Starr Insurance & Reinsurance Limited and Subsidiaries

Starr Insurance & Reinsurance Limited and Subsidiaries Financial Statements

Table of Contents Page Independent Auditors Report 1 Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Operations and Comprehensive Income (Loss) 4 Consolidated Statement of Changes in Shareholder's Equity 5 Consolidated Statement of Cash Flows 6 7

Independent Auditors Report Board of Directors Starr Insurance & Reinsurance Limited and Subsidiaries We have audited the accompanying consolidated financial statements of Starr Insurance & Reinsurance Limited and Subsidiaries, which comprise the consolidated balance sheet as of, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholder s equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Starr Insurance & Reinsurance Limited and Subsidiaries as of, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. New York, New York April 29, 2013 2

Consolidated Balance Sheet (Expressed In Thousands of U.S. Dollars, Except for Number of Shares and Par Value Data) Assets 2012 2011 Cash and cash equivalents $ 47,798 $ 23,002 Available-for-sale investments: Fixed maturity securities, at fair value 1,531,202 1,411,864 Equity securities and hedge, private equity, and real estate funds, at fair value 798,898 1,025,649 Total available-for-sale investments 2,330,100 2,437,513 Investments in real estate 386,627 444,957 Equity method investments 71,308 64,047 Accrued investment income 19,680 18,568 Insurance balances receivable 167,495 108,448 Funds withheld 4,073 26,279 Reinsurance balances recoverable 111,683 44,164 Prepaid reinsurance premiums 117,102 78,352 Deferred acquisition costs 53,770 46,774 Due from related parties 128,841 - Other assets 37,621 8,543 Total assets $ 3,476,098 $ 3,300,647 Liabilities and Shareholder s Equity Liabilities Loss and loss adjustment expense reserves $ 629,387 $ 456,233 Accounts payable and accrued liabilities 16,172 13,377 Due to related parties - 4,504 Reinsurance balances payable 93,888 74,288 Unearned premiums 337,943 242,803 Unearned commissions 3,286 235 Net deferred tax liability 5,931 1,843 Long-term borrowings - 88,958 Total liabilities 1,086,607 882,241 Shareholder's Equity Share capital, par value $1.00, authorized and issued 1,000,000 shares in 2012 and 2011 1,000 1,000 Contributed capital 1,842,280 1,986,512 Retained earnings 158,183 30,119 Accumulated other comprehensive income 267,343 294,698 Total controlling interest 2,268,806 2,312,329 Noncontrolling interests 120,685 106,077 Total liabilities and shareholder's equity $ 3,476,098 $ 3,300,647 Director: Director: See notes to consolidated financial statements 3

Consolidated Statement of Operations and Comprehensive Income (Loss) (Expressed In Thousands of U.S. Dollars) Years Ended 2012 2011 Underwriting Income Gross premiums written $ 682,421 $ 511,470 Reinsurance premiums ceded (202,637) (127,717) Net premiums written 479,784 383,753 Change in unearned premiums (94,323) (81,831) Change in prepaid reinsurance premiums 36,106 58,905 Net premiums earned 421,567 360,827 Underwriting Expenses Losses and loss adjustment expenses 333,183 308,281 Commissions and brokerage 115,321 107,657 Change in deferred acquisition costs (6,149) (3,177) Commission income (9,781) (4,610) Total underwriting expenses 432,574 408,151 Net underwriting loss (11,007) (47,324) Net investment Income 156,070 68,173 Net Realized Gain on Sale of Investment in Real Estate 117,117 - General and Administrative Expenses 25,781 18,896 Net income before tax 236,399 1,953 Tax Expense 4,013 1,370 Net income 232,386 583 Less: Net income (loss) attributable to noncontrolling interests, (net of income tax expense 2012 $719 and 2011 $15) 54,322 (727) Net income attributable to controlling interest 178,064 1,310 Other Comprehensive Income (Loss) Other comprehensive income from equity method investees 223 633 Unrealized holdings gains (losses) on available-for-sale securities arising during the year 68,967 (18,658) Reclassification adjustment for realized gains on available-for-sale securities included in net investment income (96,545) (31,134) Total other comprehensive loss attributable to controlling interest (27,355) (49,159) Total comprehensive income (loss) attributable to controlling interest $ 150,709 $ (47,849) See notes to consolidated financial statements 4

Consolidated Statement of Changes In Shareholder s Equity (Expressed In Thousands of U.S. Dollars) Years Ended 2012 2011 Share Capital Balance, beginning and end of period $ 1,000 $ 1,000 Contributed Capital Balance, beginning of period 1,986,512 1,986,512 Amounts distributed during the period (144,232) - Balance, end of period 1,842,280 1,986,512 Retained Earnings Balance, beginning of period 30,119 28,809 Net income attributable to controlling interest 178,064 1,310 Dividends paid (50,000) - Balance, end of period 158,183 30,119 Accumulated Other Comprehensive Income Balance, beginning of period 294,698 343,857 Accumulated other comprehensive income from equity method investees 223 633 Other comprehensive loss (27,578) (49,792) Balance, end of period 267,343 294,698 Total controlling interest $ 2,268,806 $ 2,312,329 Noncontrolling Interests Balance, beginning of period $ 106,077 $ 109,178 Net distribution to noncontrolling interests (39,714) (2,374) Net income (loss) attributable to noncontrolling interests 54,322 (727) Balance, end of period $ 120,685 $ 106,077 See notes to consolidated financial statements 5

Consolidated Statement of Cash Flows (Expressed In Thousands of U.S. Dollars) Years Ended 2012 2011 Cash Flows from Operating Activities Net income attributable to controlling interest $ 178,064 $ 1,310 Net income (loss) attributable to non-controlling interests 54,322 (727) Net income 232,386 583 Net realized gain on investments (107,203) (31,134) Losses on other-than-temporary impairments of investments 10,658 - Net realized gain on sale of investment in real estate (117,117) - (Income) loss from equity method investments 5,311 (966) Depreciation of fixed assets 187 126 Deferred taxes 4,088 1,338 Net amortization of bond premium 3,105 8,075 Change in: Accrued investment income (1,112) (1,841) Insurance balances receivable (59,047) (58,238) Funds withheld 22,206 (10,720) Reinsurance balances recoverable (67,519) (8,125) Prepaid reinsurance premiums (38,750) (61,319) Deferred acquisition costs (6,996) (3,301) Other assets (32,169) (3,453) Loss and loss adjustment expense reserves 173,154 140,972 Accounts payable and accrued liabilities 2,794 7,569 Due to related parties (133,345) (34,007) Reinsurance balances payable 19,600 65,071 Unearned premiums 95,140 84,086 Unearned commission 3,051 168 Net cash provided by operating activities 8,422 94,884 Cash Flows from Investing Activities Fixed maturity securities available-for-sale: Purchases (397,591) (354,420) Sales, maturities and calls 217,903 247,066 Equity securities and hedge, private equity and real estate funds: Purchases and cash contributions (102,852) (191,635) Sales and cash distributions 314,806 252,372 Proceeds from sale of investment in real estate 219,167 9,500 Purchase of investment in real estate (43,721) - Purchase of equity method investment (12,348) (62,448) Net cash provided by (used in) investing activities 195,364 (99,565) Cash Flows from Financing Activities Net distribution to noncontrolling interests (39,714) (2,374) Dividends paid (50,000) - Distributions of capital to parent (318) - Long-term borrowings for investment in real estate (88,958) 3,388 Net cash provided by (used in) financing activities (178,990) 1,014 Net increase (decrease) in cash and cash equivalents 24,796 (3,667) Cash and Cash Equivalents, Beginning of Period 23,002 26,669 Cash and Cash Equivalents, End of Period $ 47,798 $ 23,002 Supplementary Disclosure of Non-Cash Transactions Impact of foreign translation adjustment on purchases and sales of real estate investment and long-term borrowings for investment real estate $ 2,694 $ (7,194) Partnership interests in affiliates received in exchange for transfer of private equity funds $ 399,702 $ - Distribution of capital comprised of fixed income securities $ 129,682 $ - See notes to consolidated financial statements 6

1. The Company and its Activities Starr Insurance & Reinsurance Limited (the Company ) was incorporated under the laws of Bermuda on April 12, 2007. The Company is a wholly-owned subsidiary of Starr International Investments Ltd, (the Parent ) a Bermuda registered company which in turn is 100% owned by Starr International Company, Inc, ( SICO ) a Swiss company incorporated in 1943. The registered office of the Company is Bermuda Commercial Bank Building, 19 Par-la-Ville Road, Hamilton, Bermuda. The Company reinsures on a quota share basis insurance companies which underwrite various classes of business. The Company also provides aggregate stop loss reinsurance to certain affiliated companies. Since inception, the majority of business reinsured was produced by the agency subsidiaries of C.V. Starr & Co, Inc. (the Starr Agencies ). The Company reinsures the following lines of business - aviation, energy, excess casualty, property, accident and health, professional liability, marine, residential construction, contractors pollution, political financial risk and multi-peril crop. The Company uses quota share and excess of loss retrocessional reinsurance agreements to limit its exposure on reinsurance assumed. As of January 1, 2012, the Starr Agencies are owned by Starr Indemnity & Liability Company, a U.S. domestic insurance company under common control with the Company. A wholly-owned subsidiary, Starr International Cayman, Inc. and Subsidiaries ( Starr Cayman ), an investment management company, invests primarily in limited partnerships, real estate investments and private equity funds. On January 1, 2011, the Company s United Kingdom Branch, Starr Insurance & Reinsurance Limited, London Branch, commenced writing various lines of business including aviation, energy, property, marine, casualty and political and financial risk on a direct basis. On May 31, 2011, the Company incorporated a wholly-owned subsidiary, Starr International Insurance (Singapore) Pte Ltd. ( Starr Singapore ) and $11,925,900 of cash and fixed maturity securities were contributed to the contributed surplus of Starr Singapore by the Company. The Company evaluated subsequent events for recognition or disclosure through April 29, 2013, the date the financial statements were available to be issued. 2. Significant Accounting Policies The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. While management believes that the amounts included in the financial statements reflect the Company's best estimates and assumptions, actual results could differ from these estimates. Significant estimates made by the Company include fair value of investments, other-than-temporary impairment of investments, deferred acquisition costs and loss and loss adjustment expense reserves. 7

Principles of Consolidation The consolidated financial statements include all accounts, after intercompany eliminations, between the Company and its subsidiaries. Noncontrolling Interests The Company records noncontrolling (i.e., minority) interests in partially owned consolidated subsidiaries in the consolidated balance sheet as a separate component of consolidated shareholder s equity. The noncontrolling interests share of net income or loss is reported as a part of consolidated net income with disclosure of the attribution of consolidated net loss attributable to the controlling and noncontrolling interests on the face of the consolidated statement of operations and comprehensive income (loss). Premiums Gross premiums written are recognized as revenue on a pro rata basis over the term of reinsurance treaties to which they relate. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums. Premiums written for which the ceding company's reports are not available are estimated. Insurance Balances Receivable Insurance balances receivable are periodically evaluated for collectability based on past credit history of ceding companies and their current financial condition. Provisions for uncollectible insurance balance receivables are charged against an allowance account when such balances are deemed to be uncollectible. The Company had no valuation allowance recorded as of. Reinsurance Ceded Reinsurance premiums ceded are recognized over the policy term in the same manner as the related premiums are earned. The portion of premiums that will be recognized in the future are deferred and reported as prepaid reinsurance premiums. The Company uses quota share and excess of loss reinsurance arrangements to reduce the risk of catastrophic loss from reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Company of its obligations to its ceding companies. The Company remains liable to its ceding companies for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance arrangement. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers. It is the opinion of management that the financial strength of the Company's reinsurers is such that any potential exposure to the Company for non-payment is minimal, and therefore no valuation allowance has been recorded as of. 8

Certain quota share agreements written and ceded include profit sharing provisions. The Company accrues assets or liabilities pursuant to the profit sharing provisions based upon the best estimate of the probable profit or loss. As of, the Company recorded ultimate profit commissions in the amount of $1,456 and $1,733, respectively, which are included in accounts payable and accrued liabilities in the consolidated balance sheet. Deferred Acquisition Costs Acquisition costs represent commissions and other costs of successfully acquiring new insurance and reinsurance contracts and the renewing of existing contracts. Acquisition costs are deferred and amortized over the term of the contracts to which they relate. Proceeds from retrocessional reinsurance transactions that represent recovery of acquisition costs reduce applicable unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized. The amount amortized into earnings for the years ended was $6,149 and $3,177, respectively. The Company conducts a premium deficiency analysis whereby deferred acquisition costs are reviewed to determine if they are recoverable from future income. If such costs are estimated to be unrecoverable they are written off. The Company considers investment income in its determination of premium deficiency. The Company determined no such deficiency existed as of. Losses and Loss Adjustment Expenses Losses and loss adjustment expenses ( LAE ) include amounts paid and recovered in the period and changes in the outstanding loss reserves, incurred but not reported reserves, reinsurance balances recoverable and loss reserve discount. Loss adjustment expenses are charged to income as they are incurred and consist mainly of external costs relating to the negotiation and settlement of claims. Loss and LAE Reserves and Reinsurance Balances Recoverable The Company s loss and LAE reserves are comprised of outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves. The outstanding loss reserves comprise estimated losses based on reports provided by the ceding companies. The incurred but not reported reserves are based upon management's best estimate of the ultimate cost of settlement of losses that may be incurred by the Company, in accordance with the recommendations of an actuary. 9

Outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves reflect management's best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to the Company. In many cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the Company's payment of that loss. As part of the process in determining the Company's outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves, actuarial models are used that analyze industry data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, and changes in social attitudes and economic conditions. Management believes that its outstanding loss reserves and incurred but not reported loss and LAE reserves are fairly stated as of December 31, 2012 and 2011. However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management's informed estimates, assumptions and judgments using data currently available. As additional experience and data becomes available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends, changes in social attitudes and economic conditions, the estimates are revised accordingly. If the Company's ultimate losses prove to differ substantially from the amounts recorded at December 31, 2012 and, the related adjustments could have a material adverse effect on the Company's financial condition, results of operations and liquidity. Amounts recoverable from reinsurers are estimated in a manner consistent with the reserving methodology adopted in the estimation of the outstanding loss reserves and the incurred but not reported reserves and the related reinsurance arrangements. Future adjustments to the amounts recorded resulting from the continual review process, as well as differences between estimates and ultimate settlements, will be recorded in the consolidated statement of operations and comprehensive income (loss) when such adjustments become known and are estimable. Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid investments with maturities of three months or less at the date of acquisition. Fixed Maturity Securities Fixed maturity securities have been classified as available for sale and are reported at fair value, adjusted for any other-than-temporary decline in fair value, with unrealized holding gains and losses reported as a net amount in accumulated other comprehensive income. Realized gains and losses are determined using the specific identification basis. 10

The Company reviews fixed maturity securities in its investment portfolio on a periodic basis to specifically identify individual securities that have incurred an other-than-temporary decline in fair value below cost or amortized cost. This review encompasses, among other things, recent issuer activities, such as defaults, quarterly earnings announcements, and other pertinent financial news for the issuer, recent developments and economic outlooks for particular industries, rating agency actions, and the length of time and extent to which fair value has been less than cost or amortized cost. When management's review identifies an other-than-temporary impairment, it compares its projected discounted cash flows to the amortized cost in order to determine the credit related portion of the impairment, which is recognized in the statement of operations and comprehensive income (loss). The non-credit portion of the other-than-temporary impairment relative to all other factors is recorded through accumulated other comprehensive income in the consolidated balance sheet. In addition, management also considers whether it has the intent to sell a particular security or whether it is more likely than not the Company has the ability to hold the security to recovery. Management does not intend to sell these securities and it is more likely than not that the Company has the ability to hold these securities to recovery. Equity Securities, Hedge, Private Equity and Real Estate Funds All equity securities, hedge, private equity and real estate funds are classified as availablefor-sale and are carried at fair value with net unrealized holding gains or losses reported as a component of accumulated other comprehensive income. The Company reviews all equity securities, hedge, private equity and real estate funds in its investment portfolio on a periodic basis to specifically identify individual securities that have incurred an other-than-temporary decline in fair value below cost. This review encompasses, among other things, recent issuer activities, such as defaults, quarterly earnings announcements, and other pertinent financial news for the issuer, recent developments and economic outlooks for particular industries, rating agency actions, and the length of time and extent to which fair value has been less than cost. When management s review identifies an other-than-temporary impairment in the valuation of a security, a realized loss is recognized in the consolidated statements of operations and comprehensive income (loss). 11

Investments in Real Estate Investments in real estate, including related improvements, are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset, when the real estate is placed in use. No depreciation expense has been recorded for December 31, 2012 or 2011 as the investments were substantially not in use during 2012 or 2011. Rental income is recognized on a straight-line basis over the term of the respective leases. The Company classifies a property as held-forsale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. There was no real estate held-for-sale as of December 31, 2012 or 2011. The Company periodically reviews its investments in real estate for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their expected future undiscounted cash flows are written down to their estimated fair value, with the impairment loss included in net investment gains (losses). There were no impairment losses recorded during 2012 or 2011. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows discounted at a rate commensurate with the underlying risks. Equity Method Investments The Company utilizes the equity method of accounting with respect to investments where it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% but less than 50% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate the ability to exercise significant influence is restricted. In applying the equity method, the Company records its investment at cost in the consolidated balance sheet as equity method investments. Any increase or decrease in the carrying amount subsequent to acquisition is the result of the Company s share of the net earnings or losses and comprehensive income (loss) of the investee as well as distributions received from or contributions to the investee. The Company s share of earnings or loss and comprehensive income (loss) are recorded in the Company s consolidated statement of operations and comprehensive income (loss). The Company reviews its equity method investments for possible impairment taking into account events and circumstances that may have occurred since the prior review, and any impairment is recorded in the Company's consolidated statement of operations and comprehensive income (loss). 12

3. Cash and Cash Equivalents 2012 2011 Cash $ 22,308 $ 9,381 Cash held at custodian 14,490 1,621 Certificate of deposit 11,000 12,000 $ 47,798 $ 23,002 4. Investments The cost or amortized cost and fair value of the Company's investment portfolio at December 31 were as follows: Amortized Cost/Cost Gross Unrealized Gains 2012 Gross Unrealized Losses Fair Value Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 17,106 $ 6 $ - $ 17,112 States, political subdivisions and foreign government securities 41,750 4,688-46,438 Corporate debt securities 1,323,843 141,953 1,731 1,464,065 Other asset-backed securities 3,588 3 4 3,587 Total fixed maturity securities 1,386,287 146,650 1,735 1,531,202 Equity securities 162,184 35,594 13,950 183,828 Hedge funds 10,153 5,397 117 15,433 Private equity funds 468,133 94,280 1,994 560,419 Real estate funds 36,856 5,599 3,237 39,218 Total equity securities and hedge, private equity and real estate funds 677,326 140,870 19,298 798,898 $ 2,063,613 $ 287,520 $ 21,033 $ 2,330,100 13

Amortized Cost/Cost Gross Unrealized Gains 2011 Gross Unrealized Losses Fair Value Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 19,711 $ 12 $ 1 $ 19,722 States, political subdivisions and foreign government securities 64,860 6,272-71,132 Corporate debt securities 1,241,293 82,210 5,237 1,318,266 Other asset-backed securities 2,745 2 3 2,744 Total fixed maturity securities 1,328,609 88,496 5,241 1,411,864 Equity securities 283,074 68,904 31,155 320,823 Hedge funds 10,796 3,079 135 13,740 Private equity funds 489,895 180,505 12,297 658,103 Real estate funds 31,074 4,255 2,346 32,983 Total equity securities and hedge, private equity and real estate funds 814,839 256,743 45,933 1,025,649 $ 2,143,448 $ 345,239 $ 51,174 $ 2,437,513 Certain cash and cash equivalents and fixed maturity securities available for sale with an aggregate fair value of $835,888 and $601,568 as of, respectively, have been placed in trust accounts to secure the Company's obligations to ceding companies. The Company may not reduce, close, terminate or draw from the trust accounts without the express permission of the respective ceding companies. Pursuant to the terms of certain quota share reinsurance agreements, the Company has issued letters of credit as of in the amount of $10,224 and $108,465, respectively, in favor of the ceding insurers. The facilities are secured by cash and cash equivalents and fixed maturity securities held at the custodian. During 2011, various "Carry/Co-Investment Program" investment funds were established with Starr Principal Holdings, LLC, a related party, with which the Company has an Investment Management Agreement. A number of investments were transferred into these investment funds by the Company in order that the Starr Principal Holdings, LLC investment professionals could participate in a Carry/Co-Investment Program approved by the Company. The investment funds are accounted for as Limited Partnerships by the Company and are carried at fair value. The Company transferred investments to the investment funds in exchange for a limited partnership interest in these funds of $399,702 at the date of transfer. No realized gain or loss was recognized upon transfer. At December 31, 2012, the net asset value of the Company s interest in the funds was $335,122. 14

For securities that were in an unrealized loss position, the length of time that such securities have been in an unrealized loss position, as measured by their year-end fair values, were as follows: December 31, 2012 Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate debt securities $ 106,345 $ 1,518 $ 10,172 $ 213 $ 116,517 $ 1,731 Other asset-backed securities 1,309 4 - - 1,309 4 Total fixed maturity securities 107,654 1,522 10,172 213 117,826 1,735 Equity securities 34,714 128 9,774 13,822 44,488 13,950 Hedge funds - - 143 117 143 117 Private equity funds 7,074 1,994 - - 7,074 1,994 Real estate funds - - 15,137 3,237 15,137 3,237 Total equity securities and hedge, private equity and real estate funds 41,788 2,122 25,054 17,176 66,842 19,298 $ 149,442 $ 3,644 $ 35,226 $ 17,389 $ 184,668 $ 21,033 15 December 31, 2011 Fixed maturity securities: U.S. Treasury Securities and obligations of U.S. government agencies $ 5,989 $ 1 $ - $ - $ 5,989 $ 1 Corporate debt securities 63,793 3,456 66,090 1,781 129,883 5,237 Other asset-backed securities 1,153 3 - - 1,153 3 Total fixed maturity securities 70,935 3,460 66,090 1,781 137,025 5,241 Equity securities 161,629 31,155 - - 161,629 31,155 Hedge funds 2,103 43 260 92 2,363 135 Private equity funds 6,392 157 17,343 12,140 23,735 12,297 Real estate funds - - 12,134 2,346 12,134 2,346 Total equity securities and hedge, private equity and real estate funds 170,124 31,355 29,737 14,578 199,861 45,933 $ 241,059 $ 34,815 $ 95,827 $ 16,359 $ 336,886 $ 51,174 As of December 31, 2012, there were 26 fixed maturity securities with unrealized losses less than 12 months and 1 fixed maturity security with an unrealized loss greater than 12 months. At December 31, 2011 there were 28 fixed maturity securities with unrealized losses less than 12 months and 7 fixed maturity securities with unrealized losses greater than 12 months. The determination that a security has incurred an other-than-temporary impairment and the amount of any loss recognized requires the judgment of management and continued review of the Company s investments.

As of December 31, 2012, there were 3 securities classified in equity securities, hedge funds, private equity funds and real estate funds with unrealized losses less than 12 months and 1 security classified in equity securities, hedge funds, private equity funds and real estate funds with an unrealized loss greater than 12 months. At December 31, 2011 there were 4 securities classified in equity securities, hedge funds, private equity funds and real estate funds with unrealized losses less than 12 months and 3 equity securities, hedge funds, private equity funds and real estate funds with unrealized losses greater than 12 months. The determination that a security has incurred an other-than-temporary impairment and the amount of any loss recognized requires the judgment of management and continued review of the Company s investments. The Company performs quarterly reviews of its investments in order to determine whether declines in market value below the amortized cost basis were considered other-than-temporary. For 2012, the Company recorded a loss of $10,658 on its equity investments that were deemed to be an other-than-temporarily impaired. The Company s assessment was based on the issuer s current and expected future financial position, as well as relevant information provided by investment advisors and analysts. The Company's investments are managed in accordance with its investment guidelines established by its Executive Committee and approved by its Board of Directors. The Company's investments potentially expose it to credit risk. The Company's portfolio comprises a diversified holding of debt and equity securities and therefore does not contain significant holdings with any one single issuer. All debt securities are in accordance with the investment guidelines. Management has received Board approval to hold below investment grade securities and will continue to monitor these investments for potential impairment. Market risk exists in that the recorded fair value will fluctuate with changes in fair value. Management has considered the nature of investments in an unrealized loss position, the cause of their impairment, the severity and duration of their impairment and other relevant information available and believes that impairments are temporary in nature. In the opinion of management, the risk of exposure due to market risk is low due to the diversified portfolio. For securities, other than fixed maturity securities, that are in an unrealized loss position management considers such factors as the size of the loss compared to fair value, the commitment period and remaining commitment of the fund, other information from investment managers to determine if the impairment is other-than-temporary, and the Company s ability and intent to hold these securities to recovery. The amortized cost and fair value of fixed maturity securities by contractual maturity as of December 31, 2012 are shown below. Expected maturities will differ from contractual maturities because the issuers may have the right to call or prepay certain obligations. Amortized Cost/ Cost Fair Value Within one year $ 10,964 $ 10,977 One to five years 240,760 266,386 Six to ten years 1,099,049 1,218,220 After ten years 35,514 35,619 $ 1,386,287 $ 1,531,202 16

The nature of the Company s investments is as follows: U.S. Treasury, U.S. Government Corporations and Agencies The Company invests in U.S. Treasury obligations and direct obligations of U.S. government agencies. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the par value of the investment. State, Political Subdivision, and Foreign Government Securities The Company invests in states, municipalities and political subdivisions in which the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Corporate Debt Securities The Company invests in corporate debt securities in various entities in diversified industries. The contractual terms of corporate bonds do not permit those entities to settle the security at a price less than the par value of the investment. Asset Backed Securities The Company s investments in asset-backed securities are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. The pools of underlying assets include common payments from credit cards and auto loans, to esoteric cash flows from aircraft leases and royalty payments. Equity Securities The Company s investment in equity securities and exchange traded funds of various entities in diversified industries traded on various foreign exchanges. Hedge Funds The Company has various investments in hedge funds located in the United States and foreign countries. Each fund has its own strategy which determines the type of investments and the methods of investment it undertakes. Each fund is managed by its own investment manager which has spread investments over various entities. The Company has diversified its investments over several hedge fund managers. Private Equity Funds The Company has a diversified investment portfolio in private equity funds located in various countries. This investment vehicle is used for making investments in various equity securities as identified by management. These funds are typically limited partnerships and are managed by various investment managers. 17

Real Estate Funds The Company has a direct investment in a fund located in a foreign country. This fund invests in a variety of commercial real estate ventures. 5. Funds Withheld Funds withheld comprise amounts held by ceding insurers pursuant to the terms of the quota share reinsurance agreements. Interest earned on funds withheld and trust assets amounted to $25,816 and $25,319 as of, respectively, and is included in net investment income in the consolidated statement of operations and comprehensive income (loss). 6. Loss and LAE Reserves and Reinsurance Balances Recoverable 2012 2011 Gross balance, beginning of year $ 456,233 $ 315,261 Foreign currency translation exchange adjustments (152) - Reinsurance recoverable, beginning of year 44,164 36,039 Net reserves 412,221 279,222 Net incurred losses and LAE related to: Current year 310,118 279,094 Prior years 23,880 41,722 Net discount (815) (12,535) 333,183 308,281 Net paid losses and LAE related to: Current year 114,724 58,061 Prior years 113,133 117,221 227,857 175,282 Net balance, end of year 517,547 412,221 Foreign currency translation exchange adjustments 157 (152) Reinsurance recoverable, end of year 111,683 44,164 Gross balance, end of year $ 629,387 $ 456,233 The unfavorable development of losses in 2012 is a result of higher than estimated frequency and severity of losses on the Company s excess casualty lines of business. The Company s actual experience during 2012 is included in the Company s statement of operations and comprehensive income (loss). 18

During 2012 and 2011, the Company discounted its excess casualty line of business. The discount is calculated using a 3.6% interest rate, which approximates the Company s 2012 and 2011 investment yield on its fixed-maturity securities portfolio. At, loss and LAE reserves reflect a net discount of $35,224 and $34,409, respectively. 7. Reinsurance The components of net premiums written and earned, and losses and LAE incurred were as follows: 2012 2011 Premiums written Direct $ 143,979 $ 117,126 Assumed 538,442 394,344 Ceded (202,637) (127,717) Net $ 479,784 $ 383,753 Earned premiums Direct $ 43,614 $ 27,860 Assumed 551,035 286,535 Ceded (173,082) 46,432 Net $ 421,567 $ 360,827 Losses and loss adjustment expenses Direct $ 36,105 $ 25,182 Assumed 353,247 325,267 Ceded (56,169) (42,168) Net $ 333,183 $ 308,281 8. Insurance Balances Receivable Insurance balances receivable are comprised of amounts due from ceding insurers and is stated net of acquisition costs, funds withheld and losses paid. All amounts are due within one year of the balance sheet date. 19

9. Related Party Transactions and Balances During 2008, SICO entered into an investment management agreement with C.V. Starr & Co., Inc., which includes the Company. SICO charged the Company investment management fees of $5,180 and $26,353 for the years ended, respectively, of which $-0- and $1,679 remained outstanding as of, respectively, and is included in due to related parties. During 2012, the Company entered an investment management agreement with Starr Principal Holdings, a subsidiary of C.V. Starr & Co., Inc., who manages certain of the Company s investments. Starr Principal Holdings charges fees directly to the Company, a limited partner. The expenses paid in 2012 were $5,083. The Company has entered into various contracts of reinsurance ceded by affiliated companies. The total gross written premium assumed from affiliated companies during the years ended 2012 and 2011 was $367,792 and $188,350, respectively. The Company recorded reinsurance receivables related to affiliated companies of $76,000 and $50,622, respectively, as of. As of December 31, 2012, the Company recorded a receivable of $128,841 from its parent related to the sale of an investment in real estate, which was net of calls and distributions. 10. Net Investment Income Net investment income is comprised of for the year ended December 31: 2012 2011 Net interest income $ 86,354 $ 72,649 Net income (loss) from equity method investments (5,311) 966 Gross realized gains on sales of investments 126,652 59,811 Gross realized losses (19,449) (1,362) Other-than-temporary impairment of investments (10,658) (27,315) 177,588 104,749 Less investment management fees (21,518) (36,576) $ 156,070 $ 68,173 Gross proceeds from the sale of investments were $632,722 and $236,315 in 2012 and 2011, respectively. 11. Income Taxes The Company has received an undertaking from the Bermuda government exempting it from all local income, withholding and capital gains taxes until March 28, 2016. At the present time no such taxes are levied in Bermuda. 20

Certain of the Company s subsidiaries are subject to federal, state or local taxes based upon their countries of incorporation or where they conduct business. Such amounts are immaterial to the consolidated financial statements. 12. Statutory Capital and Surplus Effective April 19, 2007, the Company was registered as a Class 4 insurer under The Bermuda Insurance Act 1978 and related regulations, (the "Act"), which requires that the Company file a statutory financial return and maintain certain measures of solvency and liquidity during the period. As of the Company met the required Minimum General Business Solvency Margin and the required Minimum Liquidity Ratio. The required Minimum General Business Solvency Margin as of was $241,482 and $190,087, respectively. The Company's statutory capital and surplus at those dates was $2,040,375 and $2,102,838, respectively. The Minimum Liquidity Ratio is the ratio of the insurer's relevant assets to its relevant liabilities; the minimum allowable ratio is 75%. The Company's relevant assets as of December 31, 2012 and 2011 were $1,833,269 and $1,734,007, respectively, and 75% of its relevant liabilities as of were $649,685 and $514,002, respectively. The Minimum Liquidity Ratio was met as of. Distributions to shareholders are restricted to the extent that such a distribution would result in the Company not meeting the required Minimum General Business Solvency Margin or the required Minimum Liquidity Ratio. During the year, the Company distributed certain fixed income securities and cash with a fair value of $130,000 to its shareholder. Accounting practices under the Act vary in some respects from U.S. GAAP. The significant variances between the Act and U.S. GAAP are as follows: a. Under the Act, certain assets designated as nonadmitted assets (principally prepaid expenses and deferred acquisition costs) result in a direct charge to surplus. b. Under the Act, investments in affiliates shall be valued either by the cost method of valuation or the equity method of valuation provided that: if the value arrived at by the use of the equity method of valuation is less than the value arrived at by the cost method of valuation, the value arrived at by the equity method shall be used; the directors shall carry the said investments at a fair value determined in good faith if that value is less than the valuations under the cost method and the equity method of valuation; advances to affiliates shall be carried at fair value determined in good faith; if any amount is in the opinion of the directors uncollectible, that amount shall be deducted. 21

Under U.S. GAAP, investments in affiliates are generally consolidated and the balance sheets and statements of operations of those subsidiaries consolidated with those of the Company. 13. Fair Value Measurements The Company applies the provisions of FASB authoritative accounting guidance which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. FASB authoritative accounting guidance establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 - Fair value measures are based on unadjusted quoted market prices in active markets for identical securities. The fair value of securities included in this category was based on quoted prices that are readily and regularly available in an active market. Level 1 assets include listed mutual funds, equities and certain debt securities. Level 2 - Fair value measures are based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. Assets which generally are included in this category may include states, municipalities and political subdivisions fixed maturities, corporate bonds, mortgage backed securities and asset backed securities. Level 3 - Fair value measures are based on inputs that are unobservable and significant to the overall fair value measurement, and may involve management judgment. Assets included in this category generally include general and limited partnership interests in private equity, real estate, and hedge funds. Level 3 inputs include capital accounts of the Company s interest for partnership interests in various alternative investments including hedge, real estate and private equity funds. The various partnerships are investment companies which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, including independent appraisals, from third party sources, however, in some instances current valuation information, for illiquid securities or securities in markets that are not active, may not be available from any third party source or fund management may conclude that the valuations that are available from third party sources are not reliable. In these instances fund management may perform model-based analytical valuations that may be used to value these investments. The Company s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. 22

The following table provides the fair value measurements of applicable Company financial assets by level within the fair value hierarchy as of. These financial assets are measured on a recurring basis: 2012 Level 1 Level 2 Level 3 Total Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 17,112 $ - $ - $ 17,112 States, political subdivision and foreign government securities - 46,438-46,438 Corporate debt securities - 1,464,065-1,464,065 Other asset-backed securities - 3,587-3,587 Total fixed maturity securities 17,112 1,514,090-1,531,202 Equity securities 183,828 - - 183,828 Hedge funds - - 15,433 15,433 Private equity funds - - 560,419 560,419 Real estate funds - - 39,218 39,218 Total equity securities and hedge, private equity and real estate funds 183,828-615,070 798,898 Total assets measured at fair value $ 200,940 $ 1,514,090 $ 615,070 $ 2,330,100 23