The Aon Benfield Aggregate

The Aon Benfield Aggregate Results for the year ended December 31, 2013

Empower ResultsTM

Contents Global Reinsurer Capital

3

Executive Summary

4

ABA Capital

5

Capital Development

5

Capital Management

7

Premium Income Earnings

8 12

Underwriting Performance

13

Investment Results

15

Net Income

15

Return on Equity

16

ABA Business Model Evolution

19

Who Are The New Investors?

19

How Is New Money Being Deployed?

19

Implications for ‘Traditional’ Reinsurers

19

Convergence in Action

19

ABA Valuation

21

Financial Strength Ratings

23

Appendix 1: ABA Data

24

About Aon Benfield Aon Benfield, a division of Aon plc, 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 Benfield

Global Reinsurer Capital Aon Benfield estimates that global reinsurer capital totaled USD540 billion at December 31, 2013, an increase of 7% relative to December 31, 2012. This calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurer capital. Exhibit 1: Global Reinsurer Capital 600

Traditional

Alternative

470

500

USD (billions)

410

400

400

505

455

7% 11%

-3% 18%

340 18%

-17%

300 200

540

Global Reinsurer Capital

388 321

447

428

378

466

490

100 0

22

19

22

24

28

39

50

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

Source: Company reports, Aon Benfield Analytics

Major insurers and reinsurers generally maintained their solid operating performance during 2013, aided by economic recovery in the United States, exposure growth in emerging markets and below average insured catastrophe losses. However, the support to reported capital positions was muted by unrealized losses on bond portfolios, driven by rising interest rates associated with ‘tapering’ of the Federal Reserve’s quantitative easing program. The involvement of capital market investors in the reinsurance sector through non-equity participations continues to expand, presenting a growing challenge to ‘traditional’ reinsurer business models.

A NOTE OF CAUTION ON THE VAGARIES OF INSURANCE ACCOUNTING Accounting choices can influence reported results. There have always been inconsistencies in the methodology applied to the calculation of combined ratios and returns on equity, two of the staple metrics for analyzing company performance. The accounting treatment of unrealized losses on bond portfolios relating to rising interest rates was an issue in 2013. Companies classifying a high proportion of their fixed-income securities as ‘held for trading’ saw a significant impact in the investment results reported through income statements, with consequent effects upon pre- and post-tax earnings and return on equity. In cases where the majority of bonds are held as ‘available for sale’, most of the impact was recorded below the line (in other comprehensive income) and taken directly to equity. Direct comparison of company results can therefore be misleading.

3

The Aon Benfield Aggregate – Results for the year ended December 31, 2013

Executive Summary Overview New income streams and operating advantages are starting to flow to leading reinsurers that have engaged with the new capital flowing mainly from pension plans, life insurers, endowments and high net worth individuals. Their roles are mainly in (a) sponsoring catastrophe bond transactions to lower their weighted average cost of underwriting capital, particularly for peak modeled perils (b) sharing quality underwriting performance and access to mature reinsurance and insurance relationships through sidecars and other managed vehicles and (c) managing bond funds where reinsurers have relationship and familiarity benefits with bond sponsors. These activities show the beginnings of a true rotation in how the reinsurance business will be capitalized. Key Findings Aon Benfield estimates that global reinsurer capital rose by 7% to USD540 billion during the year to December 31, 2013, the generally solid earnings of major insurers and reinsurers and a continuing influx of new funds from capital markets investors being partially offset by unrealized losses on bond portfolios. The reported shareholders’ funds of the 31 companies forming the Aon Benfield Aggregate (ABA) stood at USD337 billion (62% of global reinsurer capital), an increase of 6% or USD20 billion. Excluding National Indemnity Company (NICO), the total was USD240 billion, a rise of 2% or USD5 billion. The primary drivers of ABA capital growth were net income of USD34 billion and unrealized investment gains of USD6 billion. Capital repatriation in the form of dividends and share buybacks rose by 15% to USD20 billion, equivalent to 6% of opening shareholders’ funds. Total premiums written by the ABA rose by 4% to USD285 billion in 2013. The portion related to property and casualty (P&C) business rose by 5% to USD199 billion, split insurance USD95 billion (+5%) and reinsurance USD104 billion (+5%). P&C underwriting profit rose by 46% to USD17.4 billion in 2013, driven by lower catastrophe losses and higher favorable prior year reserve development. The combined ratio improved by 2.8 percentage points to 89.6%, the best result since 2009. The low interest rate environment continues to exert downward pressure on reported investment results. Net investment income across the ABA fell by 1% to USD34.1 billion in 2013. The overall yield fell by 30 basis points to 3.1% and is now down by a third since 2006. Pre-tax profit reported by the ABA rose by 6% to USD38.1 billion in 2013. Net income rose by 16% to USD34.0 billion, representing a return on equity of 10.6%. Two-thirds of the ABA companies reported improved results relative to 2012. Evolution of the ABA

ABA reports are produced on a half-yearly basis and cover the reported results of 31 major reinsurers worldwide, with the aim of identifying trends in the P&C reinsurance marketplace. All of the constituents are publicly-listed holding companies, with the exception of two US-domiciled operating subsidiaries of Berkshire Hathaway, namely NICO and General Reinsurance Corporation (Gen Re). Markel is now a constituent of the ABA, following its acquisition of Alterra effective May 1, 2013. Markel’s published results include Alterra’s contribution from that date only, but for the purposes of the ABA capital calculation (Exhibit 2), Alterra’s reported capital has been included in previous year-end totals.

4

Aon Benfield

ABA Capital The reported shareholders’ funds of the 31 ABA companies stood at USD337 billion at the end of 2013, an increase of 6% or USD20 billion over the course of the year. Excluding NICO, the total was USD240 billion, an increase of 2% or USD5 billion. Exhibit 2: ABA Shareholders’ Funds 400

USD (billions)

300

15% 12%

100

29%

-17%

200

201

226

FY 2006

FY 2007

6%

12%

2%

242

187

278

283

FY 2010

FY 2011

317

337

FY 2012

FY 2013

0 FY 2008

FY 2009

Source: Company reports, Aon Benfield Market Analysis

Capital Development The main drivers of the growth in ABA capital were net income of USD34.4 billion and unrealized investment gains of USD5.5 billion, offset by dividends of USD14.2 billion and share buybacks of USD5.6 billion. NICO reported unrealized gains of USD14.5 billion, predominantly on equities. The remainder of the ABA reported unrealized losses of USD9.0 billion, driven by the impact of rising interest rates on bond portfolios. The companies most affected were Munich Re (USD3.4 billion), Swiss Re (USD2.8 billion) and ACE (USD1.5 billion). Exhibit 3: ABA Shareholders’ Funds Development 375

USD (billions)

34.4

-14.2

350

325

317.1

2.6

FY 2012 SHF

Additional capital

-1.7

5.5

-5.6

FX

Investment gains

Share buybacks

-0.7

337.5

Other

FY 2013 SHF

300 Net income

Dividends


5


NICO reported shareholders’ funds of USD97.2 billion at the end of 2013 (including USD45.2 billion of unrealized capital gains), an increase of 22% or USD17.8 billion over the course of the year. This represented 29% of ABA capital. On a combined basis, Munich Re, Swiss Re and ACE contributed USD97.6 billion. Exhibit 4: Reported Shareholders’ Funds at December 31, 2013 by ABA Constituent 100 90

USD (billions)

80 40 70 60 30 50 40 20 30 20 10 10 0 0


Two-thirds of the ABA constituents reported capital growth in 2013. The significant increase at Markel reflects a USD2.3 billion stock issuance associated with the acquisition of Alterra. Elsewhere, the main driver was retained earnings, with NICO also benefiting from substantial unrealized gains. A contraction in shareholders’ funds was reported by 10 companies, driven in some cases by active capital management (Aspen, PartnerRe, Platinum and Validus) and in others by unrealized losses (Hannover Re, Munich Re, Swiss Re and XL). Fairfax and QBE were the only companies to report retained losses for the year; the latter was also impacted by USD1.1 billion of foreign exchange losses. Exhibit 5: Movement in Reported Shareholders’ Funds 75% 65% 25% 55% 45% 20% 35% 15% 25% 10% 15% 5% 5% 0% -5% -15% -5% -10%


6

ABA

Aon Benfield

Capital Management Surplus equity is being returned to investors in growing amounts, partly reflecting increased interaction with third party capital structures. Dividend payments rose by 9% to USD14.2 billion in 2013, while share buybacks jumped by 34% to USD5.6 billion. Total repatriation increased by 15% to USD19.8 billion, equivalent to 6.3% of opening shareholders’ funds (2012: 6.2%). Lancashire returned 23% of its opening capital in the form of dividends during 2013, but ended the year with an increased capital position, aided by a USD0.2 billion share issuance associated with the acquisition of Cathedral. The extent of the capital returned at Validus, Platinum and PartnerRe was sufficient to drive overall reductions in their reported shareholders’ funds. Exhibit 6: Dividends and Share Buybacks as % of Opening Shareholders’ Funds 25% 20%

Dividends Share buy-backs

15% 10% 5% 0%


The first few months of 2014 have provided further evidence of the quickening pace of capital repatriation. Most ABA companies increased their regular quarterly/final dividends alongside the release of their 2013 results. In addition, Beazley, Hiscox and Swiss Re announced special dividends. Existing share buy-back authorizations were increased at Endurance, Platinum, RenaissanceRe and XL and new authorizations were announced at Allied World, Axis and Munich Re.

7


Premium Income Total premiums written by the ABA rose by 4% to USD285 billion in 2013. The portion related to property and casualty (P&C) business rose by 5% to USD199 billion, split insurance USD95 billion (+5%) and reinsurance USD104 billion (+5%). Exhibit 7: ABA P&C Gross Premiums Written 200 2%

-2%

5%

6%

150 USD (billions)

5%

5% 14%

100 142

149

158

156

159

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

181

189

199

FY 2011

FY 2012

FY 2013

50

0 Source: Company reports, Aon Benfield Market Analysis

The 5% increase in P&C gross premiums written by the ABA was driven mainly by acquisition effects, a pick-up in economic activity in the United States and exposure growth in Asia and Latin America. The contribution of the top five companies aggregated to USD101 billion in 2013, or 51% of the total. Exhibit 8 shows the splits of P&C premium between direct insurance and assumed reinsurance across the ABA constituents in 2013, based on company disclosure. Exhibit 8: 2013 P&C Gross Premiums Written by ABA Constituent 35 P&C Insurance 30

USD (billions)

25 20 15 10 5 0


8

P&C Reinsurance

Aon Benfield

Markel reported underlying growth of 15% in 2013, excluding the Alterra acquisition, driven by the E&S Lines and Specialty Admitted segments. Everest Re expanded in both the Insurance (+18%) and Reinsurance (+21%) segments and also reported USD20 million of new premium at its collateralized sidecar, Mt. Logan Re. Allied World grew in all segments, namely US Insurance (+17%), International Insurance (+12%) and Reinsurance (+23%, including property catastrophe business sourced via the strategic partnership with Aeolus Capital). PartnerRe saw strong growth in the North America (+31%), Global Non-US P&C (+20%) and Global Specialty (+11%) segments, while shrinking the Property Catastrophe book by 1%. Alleghany reported growth in both Insurance (+14%) and Reinsurance (+16%, reflecting a full year contribution from Transatlantic). Premium volumes written by the major European groups were impacted by the appreciation of the Euro against other currencies. Hannover Re and Munich Re both cited the US as a main contributor towards reported growth, while Mapfre saw continued expansion in Latin America. NICO reported a 23% reduction in gross premiums written, driven by the termination of a 20% quota share across most of Swiss Re’s P&C book at the end of 2012. The 6% decline at Lancashire reflected the company’s decision to exit from property direct and facultative business and most of its retrocession book during 2013. Exhibit 9: Changes in P&C Gross Premiums Written 60% 50%

ABA

40% 30% 20% 10% 0% -10% -20% -30%


*P&C reinsurance segment only

Exhibit 10 isolates the development of the assumed reinsurance books of the ABA constituents in 2013. The three companies showing the fastest growth were Allied World, Everest Re and Validus. Exhibit 10: Changes in P&C Reinsurance Gross Premiums Written 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25%


*On a constant currency basis

9


Net P&C premiums written by the ABA companies rose by 6% to USD171 billion in 2013, reflecting a one point reduction in the reinsurance cession rate to 14%. Excluding intra-group arrangements (primarily with NICO), the cession rate at Gen Re was 3%. Exhibit 11: Ceded Reinsurance as a % of 2013 P&C Gross Premiums Written 50% ABA 40% 30% 20% 10% 0%

*P&C reinsurance segment only Source: Company reports, Aon Benfield Market Analysis

Net P&C premiums earned by the ABA companies rose by 6% to USD167 billion in 2013. The top five companies contributed USD85 billion, representing 51% of the total. Exhibit 12: 2013 P&C Net Premiums Earned by ABA Constituent 25

USD (billions)

20

15

10

5

0


Markel’s net premiums earned rose by 51%, mainly reflecting the acquisition of Alterra. The 19% increase at Swiss Re and 15% reduction at NICO mainly reflected the termination of the 20% quota share operating between the two companies.

10

Aon Benfield

Exhibit 13: Changes in P&C Net Premiums Earned 60% ABA 50% 40% 30% 20% 10% 0% -10% -20%


11


Earnings Pre-tax profit reported by the ABA rose by 6% to USD38.1 billion in 2013, driven by an improved P&C underwriting result. Net income rose by 16% to USD34.0 billion, representing a return on equity of 10.6%. Exhibit 14: ABA Pre-Tax Profit 70

Capital gains/losses

60 USD (billions)

50

40.3

40.7 32.9

40

36.0

33.4

38.1

30

Investment income

16.2

14.0

20

P&C underwriting result

10

Pure life technical result

0 -10

Other

-20 -30

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

Pre-tax profit


On a combined basis, NICO, Swiss Re, Munich Re and ACE contributed USD22.7 billion of pre-tax profit in 2013, representing 60% of the ABA total. Fairfax reported a pre-tax loss of USD1.0 billion, despite an improved underwriting result and higher net investment income, driven by equity hedging costs. QBE reported a pre-tax loss of USD0.4 billion, driven by goodwill and intangible write-downs at its operations in the United States. Exhibit 15: 2013 Pre-Tax Result by ABA Constituent 10

USD (billions)

8 6 4 2 0 -2


12

Aon Benfield

Underwriting Performance Natural disasters caused worldwide insured losses of USD45 billion in 2013. This was the lowest level since 2009 and 22% below the 10-year average (source: Impact Forecasting). P&C underwriting profit across the ABA companies rose by 46% to USD17.4 billion in 2013, split evenly between the 2013 accident year and favorable development of prior year reserves. The accident year combined ratio improved by 2.1 points to 94.8%, driven by a 38% reduction in disclosed catastrophe losses to USD7.9 billion. Accident year underwriting profit rose by 81% to USD8.7 billion. The calendar year combined ratio improved by 2.8 points to 89.6%, assisted by a 22% increase in favorable prior year reserve development to USD8.7 billion. Exhibit 16: ABA Combined Ratio Composition 120% 100% 80% 60%

105.1% 88.3%

88.6%

2.7%

3.6%

58.7%

59.0%

94.5% 8.1%

89.5% 3.1%

62.5%

61.0%

93.9% 9.6%

20.5%

92.4% 8.1%

89.6% 4.7%

Total catastrophe losses

59.1%

59.9%

58.4%

59.1%

Attritional loss ratio

40%

Expense ratio

20% 27.5%

28.5%

28.8%

29.2%

30.0%

30.0%

30.5%

30.9% Prior year reserve adjustment

0% -20%

-0.6%

-2.5%

-4.8%

-3.9%

-4.8%

-5.2%

-4.5%

-5.2%

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013


All ABA companies generated underwriting profits on a calendar year basis in 2013, with catastrophe specialists RenaissanceRe and Montpelier Re reporting particularly strong results. A significant spread of expense ratios continues to be observed, ranging from 24.9% in the case of Hannover Re, up to 44.2% in the case of Gen Re. Exhibit 17: 2013 Calendar Year Combined Ratios 120%

Loss ratio

Expense ratio

ABA

100% 80% 60% 40% 20% 0%


13


On a combined basis, Swiss Re, Munich Re, ACE and NICO generated USD7.5 billion of P&C underwriting profit in 2013, representing 43% of the ABA total. Exhibit 18: 2013 P&C Underwriting Profit by ABA Constituent 3,000

USD (millions)

2,500 2,000 1,500 1,000 500 0


Favorable prior year reserve development continues to provide significant support to the reported earnings of many ABA companies. The principal beneficiaries in 2013 were Gen Re, Platinum and Montpelier Re. QBE was the only constituent to report adverse reserve development, principally driven by US program business in run-off (which now benefits from stop-loss reinsurance protection). Exhibit 19: 2013 Loss Reserve Adjustments as % of Net Premium Earned 50% ABA 40% 30% 20% 10% 0% -10%


On an accident year basis, five ABA companies reported underwriting losses in 2013 and another two were at breakeven point.

14

Aon Benfield

Exhibit 20: 2013 Accident Year Combined Ratios ABA

120% 100% 80% 60% 40% 20% 0%


Investment Results The low interest rate environment continues to exert downward pressure on reported investment results. Net investment income across the ABA fell by 1% to USD34.1 billion in 2013. The overall yield fell by 30 basis points to 3.1% and is now down by a third since 2006. Capital gains reported through income statements fell by 15% to USD7.0 billion in 2013. The total investment return fell by 40 basis points to 3.8%. Exhibit 21: ABA Investment Return 6%

5.7%

5.2% 4.4%

4.6% 3.8%

4%

4.7%

4.3% 3.8%

4.0% 3.5%

3.7%

4.2%

3.4%

2%

3.8%

3.1%

1.8% Total investment return (incl. capital gains/losses) Underlying investment return

0% FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013


Net Income The ABA companies reported net income available to common shareholders of USD34.0 billion in 2013, an increase of 16% relative to 2012. Exhibit 22: ABA Net Income 35

USD (billions)

30 25 20 15

31.5

31.3

25.8

10

29.3

26.8

34.0

14.7

5

7.3

0 FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013


15


On a combined basis, NICO, Swiss Re, Munich Re and ACE contributed net income of USD21.0 billion in 2013, representing 62% of the ABA total. Exhibit 23: 2013 Net Income/Loss by ABA Constituent 9 8 7

USD (billions)

6 5 4 3 2 1 0 -1


Return on Equity Exhibit 24 shows the development of net income attributable to common shareholders relative to average common shareholders’ funds across the ABA over the last 8 years. The average return on equity (ROE) over this period (encompassing both the financial crisis and the record year for insured catastrophe losses) was 10.8%. Exhibit 24: ABA Return on Equity 20%

17.9%

15.3%

15%

12.5% 10.7%

10.1%

10.6%

FY 2012

FY 2013

10% 5.4% 5% 3.7% 0% FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011


The Impact of Asset Classification Peer comparison of ROE is complicated by the varying accounting methods available to treat changes in the market value of financial investments on the balance sheet. Unrealized gains and losses on securities classified as ‘held for trading’, or ‘fair value through profit and loss’ are recognized through net investment income, while those classified as ‘available for sale’ are taken directly to shareholders’ equity through other comprehensive income. The method can be chosen at the time an investment is acquired. Most of the European and some of the Bermudian reinsurers classify the majority of their investments as available for sale, which has the advantage of eliminating earnings volatility caused by interest rate movements. However, the accounting is more complex if an investment is sold and a gain or loss realized. Some of the Bermudian

16

Aon Benfield

reinsurers choose to classify their investments as held for trading. This simplifies accounting treatment if an investment is sold, but causes volatility in earnings when market values change. The market value of government and corporate bonds was impacted by a sharp rise in interest rates in the US and Europe in the middle of 2013. Companies using the available for sale classification recorded consequent unrealized losses ‘below the line’ at the year-end, meaning that net income was not affected. Companies using an alternate classification were required to include related unrealized losses ‘above the line’, thereby impacting reported results. The variation in accounting method means that calculating ROE based on reported net income produces inconsistent results across the ABA companies. Two different approaches are therefore adopted:  

Pre-Tax Operating ROE (excluding all realized and unrealized investment gains/losses) Total Comprehensive Income ROE (including all realized and unrealized investment gains/losses)

Pre-Tax Operating ROE The pre-tax operating return on average shareholders’ funds across the ABA as a whole stood at 10.2% in 2013, up from 9.9% in 2012. This measure averages 12.3% over the last 8 years. Exhibit 25: ABA Pre-Tax Operating ROE 20%

18.9% 15.6%

15.5% 13.7%

15%

9.7%

9.9%

10.2%

FY 2012

FY 2013

10% 5.0% 5% 0% FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

Note: Excluding all capital gains and investment revenues/policyholder returns relating to Swiss Re’s unit-linked and with-profits business Source: Company reports, Aon Benfield Market Analysis

Around two-thirds of the ABA companies reported improved results on this measure in 2013. Beazley was the standout performer, with a pre-tax operating ROE of 25.8%. The only company to report a negative return was QBE, an outcome driven by goodwill and intangible write-downs at its operations in the United States. Exhibit 26: 2013 Pre-Tax Operating ROE by ABA Constituent 30% 25%

ABA

20% 15% 10% 5% 0% -5% -10%

*Excluding all capital gains and investment revenues/policyholder returns relating to unit-linked and with-profits business Source: Company reports, Aon Benfield Market Analysis

17


Total Comprehensive Income ROE Based on total comprehensive income, the return on average shareholders’ funds across the ABA as a whole stood at 11.3% in 2013, down from 14.8% in 2012. This measure averages 11.2% over the last 8 years. The 2013 result was heavily impacted by strong equity valuation gains at the two Berkshire Hathaway subsidiaries. Excluding NICO and GenRe, the return stood at 5.5%, down from 14.1% in 2012, reflecting the extent of the unrealized losses on bonds. Exhibit 27: ABA Total Comprehensive Income ROE 30% 20% 11.3% 5.5%

10% 0% Total Comprehensive Income ROE

-10%

Total Comprehensive Income ROE ex NICO & GenRe

-20% FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013


NICO reported total comprehensive income of USD22.9 billion in 2013, including USD14.5 billion of unrealized gains, which equated to a 26% return on average shareholders’ funds. The only other ABA constituent to report significant unrealized gains below the line was Gen Re (USD0.9 billion). The companies most heavily impacted by unrealized losses reported within other comprehensive income were Munich Re (USD3.4 billion), Swiss Re (USD2.8 billion), ACE (USD1.5 billion) and XL (USD0.7 billion). Exhibit 28: 2013 Total Comprehensive Income ROE by ABA Constituent 30% ABA 25% 20% 15% 10% 5% 0% -5% -10%


18

Aon Benfield

ABA Business Model Evolution A structural shift in the way capital is raised and deployed to mitigate insurance risk is in progress. The pool of potential investors is broadening and new money is flowing towards structures offering access to quality business at relatively low cost. These changes are forcing the ABA companies to re-evaluate their business models. Who Are The New Investors? Reinsurance as an asset class has performed relatively well in an environment of low interest rates and is viewed as having limited correlation with broader capital market movements. These attributes have broadened the pool of potential investors to pension funds, high net worth individuals and sovereign wealth funds, who typically will:   

only enter the sector after extensive due diligence invest a small percentage of the substantial assets at their disposal as a diversifying strategy seek lower, more stable returns over longer timeframes than has historically been the case

How Is New Money Being Deployed? Much of the new capital is being channelled to specialist fund managers, who then deploy it into the insurancelinked securities (ILS) sector via products such as catastrophe bonds and industry loss warranties, or other ‘alternative’ structures, such as sidecars and collateralized reinsurance, on their investors’ behalf. The current focus is property catastrophe and retrocession business, particularly in the US market where exposures tend to be best understood, although diversification into other lines and territories is underway.

Implications for ‘Traditional’ Reinsurers New vehicles operating at a lower cost of capital are making in-roads into higher-margin areas that remain a key driver of profits for ‘traditional’ reinsurers. These dynamics are forcing many ABA constituents to rethink their business models in the pursuit of differentiation and relevance in the market. In the catastrophe reinsurance space, this increasingly means being able to offer larger line sizes, a full product suite including collateralized limits and enhanced claims service. Companies that are successful in attracting and deploying third party capital will potentially be able to advance their client offering, reduce earnings volatility through fee income, lower their own risk transfer costs and manage their capital bases more effectively.

Convergence in Action A summary of recent convergence activity among the ABA companies is presented in Exhibit 29. Several are now actively involved in raising and managing third party capital. Others have invested in strategic partnerships with established independent specialist fund managers. Sidecar structures that allow sponsors to grow their footprint in the market without assuming additional balance sheet risk continue to be in vogue. The availability of lower cost capital has allowed most ABA companies to drive down their own risk transfer costs. Retrocession pricing has reduced and in some cases additional protection has been purchased, with consequent impact on disclosed modeled exposures. In addition, a number of new catastrophe bond transactions were brought to the market by ABA sponsors during 2013.

19


Exhibit 29: Recent Examples of Convergence Activity Company ACE Alleghany

Third Party Capital Vehicles Altair Re II formed with $95m of capital to provide collateralized support for ACE Tempest Re (Jan 2014)

Catastrophe Bonds

Pangaea internal sidecar facility; Transatlantic is exploring alternative arrangements

Allied World

Amlin

Special Purpose Syndicate 6106 (2009-2013)

Arch

Co-sponsored Watford Re, a multi-line Class 4 Bermuda reinsurer with Highbridge (Apr 2014)

Argo Aspen Axis Beazley Catlin

Renewed property insurance & reinsurance sidecar Harambee Re (Jan 2014) Launched collateralized QS sidecar Silverton Re with $65m of capital (Jan 2014)

Tramline Re II (Jun 2013)

Loma Re (Dec 2013)

Formed Axis Ventures with $50m of capital to write collateralized reinsurance (Jan 2014)

Northshore Re (Aug 2013)

Special Purpose Syndicate 6107 (since 2010) PPV provides collateralized reinsurance support for non-syndicate entities (Jan 2014); SPS 2088, 6111, 6112 (from 2012); SPS 6119 (from 2014)

Considering options Galileo Re (Oct 2013)

Endurance Everest Re

Mt. Logan Re (formed Jan 2013) provides $370m of collateralized property cat capacity (Jan 2014)

Kilimanjaro Re (Apr 2014)

Multiple sidecar sponsor

Multiple cat bond sponsor

Other

Partnerships with Ares Management (Jul 2013) and Pillar Capital (Dec 2012); original capital commitment $450m Partnership with Aeolus Capital (Dec 2012); $83m of assumed property cat premium under a collateralized QS to Aeolus Re; increased participation for 2014 Partnership with Leadenhall Capital (2008); Amlin has $100m invested; ownership to increase from 40% in 2014; Amlin sourced $231m of limit for Leadenhall at January 1 Arch owns 15% of Watford Re and will conduct all the underwriting; Watford Re will write a QS of Arch’s property cat book Formed ILS fronting partnership with Horseshoe Re (Mar 2014) Formed Aspen Capital Markets (Apr 2013); $100m invested in third party vehicles Ben Rubin (ex-BoAML) appointed EVP Capital Markets (Jun 2013); peak exposures being cut via ILWs and additional retro Catlin benefits from $300m of third party capital support in 2014 Jerome Faure (ex-ILS Capital) appointed CEO Global Reinsurance (Feb 2013) David Whiting hired as CUO of Mt. Logan Re (Nov 2013); purchased ILW retro to reduce Florida PML (Jun 2013)

Fairfax Hannover Re Hiscox

Lancashire

‘Record’ third party support for Hiscox Re in 2014; SPS 6104 (since 2008); Kiskadee Re formed to write collateralized reinsurance (Apr 2013) Kinesis Re I Ltd, multi-class collateralized special purpose insurer with $250m of limit deployed (Jan 2014); Accordion/Saltire sidecars (2012/13)

Opened internal ILS fund to third parties via Leine Investment (Jan 2013) $110m deployed via collateralized ILS funds (Feb 2014); partnership and $30m investment with Third Point (Oct 2012) Darren Redhead (ex-DE Shaw) appointed to head Kinesis Capital (Mar 2013)

Mapfre Markel

Collateralized retro sidecar New Point Re VI launched with $215m of capital (Jan 2014)

Montpelier Re

Collateralized property cat reinsurance via Blue Water Re and Blue Capital Re

Munich Re

Special purpose vehicle Eden Re provides $63m of aggregate XL capacity for 2014

PartnerRe

Lorenz Re formed with $75m of third party capital to provide additional collateralized property cat capacity over a multi-year period (Mar 2013)

Multiple structurer and sponsor of cat bonds

Has operated an internal ILS fund for several years Reinsurance transaction with Third Point Re (Oct 2012)

Platinum VenTerra Re (Dec 2013)

QBE RenaissanceRe

SCOR Swiss Re Validus White Mountains XL

Multiple sidecar sponsor; Upsilon Re renewed with $280m, targeting primarily structured aggregate reinsurance and retro on a worldwide basis (Jan 2014) Sidecar Atlas X ($55m of capital) provides 3 years of collateralized QS capacity to SCOR Global P&C’s property cat book (Jan 2014) Sector Re sidecar series Collateralized property cat and retro via AlphaCat Re sidecar series ($204m of limit fully deployed in Jan 2014); top layer cat written via PaCRe (owned 10%) Formed Class 3 Bermudian insurer Alstead Re to write collateralized reinsurance and retro (Sep 2013) New Ocean will invest in a special purpose reinsurer formed for the purpose of underwriting worldwide collateralized property cat XL


20

Blue Capital has $600m of collateralized reinsurance assets (Feb 2014); David Brookman (ex-Barclays) hired as Head of Capital Markets (Jan 2014) Third party ILS transactions doubled to $1.2bn in 2013; has operated an internal ILS fund for 6+ years; increased retro purchases in 2013 and 2014

Mona Lisa Re (Jul 2013)

Internal ILS fund Medici opened to third parties (Jun 2013)

Multiple cat bond sponsor

Atropos launched in 2011 with $100m of seed capital; the ILS team offers 4 funds to third party investors

Multiple cat bond structurer and sponsor

No plans to open internal ILS fund to third parties AlphaCat (formed in 2008) had $1.6bn of assets under management at Jan 2014 Launched Sirius Capital Markets (May 2013); formed Bermuda investment manager (Aug 2013) New Ocean established in partnership with Stone Point; Chris McKeown hired as CEO (Nov 2013)

Aon Benfield

ABA Valuation The overall market capitalization of the ABA companies has increased by 24% since the beginning of 2013. The trailing price-to-book ratio has improved from 0.9x to almost 1.1x over the same period. Exhibit 30: ABA Market Capitalization (indexed to January 1, 2008) 130 120 110 100 90 80 70 60 50 40 Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Note: As of April 4, 2014; excluding Berkshire Hathaway Source: Bloomberg, Aon Benfield Market Analysis

All ABA constituents apart from Lancashire have experienced rising share prices since the beginning of 2013. Movements over the last 15 months are shown in Exhibit 31. Exhibit 31: Share Price Development (January 1, 2013 – April 4, 2014) 70% 60% 50% 40% 30% 20% 10% 0% -10%

Source: Bloomberg, Aon Benfield Market Analysis

21


The trailing price-to-book ratio of the ABA as a whole improved from 0.9x at January 1, 2013 to almost 1.1x at April 4, 2014. Development since the onset of the financial crisis is shown in Exhibit 32. Exhibit 32: ABA Trailing Price-to-Book Ratio (January 1, 2008 – April 4, 2014) 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Note: Excluding Berkshire Hathaway Source: Bloomberg, Aon Benfield Market Analysis

Changes in the trailing price-to-book ratios of the individual ABA constituents since the beginning of 2013 are shown in Exhibit 33. Exhibit 33: Trailing Price-to-Book Ratios by ABA Constituent 2.0

1.0

0.0

Source: Bloomberg, Aon Benfield Market Analysis

22

April 4, 2014

January 1, 2013

Average

Average

Aon Benfield

Financial Strength Ratings Exhibit 34: Financial Strength Ratings Main Operating Company

A.M. Best

Standard & Poor’s

ACE Tempest Reinsurance Ltd

A+

Positive

AA-

Positive

Allied World Assurance Co Ltd

A

Stable

A

Stable

Amlin AG

A

Stable

A

Stable

Arch Reinsurance Ltd

A+

Stable

A+

Stable

Argo Re Ltd

A

Stable

-

-

Aspen Bermuda Ltd

A

Stable

A

Stable

AXIS Specialty Ltd

A+

Stable

A+

Stable

Beazley Insurance Company, Inc

A

Stable

-

-

Catlin Insurance Company Ltd

A

Stable

A

Stable

Endurance Specialty Insurance Ltd

A

Stable

A

Stable

Everest Reinsurance (Bermuda) Ltd

A+

Stable

A+

Stable

General Reinsurance Corporation

A++

Stable

AA+

Negative

Hannover Rück SE

A+

Stable

AA-

Stable

Hiscox Insurance Company (Bermuda) Ltd

A

Stable

-

-

Lancashire Insurance Company Ltd

A

Stable

A-

Stable

MAPFRE Re, Compania de Reaseguros SA

A

Stable

A-

Stable

Markel Bermuda Ltd

A

Stable

A

Stable

Montpelier Reinsurance Ltd

A

Stable

A-

Stable

Munich Reinsurance Co

A+

Stable

AA-

Stable

National Indemnity Company

A++

Stable

AA+

Negative

Odyssey Reinsurance Company

A

Stable

A-

Stable

Partner Reinsurance Co Ltd

A+

Stable

A+

Stable

Platinum Underwriters Bermuda Ltd

A

Stable

A-

Stable

QBE Re (Europe) Ltd

A

Negative

A+

Negative

Renaissance Reinsurance Ltd

A+

Stable

AA-

Stable

SCOR Global P&C SE

A

Stable

A+

Positive

Sirius International Insurance Corp

A

Stable

A-

Stable

Swiss Reinsurance Co

A+

Stable

AA-

Stable

Transatlantic Reinsurance Co

A

Positive

A+

Stable

Validus Reinsurance Ltd

A

Stable

A

Stable

XL Re Ltd

A

Stable

A+

Stable

Ratings at April 2014

Source: A.M. Best, Standard & Poor’s

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 http://www.ambest.com. 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 http://www.ambest.com/ratings/notice.

23


Appendix 1: ABA Data Exhibit 35: Results for the year ended December 31, 2013

Reporting

P&C Gross

P&C Gross

P&C Net

P&C Net

Premiums

Premiums

Premiums

Premiums

Currency

Written

Written

Written

Written

(millions)

FY 2012

FY 2013

Change

FY 2012

FY 2013

Change

ACE

USD

16,892

18,091

7%

12,237

13,426

10%

Alleghany

USD

4,223

4,886

16%

3,724

4,288

15%

Allied World

USD

2,329

2,739

18%

1,838

2,120

15%

Amlin

GBP

2,406

2,467

3%

2,075

2,126

2%

Arch

USD

3,869

4,197

8%

3,052

3,351

10%

Argo

USD

1,746

1,888

8%

1,245

1,351

9%

Aspen

USD

2,583

2,647

2%

2,247

2,300

2%

Axis

USD

4,140

4,697

13%

3,337

3,928

18%

Beazley

USD

1,896

1,970

4%

1,543

1,677

9%

Catlin

USD

4,972

5,309

7%

3,834

4,052

6%

Endurance

USD

2,549

2,665

5%

2,029

2,049

1%

Everest Re

USD

4,311

5,219

21%

4,081

5,005

23%

Fairfax

USD

7,398

7,227

-2%

6,194

6,036

-3%

Gen Re

USD

1,118

1,073

-4%

567

543

-4%

Hannover Re

EUR

7,717

7,818

1%

6,961

7,028

1%

Hiscox

GBP

1,566

1,699

9%

1,268

1,371

8%

Lancashire

USD

724

680

-6%

576

558

-3%

Mapfre

EUR

15,479

16,278

5%

13,207

13,229

0%

Markel

USD

2,514

3,920

56%

2,214

3,237

46%

Montpelier Re

USD

735

706

-4%

616

603

-2%

Munich Re*

EUR

17,052

17,013

0%

16,402

16,336

0%

NICO

USD

7,717

5,964

-23%

7,598

5,650

-26%

PartnerRe

USD

3,910

4,590

17%

3,768

4,427

17%

Platinum

USD

570

580

2%

565

567

0%

QBE

USD

18,434

17,975

-2%

16,074

15,628

-3%

RenaissanceRe

USD

1,552

1,605

3%

1,103

1,204

9%

SCOR

EUR

4,650

4,848

4%

4,205

4,316

3%

Swiss Re

USD

19,468

20,670

6%

15,117

19,636

30%

Validus

USD

2,166

2,401

11%

1,859

2,029

9%

White Mountains

USD

2,438

2,297

-6%

2,217

1,979

-11%

XL

USD

7,175

7,417

3%

5,957

5,904

-1%

ABA

USD

189,463

198,982

5%

161,327

171,363

6%

Company

*P&C reinsurance segment only Figures in reporting currencies, but converted to USD (millions) for ABA line Source: Company reports, Aon Benfield Market Analysis

24

Aon Benfield

Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Calendar Year Loss

Loss

Expense

Expense

Combined

Ratio

Ratio

Ratio

Ratio

Ratio

Ratio

FY 2012

FY 2013

FY 2012

FY 2013

FY 2012

FY 2013

Change

ACE

60.0%

55.6%

32.5%

31.5%

92.4%

87.1%

-5.4pp

Alleghany

70.5%

58.5%

23.6%

31.6%

94.1%

90.1%

-4.0pp

Allied World

65.1%

56.0%

29.3%

30.2%

94.5%

86.2%

-8.3pp

Amlin

56.6%

52.2%

32.2%

33.5%

88.8%

85.7%

-3.1pp

Arch

63.4%

53.4%

32.0%

32.5%

95.4%

85.9%

-9.5pp

Argo

64.5%

57.8%

40.1%

39.7%

104.6%

97.5%

-7.2pp

Aspen

59.4%

56.3%

34.9%

36.3%

94.3%

92.6%

-1.7pp

Axis

61.4%

57.6%

34.8%

33.4%

96.2%

91.0%

-5.2pp

Beazley

53.0%

45.0%

38.0%

39.0%

91.0%

84.0%

-7.0pp

Catlin

56.0%

52.3%

34.0%

33.3%

90.0%

85.6%

-4.5pp

Endurance

75.5%

60.5%

26.8%

29.7%

102.3%

90.2%

-12.1pp

Everest Re

65.9%

58.9%

27.9%

25.6%

93.8%

84.5%

-9.3pp

Fairfax

69.2%

61.6%

30.7%

31.1%

99.9%

92.7%

-7.2pp

Gen Re

54.8%

30.7%

36.5%

44.2%

91.3%

75.0%

-16.3pp

Hannover Re

70.5%

70.0%

25.4%

24.9%

95.8%

94.9%

-0.9pp

Hiscox

45.0%

40.5%

40.5%

42.5%

85.5%

83.0%

-2.5pp

Lancashire

29.9%

33.1%

34.0%

37.1%

63.9%

70.2%

6.3pp

Mapfre

67.4%

67.0%

28.0%

29.1%

95.5%

96.1%

0.7pp

Markel

53.7%

56.2%

43.3%

40.6%

97.0%

96.8%

-0.2pp

Montpelier Re

46.4%

21.1%

34.6%

35.0%

81.0%

56.1%

-24.9pp

Munich Re*

61.0%

61.7%

30.0%

30.4%

91.0%

92.1%

1.1pp

NICO

62.8%

49.2%

28.1%

25.3%

90.9%

74.5%

-16.4pp

PartnerRe

58.5%

56.7%

29.3%

28.6%

87.8%

85.3%

-2.5pp

Platinum

32.4%

30.3%

30.1%

32.4%

62.5%

62.7%

0.1pp

QBE

66.0%

64.5%

31.1%

33.3%

97.1%

97.8%

0.7pp

RenaissanceRe

30.4%

15.4%

27.4%

28.4%

57.8%

43.8%

-14.0pp

SCOR

65.4%

64.1%

28.7%

29.7%

94.1%

93.9%

-0.2pp

Swiss Re

53.1%

55.3%

30.0%

30.0%

83.1%

85.3%

2.2pp

Validus

53.4%

37.8%

33.4%

33.5%

86.8%

71.2%

-15.5pp

White Mountains

57.9%

52.4%

36.4%

35.6%

94.3%

88.0%

-6.3pp

XL

65.3%

62.0%

30.9%

30.5%

96.3%

92.5%

-3.8pp

ABA

62.0%

58.6%

30.5%

30.9%

92.4%

89.6%

-2.9pp

Company

Combined


25


Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Accident Year Prior Year

Accident

Prior Year

Prior Year

Reserve

Reserve

Year

Year

Reserve

Reserve

Adjustment

Adjustment

Combined

Combined

Adjustment

Adjustment

as % of NPE

as % of NPE

Ratio

Ratio

FY 2012

FY 2013

FY 2012

FY 2013

FY 2012

FY 2013

Change

-467

-517

3.9%

4.0%

96.4%

91.1%

-5.3pp

-12

-203

0.3%

4.8%

94.4%

94.9%

0.4pp

-170

-180

9.7%

9.0%

104.2%

95.1%

-9.1pp

Amlin

-94

-134

4.7%

6.4%

93.5%

92.0%

-1.5pp

Arch

-222

-264

7.5%

8.4%

102.9%

94.3%

-8.7pp

Argo

-33

-34

2.8%

2.6%

107.4%

100.0%

-7.4pp

Aspen

-137

-108

6.6%

5.0%

100.9%

97.6%

-3.3pp

Axis

-245

-219

7.2%

5.9%

103.3%

96.9%

-6.4pp

Beazley

-126

-218

8.5%

13.7%

99.5%

97.8%

-1.8pp

Catlin

-139

-167

3.9%

4.2%

93.9%

89.8%

-4.1pp

Endurance

-120

-222

6.0%

11.0%

108.2%

101.2%

-7.0pp

Everest Re

-4

-18

0.1%

0.4%

93.9%

84.8%

-9.0pp

Fairfax

-177

-440

3.0%

7.3%

102.9%

100.0%

-2.9pp

Gen Re

-204

-248

36.9%

44.7%

128.2%

119.7%

-8.5pp

Hannover Re

-322

-424

4.7%

6.2%

100.5%

101.1%

0.5pp

Hiscox

-152

-140

12.7%

10.9%

98.1%

93.9%

-4.2pp

-27

-16

4.7%

2.8%

68.6%

73.0%

4.4pp

Mapfre

-163

-87

1.3%

0.7%

96.7%

96.8%

0.1pp

Markel

-399

-411

18.6%

12.7%

115.6%

109.5%

-6.1pp

-87

-144

14.2%

24.1%

95.2%

80.2%

-15.0pp

Munich Re*

-900

-759

5.4%

4.7%

96.4%

96.8%

0.3pp

NICO

-225

-968

3.2%

16.5%

94.1%

90.9%

-3.2pp

PartnerRe

-628

-721

17.0%

17.0%

104.8%

102.3%

-2.5pp

Platinum

-212

-161

37.4%

29.0%

100.0%

91.7%

-8.3pp

464

552

-2.9%

-3.6%

94.2%

94.2%

0.0pp

-158

-144

14.8%

12.9%

72.6%

56.7%

-15.9pp

-15

-31

0.4%

0.7%

94.4%

94.6%

0.2pp

-1,088

-1,137

7.4%

6.5%

90.6%

91.8%

1.2pp

-175

-205

9.3%

9.8%

96.1%

81.0%

-15.1pp

-42

-48

2.0%

2.4%

96.3%

90.4%

-5.9pp

-316

-290

5.5%

4.8%

101.7%

97.3%

-4.4pp

-7,140

-8,689

4.5%

5.2%

97.0%

94.8%

-2.2pp

Company ACE Alleghany Allied World

Lancashire

Montpelier Re

QBE RenaissanceRe SCOR Swiss Re Validus White Mountains XL ABA

Prior Year

*P&C reinsurance segment only Figures in reporting currencies, but converted to USD (millions) for ABA line Source: Company reports, Aon Benfield Market Analysis

26

Accident

Aon Benfield

Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Net

Net

Capital

Capital

Total

Total

Investment

Investment

Gains/

Gains/

Investment

Investment

Income

Income

Losses

Losses

Return

Return

FY 2012

FY 2013

FY 2012

FY 2013

FY 2012

FY 2013

Change

2,181

2,144

78

504

2,259

2,648

17%

Alleghany

313

466

155

188

468

654

40%

Allied World

167

158

306

60

474

217

-54%

Amlin

42

33

125

101

167

134

-20%

Arch

295

267

256

106

551

373

-32%

Argo

119

100

26

71

145

171

19%

Aspen

205

186

27

36

232

223

-4%

Axis

381

409

127

76

508

485

-5%

62

58

21

-15

83

43

-48%

Catlin

123

116

35

8

158

124

-22%

Endurance

173

166

71

14

245

180

-27%

Everest Re

600

549

164

300

765

849

11%

Fairfax

424

474

643

-1,564

1,067

-1,090

n.m.

Gen Re

564

706

7

191

570

897

57%

1,358

1,314

298

98

1,656

1,412

-15%

Hiscox

42

38

47

16

89

55

-38%

Lancashire

41

36

12

13

53

49

-8%

Mapfre

1,595

1,660

324

297

1,919

1,956

2%

Markel

282

317

32

63

314

381

21%

67

64

82

-49

150

15

-90%

Munich Re

7,782

7,268

660

389

8,442

7,657

-9%

NICO

5,818

6,109

-236

2,163

5,582

8,272

48%

PartnerRe

581

498

493

-161

1,075

337

-69%

Platinum

100

72

86

22

186

94

-49%

QBE

750

665

481

112

1,231

777

-37%

RenaissanceRe

189

231

163

35

352

266

-24%

SCOR

489

446

83

48

572

494

-14%

5,303

4,736

2,942

3,299

8,245

8,035

-3%

Validus

108

101

35

-55

143

46

-68%

White Mountains

154

111

118

162

272

273

0%

1,071

1,096

14

88

1,085

1,184

9%

34,636

34,144

8,166

6,953

42,802

41,097

-4%

Company ACE

Beazley

Hannover Re

Montpelier Re

Swiss Re

XL ABA

Figures in reporting currencies, but converted to USD (millions) for ABA line Source: Company reports, Aon Benfield Market Analysis

27


Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Pre-tax

Pre-tax

Pre-tax

Pre-tax

Profit/Loss

Profit/Loss

Operating ROE*

Operating ROE*

FY 2012

FY 2013

Change

FY 2012

FY 2013

Change

2,976

4,238

42%

11.2%

13.3%

2.1pp

Alleghany

719

855

19%

12.1%

10.0%

-2.1pp

Allied World

511

428

-16%

6.3%

10.8%

4.4pp

Amlin

264

322

22%

9.5%

13.9%

4.4pp

Arch

589

743

26%

6.8%

11.8%

4.9pp

Argo

67

180

169%

2.8%

7.0%

4.3pp

Aspen

295

343

16%

8.1%

9.0%

0.9pp

Axis

551

734

33%

7.5%

11.3%

3.8pp

Beazley

251

313

25%

20.3%

25.8%

5.6pp

Catlin

339

432

27%

8.9%

11.6%

2.7pp

Endurance

166

318

92%

3.6%

10.9%

7.3pp

Everest Re

940

1,555

66%

12.1%

18.3%

6.2pp

Fairfax

649

-1,001

n.m.

0.1%

6.5%

6.4pp

Gen Re

618

1,040

68%

6.2%

7.6%

1.5pp

1,289

1,102

-15%

16.1%

15.2%

-0.9pp

Hiscox

217

245

12%

13.0%

16.4%

3.4pp

Lancashire

237

218

-8%

16.6%

14.4%

-2.1pp

Mapfre

1,372

1,564

14%

10.6%

12.7%

2.1pp

Markel

312

362

16%

7.5%

5.6%

-2.0pp

Montpelier Re

228

211

-8%

9.2%

14.8%

5.6pp

Munich Re

4,082

3,450

-15%

13.5%

11.4%

-2.1pp

NICO

6,191

9,041

46%

8.6%

7.8%

-0.8pp

PartnerRe

1,339

722

-46%

12.6%

12.9%

0.3pp

Platinum

352

258

-27%

14.9%

13.0%

-1.9pp

QBE

941

-448

n.m.

4.2%

-5.1%

-9.3pp

RenaissanceRe

767

841

10%

13.8%

17.0%

3.2pp

SCOR

526

640

22%

9.6%

12.1%

2.5pp

5,523

4,825

-13%

14.4%

13.2%

-1.2pp

Validus

383

597

56%

8.8%

14.9%

6.1pp

White Mountains

263

345

31%

3.2%

4.2%

1.0pp

XL

711

1,094

54%

6.2%

8.7%

2.5pp

36,027

38,104

6%

9.9%

10.2%

0.3pp

Company ACE

Hannover Re

Swiss Re**

ABA

*Calculated by excluding the impact of net realized and unrealized investment gains/losses reported through income statements ** Excluding investment revenues and policyholder returns relating to Swiss Re’s unit-linked and with profits business Figures in reporting currencies, but converted to USD (millions) for ABA line n.m. = not meaningful Source: Company reports, Aon Benfield Market Analysis

28

Aon Benfield

Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Common

Common

Return on

Net Income

Net Income

Equity*

Equity*

FY 2012

FY 2013

Change

FY 2012

FY 2013

Change

2,706

3,758

39%

10.4%

13.3%

2.9pp

Alleghany

702

628

-11%

15.1%

9.4%

-5.6pp

Allied World

493

418

-15%

15.2%

12.2%

-3.0pp

Amlin

248

299

21%

17.0%

18.8%

1.8pp

Arch

558

688

23%

12.2%

13.5%

1.3pp

Argo

52

143

174%

3.5%

9.3%

5.8pp

Aspen

250

294

18%

8.6%

10.2%

1.6pp

Axis

495

684

38%

9.7%

13.1%

3.4pp

Beazley

215

264

23%

18.9%

20.8%

1.9pp

Catlin

305

392

29%

10.8%

12.8%

2.0pp

Endurance

130

279

115%

5.8%

11.8%

6.0pp

Everest Re

829

1,259

52%

12.9%

18.4%

5.4pp

Fairfax

466

-634

n.m.

6.2%

-8.5%

-14.7pp

Gen Re

433

931

115%

4.4%

8.4%

4.0pp

Hannover Re

850

895

5%

15.4%

15.0%

-0.4pp

Hiscox

208

238

14%

15.9%

17.1%

1.3pp

Lancashire

235

223

-5%

17.3%

15.6%

-1.7pp

Mapfre

666

790

19%

9.0%

10.1%

1.1pp

Markel

253

281

11%

7.0%

5.3%

-1.6pp

Montpelier Re

214

191

-11%

14.9%

12.9%

-2.0pp

Munich Re

3,188

3,313

4%

12.7%

12.5%

-0.2pp

NICO

5,489

8,391

53%

7.3%

9.5%

2.2pp

PartnerRe

1,073

597

-44%

18.5%

10.0%

-8.4pp

Platinum

327

223

-32%

18.3%

12.3%

-6.0pp

QBE

761

-254

n.m.

7.0%

-2.3%

-9.3pp

RenaissanceRe

566

666

18%

18.4%

20.1%

1.8pp

SCOR

418

549

31%

9.1%

11.3%

2.2pp

4,201

4,444

6%

13.2%

13.3%

0.1pp

Validus

408

533

30%

10.9%

13.8%

2.9pp

White Mountains

207

322

55%

5.3%

8.4%

3.1pp

XL

651

1,060

63%

6.5%

10.3%

3.8pp

29,329

33,990

16%

10.1%

10.6%

0.5pp

Company ACE

Swiss Re

ABA

Return on

*Common net income as a percentage of average common equity Figures in reporting currencies, but converted to USD (millions) for ABA line n.m. = not meaningful Source: Company reports, Aon Benfield Market Analysis

29


Exhibit 35: Results for the year ended December 31, 2013 (cont’d) Cash and

Cash and

Shareholders’

Investments

Investments

Funds

Funds

FY 2012

FY 2013

Change

FY 2012

FY 2013

Change

ACE

61,333

61,977

1%

27,531

28,825

5%

Alleghany

18,976

19,490

3%

6,404

6,924

8%

Allied World

9,136

9,026

-1%

3,326

3,520

6%

Amlin

4,396

4,510

3%

1,497

1,678

12%

Arch

13,127

14,050

7%

5,169

5,647

9%

Argo

4,297

4,237

-1%

1,514

1,563

3%

Aspen

8,240

8,300

1%

3,488

3,300

-5%

14,397

14,768

3%

5,780

5,818

1%

Beazley

4,330

4,430

2%

1,205

1,339

11%

Catlin

8,773

9,209

5%

3,512

3,783

8%

Endurance

6,639

6,575

-1%

2,711

2,887

6%

Everest Re

16,805

16,824

0%

6,733

6,968

3%

Fairfax

26,125

24,893

-5%

8,821

8,353

-5%

Gen Re

15,119

15,810

5%

10,693

11,562

8%

Hannover Re

46,565

46,149

-1%

6,032

5,888

-2%

Hiscox

3,073

3,157

3%

1,365

1,409

3%

Lancashire

2,253

2,484

10%

1,387

1,460

5%

Mapfre

39,402

40,133

2%

7,810

7,834

0%

Markel

9,333

17,612

89%

3,889

6,674

72%

Montpelier Re

3,320

3,306

0%

1,629

1,642

1%

Munich Re

208,624

203,556

-2%

27,197

25,983

-4%

NICO

124,064

148,939

20%

79,409

97,226

22%

PartnerRe

18,831

18,274

-3%

6,933

6,710

-3%

Platinum

4,062

3,612

-11%

1,895

1,747

-8%

31,587

30,632

-3%

11,358

10,356

-9%

6,595

7,230

10%

3,503

3,904

11%

22,552

23,755

5%

4,800

4,940

3%

176,894

170,547

-4%

34,002

32,952

-3%

Validus

8,156

8,110

-1%

4,021

3,704

-8%

White Mountains

8,256

8,003

-3%

3,732

3,906

5%

36,599

36,192

-1%

10,510

9,998

-5%

1,067,792

1,109,812

4%

314,285*

337,460

7%

Company

Axis

QBE RenaissanceRe SCOR Swiss Re

XL ABA

Shareholders’

*To allow more consistent comparison, Transatlantic and Alterra’s reported capital is included in the year-end capital figures shown in Exhibit 2 and 3 Figures in reporting currencies, but converted to USD (millions) for ABA line Source: Company reports, Aon Benfield Market Analysis

30

Contact Information Should you have any questions about this report, please contact [email protected], or a member of Aon Benfield Analytics, including: Mike Van Slooten [email protected] Jonny Eggins [email protected] Marie Teissier [email protected] Eleanore Obst [email protected] Mike McClane [email protected]

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