BEST’S SPECIAL REPORT Global Reinsurance Our Insight, Your Advantage. Financial Review April 7, 2015 “Results masked by low Cats and continued reserve releases” Appearances Can Be Deceiving During 2014 the reinsurance industry continued to face increased challenges in terms of price declines, increased commissions and tougher terms and conditions. However the industry did manage to deliver solid results for the year with most companies reporting strong combined ratios and profitable returns. The benign level of cats and the never-ending favorable reserve releases was once again the determining factor for such strong performance. Regardless of how the industry has been performing and delivering profitable results, A.M. Best does recognize the warning signs and in August of 2014 we revised our outlook for the industry from stable to negative. The main reasons for our decision was our view that the industry continues to face serious challenges in terms of the overflow of capital, softening premium rates, low interest rates, and the possibility of lax underwriting by some in order to maintain business. The competitive landscape continued during the January renewal with increased retentions, higher ceding commissions and broader terms and conditions. While competition was most pronounced on U.S. property catastrophe programs, the overflow of capacity to other business classes and regions continues to place pressure on business across the board. January 1 2015 renewals once again reported a decline in reinsurance prices between 5-15% depending on risk and loss experience. The dramatic price declines in 2014 and for January 1 continued to be attributed to the lack of market-changing losses, increased retentions and the abundance of capital in the market. For global companies, however, the approach to risk selection appears to be orderly and the industry is expected to remain cautious on the risks they elect to write as capacity remains high and the market becomes increasingly more competitive. Portfolios continue to shift more toward primary business given that pricing continues to be relatively more attractive and access to the business easier than on the reinsurance side. Reinsurers also continue to increase their utilization of retro-reinsurance capacity as a means to reduce their cost of capital. In addition, on the investment side things do not look much better. The persistent low interest rate environment has continued to put pressure on returns leading to the need for better underwriting returns. That said, some companies have started investing into riskier assets in search of yield. This has been done in a measured manner and we expect that companies remain mindful of excessively risky investments that could damage the strength of rated balance sheets. analytical Contacts: M&A activity took center stage in 4Q14 and during the first part of 2015 with some significant merger deals announced. XL Group signed a definitive agreement to buy Catlin, RenRe to buy Platinum Underwriters and Partner Re and Axis signed an agreement to combine into a single company through a merger of equals and most recently Endurance Specialty Holdings Ltd. (Endurance) has signed to acquire Montpelier Re Holdings Ltd (Montpelier). Mariza Costa, Oldwick +1 (908) 439-2200 Ext. 5308 [email protected] M&A activity is expected to continue as the need for scale, global presence and diversified books of business continues to place pressure on companies. Greg Reisner, Oldwick +1 (908) 439-2200 Ext. 5224 Greg [email protected] Capital management was also a focus in 2014 and is expected to remain in 2015 as companies continue to actively return capital to shareholders in the form of dividends and share buybacks. Global reinsurers returned approximately $17 billion of total capital in 2014 (exhibit 1) which accounted for over 60% of the total net income reported for the year. Valuations remain low and companies remain proactive in managing capital given its abundance in the market. Given that Robert DeRose, Oldwick +1 (908) 439-2200 Ext. 5453 [email protected] Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. For additional details, refer to our Terms of Use available at the A.M. Best Company website: www.ambest.com/terms. Special Report Global Reinsurance companies maintain very strong balance sheets, it is expected that share buybacks, absent any significant CAT event, will continue to be part of companies’ capital management strategy for the near term. Exhibit 1 Global Reinsurance Shareholders' Equity plus Cumulative Share Repurchases and Dividends Since 2009 Shareholders' Equity (USD Billions) 350 20 300 250 200 0 2 3 12 8 16 194 194 10 22 12 27 218 219 36 150 100 184 235 Exhibit 1 50 Reinsurance Shareholders' Equity plus Cumulative Share Global Repurchases and Dividends Since 2009 0 Shareholders' Equity (USD Billions) 350 2009 2010 Shareholders' Equity (End of Period) 300 2011 Share Repurchases 2012 2013 2014 Common and Preferred Dividends (as of 2010) 20 Source: Company reports, Imetrix, Bloomberg 12 10 36 27 22 Financial Performance – Results Driven By Yet 8another Benign Year 3 16 200 0 of A.M. Best’s global 12 The analysis reinsurer composite clearly illustrates underwriting profitability in Exhibit2 2 250 2014 and improvement in overall earnings as the sector benefited from another year of record low Global 150 Market Reinsurance Trends For Ratios and Reserve Development catastrophe losses. The composite produced a calendar year combined ratio of 89.5% as compared to 50.0% 120.0%in 2013 and 92.0% in 2012. According to Munich Re, insured 235 88.6% losses for the entire 218 catastrophe 219 100 184 194 194 107.4% 45.0% year totaled only $31 billion, same as in 2013, as compared with the 10 year average of $58 billion. 100.0% 94.6% 95.4% The largest loss came from snow storms in Japan92.0% which reported overall losses of $5.9 billion and 40.0% 50 89.5% 89.5% 88.6% 31.3% insured losses of $3.1 billion. U.S. winter storms led to insured losses of $2.3 billion (total losses35.0% of $4 80.0% 31.6% 31.4% 2014. 31.3% billion) 0and30.6% UK floods led to $1.1 billion of insured losses (total losses of $1.5 billion) during 33.1% 32.2% 30.0% 2009 2010 60.0% Shareholders' Equity (End of Period) 2011 Share Repurchases 2012 2013 2014 25.0% Common and Preferred Dividends (as of 2010) Given that overall CAT losses remained below average in 2014, results for the global reinsurance 63.2% 20.0% 56.4% for 2014 (exhibit Source: Company reports, Imetrix, Bloomberg market remained strong. The reported calendar 60.7% year combined ratios of 89.5% 2) 76.1% 56.5% 63.8% 40.0% 58.9% 15.0% also reflect the continuation of favorable loss reserve development that amounted to 5.3 points in 10.0% 20.0% Exhibit 2 5.0% Global Market Reinsurance Trends For Ratios and Reserve Development 0.0% 0.0% 2011 2012 Loss Ratio Expense Ratio 107.4% Source: Company reports, A.M. Best Research 120.0% 100.0% 80.0% 2009 2010 95.4% 89.5% 31.3% 31.6% 30.6% 2013 Fav. Loss Dev. 2014 5yr Avg 45.0% 92.0% 88.6% 31.3% 32.2% 89.5% 33.1% 94.6% 31.4% 60.0% 40.0% 40.0% 35.0% 30.0% 25.0% 63.8% 58.9% 76.1% 60.7% 20.0% Exhibit 3 Global Reinsurance Market Trends for 0.0% 2011 2012 Return on2009 Equity 2010 Loss Ratio 16% 14.7% reports, A.M. Best Research Source: Company 14% 12% 50.0% 12.1% 10.6% Expense Ratio 56.5% 56.4% 63.2% 20.0% 15.0% 10.0% 5.0% 2013 Fav. Loss Dev. 13.1% 2 11.4% 2014 5yr Avg 0.0% Four Bermuda Four Bermuda Four 2009 Special Report 2014 compared with 5.7 points in 2013 and 6.1 points in 2012. Since 2007, the global reinsurance sector has benefited from $56 billion in favorable reserve development. That said, the benefit from favorable development is expected to decline going forward as we believe older accident years have given as much as they can and more recent accident years are leaner in terms of potential redundancy. Underwriting profits along with investment income and realized capital gains produced another solid year for the global reinsurers. That said, returns are starting to show signs of a decline compared with prior years. The sector generated a return on equity (ROE) of 11.4% in 2014 compared with 13.1% in 2013 and 12.1% in 2012 (exhibit 3). The general expectation going forward is for an ROE in the high single digits, given the continued decline in rates, higher commissions, less reserve redundancy, and low investment yields. Investment income remains an important element of the sector’s total returns, however, investment returns continue to decline as yields remain at historically low levels (exhibit 4). In order to battle this trend of lower yields, increased competition and higher expenses companies are moving portions of their investment portfolios into higher return alternative investments at a gradual pace. It remains to be seen how aggressive companies will be in allocating capital to such assets classes. U.S. and Bermuda, “Big Four” and Lloyds 2010 Bermuda Four 2011 Loss Ratio Source: Company reports, A.M. Best Research 201 Expense Ratio Global Reinsurance Exhibit 6 Exhibiton 3 Equity by Reinsurance Sector Return Global Reinsurance Market Trends for 30% Return on Equity 16% 25% 14.7% 14% 20% 13.1% 12.1% 12% 15% 10% 10% 8% 5% 6% 0% 4% 10.6% 2009 -5% 2% 2010 2.5% 2011 European "Big Four" 11.4% 2012 US & Bermuda Market 2013 Lloyd's Source: 0% Company reports, A.M. Best Research 2009 2010 2011 Return on Equity 2012 2013 2014 5YR Avg Return on Equity Source: Company reports, A.M. Best Research Exhibit 4 Exhibit 5 Net Investment Income as a % of Total Revenue Combined Ratios by Reinsurance Sector 20% 18% 120% 107% 108% 107% 16% 14% 100% 12% 99% 94% 87% 95% 93% Lloyds 2012 2013 91% 91 US & Big Bermuda Four Lloy 86% 10% 80% 8% 6% 60% 4% 2% 40% 0% U.S. & Bermuda 2009 2010 2011 Euro "Big Four" 2014 Source: 20% A.M. Best Research Analyzing the performance between the U.S. & Bermuda, European reinsurers, and Lloyds the market showed continued signs of strength. Each segment achieved solid underwriting and overall0%profiBig table Lloyd's results.USThe Bermuda & U.S. Big and Lloyd's US & Big Lloyd's Four Bermuda Four Bermuda Four market appeared to have outperfromed from an underwriting perspective, producing a combined 2011 ratio of 87.5%, marginally better than Lloyds’ 88.1% result (exhibit2009 5). Last year Lloyds2010 marginally Loss Ratio outperformed the U.S. and Bermuda. This years’ slight deterioration in combined ratios from Lloyds Source: Company reports, A.M. Best Research could be attributable in part to the recent aviation tragedies around the world. The European “Big Four” (Munich, Swiss, Hannover and SCOR) produced a very acceptable 92.4% combined ratio reflective of their broader portfolio diversification and less dependence on U.S. property catastrophe Exhibit 6 business. Over the longer term this will prove to beReturn a distinguishing factor by andReinsurance an advantage in their on Equity Sector future performance relative to other markets and companies. 30% On a five-year basis, the U.S. & Bermuda market produced 25% an average combined ratio of 93.1% as compared to a 93.6% for Lloyds and 96.5% for European reinsurers (exhibits 8, 9, 10). These five 20% 3 15% 20 Expense Ratio 0% 2009 2010 2011 Return on Equity 2012 2013 2014 5YR Avg Return on Equity Special Reportreports, A.M. Best Research Source: Company Global Reinsurance Exhibit 5 Combined Ratios by Reinsurance Sector 120% 107% 108% 107% 100% 99% 94% 87% 95% 93% 91% 86% 91% 93% 91% 87% 87% 92% 88% 87% Lloyd's US & Bermuda 80% 60% 40% 20% 0% Big Four Lloyd's US & Big Bermuda Four 2009 Lloyd's US & Big Bermuda Four 2010 Lloyd's US & Big Bermuda Four 2011 Loss Ratio Source: Company reports, A.M. Best Research Lloyd's US & Big Bermuda Four 2012 Lloyd's US & Big Bermuda Four 2013 Expense Ratio year averages for the global reinsurance market includes the significant losses from the CAT events of Exhibit 62011 (Japan, Australia, New Zealand, Thailand, U.S. tornadoes) and Superstorm Sandy in 2012. Return on Equity by Reinsurance Sector 30% 25% 20% 15% 10% 5% 0% Lloyds was the best performer in 2014 in terms of ROE reporting 14.7% compared with 11% for the European “Big Four” and 10.6% for U.S. and Bermuda (exhibit 6). Over the past five years, Lloyds has reported an average ROE of 13% versus 10.4% for U.S. & Bermuda and 10.0% for the European Big Four. Each segment continues to benefit from favorable reserve development. Lloyds and the U.S. & Bermuda market have averaged 6.1 points and 6.6 points respectively of favorable development over the past five years versus 4.0 points for the European Big Four (exhibits 8, 9, 10). In terms of capital, shareholders’ equity grew 7% in 2014 compared with 2013. This compared with flat growth for the market in 2013 versus 2012. The increase during 2014 could be attributed to the industry’s strong results given the lack of significant losses as well as capital gains. Contributions to rated capacity from earnings totaled $25.7 billion in 2014. 2009 2010 2011 2012 2013 2014 However, let’s pause for a moment and take a short trip back in time to the year 2006. We are talking about the reinsurance post Hurricanes and Wilma financial crisis was still European "Big Four" sectorUS & Bermuda MarketKatrina, Rita Lloyd's Fiveand Yearthe Average a couple years Now, it’s true that 2006 was an exceptional year and those market dynamics Source: Company reports,of A.M. Best away. Research can’t be expected to return anytime soon. Nonetheless, for perspective, think about that the fact that the U.S. & Bermuda market that year reported a combined ratio of 87%, which included less than 1 percentage point of favorable loss reserve development but the average ROE that year was an astonishing 19.4%, with several companies reporting ROEs in excess of 20%. This provides a sense Exhibit 4of the rate on line and investment returns companies were achieving back then. Today, benign cats Net Investment Income as a % of Total Revenue years and a heaping pile of favorable reserve development allows the sector to barely scrape out a 20% double digit return. -5% 18% 16% m&a expected to continue in 2015 14% The end of 2014, early 2015 marked the move towards M&A in the reinsurance industry, particularly 12% 10% 8% 4 2014 Four Bermuda Four 2009 Bermuda Four 2010 Bermuda Four 2011 Loss Ratio Source: Company reports, A.M. Best Research Special Report Bermuda Four Bermuda Four 2012 2013 Expense Ratio Global Reinsurance Exhibit 6 Return on Equity by Reinsurance Sector 30% 25% 20% 15% 10% 5% 0% 2009 2010 2011 2012 2013 2014 -5% European "Big Four" US & Bermuda Market Lloyd's Five Year Average Source: Company reports, A.M. Best Research in Bermuda where several major deals have been announced - RenRe/Platinum, XL/Catlin, PartnerRe/ AXIS and Endurance/Montpelier. Exhibit 4 Netincrease Investment Income as a % of Totala function Revenue The in mergers and acquisitions is likely of the current market environment that is only 20%expected to become more challenging as the year progresses. Recently announced deals seem to18% address the need for greater global scale and diversified product lines and distribution. Cedents want companies that have a wide product offering and a strong market presence which seems to be 16% replacing the days of specialty focused reinsurance companies. Competition for a shrinking amount of14% business is intensifying and companies understand that they must change the way they do business 12%the way they see the market. Expense controls, capital adequacy, disciplined underwriting, and strong 10% ERM and anticipation to what is emerging in the market needs to remain the focus for companies. 8% 6% M&A seems to address some of the challenges currently affecting the industry and the deals have 4% been, and will likely continue to be, strategic in nature. Companies have mentioned the need for 2% expense saving and most seem to believe multi-million dollar savings is possible. Others indicate 0%customers want fewer; strong partners to work with and that programs are getting smaller and that & Bermuda Lloydsfor global, experienced, Euro "Big Four" strong, and well diversified companies sometimes U.S. more complex. The need 2011 2012 2013 2014 2009 2010 isSource: driving the M&A wave and we believe this will continue in the medium term A.M. Best Research Reinsurance Ratings Outlook Remain Negative A.M. Best is maintaining its outlook for the reinsurance sector at negative, citing the significant ongoing market challenges that will hinder the potential for positive rating actions over time and may translate into negative rating pressures. As current market conditions continue to place a strain on profitability it is expected that rated balance sheets could experience some negative pressure. Our current view is longer term than our typical 12-18 months. While A.M. Best does not anticipate a significant number of negative outlooks or downgrades over the very near term, the market headwinds at this point present significant longer-term challenges for the industry. Declining rates, broader terms and conditions, unsustainable flow of net favorable reserve development, low investment yields and continued pressure from alternative capital coming into the market are all negative factors that we expect will adversely affect risk-adjusted returns over the longer term. 5 Bermuda 2014 Special Report Global Reinsurance Cycle management has been a key strategy for those companies that are able to move between primary and reinsurance lines of business. Companies have been focused on new growth opportunities and investments into new geographies. On the investment side, companies are moving slightly more towards higher return investments in search of yield, making investment portfolios slightly riskier than over the past few years. Companies with diversified books of business, advanced distribution capabilities and broad geographic scope are better positioned to withstand the pressures in this type of operating environment and have greater ability to target profitable opportunities as they arise. The recent uptick in M&A activity may also serve as a release valve on ratings pressure as organizations gain increased scale, capital efficiency and broader product and distribution capabilities. Overall, this remains a challenging market, but the reinsurance industry posted solid results for 2014, which was once again driven in part by the lack of large cat losses, continued share repurchases and favorable reserve releases. Conditions will remain competitive and challenging, as primary companies are expected to continue to retain more business and/or seek higher ceding commissions or multi-year contracts. Margin compression also will likely continue as third-party capital seeks a larger piece of the pie. As a result, A.M. Best is forecasting underwriting performance to produce an average combined ratio of 94.8% and an average ROE of 8.2%, representing the current difficult market environment and a normal level of cat activity. Despite the forecast for these dreary returns, risk-adjusted capital should remain strong as companies also reduce their retained exposure to less attractively priced business classes. A.M. Best also continues to expect significant share repurchases for the global reinsurance segment, depending on the level of future catastrophe activity and market opportunities. A possible change in the ratings outlook back to stable would be based on A. M. Best’s view of future earnings capability and risk-adjusted returns on capital. If the reinsurance market turns, rates start to increase and operating fundamentals start to improve, A.M. Best will consider a revision of its current ratings outlook. 6 Special Report Global Reinsurance Exhibit 7 Global Reinsurance Market - U.S. & Bermuda, European “Big Four” and Lloyd’s Trend Summary USD billions 5-Yr Avg 138.1 136.6 26.8 3.6 232.2 2014 156.1 152.5 25.2 11.3 240.2 2013 158.0 151.5 25.3 1.7 250.3 2012 146.6 143.7 27.3 7.6 250.4 2011 137.0 133.4 26.0 2.4 226.4 2010 128.0 126.7 24.3 10.6 227.9 2009 120.9 127.8 31.0 (4.2) 206.0 20.5 25.7 28.5 24.9 4.9 20.3 24.1 Shareholders’ Equity (End of Period) 202.0 235.3 218.9 218.4 194.3 193.9 184.3 Loss Ratio Expense Ratio Combined Ratio 63.2% 31.4% 94.6% 56.4% 33.1% 89.5% 56.5% 32.2% 88.6% 60.7% 31.3% 92.0% 76.1% 31.3% 107.4% 63.8% 31.6% 95.4% 58.9% 30.6% 89.5% Favorable Loss Reserve Development -5.4% -5.3% -5.7% -6.1% -6.3% -4.9% -3.9% Net Investment Ratio1 Operating Ratio 19.7% 74.8% 16.5% 73.0% 16.7% 71.9% 19.0% 72.9% 19.5% 87.9% 19.2% 76.2% 24.2% 65.3% Return on Equity Return on Revenue 10.6% 8.8% 11.4% 10.7% 13.1% 11.4% 12.1% 9.9% 2.5% 2.2% 10.6% 8.9% 14.7% 11.7% 68.3% 284.1% 315.0% 66.3% 237.1% 260.3% 72.2% 268.4% 296.0% 67.1% 264.2% 293.5% 70.5% 298.4% 326.6% 66.0% 292.8% 326.6% 65.6% 296.7% 332.2% NPW (P&C only) Net Earned Premiums (P&C only) Net Investment Income Realized Investment Gains / (Losses) Total Revenue Net Income NPW (P&C only) to Equity (End of Period) Net Reserves to Equity (End of Period) Gross Reserves to Equity (End of Period) Net Investment Ratio based on PC NPE Source: Company reports, Imetrix, Bloomberg 1 Exhibit 8 U.S. & Bermuda Reinsurance Market Trend Summary USD billions 5-Yr Avg 54.9 54.0 7.6 1.3 66.3 2014 63.6 61.7 7.3 1.0 73.6 2013 59.8 56.6 6.8 1.4 69.6 2012 56.7 55.5 7.1 2.2 68.6 2011 55.0 54.4 7.6 (0.1) 64.6 2010 52.6 52.4 8.1 2.2 65.7 2009 50.3 51.1 8.2 0.8 63.1 9.4 11.6 12.1 10.1 0.9 11.2 12.4 96.1 110.4 101.4 101.7 93.7 95.1 88.4 Loss Ratio Expense Ratio Combined Ratio 62.8% 30.3% 93.1% 54.9% 32.6% 87.5% 55.3% 31.4% 86.7% 63.4% 29.8% 93.1% 77.3% 30.0% 107.3% 61.8% 30.9% 92.7% 56.1% 29.7% 85.8% Favorable Loss Reserve Development -6.1% -5.8% -6.5% -5.8% -6.0% -6.2% -6.1% Net Investment Ratio1 Operating Ratio 14.0% 79.1% 11.8% 75.7% 12.0% 74.7% 12.7% 80.4% 14.0% 93.3% 15.4% 77.3% 16.0% 69.8% Return on Equity Return on Revenue 10.4% 14.1% 10.6% 15.7% 12.1% 17.4% 10.6% 14.8% 1.0% 1.5% 11.9% 17.1% 16.2% 19.7% 57.1% 131.0% 160.4% 57.6% 116.8% 138.2% 59.0% 125.6% 150.4% 55.7% 130.3% 157.7% 58.7% 137.5% 168.9% 55.3% 127.9% 158.0% 57.0% 133.6% 166.9% NPW (P&C only) Net Earned Premiums (P&C only) Net Investment Income Realized Investment Gains / (Losses) Total Revenue Net Income Shareholders' Equity (End of Period) NPW (P&C only) to Equity (End of Period) Net Reserves to Equity (End of Period) Gross Reserves to Equity (End of Period) Net Investment Ratio based on PC NPE Source: Company reports, Imetrix, Bloomberg 1 7 Special Report Global Reinsurance Exhibit 9 European “Big Four” Trend Summary USD billions 5-Yr Avg 53.6 53.9 17.4 2.3 135.0 2014 61.4 60.4 16.3 10.1 134.6 2013 64.8 62.4 17.1 0.4 147.2 2012 58.5 58.1 18.6 5.2 149.4 2011 53.4 51.0 17.0 2.4 132.3 2010 48.1 47.8 14.3 8.3 132.7 2009 43.1 50.2 19.9 (5.0) 113.5 7.5 9.3 11.1 10.2 4.7 5.7 5.5 75.8 89.9 83.9 85.0 72.4 70.7 67.0 Loss Ratio Expense Ratio Combined Ratio 67.0% 29.6% 96.5% 61.7% 30.7% 92.4% 61.6% 29.8% 91.4% 61.6% 29.7% 91.3% 77.5% 29.5% 107.0% 68.8% 30.0% 98.8% 65.5% 28.8% 94.3% Favorable Loss Reserve Development -4.0% -3.3% -3.7% -5.8% -6.5% -3.1% -0.8% Net Investment Ratio1 Operating Ratio 32.5% 64.0% 27.0% 65.3% 27.5% 63.9% 32.1% 59.2% 33.3% 73.7% 29.9% 68.9% 39.8% 54.5% Return on Equity Return on Revenue 10.0% 5.4% 11.0% 6.9% 13.1% 7.5% 13.0% 6.8% 6.6% 3.6% 8.3% 4.3% 8.8% 4.8% 70.5% 533.3% 558.2% 68.4% 426.9% 446.0% 77.3% 492.7% 515.9% 68.8% 467.0% 489.1% 73.8% 557.1% 569.5% 68.1% 571.0% 604.0% 64.3% 578.9% 612.3% 5-Yr Avg 29.6 28.8 1.8 0.0 30.8 2014 31.1 30.4 1.6 0.1 32.0 2013 33.4 32.5 1.4 (0.1) 33.5 2012 31.4 30.2 1.6 0.1 32.3 2011 28.6 28.0 1.4 0.1 29.5 2010 27.3 26.5 1.9 29.5 2009 27.4 26.6 2.8 29.5 3.7 4.9 5.3 4.5 (0.8) 3.4 6.2 30.0 35.1 33.6 31.2 28.2 28.1 28.9 Loss Ratio Expense Ratio Combined Ratio 56.8% 36.8% 93.6% 49.0% 39.1% 88.1% 48.6% 38.2% 86.8% 54.0% 37.1% 91.1% 71.3% 36.9% 108.1% 58.6% 35.9% 94.5% 51.6% 35.9% 87.4% Favorable Loss Reserve Development -6.6% -8.0% -8.0% -7.2% -6.5% -5.9% -5.6% Net Investment Ratio Operating Ratio 6.5% 87.1% 5.3% 82.8% 4.3% 82.5% 5.4% 85.8% 5.0% 103.1% 7.4% 87.2% 10.6% 76.9% Return on Equity Return on Revenue 13.0% 11.9% 14.7% 15.3% 16.2% 15.8% 15.1% 13.9% -2.8% -2.7% 11.9% 11.5% 24.9% 20.9% 98.6% 150.7% 201.8% 88.7% 129.9% 168.8% 99.2% 139.4% 186.3% 100.7% 153.0% 208.3% 101.4% 168.6% 226.8% 97.1% 151.3% 199.6% 94.8% 141.1% 187.8% NPW (P&C only) Net Earned Premiums (P&C only) Net Investment Income Realized Investment Gains / (Losses) Total Revenue Net Income Shareholders' Equity (End of Period) NPW (P&C only) to Equity (End of Period) Net Reserves to Equity (End of Period) Gross Reserves to Equity (End of Period) Net Investment Ratio based on PC NPE Source: Company reports 1 Exhibit 10 Lloyd’s Market Trend Summary USD billions NPW (P&C only) Net Earned Premiums (P&C only) Net Investment Income Realized Investment Gains / (Losses) Total Revenue Net Income Shareholders' Equity (End of Period) NPW (P&C only) to Equity (End of Period) Net Reserves to Equity (End of Period) Gross Reserves to Equity (End of Period) Source: Company reports 8 Special Report Global Reinsurance Contributors Scott Mangan Published by A.M. Best Company Special Report Chairman & President Arthur Snyder III Executive Vice President Larry G. Mayewski Executive Vice President Paul C. Tinnirello Senior Vice Presidents Douglas A. Collett, Karen B. Heine, Matthew C. Mosher, Rita L. Tedesco A.M. Best Company World Headquarters Ambest Road, Oldwick, NJ 08858 Phone: +1 (908) 439-2200 WASHINGTON OFFICE 830 National Press Building 529 14th Street N.W., Washington, DC 20045 Phone: +1 (202) 347-3090 A.M. Best América latina, S.A. de C.V. Paseo de la Reforma 412 Piso 23 Mexico City, Mexico Phone: +52-55-5208-1264 A.M. Best Europe Rating Services Ltd. A.M. Best Europe Information Services Ltd. 12 Arthur Street, 6th Floor, London, UK EC4R 9AB Phone: +44 (0)20 7626-6264 A.M. Best asia-pacific LTD. Unit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Phone: +852 2827-3400 A.M. Best Asia-Pacific (Singapore) Pte. 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