fairfax Brit 2987 Mar 2015 Jul 2015 Endurance Montpelier 5151 May 2015 tba* Fosun Ironshore 4000 Jun 2015 Est 4Q 2015 Tokio Marine HCC 0510, 1880, 4141 Jul 2015 Est 1Q 2016 ACE Chubb 2488, 1882 Jul 2015 Est 1Q 2016 China Minsheng Sirius 1945 Sep 2015 Est 1Q 2016 Mitsui Sumitomo Amlin 3210, 2001 *Initial 20% stake acquired Feb 2015 New Entrants and Departures Chairman John Nelson recently indicated that the Lloyd s platform is more popular now that it has been for many years and that there is an exceptionally good pipeline of new, innovative syndicates being formed behind the scenes. Probitas Syndicate 1492, managed by Capita and headed by Active Underwriter Ash Bathia (ex-qbe), has been formed to underwrite property and casualty direct insurance and facultative reinsurance business, with backing from Panamanian carrier Istmo Re. Everest Re has received in principle approval to launch Syndicate 2786 from January 1, 2016, with projected capacity of GBP102 million. Turnkey management services will be provided by Asta. Skuld Syndicate 1897 is establishing a new non-marine division led by Michael Pritchard (ex-beaufort), supported by a new special purpose syndicate (SPS), with projected capacity of GBP75 million for 2016, provided by emerging market capital. Barbican has received in principle approval to launch Syndicate 1856 from January 1, 2016, with initial capacity of GBP90 million. Capital support will be provided by Credit Suisse s ILS team. Subject to Lloyd s approval, Argo plans to increase the capacity of Syndicate 1200 by 21% to GBP425 million for 2016, with a view to accommodating a new SPS 6127 capitalised by Asia Capital Re. Canopius Syndicates 0958 and 4444 will merge for the 2016 year of account, with all renewing business to be written by Syndicate Projected combined capacity of GBP975 million represents a 5% increase relative to Underwriting Capacity Public disclosures relating to capacity pre/de-emptions are scarce at this stage of the business planning process. Syndicate Business Forecasts (SBF) for 2016 have been submitted and are due for approval by the Performance Management Directorate by November 20, Capital supporting the 2016 SBFs in the form of Funds at Lloyd s must be in place by November 25, ANV has disclosed that it is negotiating to acquire Ryan Specialty Group s participations on Syndicates 0779 and 5820 (32.4% and 16.8%, respectively). Beaufort has indicated that Syndicate 0318 will commence underwriting Credit & Political Risk business for the 2016 year of account, subject to Lloyd s approval. Subject to Lloyd s approval, Charles Taylor plans to increase the capacity of Syndicate 1884 by 67% to GBP90 million for 2016 and introduce new Political Risks and Terrorism classes. Chaucer has indicated that the capacity of Nuclear Syndicate 1176 will increase by 11% to GBP35 million, subject to Lloyd s approval. R&Q has indicated that the capacity of Syndicate 1991 will be reduced by 13% to GBP130 million for 2016, in light of aggressive competition, particularly in the US market. Syndicate / Managing Agent News Subject to Lloyd s approval, AmTrust will appoint Neil Attwood (ex-torus Syndicate 1301) as the Active Underwriter of Syndicate 2526 from January 1, Toby Drysdale will be appointed Active Underwriter of Atrium Syndicate 0609 from January 1, 2016, subject to Lloyd s approval. Richard Harries will take up the newlycreated role of CEO of the managing agent. Torus changed its name to StarStone in September Rebranding of the group s six insurance platforms, including the managing agent of Syndicate 1301, is expected to be completed in January The management of Apollo Syndicate 1969 was transferred from ANV to Apollo Syndicate Management Ltd effective 10 Lloyd s Update October 2015

11 August 1, ANV continues to provide certain services under an out-sourcing agreement. Following Endurance s acquisition of Montpelier, which completed in July 2015, the managing agent of Syndicate 5151 has been re-named Endurance at Lloyd s Ltd. Effective July 28, 2015, Canopius appointed Steve Gargrave as sole Active Underwriter of Syndicates 0958 and Market Access Lloyd s opened its Beijing office and launched its Dubai platform in March. Since then, the market has received formal permission to open offices in Colombia and Mexico. In July 2015, Lloyd s announced its intention to apply for an onshore reinsurance licence in Malaysia and to open an office in Kuala Lumpur. Lloyd s is promoting consortia arrangements as a way of enhancing the market power of its smaller members. Alternative Capital Lloyd s is working on developing alternative capital structures and an entry-point into the market for ILS alongside the LMG and HM Treasury initiative. Traction is beginning to be seen, with Nephila, Credit Suisse and Securis already active participants and other catastrophe funds looking to join. A progress report will be published prior to the end of Financial Strength Ratings The Lloyd s market as a whole continues to be rated on an interactive basis by A.M. Best, Fitch and Standard & Poor s (S&P). All business written on Lloyd s paper benefits from these ratings. In August 2015, S&P affirmed and withdrew all of its unsolicited public-information-based (pi) Lloyd s Syndicate Assessments (LSAs). Plans to withdraw the pi ratings were originally announced in June and resulted from a lack of market interest. Five syndicates continue to carry interactive LSAs from S&P. These are listed in Exhibit 18, along with the twelve interactive standalone syndicate financial strength ratings from A.M. Best. Exhibit 18: Lloyd s Syndicate Ratings/Assessments Syndicate Number Managing Agent A.M. Best Financial Strength Rating S&P Lloyd s Syndicate Assessment 0033 Hiscox A / Positive 0386 QBE 5 / Stable 0510 Tokio Marine Kiln A / Positive 0623 Beazley A / Positive 1183 Talbot A / Positive 1225 Aegis A / Positive 2001 Amlin A+ / Positive 4+ / Stable 2003 Catlin A / Positive 5 / Stable 2007 Novae 3- / Stable 2010 Cathedral A / Positive 2623 Beazley A / Positive 2999 QBE 5 / Stable 3000 Markel A / Positive 3622 Beazley A / Positive 3623 Beazley A / Positive Source: Rating agencies Note: Only syndicates with a standalone FSR from A.M. Best or LSA from S&P are shown A.M. Best affirmed its A rating on July 27, The positive outlook, now in place for more than two years, reflects strong recent operating performance, robust oversight of the market by Lloyd s, demonstrable success in reducing earnings volatility and steady improvement in risk-adjusted capitalisation. Offsetting these positive rating factors are the ongoing challenges to Lloyd s competitive position. S&P last affirmed its A+ rating on October 13,, with a stable outlook. In a full analysis report dated July 21, 2015, S&P stated that its capital model indicated extremely strong ( AAA ) capital adequacy at the end of. Exhibit 17: Lloyd s Market Financial Strength Ratings Rating Outlook Action A.M. Best A Positive Affirmed July 27, 2015 Fitch AA- Stable Affirmed August 21, 2015 S&P A+ Stable Affirmed October 13, Source: Rating agencies Aon Benfield Analytics Market Analysis 11

12 Exhibit 19: Active Syndicate Listing Syn. No. Managing Agent Agency Owner* Largest Capital Provider in 2015* GPW GBPmn Combined Ratio Pre-Tax Result as % of NPE 2015 Capacity GBPmn 0033 Hiscox Hiscox Hiscox (73%) % 26% 1, AmTrust AmTrust AmTrust 15 75% 14% ERS Aquiline Aquiline (61%) % 2% Tokio Marine Kiln Tokio Marine Tokio Marine (50%) 27 97% 3% Beaufort Munich Re Munich Re (91%) % 24% Hardy CNA CNA % 4% QBE QBE QBE (70%) % 13% Faraday Berkshire Berkshire % 58% Munich Re Munich Re Munich Re % 13% Tokio Marine Kiln Tokio Marine Tokio Marine (55%) 1,097 87% 14% 1, Tokio Marine Kiln Tokio Marine Hampden (57%)^ 20 56% 46% QBE Operates as a trading division of Syndicate Atrium Enstar/Stone Point Enstar/Stone (25%) % 16% Beazley Beazley Hampden (53%)^ % 14% Hiscox Operates as a trading division of Syndicate Meacock Family-owned Hampden (44%)^ 68 80% 24% ANV ANV Hampden (41%)^ 16 94% 7% Advent Fairfax Fairfax % 32% Amlin Operates as a trading division of Syndicate Canopius Sompo Sompo (61%) % 24% QBE Operates as a trading division of Syndicate Chaucer Hanover Ins Hanover Ins % 15% ProSight ProSight ProSight Specialty % -2% Chaucer Hanover Ins Hanover Ins (57%) 24 22% 83% Talbot Validus Validus % 13% Argo Argo Argo (59%) % 14% AmTrust AmTrust AmTrust % -15% Catlin XL XL % 10% Newline Fairfax Fairfax % 43% Navigators Navigators Navigators % 15% AEGIS AEGIS AEGIS (93%) % 21% Antares Qatar Insurance Qatar Ins (79%) % 9% Torus Enstar/Stone Point Enstar/Stone Pt (89%) % 1% Ascot AIG (20%) AIG (97%) % 18% RenRe RenRe RenRe % 11% Asta Tawa/Paraline/Skuld AXIS % -60% Asta Tawa/Paraline/Skuld ProAssurance (58%) % -25% ANV ANV ANV % 7% Tokio Marine Kiln Tokio Marine Tokio Marine % 27% Chubb Chubb Chubb 88 95% 6% Charles Taylor Charles Taylor Standard Club Commenced trading April 1, QBE Operates as a trading division of Syndicate Asta Tawa/Paraline/Skuld Skuld (67%) % -10% Asta Tawa/Paraline/Skuld BTG Pactual % 50% Starr Starr International Starr International % 8% Sirius White Mountains White Mountains 67 92% 8% Barbican Barbican Barbican (97%) % 1% W.R. Berkley W.R. Berkley W.R. Berkley % 6% Apollo Apollo Apollo (32%) % 7% Liberty Operates as a trading division of Syndicate R&Q R&Q SCOR (19%) % -109% Amlin Amlin Amlin 1,538 93% 11% 1, Catlin XL XL 1,985 91% 14% 1, Lloyd s Update October 2015

13 Exhibit 19: Active Syndicate Listing (continued) Syn. No. Managing Agent Agency Owner* Largest Capital Provider in 2015* GPW GBPmn Combined Ratio Pre-Tax Result as % of NPE 2015 Capacity GBPmn 2007 Novae Novae Novae (93%) % 13% Cathedral Lancashire Lancashire (58%) % 22% Arch Arch Arch % 8% 200 Pembroke Ironshore Hampden (65%)^ % -9% Channel SCOR SCOR % -5% Catlin XL China Re 47 88% 15% Argenta Argenta Argenta (84%)^ % 18% Allied World Allied World Allied World % 5% Asta Tawa/Paraline/Skuld Nephila 20 52% 48% Marketform American Financial American Financial (70%) % -19% ACE ACE ACE % 52% Asta Tawa/Paraline/Skuld Hampden (46%)^ 42 73% 29% AmTrust AmTrust AmTrust (99%) % -71% Beazley Beazley Beazley 1,032 90% 15% 1, MAP MAP (90.0%) Hampden (35%)^ % 34% Brit Fairfax Fairfax 1,303 94% 12% 1, QBE QBE QBE % 29% Markel Markel Markel % 17% Catlin XL XL 10 84% 16% Cathedral Lancashire Lancashire 45 94% 6% Mitsui MS&AD MS&AD % 16% Hamilton Hamilton Hamilton/Wild Goose % -17% Beazley Beazley Beazley % -13% Beazley Beazley Beazley % 5% Hiscox Hiscox Hiscox % -2% Ark Operates as a trading division of Syndicate Pembroke Ironshore Ironshore % -1% Ark Ark Ark (93%) % 18% HCC HCC HCC 81 94% 10% Asta Tawa/Paraline/Skuld Paraline (50%) 82 64% 36% Canopius Sompo Sompo (79%) % 13% Liberty Liberty Liberty 1,234 95% 14% 1, Aspen Aspen Aspen % 7% Travelers Travelers Travelers % 14% Endurance Endurance Endurance % 10% Vibe Soros/Pine Brook Soros/Pine Brook ANV ANV ANV (51%) % -1% Beazley Beazley Korean Re Commenced trading March 1, MAP MAP (90.0%) Hampden (49%)^ 9 13% 96% Hiscox Hiscox Hampden (54%)^ 49 31% 70% Ark Ark Argenta (42%)^ 40 96% 5% Beazley Beazley Hampden (33%)^ 47 65% 27% Catlin XL Hampden (54%)^ % 15% Catlin XL Everest Re 39 88% 15% Asta Tawa/Paraline/Skuld Hampden (98%)^ 33 85% 15% Barbican Barbican ARIG/Labuan Re 71 95% 5% Catlin XL GIC 16 96% 5% Barbican Barbican Credit Suisse Commenced trading January 1, Catlin XL N/A Commenced trading January 1, Asta Tawa/Paraline/Skuld Labuan Re (20%) Commenced trading May 1, Source: Lloyd's, Aon Benfield Market Analysis *100% unless otherwise stated ^Hampden and Argenta principally act as Lloyd's members' agents on behalf of third party capital providers Aon Benfield Analytics Market Analysis 13

14 14 Lloyd s Update October 2015

15 Contacts Mike Van Slooten Head of Market Analysis - International Aon Benfield Analytics mike.vanslooten@aonbenfield.com Mike McClane Head of Market Analysis - Americas Aon Benfield Analytics michael.mcclane@aonbenfield.com Eleanore Obst Analyst Market Analysis - International Aon Benfield Analytics eleanore.obst@aonbenfield.com Kathryn Moyse Analyst Market Analysis - International Aon Benfield Analytics kathryn.moyse@aonbenfield.com About Aon Benfield Aon Benfield, a division of Aon plc (NYSE: AON), is the world s leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com. Aon UK Limited trading as Aon Benfield (for itself and on behalf of each subsidiary company of Aon Plc) ( Aon Benfield ) reserves all rights to the content of this report. This document is intended as a courtesy to the recipient for general information and marketing purposes only and should not be construed as giving advice or opinions of any kind (including but not limited to insurance, tax, regulatory or legal advice). The contents of this document are based on publicly available information and/or third party sources in respect of which Aon Benfield has no control and which have not necessarily been verified. The content of this document is made available without warranty of any kind and without any other assurance whatsoever as to its completeness or accuracy. Aon Benfield disclaims any legal or other liability to any person or organization or any other recipient of this document (together a "Recipient") for loss or damage caused by or resulting from any reliance placed on this document or its contents by such Recipient. Best's Credit Ratings are under continuous review and subject to change and/or affirmation. For the latest Best s Credit Ratings and Best s Credit Reports (which include Best s Credit Ratings), visit the A.M. Best website at See Guide to Best s Credit Ratings for explanation of use and charges. Best's Credit Ratings reproduced herein appear under license from A.M. Best and do not constitute, either expressly or impliedly, an endorsement of (Licensee's publication or service) or its recommendations, formulas, criteria or comparisons to any other ratings, rating scales or rating organizations which are published or referenced herein. A.M. Best is not responsible for transcription errors made in presenting Best's Credit Ratings. Best s Credit Ratings are proprietary and may not be reproduced or distributed without the express written permission of A.M. Best Company. A Best s Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. It is not a warranty of a company s financial strength and ability to meet its obligations to policyholders. View our Important Notice: Best's Credit Ratings for a disclaimer notice and complete details at

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