The Bermuda (Re)Insurance Market Remains Resilient

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Bermuda Insurance survey 2013

with analysis by

Standard & Poor’s

1 9 t h a n n u a l

The Bermuda (re)Insurance

market remains resilient

By taoufik GhariB

The Bermuda

Top 10

By CapiTal & SurpluS

($000s)

1

aCE limited

27,531,000

2 Xl Group plc

11,856,397

3 Partnerre ltd.

6,933,496

4 Everest re Group, ltD

6,733,467

5 aXiS Capital holdings limited

5,779,761

6 arch Capital Group ltd.

5,168,878

7 Validus holdings, ltd.

4,455,107

8 oil insurance limited

3,611,771

9 Catlin Group limited

3,511,867

10 renaissancere holdings ltd.

3,507,056

By ToTal aSSeTS

($000s)

1

aCE limited

92,545,000

2 Xl Group plc

45,387,779

3 Partnerre ltd.

22,980,432

4 Everest re Group, ltD (1)

19,777,907

18,852,344

6 arch Capital Group ltd.

17,816,762

7 Catlin Group limited

14,041,149

8 allied World assurance Company holdings, aG

12,029,946

9 alterra Capital holdings ltd.

10,677,078

By premiumS earned

($000s)

1

aCE limited

15,677,000

2 Xl Group plc

5,765,982

3 Partnerre ltd.

4,485,939

4,164,628

5 Catlin Group limited

3,603,511

3,415,463

2,935,140

8 aspen insurance holdings limited

2,084,000

9 Endurance Specialty holdings ltd.

2,013,900

10 hiscox ltd.

1,899,455

By neT inCome

($000s)

1

aCE limited

2,706,000

2 Partnerre ltd.

1,134,514

828,954

4 Xl Group plc

730,388

5 oil insurance limited

646,103

593,397

7 renaissancere holdings ltd.

566,014

547,241

9 allied World assurance Company holdings, aG

493,007

Bermudian property and casualty (P&C) (re) insurers showed their financial resilience in 2012 amid catastrophe losses, decreasing investment income, increasingly competitive pricing, a tepid economic recovery in the U.S., and the eurozone crisis. They generated strong operating performance with a combined ratio of 91.7% and a return on average equity (ROAE) of 11.2%, compared with a weaker 104.1% and 1.0%, respectively, in 2011.

Economic losses from natural catastro-phes and man-made disasters reached $186 billion in 2012, according to the latest Swiss Re’s Sigma report. Insured losses amounted to $77 billion, making 2012 the third most costly year on record. The Bermudian (re) insurers’ overall strong enterprise risk management (ERM) capabilities have helped them manage these risks and generate strong earnings. In fact, their ERM practices have

been tested through catastrophes and finan-cial crises over the past decade.

Moreover, Bermuda-based (re)insurers overall are strongly capitalized, and their risk-adjusted capital adequacy ratios are mostly redundant at their respective rating levels as of year-end 2012. As a result, they remain on stable footing entering 2013. This strong capital base and generally flat renewal rates may have been the impetus

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for many of the Bermudian players to return capital to their shareholders through special dividends, increased regular dividends, and share buybacks.

However, within the group some compa-nies are significantly better capitalized for their rating level compared with the median result, while others have less of a cushion. Standard & Poor’s Ratings Services views ex-cess capital as a strength, because it provides a cushion to the inherent severity risk that most Bermudian (re)insurers underwrite and for possible modeling errors when evaluat-ing their catastrophe exposures.

The participants in our Bermuda Market Survey reported underwriting capital (defined as shareholders’ equity plus total debt) of $116 billion and net premiums written of $58 bil-lion for 2012 compared with $74 bilbil-lion and $46 billion, respectively, in 2008. Despite the challenges in 2012, underwriting capital for the survey participants was up 9.1% from the 2011 level of $106 billion, as a result of strong reported net income of $11 billion in 2012 relative to slightly less than $1 billion in 2011. The level of share repurchasing in 2012 was more than 130% ($3.8 billion) of the amount repurchased in 2011 ($2.8 billion) by the survey participants. Repurchasing shares has been an attractive way for publicly listed companies to manage their valuation metrics, especially because the survey par-ticipants that are publicly listed have broadly traded at a 15% to 25% discount to book value during the past few years.

During the past five years, investment income has contributed between 9.9 (in 2008) and 6.0 (in 2012) percentage points to the earnings before interest and taxes (EBIT) return on underwriting capital a common in-dustry metric. This has been possible because the size of the survey participants’ invested assets was more than twice that of their un-derwriting capital. However, the investment income contribution to EBIT has been gradu-ally declining because of low interest rates. The five-year (2008-2012) average EBIT return on underwriting capital for the survey participants was 9.0% and reached the high-est level of 18.4% in 2009. Similarly, over the past five years, the survey participants obtained a ROAE of 8.3% and were able to exceed the 15% target only in 2009 (ROAE of 18.6%), whereas in the other four years were hurt by the financial crisis, record catastrophe losses, and decreasing investment income.

worst underwriting years in recent history, according to the Willis Re report. In addi-tion to the Costa Concordia disaster and the deterioration of the Rena loss from 2011, Hurricane Sandy is widely expected to be the largest-ever marine loss with a disproportion-ate impact on the marine market. There are large losses coming from yachts and pleasure craft, general cargo, imported cars, specie, and inland marine. In addition, during the Jan. 1, 2013, marine renewals were especially late due to uncertainty surrounding losses emanating from Sandy. Many buyers have increased retentions on loss affected programs to mitigate rate increases of a minimum of plus 15%. Frequency and severity of losses in longer tail lines continue to decline and buy-ers continue to retain more.

Not surprisingly, companies participating in our survey ranked renewal rates, invest-ment returns, regulation, cost control, and growing market share vs. profitability as their top five key business issues. P&C (re)insurers face several key

chal-lenges in 2013, in our view: investment yields are dwindling, reserve releases are diminishing, and growth opportunities are limited in the developed markets. While natural catastrophe losses in 2012 were less than 50% of those of 2011, most Bermudian (re)insurers maintained healthy capital posi-tions contributing to the competitive pric-ing. Institutional investors’ increased interest in the property catastrophe market could exacerbate this price competition.

Pricing changes in the reinsurance market overall, however, have been somewhat flat during 2013 renewals. In general, interna-tional property-catastrophe rates were flat to minus 5%. U.S. loss-free property catastro-phe treaties were also flat to minus 5% and plus 10% on loss-affected accounts. In other words, Hurricane Sandy had a stabilizing effect on market pricing.

Last year was particularly difficult for the marine market, which has suffered one of its

Top Business issue in Bermuda

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dwindling investment yields

As of year-end 2012, the Bermudian (re)in-surers collectively had virtually no exposure to the European periphery countries’ (i.e. Greece, Ireland, Italy, Portugal, Spain) sovereign debt. The survey participants’ non-U.S. government debt holdings represented approximately 15% of total invested assets (excluding cash and cash equivalents) at year-end 2012 and this allocation has been relatively constant over the past five years. During the same period, realized and unrealized capital gains and losses have contributed significant volatility to P&C (re)insurers’ financials. As a result of the 2008 financial crisis, the survey participants reported realized capital losses of $7.4 billion compared with $2.6 billion of realized capital gains in 2012.

The Bermudian (re)insurers’ investment yields have continued to decline amid low interest rates during the past few years and are currently at levels not seen in recent his-tory. The survey participants achieved a 2.9% net yield on invested assets and cash and cash equivalents in 2012. Their investment yield has continued to decline in the past five years from a recent high of 4.4% in 2008.

As of year-end 2012, the (re)insurers’ total invested assets and cash and cash equiva-lents reached $240.5 billion, an increase of 6.6% relative to year-end 2011, because of their strong operating results. At the end of 2012, their asset allocation included: 34% of corporate debt securities, 15% of foreign government debt securities, 11% of U.S. government and government agency debt securities, 24% of mortgage and asset-backed securities, 4% of equities, and 13% of other investments.

Most (re)insurers have willingly traded-off investment risk for underwriting risk and have maintained relatively conservative investment portfolios over the past few years. Typically, the duration of fixed-income invest-ments for the Bermuda (re)insurance market is between three and four years, with an average credit rating of between ‘A’ and ‘AA’. As a result of the significant drop in investment yields from historical levels, the property and casualty (re)insurance market is going to need to adjust pricing upward to achieve the level

ConTriBuTion analysis:eBiT reTurn on average uBerwriTing CapiTal (roaC)

QuoTed invesTmenT

ComposiTion

Bermuda continues to be a property and property catastrophe underwriting hub with these two lines of business representing about 35% the Bermudian gross premiums written in 2012. In fact, the Bermudians underwrite about one-third of the global property catastrophe business. Other lines of business such as casualty constituted 13%, professional liability 8%, accident and health 6%, marine and aviation 6%, excess liability 4%, life 3%, general liability 3%, workers compensation 1%, terrorism less than 1%, and 21% in other lines of business. Excess liability, general liability, and professional liability have been gradually contributing to the top line growth and strengthening the Bermudians’ value proposition.

improving product &

Geographic distribution

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The Bermudian (re)insurers continue to generate the bulk of their premiums from the North American market. In 2012, about half of their gross premiums written were from North America, 19% from Continental Europe, 7% from Bermuda, 7% from the U.K., 7% from Asia-Pacific, and about 10% from the rest of world. The 2012 geographic distribution did not materially change from 2011.

Some Bermudian (re)insurers may limit their exposure to regions that experienced

Will underwriting results

Continue To Benefit From

Favorable reserve releases?

Over the past five years (2008-2012), the Bermudian (re)insurance market’s calendar-year results have benefited from favorable prior-year loss reserve development. During the same timeframe, the Bermudians released a total of $18.3 billion in reserves, which represented 7.1 percentage points on the combined ratio. The favorable prior-year de-velopments have come largely from the recent hard market years (i.e., 2002 to 2005). The survey participants’ calendar-year combined ratio benefited from 8.6 percentage points in 2008 down to 5.9 percentage points in 2012 of favorable prior-year development. Because the (re)insurers’ premium lever-age (defined as the ratio of net premiums written to underwriting capital) has been around 0.5x to 0.6x, the benefit to the EBIT return on underwriting capital has been about half the impact on the calendar year combined ratio. We believe that the remain-ing redundancies associated with these hard market years are limited. As a result, we expect the ongoing benefit derived from fa-vorable prior-year development to be greatly diminished relative to that of the past few years. Although we believe that loss reserves are generally adequately reserved among the Bermudian (re)insurers that Standard & Poor’s rates, some could experience adverse development on the more recent accident heavy catastrophe losses in 2011 and 2012,

especially where the catastrophe models do not adequately reflect the exposures (e.g. Asia-Pacific). We have noticed an increased interest by the Bermudian (re)insurers in expanding into non-catastrophe-exposed short-tail classes of business, such as acci-dent and health, crop, and surety. As a result, we could see some margin compres-sion in those classes of business due to increasing competition.

gross premiums By line of Business

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neT premiums wriTTen To CapiTal & surplus

(all amounTs in Billions of us dollars)

ComposiTion of neT premiums earned

(all amounTs in Billions of us dollars)

robust Balance Sheets

The Bermudian (re)insurers benefit from strong balance sheets with limited expo-sure to intangibles and A&E (asbestos and environmental liability). As of year-end 2012, the surveyed companies’ total assets included: quoted investments 64%, other investments 4%, cash and cash equivalents 6%, reinsurance balances receivable 7%, other assets 17%, and goodwill and other intangibles 2%.

The debt leverage also declined to 12.4% as of year-end 2012 from 13.5% as of year-end 2011 (it was 17.7% in 2008). Furthermore, the EBIT adjusted to interest coverage im-proved to 12.4x in 2012 from 5.0x in 2011. years. We also believe that the reserve redun-dancy and increased likelihood of adverse development could make disciplined, profit-able underwriting a ratings differentiator in the next few years.

Given the current pricing environment, relatively low investment yields, and our ex-pectation for diminishing prior-year reserve redundancies, we expect the participants to generate an EBIT return on underwriting capital in the low teens, assuming normal-ized catastrophe losses. Although this expec-tation is in line with the five-year (2008-2012) average EBIT return on underwriting capital, we expect the contribution to be more evenly split between underwriting activities and investment activities.

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The Top 10 reinsurers’ npe rose

The three companies (i.e., ACE Limited, XL Group plc, and PartnerRe Ltd.) leading the top-10 list remain unchanged from last year with regard to market share measured by net premiums earned (NPE). Also, their position within the list is the same as last year, with ACE Limited in the pole position followed by XL Group plc (No. 2), and PartnerRe (No. 3). The top five is rounded out by Everest Re Group Ltd. (No. 4) and Catlin Group Limited (No. 5).

The top 10 as a group incresed their NPE on a year-over-year basis by 3.1% to $46.0 billion in 2012 from $44.7 billion in 2011. The premium growth was lead by Arch Capital Group Ltd., Aspen Insurance Hold-ings Limited, and XL Group plc.

Arch Capital Group Ltd.’s NPE grew 11.6% in 2012 to $2.94 billion compared with $2.63 billion in 2011, owing to increases in its insurance programs, professional liability, accident and health, offset by a reduction in the onshore energy business. The company’s reinsurance growth was primarily in U.K. motor and mortgage business.

Aspen Insurance Holdings Limited’s NPE increased 10.3% in 2012 to $2.08 billion, from $1.89 billion in 2011, due predomin-tently to the continued development of its U.S. insurance platform including property and programs business. Growth in the marine, energy, and transportation insurance lines was mainly due to increased premiums

for marine, energy, and liability businesses that achieved significant rate increases fol-lowing a series of industry losses in 2011. In addition, NPE’s growth in the reinsurance segment arose from property and casualty reinsurance business.

XL Group plc’s NPE rose 8.2% in 2012 to $5.77 billion from $5.33 billion in 2011. Its North America property and casualty, profes-sional, and specialty businesses and favorable amendments to certain prior year premium esti-mates were responsible for the increase, partially offset by lower production in its international property as a result of underwriting actions for

all Companies surveyed:

ToTal asseT ComposiTion

Top Ten Companies 2011: reTurn on average eQuiTy*

business that did not meet its return require-ments and from ceded reinstatement premi-ums for marine and Sandy losses. XL also grew its reinsurance NPE, reflecting overall growth in recent quarters from the Bermuda and inter-national businesses.

In 2012, the 21 survey participants reported a ROAE of 11.2% compared with 1.0% in 2011. Oil Insurance Limited was No. 1 with a ROAE of 19.45%, which was mostly driven by its investment returns. OIL has an aggressive investment strategy with a higher allocation to equity securities and alternative investments than peers.

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losses. Natural catastrophes and man-made disasters’ economic cost totaled about $186 billion in 2012, according to Swiss Re’s Sigma, compared with $403 billion in 2011, the year with the highest economic losses on record. Natural catastrophe insured losses were more than $71 billion in 2012. This makes 2012 the third-most expensive year for the insur-ance industry, after 2011, the year in which record earthquakes and floods contributed to losses of over $126 billion, and 2005, when Hurricanes Katrina, Wilma, and Rita alone caused claims of over $100 billion. Most of the losses in 2012 arose from Hurricane Sandy, the summer drought, and several thunderstorms in the U.S. While insured catastrophe losses declined in 2012 from 2011, they were still above the average of recent years. For the first time since 2008, a hurricane (Sandy) was the costliest event with insured losses of $35 billion. This figure includes $20 billion to $25 billion of private insured loss and flood claims covered by the National Flood Insurance Program (NFIP). Hurricane Sandy had a limited impact on the Bermudians’ underwriting results and is viewed as a 1 in 50 year U.S. industry event. It contributed 6.8% percentage points to the combined ratio in 2012, which confirmed our earlier announcement that Sandy will be an earnings rather than a capital event for the industry. The primary insurers in the U.S. retained much of the loss, espe-cially large national carriers that have the highest market shares in the affected states. If Hurricane Sandy happened five years ago, it would have affected more reinsurers. Over the past few years, the primary carriers in the U.S. have gradually increased their retentions to manage their premiums growth target in a weak economy.

The second largest insured loss in 2012 was crop failure, which resulted in record drought-related agricultural losses of $11 billion including the Federal scheme. The

2012 U.S. crop failure is viewed as a 1 in 30 year to 1 in 40 year event. Crop insurers saw some of the worst underwriting results on their books of business since the drought of 1988. As bad as the results may be, however, they were manageable because of loss sharing from the U.S. government and diversification with other lines of business. Furthermore, the Bermudian (re)insurers’ losses were not material.

Bermudian (re)insurers recognize

The importance of erm

Since Standard & Poor’s introduced its ERM criteria in 2005, it has found that, in general, the Bermudian (re)insurers have a sophisticated ERM framework. Overall, we consider the Bermudians’ ERM capabilities to be strong, and they are among the leading practitioners in the industry.

Despite the significant and unusual natural catastrophe events over the past few years, accompanied by financial market volatility in Europe and the U.S., Standard & Poor’s ERM scores for the Bermudian (re) insurers have remained relatively stable. In fact, more than 85% of the Bermudian (re) insurers have ERM scores that are better than “adequate” (“adequate with strong risk controls”, “adequate with positive trend”, “strong”, or “excellent”). Furthermore, more than 60% of them have ERM scores of “strong”. Because of the inherent risks (e.g., catastrophe risk) and the potential volatil-ity of earnings, the Bermudian (re)insur-ers’ risk-management practices are of high importance to the rating.

We view RenaissanceRe’s ERM program as “excellent.” The company has a significant property catastrophe risk exposure across the world. RenaissanceRe differentiates itself from (re)insurers that we consider to have “strong” ERM capabilities through well-seasoned and sophisticated ERM practices that have resulted in earnings volatility that Most of the survey participants are global

(re)insurers and have sizable operating entities domiciled in other jurisdictions. Bermuda is the domicile for the ultimate parent company for 16 of the 21 survey participants. The others are domiciled in Switzerland (3), the U.K. (1), Ireland (1), and Luxembourg (1).

It is worth noting that on Aug. 23, 2012, we raised our financial strength rating on Validus Reinsurance Ltd. to ‘A’ from ‘A-’ and our counterparty credit rating on its holding company, Validus Holdings Ltd., to ‘BBB+’ from ‘BBB’. The outlook is stable. Validus Reinsurance Ltd. has shown strong operating performance since inception, with earnings volatility somewhat mitigated through its strong catastrophe research and modeling functions. Validus has built a strong com-petitive position under its two underwriting platforms, Validus Re and Talbot, providing diversification in terms of reinsurance versus primary business, geographic spread, and specialized short-tail lines of business. In addition, on Dec. 11, 2012, we revised our outlook on XL Group and its operat-ing subsidiaries to positive from stable. The outlook revision reflects our view that management has successfully defended XL’s franchise, which was under significant pres-sure following the financial market crisis in 2008. This was accomplished by divesting its financial guarantee business, deleveraging its balance sheet, and managing down the risk in its investment portfolio. Furthermore, management has renewed XL’s focus on P&C insurance and reinsurance and has placed the life reinsurance operations in run-off.

2012 Catastrophe losses

Had a limited impact on The

Bermudian players

Standard & Poor’s did not take any nega-tive rating actions on the Bermudian (re) insurers because of their 2012 catastrophe

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is within its risk tolerance and in accordance with its risk profile. At the same time, Re-naissanceRe has been able to take advantage of its modeling capabilities and strategic risk management (SRM) framework to exploit profitable niche segments. We believe that the company’s long-standing commitment to ERM is an important factor in its strong operating performance through longer time horizons (three to five years).

In addition, RenaissanceRe’s competitive advantage lies in its robust process for evalu-ating risk/reward trade-offs and its ability to efficiently unite various catastrophe risk exposures with the most appropriate sources of capital. Sources include capital from various third parties facilitated through a number of investment vehicles fashioned by RenaissanceRe. The diverse array of capital sources augments RenaissanceRe’s financial flexibility, affording the company alterna-tives (i.e., sidecars, joint ventures) to more traditional forms of capital such as debt and equity securities. In times of stress, particu-larly after large catastrophes, the ability to access these capital sources allows Renais-sanceRe to more efficiently exploit favorable market conditions, enhancing the company’s competitive position.

Most of the Bermudian (re)insurers have benefited from their relatively brief operating history, as they are not saddled with legacy operational and risk-management issues. They have focused on ERM since inception, and their risk-management framework and processes are ingrained in the organizational culture. The Bermudian companies have embed-ded strong risk controls into their daily operations. In addition, they have invested a significant amount of time and money into their risk management tools, models, and sys-tems as they continue to use and refine them. Most of the Bermudians are relatively small to mid-size companies, more nimble, and with fewer offices than the larger carriers on both sides of the Atlantic. Although the classes of 2001 and 2005 (re)insurers expanded into additional lines of businesses, they remain

fo-not adequately reflect risks or companies expose themselves to unknown risks. In 2011, the industry received a stark re-minder that large losses can arise from non-peak “diversifying” zones that were meant to balance a company’s book. It is crucial that when reinsurers write business in these areas, they are being properly paid for the risk and protecting themselves by writing tight terms and conditions into contracts. That said, growth opportunities rarely lend themselves to tight underwriting practices. Over the past few years, we have wit-nessed an increased interest by institutional investors, such as pension funds and hedge funds, in the property catastrophe market. These investors are attracted to this market because of its low correlation risk to the investment markets and its higher expected returns. It seems that many Bermudian (re) insurers are embracing, with open arms, this new capacity that is entering the market through special vehicles (i.e., sidecars, pub-licly traded and private catastrophe funds). The Bermudians have been staffing their capital market divisions to take advantage of this trend. They are using these vehicles to manage their peak zones, mostly for retrocession business, while generating fee income that will reduce their expense ratio and could add up to 150 basis points to their ROE. This convergence of capital market and traditional reinsurance could enhance the (re)insurers’ operating results and strengthen their competitive positions, if executed properly.

However, this convergence could raise some concerns. Among other things, a conflict of interest if a clear allocation rule between the rated paper and the collateral-ized vehicle is not appropriately established. In addition, the alternative capital trend or evolution could become a crowed trade where an increasing amount of capital is chasing a limited amount of premiums. As a result, the commoditization of the business could weaken underwriting standards and deteriorate price adequacy.

cused on a limited number of specialty lines. Recognizing the inherent volatility of their business, the Bermudians tend to stay away from aggressive investment strategies. Notwithstanding the delay of the imple-mentation date of the Solvency II Directive to 2016 from 2014, the Bermuda Monetary Authority (BMA) will continue efforts to meet an EU equivalency standard that is part of the directive, according to Shelby Weldon, the BMA director of insurance, licensing, and authorization (The Royal Gazette, Feb. 19, 2013). We believe that the Bermudian companies will continue to enhance their ERM programs as their risk profiles continue to evolve. Furthermore, we expect the companies’ ERM to effectively address the growing complexity of risk overtime. We believe that Bermudian (re)insurers with well-constructed and well-implemented ERM frameworks will likely minimize the risk of losses outside their predetermined tolerance guidelines. In addition, the ones with strong ERM practices and strong SRM are better equipped to manage the various pressures that weigh on the profitability of the industry one that will likely continue to be tried by shortcomings in the global economy, (re)insurance pricing cycles, and capital markets in the next few years. We also consider these entities to be well-posi-tioned to quickly identify and exploit niches of profitability, and take advantage of any potential market dislocation.

Growth Strategies Can Be Tricky

Developed economies and products are becoming saturated, so smart product in-novation will help differentiate among the Bermudian players. Furthermore, successful Bermudian (re)insurers will be able to evolve and support the industrialization of emerg-ing economies (e.g., Latin America, Middle East, and Asia Pacific) and the capital market needs (e.g., alternative capital). However, profitability in the emerging markets could be questionable especially when entering lines of business or regions where prices do

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The convergence of the capital market and traditional reinsurance has been fueled by the low interest rates. However, the jury is still out. Let’s see how this “hot money” will behave if interest rates go up or if we experi-ence a big loss.

looking ahead

Collectively, the Bermudian players fared well despites the 2012 setbacks. We view their ERM frameworks to be strong and a real differentiator between losers and win-ners. A Bermudian (re)insurer’s ability or

However, many pitfalls could lead to weakening risk profiles and possibly down-ward revisions in our ratings. Following the “herd mentality” could cause a (re)insurer to enter lines or regions at times when prices do not adequately reflect risks. Taking un-necessary or unmeasured risks on either side of the balance sheet could put capital levels at risk. Similarly, inflexible and thin capital positions or a lack of appropriate SRM processes could lead to missed opportunities leaving these (re)insurers on the sidelines when the market does turn.

failure to adapt to the constantly evolving landscape could affect the credit ratings. The Bermudian (re)insurers that maintain strong risk-adjusted capitalization, strong under-writing discipline, and can react quickly and profitably to market opportunities will likely be able to differentiate themselves from their competitors, even in the current market conditions. These companies will also be best positioned to exploit a widespread turn in the market if and when it comes and we could consider raising the ratings on some of them. sToCk exChange symBol Common sToCk priCe 52 week high/low

(jan. 1-deC.31) p/e raTio

Book value per Common

share markeT/Book value raTio

BasiC earning

per share fully diluTed earnings

Curr Prior Curr Prior Curr Prior Curr Prior Curr Prior Curr Prior Curr Prior

aCe limited aCE 79.80 70.12 81.70/68.98 73.33/58.98 10.03 15.41 80.90 72.22 0.99 0.97 7.96 4.55 7.89 4.52

allied world assurance

Company holdings, ltd aWh 78.80 62.93 84.17/60.80 65.70/49.00 5.76 8.73 95.59 83.44 0.82 0.75 13.67 7.21 13.30 6.92 alterra Capital

holdings ltd. altE 28.19 23.63 28.19/21.93 25.68/17.33 19.18 38.11 29.56 27.51 0.95 0.86 1.47 0.62 1.43 0.61 arch Capital

group ltd. aCGl 44.02 37.66 45.10/35.57 38.60/29.63 10.71 12.68 36.19 31.76 1.22 1.19 4.03 2.97 4.03 2.97 argo group international

holdings, ltd. aGii 33.59 28.96 34.56/27.62 33.29/24.88 16.39 -9.56 60.75 56.21 0.55 0.52 2.05 -3.03 2.01 -3.03 aspen insurance

holdings limited ahl & ahl Bh 32.08 26.50 33.70/25.89 31.57/21.99 9.14 -14.56 42.12 39.66 0.76 0.66 3.51 -1.88 3.38 -1.88

axis Capital

holdings limited aXS 34.64 31.96 38.80/30.35 37.81/24.80 8.55 399.50 44.75 39.37 0.77 0.81 4.05 0.08 4.00 0.07 Catlin group limited (1) CGl 5.04 3.99 £5.03/3.89 £4.21/3.33 9.32 55.41 8.32 7.85 0.98 0.79 0.88 0.11 0.83 0.11

endurance specialty holdings ltd. Enh 39.69 38.25 42.36/34.09 49.38/31.67 13.23 -12.97 53.75 51.48 0.74 0.74 3.00 -2.95 3.00 -2.95 hiscox ltd. (2) hSX.l £4.54 £3.74 £4.89/3.69 £4.25/3.41 8.56 67.91 5.70 4.98 1.30 1.15 0.84 0.09 0.81 0.09 lancashire holdings limited (3) lrE £7.76 £7.25 £8.77/6.88 £7.75/5.53 8.57 8.14 8.59 8.46 1.47 1.33 1.47 1.38 1.29 1.20 montpelier re holdings ltd. Mrh 22.86 17.75 23.9/16.96 18.98/15.06 6.23 -8.83 26.14 22.71 0.87 0.78 3.67 -2.01 3.67 -2.01 partnerre ltd. PrE 80.49 64.21 82.88/63.02 83.26/50.16 4.72 -7.64 100.84 84.82 0.80 0.76 17.05 -8.40 16.87 -8.40 renaissancere holdings ltd. rnr 81.26 74.37 82.76/70.00 75.16/59.50 7.13 -40.42 68.14 59.27 1.19 1.25 11.40 -1.84 11.23 -1.84 validus holdings, ltd. Vr 34.58 31.50 37.32/30.10 34.95/23.24 8.37 225.00 37.26 34.67 0.93 0.91 4.13 0.14 3.99 0.14 xl group plc Xl 25.06 19.77 25.76/19.06 25.43/17.69 11.82 -13.01 34.70 29.59 0.72 0.67 2.12 -1.52 2.10 -1.52

(1) Catlin Group limited common stock price and 52 week high/low are denominated in GBP; all other amounts shown in uSD. (2) hiscox ltd.’s common stock price and 52 week high/low are denominated in GBP; all other amounts shown in uSD.

(3) lancashire holdings limited common stock price and 52 week high/low are denominated in GBP; all other amounts shown in uSD.

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(1) all the ratings in this table are financial strength ratings of the lead rated operating companies with each group as ofapril 1, 2013 (2) outlooks can be positive, negative, or stable, and signal a potential change in an interactive rating over the next 2-3 years. ^ information not provided by respondent.

CapiTal & surplus

Type of insuranCe as %

of premiums Breakdown of premium as Class of Business risk Breakdown of gross premium By geographiC region

s & p’s ra Ting (1) s & p’s o u Tl ook s (2) s & p’s erm s C ore Ba sis of aC C oun Ting for s urvey response Curren T

prior premiums earned Curren

T n eT in C ome Curren T insuran C e re gula Tion Cla ss da Te of in C orpora Tion d ire CT reinsuran C e m arine & avia Tion finan C ial g uaran Tee aC C iden T & h eal Th proper Ty proper Ty Ca Ta sT rophe profes sional lia Bili Ty ex C es s lia Bili Ty g

eneral _liaBili

Ty Ca sual Ty fini Te w orker s C ompens aT ion

life Terrorism oTher uk nor

Th ameri C a europe asia, aus Tralia & n ew Zealand Bermud a res T of w orld

aCe limited aa- Stable Strong uS GaaP 27,531,000 24,332,000 15,677,000 2,706,000 Class 4 8/30/85 84% 16% 0% 0% 22% 36% 2% 0% 0% 0% 34% 0% 0% 6% 0% 0% 0% 60% 17% 16% 0% 7%

Company holdings, ag a Stable Strong uS GaaP 3,326,335 3,149,022 1,748,898 493,007 Class 4 11/13/01 67% 33% 0% 0% 0% 12% 0% 19% 24% 10% 2% 0% 0% 0% 0% 33% 0% 58% 10% 6% 26% 0% alterra Capital holdings ltd. a Stable Strong uS GaaP 2,839,722 2,809,235 1,362,706 143,806 Class 4 8/20/99 45% 55% 11% 0% 2% 35% 0% 21% 9% 5% 9% 0% 2% 0% 0% 6% 0% 74% 16% 0% 0% 10%

amlin ag a Stable Strong other 1,625,336 1,350,352 969,972 276,174 Class 4 10/28/05 0% 100% 1% 0% 0% 18% 29% 0% 0% 10% 1% 0% 0% 0% 0% 40% 38% 26% 26% 8% 0% 3%

arch Capital group ltd. a+ Stable Strong uS GaaP 5,168,878 4,592,074 2,935,140 593,397 Class 4 3/1/95 69% 31% 2% 0% 3% 27% 8% 13% 19% 0% 0% 0% 6% 0% 1% 22% 0% 67% 20% 7% 2% 3%

argo group international

holdings, ltd. a- Stable adequate uS GaaP 1,514,100 1,479,000 1,186,500 52,300 Class 4 10/5/99 82% 18% ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ aspen insurance

holdings limited a Stable Strong uS GaaP 3,489,000 3,156,000 2,084,000 280,800 Class 4 5/23/02 52% 48% 0% 0% 0% 21% 12% 0% 0% 0% 21% 0% 0% 0% 0% 46% 7% 43% 4% 5% 0% 41% axis Capital holdings limited a+ Stable Strong uS GaaP 5,779,761 5,444,079 3,415,463 547,241 Class 4 11/8/01 56% 44% 8% 0% 4% 23% 9% 28% 0% 12% 0% 0% 0% 0% 1% 15% 0% 46% 38% 0% 16% 0%

Catlin group limited a Stable Strong uS GaaP 3,511,867 3,297,741 3,603,511 304,601 Class 4 6/25/99 63% 37% 23% 0% 0% 12% 0% 0% 0% 0% 21% 0% 0% 0% 0% 44% 51% 23% 9% 6% 11% 0%

endurance specialty

holdings ltd. a Stable Strong uS GaaP 2,710,597 2,611,165 2,013,900 162,516 Class 4 11/30/01 56% 44% 2% 2% 0% 16% 15% 7% 11% 0% 11% 0% 0% 0% 0% 36% 2% 68% 6% 2% 23% 0% everest re group, lTd a+ Stable _{Strong risk Controls}adequate with uS GaaP 6,733,467 6,071,375 4,164,628 828,954 n/a 2/24/00 25% 75% 2% 0% 1% 43% 0% 8% 14% 18% 5% 0% 8% 0% 0% 0% 10% 61% 3% 7% 2% 17%

hiscox ltd. a Stable Strong other 2,246,766 1,934,084 1,899,455 329,256 Class 4 12/12/06 73% 27% 6% 0% 1% 25% 3% 26% 0% 0% 0% 0% 0% 0% 3% 36% 21% 41% 13% 5% 0% 20%

lancashire holdings limited a- Stable adequate with _{Positive trend} other 1,387,400 1,326,800 582,600 252,700 Class 4 10/12/05 68% 32% 18% 0% 0% 43% 31% 0% 0% 0% 0% 0% 0% 0% 9% 0% 0% 36% 5% 7% 0% 51%

montpelier re holdings ltd. a- Stable Strong uS GaaP 1,629,400 1,549,300 616,500 227,600 Class 4 11/14/01 19% 81% 0% 0% 0% 7% 48% 0% 0% 0% 0% 0% 0% 0% 0% 45% 33% 0% 0% 0% 66% 0%

oil Casualty insurance, ltd. BBB+ Stable adequate uS GaaP 489,471 461,117 75,373 28,359 Class 3b 5/14/86 41% 59% 0% 0% 0% 19% 0% 0% 42% 0% 40% 0% 0% 0% 0% 0% ^ ^ ^ ^ ^ ^

oil insurance limited a- Stable adequate uS GaaP 3,611,771 3,033,147 672,485 646,103 Class 2 12/14/71 100% 0% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% ^ ^ ^ ^ ^ ^

partnerre ltd. a+ Stable _{Strong risk Controls}adequate with uS GaaP 6,933,496 6,467,542 4,485,939 1,134,514 Class 4 8/24/93 0% 100% 13% 0% 0% 14% 11% 0% 0% 0% 13% 0% 0% 17% 0% 33% 0% 37% 41% 11% 0% 11%

renaissancere holdings ltd. aa- Stable Excellent uS GaaP 3,507,056 3,608,533 1,069,355 566,014 n/a 6/7/93 2% 98% 0% 0% 0% 5% 79% 0% 0% 0% 0% 0% 0% 0% 0% 16% 0% 64% 4% 6% 0% 26%

Tokio millennium re ltd. aa- negative Strong uS GaaP 1,173,340 1,050,865 615,059 122,122 Class 3B 3/15/00 0% 100% 0% 0% 0% 0% 72% 7% 0% 2% 9% 0% 3% 0% 1% 6% 0% 0% 3% 6% 91% 0%

validus holdings, ltd. a Stable _{Strong risk Controls}adequate with uS GaaP 4,455,107 3,448,425 1,873,216 408,438 Class 4 10/19/05 25% 75% 36% 0% 1% 16% 28% 0% 0% 0% 0% 0% 0% 0% 1% 18% 0% 28% 6% 2% 0% 64%

xl group plc a Positive Strong uS GaaP 11,856,397 10,756,130 5,765,982 730,388 Class 4 3/16/98 72% 28% 2% 0% 0% 19% 7% 22% 0% 0% 0% 0% 0% 5% 0% 44% 0% 42% 47% 0% 11% 0% total 101,520,267 91,927,986 56,817,682 10,834,290

(In US $000s)

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