Lloyd's Update - Aon Benfield

Aon Benfield Analytics | Market Analysis

Lloyd’s Update October 2015

Risk. Reinsurance. Human Resources.

Table of Contents Executive Summary ..........................................................................................................3 Lloyd’s 1H 2015 Results ..................................................................................................... 3 Looking Ahead to 2016 ...................................................................................................... 3 2015 Interim Results ........................................................................................................4 Premium Income ................................................................................................................ 4 Underwriting Performance ................................................................................................. 5 Investment Return .............................................................................................................. 5 Pre-Tax Results ................................................................................................................... 6 Balance Sheet at June 30, 2015 ........................................................................................7 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 2016 ...............................................................................................................10 Mergers & Acquisitions .................................................................................................... 10 New Entrants and Departures .......................................................................................... 10 Underwriting Capacity ..................................................................................................... 10 Syndicate / Managing Agent News .................................................................................. 10 Market Access .................................................................................................................. 11 Alternative Capital ............................................................................................................ 11 Financial Strength Ratings ................................................................................................ 11

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 2014: 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 2015.  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.


3

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) Gross premiums written

Full Year 2010 22,592

Full Year 2011 23,477

Full Year 2012 25,500

Full Year 2013 25,616

Full Year 2014 25,259

Interim 2014 14,481

Interim 2015 15,513

1 Year Change 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

1,258

955

1,311

839

1,038

647

339

-48%

2,195 Full Year 2010 21.8%

-516 Full Year 2011 21.3%

2,771 Full Year 2012 23.8%

3,205 Full Year 2013 21.0%

3,052 Full Year 2014 20.8%

1,652 Interim 2014 24.7%

1,194 Interim 2015 26.3%

-28% 1 Year Change 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

12.1%

-2.8%

14.8%

16.2%

14.2%

16.3%

10.7%

Pre-tax result Key Ratios Cession Rate

Return on capital* Source: Lloyd’s, Aon Benfield Market Analysis

Challenging market conditions continue, as global insurance capital continues to exceed demand, particularly in the reinsurance sector1. Gross premiums written at Lloyd’s rose by 7.1% to GBP15.5 billion in 1H 2015. 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%).

Exhibit 2: Lloyd’s Gross Premiums Written 30

GBP (billions)

Premium Income

Full Year

Interim

20

10

13.5

13.5

2010

2011

4

Lloyd’s Update – October 2015

14.8

15.5

2012

2013

15.5

14.5

0 2014

2015

Source: Lloyd’s, Aon Benfield Market Analysis

Exhibit 3: Lloyd’s Business Split 1H 2015 Net Premiums Earned GBP10bn Property

9%

5% 5%

2%

Casualty Marine Energy

Reinsurance

21%

33%

Motor Aviation Reinsurance

25%

1

Aon Benfield estimates that global reinsurer capital totalled USD565 billion as at June 30, 2015.

-5.6pp *Capital and reserves


Casualty 24% Property 48%

Specialty 27%

Exhibit 5: 1H 2015 Combined Ratios by Class

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 2014: 87.4%).

Accident Year Combined Ratio (Direct Classes) Accident Year Combined Ratio (Reinsurance Classes) Reserve Releases 106% 90% 104% 95% 92% 97% 89% 85% 91% 77%

Exhibit 4: Lloyd’s Combined Ratio Major Losses

Attritional Losses

Expenses

Reserve Releases

94%

100%

101%

-2%

-4%

-13%

112%

106%

121% 98%

91%

-12%

-15%

102%

106%

-6%

-14%

113.3% 32.4%

51.5%

88.7%

86.9%

87.4%

89.5%

3.4%

2.4%

1.4%

2.7%

55.4%

56.3%

55.9%

55.3%

-22%

-2%

-15%


37.2%

36.3%

38.1%

39.5%

-5.5%

-7.3%

-8.1%

-8.0%

-8.0%

1H 2011

1H 2012

1H 2013

1H 2014

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 2015. 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 2014: 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

GBP (billions)

35.0%

1.3

1.3

1.0

1.0

1

Investment return on Society assets* Notional return on Funds at Lloyd's Syndicate investment return 0.8 0.6 0.3

0 FY 2010

FY 2011

FY 2012


FY 2013

FY 2014

1H 2014

1H 2015

*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 7.


5

Exhibit 7: Lloyd’s Investment Yield 5.6%

6% 5%

4.3%

4.7% 3.9%

4% 2.6%

2.6%

3%

1.9%

2%

1.6%

2.0%

1.2%

2.5%

1% 0% FY '05

FY '06

FY '07

FY '08

FY '09

FY '10

FY '11

FY '12

FY '13

FY 1H '14 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* 4

GBP (billions)

3

2.2

2

Reserve releases Investment result 3.2 3.1 2.8

-0.5

Other

1.7

1.2

1 0 -1 -2 -3

FY 2010

FY 2011

FY 2012

FY 2013

1H 2014

FY 2014


1H 2015 *Accident year

The annualised pre-tax return on capital was 10.7% in 1H 2015, 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% 23.9%

25%

14.8%

12.1%

15%

16.2%

14.2%

10.7%

13.7%

5% -5%

-2.8%

-0.9%

FY '05

FY '06

FY '07

FY '08


6


FY '09

FY '10

FY '11

FY '12

FY '13

FY 1H '14 2015

*Capital and reserves

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) Cash and investments

December 2010 48,483





June 2015 52,537

46,428

51,918

51,517

49,277

50,787

52,516

3%

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%

Gross technical provisions Reinsurers’ share


Year to Date Change -4%

*Capital, reserves, subordinated loan notes and securities

Investments

Technical Reserves

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 2014.

Gross provisions for outstanding claims fell by 2% to GBP37.3 billion over the six months to June 30, 2015. 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.

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%.

Gross unearned premium reserves rose by 21% to GBP15.3 billion over the six months to June 30, 2015. Reinsurers’ share rose by 65% to GBP3.3 billion.

Exhibit 12: Lloyd’s Outstanding Claims Provisions 60

Reinsurers' share

50 GBP (billions)

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.

40

41 36

Net claims provision 40

38

38

37 9

30 20

Exhibit 11: Investment Allocation at June 30, 2015

10

Total Lloyd's Market Investments: GBP52.5 billion

0

29

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 1H 2015 Central investments* 5% FAL investments 31%

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


7

The Chain of Security

300%

200%

190%

216%

Gross Net 199%

178%

163%

100%

163%

125%

0% FY 2010

FY 2011

FY 2012

FY 2013

FY 2014 1H 2015


Capital Lloyd’s is a partially mutualised market and does not hold conventional equity. The components of the capital base are shown in Exhibit 14. Both FAL and members’ balances operate on a several liability basis. 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 30

GBP (billions)

25 20

19

19

20

21

Members' balances Subordinated liabilities 23 23

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. 3. 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.

Exhibit 15: Lloyd’s Chain of Security at June 30, 2015 Subordinated Debt £886m 3.

Central Fund £1,668m Corporation Assets £101m

Callable Layer (=3%) £782m

Contingent

Funds at Lloyd's Central assets Solvency surplus

The resources available to pay claims at Lloyd’s are linked together in a ‘Chain of Security’ as follows:

Mutual

Exhibit 13: Lloyd’s Claims Reserve Leverage

15 10

2.

Funds at Lloyd's £16,208m

1.

Premium Trust Funds £44,558m

5 Several

0 FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

1H 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. Source: Lloyd’s

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.

8


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.

London Market Developments Target Operating Model The ‘London Matters’ report, published by the London Market Group (LMG) and The Boston Consulting Group in November 2014, 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 2015. 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 2015. A further standard on the provision of management information will come into effect at the beginning of 2016. Regulatory pressure and more onerous reporting requirements are increasing costs and may result in consolidation of the cover-holder market.


9

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 Jul 2014

Closing Date Feb 2015

Acquirer BTG Pactual

Target Ariel Re

Related Syndicates 1910

Nov 2014

Apr 2015

Hamilton

Sportscover

3334

Jan 2015

May 2015

XL

Catlin

1209, 2003, 3002

Feb 2015

Jun 2015

Fairfax

Brit

2987 5151

Mar 2015

Jul 2015

Endurance

Montpelier

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


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.

10

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 4444. Projected combined capacity of GBP975 million represents a 5% increase relative to 2015.

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, 2015. Capital supporting the 2016 SBFs in the form of Funds at Lloyd’s must be in place by November 25, 2015. 

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.

*Initial 20% stake acquired Feb 2015

New Entrants and Departures





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, 2016.



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 2015. Rebranding of the group’s six insurance platforms, including the managing agent of Syndicate 1301, is expected to be completed in January 2016.



The management of Apollo Syndicate 1969 was transferred from ANV to Apollo Syndicate Management Ltd effective

August 1, 2015. 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 4444.

Exhibit 18: Lloyd’s Syndicate Ratings/Assessments

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.



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.

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 2015.

Syndicate Number 0033

Managing Agent Hiscox

A.M. Best Financial Strength Rating A / Positive

0386

QBE

0510

Tokio Marine Kiln

A / Positive

0623

Beazley

A / Positive

1183

Talbot

A / Positive

1225

Aegis

A / Positive

2001

Amlin

A+ / Positive

2003

Catlin

A / Positive

2007

Novae

2010

Cathedral

A / Positive

2623

Beazley

A / Positive

2999

QBE

3000

Markel

A / Positive

3622

Beazley

A / Positive

3623

Beazley

A / Positive

Source: Rating agencies

S&P Lloyd’s Syndicate Assessment 5 / Stable

4+ / Stable 5 / Stable 3- / Stable

5 / Stable

Note: Only syndicates with a standalone FSR from A.M. Best or LSA from S&P are shown

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. A.M. Best affirmed its ‘A’ rating on July 27, 2015. 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, 2014, 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 2014.

Exhibit 17: Lloyd’s Market Financial Strength Ratings A.M. Best

Rating A

Outlook Positive

Action Affirmed July 27, 2015

Fitch

AA-

Stable

Affirmed August 21, 2015

S&P

A+

Stable

Affirmed October 13, 2014

Source: Rating agencies


11

Exhibit 19: Active Syndicate Listing

12

2014 GPW GBPmn 832

Syn. No. 0033

Managing Agent Hiscox

Agency Owner* Hiscox

Largest Capital Provider in 2015* Hiscox (73%)

0044

AmTrust

AmTrust

AmTrust

0218

ERS

Aquiline

Aquiline (61%)

0308

Tokio Marine Kiln

Tokio Marine

Tokio Marine (50%)

0318

Beaufort

Munich Re

Munich Re (91%)

0382

Hardy

CNA

CNA

266

0386

QBE

QBE

QBE (70%)

333

0435

Faraday

Berkshire

Berkshire

0457

Munich Re

Munich Re

Munich Re

0510

Tokio Marine Kiln

Tokio Marine

Tokio Marine (55%)

0557

Tokio Marine Kiln

Tokio Marine

Hampden (57%)^

0566

QBE

Operates as a trading division of Syndicate 2999

0609

Atrium

Enstar/Stone Point

0623

Beazley

Beazley

0626

Hiscox


0727

Meacock

Family-owned

0779

ANV

ANV

0780

Advent

Fairfax

Fairfax

0887

Amlin


0958

Canopius

Sompo

1036

QBE


1084

Chaucer

Hanover Ins

Hanover Ins

1110

ProSight

ProSight

ProSight Specialty

1176

Chaucer

Hanover Ins

Hanover Ins (57%)

1183

Talbot

Validus

1200

Argo

1206

AmTrust

1209

2014 Combined Ratio 76%

2014 Pre-Tax Result as % of NPE 26%

2015 Capacity GBPmn 1,000

15

75%

14%

13

388

101%

2%

350

27

97%

3%

32

136

76%

24%

235

97%

4%

330

92%

13%

353

208

45%

58%

325

446

88%

13%

425

1,097

87%

14%

1,064

20

56%

46%

35

Enstar/Stone (25%)

365

85%

16%

420

Hampden (53%)^

227

88%

14%

230

Hampden (44%)^

68

80%

24%

81

Hampden (41%)^

16

94%

7%

22

126

95%

32%

200

192

79%

24%

185

899

90%

15%

760

138

102%

-2%

210

24

22%

83%

32

Validus

669

90%

13%

625

Argo

Argo (59%)

380

89%

14%

350

AmTrust

AmTrust

183

118%

-15%

200

Catlin

XL

XL

302

97%

10%

300

1218

Newline

Fairfax

Fairfax

102

92%

43%

100

1221

Navigators

Navigators

Navigators

234

89%

15%

215

1225

AEGIS

AEGIS

AEGIS (93%)

371

85%

21%

330

1274

Antares

Qatar Insurance

Qatar Ins (79%)

251

93%

9%

225

1301

Torus

Enstar/Stone Point

Enstar/Stone Pt (89%)

141

99%

1%

175

1414

Ascot

AIG (20%)

AIG (97%)

574

83%

18%

650

1458

RenRe

RenRe

RenRe

165

90%

11%

167

1686

Asta

Tawa/Paraline/Skuld

AXIS

87

160%

-60%

110

1729

Asta

Tawa/Paraline/Skuld

ProAssurance (58%)

41

125%

-25%

75

1861

ANV

ANV

ANV

198

94%

7%

185

1880

Tokio Marine Kiln

Tokio Marine

Tokio Marine

147

74%

27%

360

1882

Chubb

Chubb

Chubb

88

95%

6%

89

1884

Charles Taylor

Charles Taylor

Standard Club

Commenced trading April 1, 2015

1886

QBE


1897

Asta

Tawa/Paraline/Skuld

Skuld (67%)

91

110%

-10%

90

1910

Asta

Tawa/Paraline/Skuld

BTG Pactual

193

52%

50%

164

1919

Starr

Starr International

Starr International

270

93%

8%

245

1945

Sirius

White Mountains

White Mountains

67

92%

8%

105

1955

Barbican

Barbican

Barbican (97%)

274

101%

1%

172

1967

W.R. Berkley

W.R. Berkley

W.R. Berkley

150

95%

6%

185

1969

Apollo

Apollo

Apollo (32%)

152

94%

7%

160

1980

Liberty


1991

R&Q

R&Q

SCOR (19%)

35

209%

-109%

150

2001

Amlin

Amlin

Amlin

1,538

93%

11%

1,400

2003

Catlin

XL

XL

1,985

91%

14%

1,297


Sompo (61%)

36

Exhibit 19: Active Syndicate Listing (continued) 2014 GPW GBPmn

2014 Combined Ratio

2014 Pre-Tax Result as % of NPE

2015 Capacity GBPmn

Novae (93%)

659

89%

13%

575

Lancashire (58%)

219

79%

22%

306

Arch

Arch

151

98%

8%

200

Pembroke

Ironshore

Hampden (65%)^

60

109%

-9%

100

2015

Channel

SCOR

SCOR

162

105%

-5%

168

2088

Catlin

XL

China Re

47

88%

15%

92

2121

Argenta

Argenta

Argenta (84%)^

218

83%

18%

240

2232

Allied World

Allied World

Allied World

116

96%

5%

131

2357

Asta

Tawa/Paraline/Skuld

Nephila

20

52%

48%

73

2468

Marketform

American Financial

American Financial (70%)

191

124%

-19%

200

2488

ACE

ACE

ACE

375

62%

52%

350

2525

Asta

Tawa/Paraline/Skuld

Hampden (46%)^

42

73%

29%

42

2526

AmTrust

AmTrust

AmTrust (99%)

39

173%

-71%

64

2623

Beazley

Beazley

Beazley

1,032

90%

15%

1,020

2791

MAP

MAP (90.0%)

Hampden (35%)^

2987

Brit

Fairfax

Fairfax

2999

QBE

QBE

3000

Markel

Markel

3002

Catlin

XL

3010

Cathedral

3210 3334

Syn. No.

Managing Agent

Agency Owner*

Largest Capital Provider in 2015*

2007

Novae

Novae

2010

Cathedral

Lancashire

2012

Arch

2014

170

73%

34%

400

1,303

94%

12%

1,075

QBE

888

74%

29%

950

Markel

419

94%

17%

500

XL

10

84%

16%

16

Lancashire

Lancashire

45

94%

6%

100

Mitsui

MS&AD

MS&AD

351

86%

16%

340

Hamilton

Hamilton

Hamilton/Wild Goose

56

118%

-17%

32

3622

Beazley

Beazley

Beazley

13

114%

-13%

17

3623

Beazley

Beazley

Beazley

152

96%

5%

150

3624

Hiscox

Hiscox

Hiscox

324

103%

-2%

350

3902

Ark


4000

Pembroke

Ironshore

Ironshore

250

103%

-1%

270

4020

Ark

Ark

Ark (93%)

335

88%

18%

340

4141

HCC

HCC

HCC

81

94%

10%

120

4242

Asta

Tawa/Paraline/Skuld

Paraline (50%)

82

64%

36%

90

4444

Canopius

Sompo

Sompo (79%)

727

90%

13%

740

4472

Liberty

Liberty

Liberty

1,234

95%

14%

1,050

4711

Aspen

Aspen

Aspen

299

94%

7%

410

5000

Travelers

Travelers

Travelers

312

87%

14%

300

5151

Endurance

Endurance

Endurance

172

93%

10%

180

5678

Vibe

Soros/Pine Brook

Soros/Pine Brook

5820

ANV

ANV

ANV (51%)

239

101%

-1%

131

6050

Beazley

Beazley

Korean Re

Commenced trading March 1, 2015

6103

MAP

MAP (90.0%)

Hampden (49%)^

9

13%

96%

13

6104

Hiscox

Hiscox

Hampden (54%)^

49

31%

70%

72

6105

Ark

Ark

Argenta (42%)^

40

96%

5%

60

6107

Beazley

Beazley

Hampden (33%)^

47

65%

27%

28

6111

Catlin

XL

Hampden (54%)^

129

88%

15%

104

6112

Catlin

XL

Everest Re

39

88%

15%

30

6117

Asta

Tawa/Paraline/Skuld

Hampden (98%)^

33

85%

15%

38

6118

Barbican

Barbican

ARIG/Labuan Re

71

95%

5%

48

6119

Catlin

XL

GIC

16

96%

5%

14

6120

Barbican

Barbican

Credit Suisse

Commenced trading January 1, 2015

40

6121

Catlin

XL

N/A

Commenced trading January 1, 2015

28

6123

Asta

Tawa/Paraline/Skuld

Labuan Re (20%)

Commenced trading May 1, 2015

8

Source: Lloyd's, Aon Benfield Market Analysis *100% unless otherwise stated

5

26 12

^Hampden and Argenta principally act as Lloyd's members' agents on behalf of third party capital providers


13

14


Contacts Mike Van Slooten

Eleanore Obst

Head of Market Analysis - International Aon Benfield Analytics +44.207.7522.8106 [email protected]

Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.3823 [email protected]

Mike McClane Head of Market Analysis - Americas Aon Benfield Analytics +1.215.751.1596 [email protected]

Kathryn Moyse Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.8173 [email protected]

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