atrium syndicates 570 & 609 › media › 1250 › underwriting... · the rmf is the mechanism...

AT R I U M SY N D I C AT E S5 7 0 & 6 0 9UNDERWRITING YEAR ACCOUNTSFOR THE 2010 YEAR OF ACCOUNT

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ATRIUM SYNDICATES 570 & 609 – UNDERWRITING YEAR ACCOUNTS

1 Report of the Directors of the Managing Agent

5 Statement of Managing Agent’s Responsibilities

6 Independent Auditors’ Report

7 Principal Accounting Policies

SYNDICATE 570

9 Underwriter’s Report

10 Profi t and Loss Account

11 Balance Sheet

12 Statement of Cash Flows

13 Notes to the Financial Statements

21 Seven Year Summary of Results

SYNDICATE 609

22 Underwriter’s Report

24 Profi t and Loss Account

25 Balance Sheet

26 Statement of Cash Flows

27 Notes to the Financial Statements

35 Seven Year Summary of Results

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REPORT OF THE DIRECTORS OF THE MANAGING AGENT

The Managing Agent presents its report at 31 December 2012 for the 2010 closed year of account.

This report is prepared in accordance with the Lloyd’s Syndicate Accounting Byelaw (No 8 of 2006). It accompanies the underwriting year accounts prepared on an underwriting year basis of accounting as required by Statutory Instrument No 1950 of 2008, the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations (“the 2008 Regulations“).

REVIEW OF THE 2010 CLOSED YEAR OF ACCOUNT

Syndicate 570The 2010 year of account closed with a profi t of £12.6m after standard personal expenses (8.7% of capacity). There was an underwriting surplus of £11.4m attributable to business reinsured into the 2010 year of account. Further details on the underwriting results are included within the Underwriter’s Report.

Syndicate 609The 2010 year of account closed with a profi t of £45.8m after standard personal expenses (16.7% of capacity). There was an underwriting surplus of £20.8m attributable to business reinsured into the 2010 year of account. Further details on the underwriting results are included within the Underwriter’s Report.

PRINCIPLE RISKS AND UNCERTAINTIES

GovernanceThe Board recognises the critical importance of having effi cient and eff ective risk management systems in place but also recognises that it can only mitigate risks, and not eliminate them entirely. In preparation for the proposed Solvency II regime, the Board has developed its Own Risk and Solvency Assessment (‘ORSA’), comprising the entirety of the processes that it uses to identify, assess, monitor and report the risks faced by its managed syndicates and to determine the capital necessary to mitigate retained risks. Critical to the effi cacy of the ORSA are the eff ective operation of the Risk Management Framework (‘RMF’) and the Governance Structure. The RMF comprises the so-called “Three lines of Defence” approach to risk management and reporting.

The RMF is the mechanism through which Atrium ensures it is implementing eff ective and enterprise wide risk management practices across its business. Key to Atrium’s business is the management of risk, return and capital, against which all signifi cant strategic and operational business decisions are evaluated. Over many years Atrium has established systems of governance and risk management that enable it to manage its business prudently. The RMF is the articulation of these systems of risk management and governance and how the various elements interact.

The RMF encompasses the broad range of activities undertaken across the organisational hierarchy to ensure that risks are managed appropriately, spanning from the high level strategy set by the Board to the day to day underwriting decisions being made by syndicate staff and the controls in place to govern these. The RMF comprises the following categories:

Strategy: This describes the Atrium strategy setting process and explains how this fi lters down through the organisation; incorporating the Syndicate’s Business Strategy, Risk Strategy, Business Plan, Risk Policy Statement and Risk Policies.

Business Activities: The individual syndicate and agency business units are responsible for implementing the strategy and business plans in accordance with the framework set out in the risk policies. The people, controls, management information, processes and senior management oversight in place across the business units serve as the “First Line of Defence” in the RMF.

Risk Governance Structure: The Board has established a Risk Governance Structure in order to ensure that risk is appropriately identifi ed, monitored, managed and reported across the organisation; to review the activities of the business units; and to ensure that the RMF is eff ectively designed, implemented and governed. The Risk Governance Structure is comprised of the Executive Risk Committee, which fulfi ls the role of Atrium’s Risk Management Function, and its three Risk Sub-Committees, discussed further below.

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Independent Assurance: Atrium has in place a Compliance Function and an Actuarial Function in addition to the Risk Management Function (fulfi lled by the Executive Risk Committee as referenced in the previous paragraph). Each of these functions has specifi c responsibilities documented in its terms of reference and is fulfi lled by fi t and proper individuals with suitable qualifi cations, expertise and experience. The activities of these functions seek to provide the Board with assurance as to the appropriateness and eff ectiveness of the various elements of the RMF, the internal control environment, and the calculation of capital. There are a number of risk management tools (such as the Risk Register) which support independent assessment and reporting of risk. Taken together this Independent Assurance comprises the “Second line of Defence”.

Independent Oversight: The RMF provides for independent oversight and challenge via the operation of the Internal Audit Function , as well as the Audit Committee and Risk Committee, both of which are Committees of the Board with membership comprised of Non Executive Directors. These three groups together operate to provide the “Third line of Defence”. The Risk Committee is charged with providing independent oversight and review of Atrium’s RMF and its constituent parts whilst the Audit Committee, along with its broader responsibilities for the fi nancial statements and fi nancial reporting process, has oversight of internal controls and the Internal Audit Function.

Risk governance is comprised of the Executive Risk Committee and its three risk sub-committees.

The Executive Risk Committee fulfi ls the Risk Management Function and coordinates the risk management activities conducted for the Agency’s managed syndicates. It is responsible for ensuring that the RMF operates eff ectively, and for maintaining an aggregated and holistic view of risks to the syndicates and reporting on them to the Board, Committees and management as appropriate.

To support delivery of the Executive Risk Committee’s responsibilities, there are three Sub-Committees, each being responsible for oversight, review and challenge of the activities of the syndicates and in particular ensuring that activities are within risk policies, that risks are suitably identifi ed, monitored and reported, and that appropriate contingency plans are in place.

The principal risks to which the syndicates are exposed are discussed below together with the mitigation techniques adopted. For clarity, the risks are analysed by reference to the Sub-Committees that have responsibility for the relevant risk area.

Insurance Risks Sub-Committee (IRSC)The IRSC is responsible for oversight of insurance risk which includes underwriting, claims, reserving, and reinsurance. Insurance risk includes the risk that a policy might be written for too low a premium or provide inappropriate cover (underwriting risk), that the frequency or severity of insured events might be higher than expected (claims risk), or that estimates of claims subsequently prove to be insuffi cient (reserving risk).

Underwriting risk is mitigated through numerous controls including underwriter peer review, authority limits, independent review of risks written and purchase of an appropriate reinsurance programme. The Syndicate Business Forecast is completed annually and stipulates those classes of business and concentration by class that will be written during the forthcoming year. It is reviewed by the IRSC and approved by the Board prior to being submitted to the Lloyd’s Franchise Board for approval. Actual performance during the year is monitored by reference to the Syndicate Business Forecast.

Claims risk is mitigated by the syndicates hav ing a defi ned risk appetite which determines the net loss that each intends to retain for major catastrophe events and where deemed appropriate reinsurance is purchased to limit the impact of losses. Although the likelihood of occurrence is considered to be remote, there may be circumstances where the loss from a particular catastrophe event exceeds the net risk appetite perhaps due to the occurrence of a loss that has not been considered or where the reinsurance purchased proves to be insuffi cient.

Reserving risk is mitigated by the robust reserve adequacy exercise that is performed on a quarterly basis by the Head Actuary . The quarterly exercise involves a review of the paid and outstanding claims and an assessment of the appropriate provision for incurred but not reported (IBNR) claims. The reserves are considered by the IRSC and approved by the Board. The reserving is carried out based on historical development data, the claims environment and information provided by lawyers and third party claims adjusters. Although a thorough review is carried out the reserves carried may be more or less than adequate to meet the fi nal cost of claims.

The IRSC also reviews the proposed reinsurance programmes that are used to protect capital from frequency and severity of losses that may be sustained through underwriting the varied lines of business written. The review includes analysis of the reinsurance cover being purchased and assessment of the proposed counterparties.


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Financial Risks Sub-Committee (FRSC)The FRSC is responsible for the oversight of fi nancial risks and the steps taken to mitigate them as they arise from investments, asset/liability management, credit, liquidity and concentration risks. These risks are discussed further below.

Investment risk is the risk that the syndicates’ earnings are adversely aff ected by changes in the value of the investment portfolio; such changes in value may be driven by changes in the economic and political environment and by movements in interest and foreign exchange rates. The Agency manages the syndicates’ investments in accordance with investment guidelines established by the Board that are reviewed on a regular basis. The FRSC monitors the performance of the external investment manager and the custodians responsible for the safekeeping of the investments, and reports regularly to the Board.

Asset/liability mis-match is the risk that the syndicate could incur a loss through inadequate matching of its investments with its liabilities. Due to the short-tail nature of the majority of the liabilities the syndicates do not seek to achieve a precise matching with the investment portfolio, instead developing an investment duration guideline that is broadly in line with the average payment profi le of the liabilities. However the syndicates substantially mitigate exposure to currency mis-match by investing premiums in the currency in which subsequent claims are most likely to be incurred. The majority of the syndicates’ business is denominated in US dollars and accordingly the substantial part of the investment portfolio is in US dollar denominated investments.

The key aspect of credit risk is the risk of default by one or more of the syndicates’ reinsurers, their investment counterparties, or insurance intermediaries. Reinsurance is placed with those reinsurers that comply with the Atrium reinsurance policy. The exposure to credit risk in the investment portfolio is mitigated through adherence to the investment guidelines which require the syndicates’ investment portfolios to be held in government and corporate debt with a high credit quality rating and with a relatively short duration, thus substantially mitigating the risk of sustaining losses from default. Exposure to intermediaries is mitigated by rigorous review of new intermediaries, contractual terms of business, regulated or segregated client accounts, monitoring of balances and credit control procedures.

Liquidity risk is the risk that the syndicates will not be able to meet their short term liabilities as they fall due, owing to a shortfall in cash. This risk is mitigated through holding invested funds in high credit quality and short duration investments, and cash-fl ow projections are also reviewed on a regular basis. The need for overdraft facilities in case of unprojected cash fl ow defi cit is also reviewed regularly.

Concentration risk is the exposure to loss that could arise if the bulk of the amounts recoverable by the syndicates was dependent on a limited number of reinsurers, or if investments were restricted to limited numbers of counterparties or sectors. The risk is mitigated by restricting the permitted cessions to individual reinsurers for any one underwriting year and through the investment guidelines which limit exposure to individual investment counterparties and sectors.

Operational Risks Sub-Committee (ORSC)The ORSC is responsible for oversight of the syndicates’ exposures to operational, group and regulatory risks.

Operational risk includes exposure to loss from errors caused by people, processes or systems, group risk and emerging risks. The agency seeks to manage these risks by operating a control s-based environment which consists of documented procedures, segregation of duties and appropriate levels of review. Regular reviews are performed by the internal audit department to ensure that any deviations from the agency’s policies are identifi ed and reported to the appropriate level of management and audit committee when considered necessary.

The Regulatory risk is the risk of loss owing to a breach of regulatory requirements or failure to respond to regulatory change. The agency has a Compliance Offi cer and team who monitor regulatory developments and assess the impact on agency policy. They also carry out a compliance monitoring programme.

Solvency IIDuring the last year further progress has been made by the Agency on its Solvency II project. Specifi cally, Atrium has met all the requirements of the 2012 Dry Run and submitted to Lloyd’s a Final Application Pack, ORSA Report and Validation Report as required. The Agency will continue to work closely with the Corporation of Lloyd’s to ensure that Atrium remains on track to meet the demands of the Solvency II regime.

SYNDICATE MERGEROn 19 July 2011 the Council of Lloyd’s granted consent to the Company to implement the merger of Syndicate 570 and Syndicate 609 with eff ect from the 2012 year of account. Syndicate 609’s business plan for the 2012 year of account refl ected the expectation that all existing lines of business written by Syndicate 570 and Syndicate 609 would be written in Syndicate 609. In accordance with usual market practice, the 2010 year of account of Syndicate 570 will be reinsured to close into the 2011 year of account of Syndicate 570. The current intention is that the 2011 year of account of Syndicate 570 will be reinsured to close into the 2012 year of account of Syndicate 609.

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GROUP DEVELOPMENTSOn 29 February 2012, Ariel Holdings Limited (AHL), the Managing Agent’s ultimate holding company announced a transaction by which an affi liate of Goldman Sachs would acquire the Bermuda operations of Ariel Reinsurance Company Ltd (Ariel Re) another subsidiary in the Ariel group. On 2 March 2012, it was announced that Arch Capital Group Ltd intended to acquire Ariel Re’s Switzerland-based reinsurance operations.

On 5 April 2012, the Goldman Sachs transaction completed. Goldman Sachs acquired the name and brand Ariel and, therefore, shortly after completion, AHL was renamed Arden Holdings Limited and Ariel Re was renamed Arden Reinsurance Company Limited.

On 9 April 2012, the Arch Capital Group Ltd transaction completed.

The Atrium Group is not part of these transactions and continues to be owned by AHL. On 5 April 2012 George Rivaz stepped down as Chairman of the Board of the managing agency, with Richard Lutenski taking up this position.

DIRECTORS & OFFICERSThe Directors and Offi cers of the managing agent who served during the year ended 31 December 2012 were as follows:

Andrew Baddeley (resigned eff ective 6 February 2013)Martha Bruce, Equiniti David Venus Limited (Company Secretary) (resigned eff ective 29 June 2012)Marla Balicao, Equiniti David Venus Limited (Company Secretary)(appointed eff ective 29 June 2012)Steve CookSimon Cooper (resigned eff ective 31 May 2012) Toby DrysdaleAnn GodbehereRichard Harries (Active Underwriter 570 and 609) James Lee Richard Lutenski Nick MarshScott MoserGeorge Rivaz (resigned eff ective 5 April 2012)Samit Shah (appointed eff ective 4 January 2012)Kevin Wilkins (resigned eff ective 13 March 2012) Andrew Winyard

The following Directors were appointed after the end of the year but before the date of this report:

James Cox (appointed eff ective 4 January 2013)Kirsty Steward (appointed eff ective 23 January 2013)

DIRECTORS’ INTERESTSDetails of Directors’ interests can be found in Note 16 to the accounts.

By order of the Board

Steve CookManaging Director 4 March 2013


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STATEMENT OF MANAGING AGENT’S RESPONSIBILITIES

The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 require the managing agent to prepare syndicate underwriting year accounts at 31 December in respect of any underwriting year which is being closed by reinsurance to close which give a true and fair view of the result of the underwriting year at closure. Detailed requirements in respect of the underwriting year accounts are set out in the Lloyd’s Syndicate Accounting Byelaw (No 8 of 2005).

In preparing the syndicate underwriting year accounts, the managing agent is required to:

1. select suitable accounting policies which are applied consistently and where there are items which aff ect more than one year of account, ensure a treatment which is equitable as between the members of the syndicate aff ected. In particular, the amount charged by way of premium in respect of the reinsurance to close shall, where the reinsuring members and reinsured members are members of the same syndicate for diff erent years of account, be equitable as between them, having regard to the nature and amount of the liabilities reinsured;

2. take into account all income and charges relating to a closed year of account without regard to the date of receipt or payment;

3. make judgements and estimates that are reasonable and prudent; and

4. state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the underwriting year accounts.

The managing agent is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the fi nancial position of the syndicate and enable it to ensure that the syndicate underwriting year accounts comply with the Regulations. It is also responsible for safeguarding the assets of the syndicate and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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We have audited the Syndicates’ underwriting year accounts for the 2010 year of account of Syndicates 570 and 609 for the three years ended 31 December 2012, which comprise the Profi t and Loss Account, Balance Sheet, Statement of Cash Flows , the related notes 1 to 16 and the Statement of Managing Agent’s Responsibilities. The fi nancial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the syndicates’ members, as a body, in accordance with The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008. Our audit work has been undertaken so that we might state to the syndicates’ members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the syndicates’ members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITES OF THE MANAGING AGENT AND AUDITORAs explained more fully in the Statement of Managing Agent’s Responsibilities set out on page 5, the managing agent is responsible for the preparation of the syndicate underwriting year accounts, under The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and in accordance with the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005), which give a true and fair view. Our responsibility is to audit and express an opinion on the syndicate underwriting year accounts in accordance with the applicable legal and regulatory requirements and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE SYNDICATE’S UNDERWRITING YEAR ACCOUNTSAn audit involves obtaining evidence about the amounts and disclosures in the syndicate underwriting year accounts suffi cient to give reasonable assurance that the syndicate underwriting year accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the syndicate’s circumstances and have been consistently applied and adequately disclosed; the

reasonableness of signifi cant accounting estimates made by the managing agent; and the overall presentation of the syndicate underwriting year accounts. In addition we read all the fi nancial and non-fi nancial information in the Underwriting Year Report and Accounts to identify material inconsistencies with the audited underwriting year accounts. If we become aware of any apparent material mis-statements or inconsistencies we consider the implications for our report.

OPINION ON SYNDICATE’S UNDERWRITING YEAR ACCOUNTSIn our opinion the syndicate underwriting year accounts:

• give a true and fair view of the profi t for the 2010 closed year of account;

• have been properly prepared in accordance with the United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and have been properly prepared in accordance with the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005).

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTIONWe have nothing to report in respect of the following matters where The Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005) requires us to report to you if, in our opinion:

• the managing agent in respect of the syndicate has not kept proper accounting records; or

• the syndicate underwriting year accounts are not in agreement with the accounting records.

Angus Millar (Senior Statutory Auditor)For and on behalf of Ernst & Young LLP (Statutory Auditor) London 8 March 2013

INDEPENDENT AUDITORS’ REPORT

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PRINCIPLE ACCOUNTING POLICIESSYNDICATES 570 AND 609 – 31 DECEMBER 2011

1. BASIS OF PREPARATIONThese accounts have been prepared in accordance with the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008, the Lloyd’s Syndicate Accounting Byelaw (No. 8 of 2006) and applicable Accounting Standards in the United Kingdom and comply with the Statement of Recommended Practice on Accounting for Insurance Business issued in December 2005 (as amended in December 2006) by the Association of British Insurers.

Members participate on a syndicate by reference to a year of account and each syndicate year of account is a separate annual venture. These accounts relate to the 2010 year of account which has been closed by reinsurance to close as at 31 December 2012.

Consequently the balance sheet represents the assets and liabilities of the 2010 year of account at the date of closure. The profi t and loss account and statement of cash fl ows refl ect the transactions for that year of account during the three year period until closure.

These accounts cover the three years from the date of inception of the 2010 year of account to the date of closure. Accordingly, this is the only reporting period and so corresponding amounts are not shown.

2. ACCOUNTING POLICIESThe underwriting accounts for each year of account are normallykept open for three years before the result on that year is determined. At the end of the three year period, outstanding liabilities can normally be determined with suffi cient accuracy to permit the year of account to be closed by payment of a reinsurance to close premium to the successor year of account.

Premiums WrittenGross premiums are allocated to years of account on the basis of the inception date of the policy. Premiums in respect of insurance contracts underwritten under a binding authority, line slip or consortium arrangement are allocated to the year of account corresponding to the calendar year of inception of the arrangement. Premiums are shown gross of brokerage payable and exclude taxes and duties levied on them.

Premiums written are treated as fully earned.

Reinsurance Premium CededInitial reinsurance premiums paid to purchase policies which give excess of loss protection are charged to the year of account in which the protection commences. Premiums for other reinsurances are charged to the same year of account as the risks being protected. Reinsurance premiums paid to purchase protection in respect of the run-off of syndicate 570’s business are charged to the same year of account as the risks being protected.

Claims Paid and Related RecoveriesGross claims paid include internal and external claims settlement expenses and, together with reinsurance recoveries less amounts provided for in respect of doubtful reinsurers, are attributed to the same year of account as the original premium for the underlying policy. Reinstatement premiums payable in the event of a claim being made are charged to the same year of account as that to which the recovery is credited.

Reinsurance to Close Premium PayableThe net reinsurance to close premium is determined on the basis of estimated outstanding liabilities and related claims settlement costs (including claims incurred but not reported), net of estimated collectible reinsurance recoveries, relating to the closed year of account and all previous years of account reinsured therein. The estimate of claims outstanding is assessed on an individual case basis and is based on the estimated ultimate cost of all claims notifi ed but not settled by the balance sheet date. It also includes the estimated cost of claims incurred but not reported (‘IBNR’) at the balance sheet date based on statistical methods.

These methods generally involve projecting from past experience of the development of claims over time to form a view of the likely ultimate claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. For the most recent years, where a high degree of volatility arises from projections, estimates may be based in part on output from rating and other models of the business accepted and assessments of underwriting conditions. The amount of salvage and subrogation recoveries is separately identifi ed.

The reinsurers’ share is based on the amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, the claims experience for the year and the current security rating of the reinsurance companies involved. A number of statistical methods are used to assist in making these estimates.

The two most critical assumptions as regards claims estimates are that the past is a reasonable predictor of the likely level of claims development and that the rating and other models used for current business are fair refl ections of the likely level of ultimate claims to be incurred.

The directors consider that the estimates of gross claims and related reinsurance recoveries are fairly stated on the basis of the information currently available to them. However, it is implicit in the estimation procedure that the ultimate liabilities will be at variance from the reinsurance to close premium so determined.

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Foreign CurrenciesTransactions, other than reinsurance to close, in US Dollars, Canadian Dollars and Euros are translated at the average rates of exchange for the period. Reinsurance to close premiums receivable and payable, and underwriting transactions denominated in other foreign currencies, are included at the rate of exchange ruling at the transaction date.

Assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the balance sheet date.

Exchange diff erences are included in the technical account.

Where Canadian Dollars or Euros are sold or bought relating to the profi t or loss of the closed underwriting account after 31 December, any exchange profi t or loss arising is refl ected in the underwriting account into which the liabilities of that year have been reinsured. Where United States Dollars relating to the profi t or loss of a closed underwriting account are bought or sold by members on that year, any exchange profi t or loss accrues to those members.

InvestmentsInvestments are stated at current value at the balance sheet date. For this purpose listed investments are stated at market value and deposits with credit institutions are stated at cost. Unlisted investments for which a market exists are stated at the average price at which they are traded on the balance sheet date or the last trading day before that date.

Investment ReturnInvestment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investment expenses, charges and interest. The returns on the Joint Asset Trust Funds and Illinois Deposit are allocated to the year of account as notifi ed by Lloyd’s. The returns on other assets arising in a calendar year are apportioned to years of account open during the calendar year in proportion to the average funds available for investment on each year of account.

Realised gains and losses on investments carried at market value are calculated as the diff erence between sale proceeds and purchase price. Unrealised gains and losses on investments represent the diff erence between the valuation at the balance sheet date and their valuation at the previous balance sheet date, or purchase price, if acquired during the year, together with the reversal of unrealised gains and losses recognised in earlier accounting periods in respect of investment disposals in the current period.

Investment return is initially recorded in the non-technical account.

A transfer is made from the non-technical account to the general business technical account. Investment return has been wholly allocated to the technical account as all investments relate to the technical account.

Operating ExpensesWhere expenses are incurred by or on behalf of the managing agent on the administration of managed syndicates, these expenses are apportioned using varying methods depending on the type of expense. Expenses which are incurred jointly for the agency company and managed syndicates are apportioned between the agency company and the syndicates on bases depending on the amount of work performed, resources used and the volume of business transacted. Syndicate operating expenses are allocated to the year of account for which they are incurred.

TaxationUnder Schedule 19 of the Finance Act 1993 managing agents are not required to deduct basic rate income tax from trading income. In addition, all UK basic rate income tax deducted from syndicate investment income is recoverable by managing agents and consequently the distribution made to members or their members’ agents is gross of tax. Capital appreciation falls within trading income and is also distributed gross of tax.

No provision has been made for any United States Federal Income Tax payable on underwriting results or investment earnings. Any payments on account made by the syndicates’ during the year are included in the balance sheet under the heading ‘other debtors’.

No provision has been made for any overseas tax payable by members on underwriting results.

Pension CostsThe Atrium Group operates a defi ned contribution scheme. Pension contributions relating to syndicate staff are charged to the syndicate and included within net operating expenses.

Profi t CommissionProfi t commission is charged by the managing agent at a rate of 20% of profi t subject to the operation of a defi cit clause. Where profi t commission is charged, it is included within members’ standard personal expenses within administrative expenses.

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UNDERWRITERS REPORTSYNDICATE 570

I am reporting to you as Active Underwriter Syndicate 570, where my role is to ensure an orderly run off of the syndicate in advance of its planned RITC into Syndicate 609 and report to you the results of the 2010 and 2011 Years of Account.

2010 YEAR OF ACCOUNT I am pleased to report that the year has closed with a profi t of 8.7% after all personal expenses but before members’ agent’s fees. This should be ahead of the Lloyd’s market and is at the top end of our forecast range. The result included a £11.4m (7.4%) contribution from 2009 and prior years of account. This compares to a £10.6m contribution from the 2008 and prior years to last year’s result.

There were no US catastrophe losses but the Syndicate did carry exposures to the 2010 Chile and New Zealand earthquakes. The year of account was also impacted both by the second New Zealand earthquake in early 2011, and the Japanese earthquake with resulting tsunami that soon followed. These losses have hit the reinsurance account which has previously been a signifi cant contributor of profi t for the syndicate, but not so in 2010.

The other accounts have produced good profi ts with very good performance from Accident and Health, Marine , Aviation and Casualty XS. It is noteworthy that the Professional Liability is now expected to be profi table on a pure year of account basis as it is no longer aff ected by the poor performance of Italian Notaries account which impacted the 2007 to 2009 years of accounts.

Investment returns have been disappointing contributing 2.9% (£3.9m) to the overall results, but in the context of the turmoil created fi rst through the credit crisis and latterly from the Euro zone’s sovereign debt travails, executing an investment plan that focuses on a short duration and high credit quality portfolio means that we are trading some potential return for the security of the assets we hold on your behalf.

The gross written income was £103m (net of acquisition costs) which is 69% of stamp.

2011 YEAR OF ACCOUNTAs I wrote last year, 2011 was a diffi cult year for the insurance industry and Syndicate 570 was not immune to losses from the natural catastrophes that took place. The Reinsurance account has again been impacted and our US Property account has also suff ered losses from the Tornadoes, Hurricane Irene and some large theft claims.

In view of the fact the syndicate’s reinsurance book also includes an element of “retro cover” (i.e. reinsurance of reinsurers where notifi cations tend to be received later) the 2011 YOA has suff ered a greater proportion of losses from Japan and New Zealand Earthquakes than other Lloyd’s reinsurers as the majority of their losses fell into the 2010 YOA.

The 2011 year of account will also suff er losses due to Superstorm Sandy. Our gross loss estimate is US$3.4m with the majority of claims impacting the US Property account.

The reserves remain robust and, as in previous years, a good prior year performance is expected. However, even taking this into account, our expectation remains the year of account will close with a small loss. Our current range remains -10% to 0%.

Richard HarriesActive Underwriter, Syndicate 570 4 March 2013

570

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PROFIT AND LOSS ACCOUNT: TECHNICAL ACCOUNT - GENERAL BUSINESS FOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 201 2

PROFIT AND LOSS ACCOUNT:NON-TECHNICAL ACCOUNT - GENERAL BUSINESSFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

Notes £’000

Syndicate allocated capacity 144,643

Earned premiums, net of reinsurance

Gross premiums written 1 144,732

Outward reinsurance premiums (10,653)

Earned premiums, net of reinsurance 134,079

Reinsurance to close premium received, net of reinsurance

At transaction rates of exchange 146,324

Revaluation to closing rates of exchange (5,985)

Reinsurance to close premium received, net of reinsurance at closing rates of exchange 2 140,339

274,418

Allocated investment return transferred from the non-technical account 3,943

Claims incurred, net of reinsurance

Claims paid

Gross amount 68,926

Reinsurers’ share 285

69,211

Reinsurance to close premium payable, net of reinsurance 3 137,473

206,684

Net operating expenses 4 59,078

Balance on the technical account for general business 8 12,599

Notes £’000

Balance on the technical account for general business 12,599

Investment income 7 4,375

Unrealised gains on investments 494

Investment expenses and charges 7 (926)

Allocated investment return transferred to general business technical account (3,943)

Profi t for the 2010 closed year of account 12,599

570

11

570 BALANCE SHEET FOR THE 2010 CLOSED YEAR OF ACCOUNT AT 31 DECEMBER 2012

Notes £’000

Assets

Investments 9 113,567

Deposits with ceding undertakings 151

Debtors 10 19,690

Reinsurance recoveries anticipated on gross reinsurance to close premium payable to close the account 3 8,012

Other assets

Cash at bank and in hand 1,032

Overseas deposits 27,176

Prepayments and accrued income 114

Total assets 169,742

Liabilities

Amounts due to members 11 11,718

Reinsurance to close premium payable to close the account - gross amount 3 145,485

Creditors 12 11,992

Accruals and deferred income 547

Total liabilities 169,742

The 2010 closed year underwriting accounts were approved at a meeting of the Board of Directors of Atrium Underwriters Limited, and by the Active Underwriter, on 4 March 2013 and were signed on its behalf by:

Kirsty Steward Richard Harries Director Active Underwriter 4 March 2013 4 March 2013

12

STATEMENT OF CASH FLOWS FOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

Notes £’000

Net cash outfl ow from operating activities 13 (18,754)

Transfer to members in respect of underwriting participations –

Members’ agents’ fees paid on behalf of members (881)

14 (19,635)

Cash fl ows were invested as follows:

Increase in cash holdings 14 1,032

Decrease in overseas deposits 14 (1,335)

Net portfolio investment 14,15 (19,332)

Net investment of cash fl ows (19,635)

570

13

570

1. Segmental Analysis

An analysis of the underwriting result before investment return is set out below:

Gross premiums Gross claims Reinsurance written incurred Gross operating balance (note 1) (note 2) expenses (note 3) Total £’000 £’000 £’000 £’000 £’000

Direct insurance:

Accident and health 31,761 14,465 15,034 168 2,430

Motor (third party liability) - (149) - 118 267

Motor (other classes) 3,342 2,899 1,304 692 (169)

Marine, aviation and transport 16,515 2,764 6,956 (3,254) 3,541

Fire and other damage to property 28,800 14,233 13,972 (1,440) (845)

Third party liability 41,557 21,239 17,094 (2,646) 578

Credit and suretyship 1,727 297 679 (177) 574

123,702 55,748 55,039 (6,539) 6,376

Reinsurance 21,030 10,722 5,621 (2,802) 1,885

144,732 66,470 60,660 (9,341) 8,261

RITC received 140,339 147,943 – 7,997 393

Total 285,071 214,413 60,660 (1,344) 8,654

1. Gross premiums written are treated as fully earned.2. Gross claims incurred comprises gross claims paid and gross reinsurance to close premium payable.3. The reinsurance balance comprises reinsurance premiums ceded less reinsurance recoveries on claims paid and reinsurance recoveries anticipated on

reinsurance to close payable.4. All premiums are concluded in the UK.

2. Reinsurance to Close Premium Receivable

£’000

Gross notifi ed outstanding claims 65,223

Reinsurance recoveries anticipated (5,514)

Net notifi ed outstanding claims 59,709

Provision for gross claims incurred but not reported 89,420


Provision for net claims incurred but not reported 86,615

Reinsurance to close premium receivable, net of reinsurance at transaction rates of exchange 146,324


Reinsurance to close premium receivable, net of reinsurance at closing rates of exchange 140,339

NOTES TO THE FINANCIAL STATEMENTS FOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

14

570

3. Reinsurance to Close Premium Payable

£’000







Reinsurance to close premium payable, net of reinsurance 137,473

The reinsurance to close is eff ected to the 201 1 year of account of Syndicate 570.

4. Net Operating Expenses

£’000

Acquisition costs 46,97 7

Administrative expenses 11,539

Loss on exchange 8,129

Allocation to reinsurance to close premium receivable, net of reinsurance (5,985)

60,6 60

Reinsurance commissions receivable (1,58 2)

59,078

Administrative expenses include: £’000

Auditors’ remuneration

Audit services 51

Other services 4

Managing agent’s profi t commission 3,137

Members’ standard personal expenses are included within administrative expenses and amount to £5,175,000.

NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

15

570

5. Staff Numbers and Costs All staff are employed by Atrium Group Services Limited. The following amounts were recharged to the syndicate in respect of staff costs:

£’000

Wages and salaries 4,647

Social security costs 521

Other pension costs 547

5,715

The average number of employees employed by Atrium Group Services Limited, but working for the syndicate during the three years, was as follows:

Number

Management 2

Underwriting 13

Claims 3

Administration 10

28

6. Emoluments of the Directors of Atrium Underwriters Limited The fourteen Directors of Atrium Underwriters Limited received the following aggregate remuneration charged to the syndicate and included within net operating expenses: £’000

Emoluments 646

The Active Underwriter received the following remuneration charged as a syndicate expense: £’000

Emoluments 200

7. Investment Return

£’000

Investment income:

Income from investments 4,275

Gains on the realisation of investments 100

4,375

Investment expenses and charges:

Investment management expenses, including interest (211)

Losses on the realisation of investments (715)

(92 6)

16

570

8. Balance on Technical Account

£’000

Balance excluding investment return and operating expenses

Profi t attributable to business allocated to the 2010 pure year of account 56,325

Profi t attributable to business reinsured into the 2010 year of account 11,409

67,734


Net operating expenses (59,078)

12,599

9. Investments

Market value Cost £’000 £’000

Shares and other variable yield securities and units in unit trusts 4,933 4,933

Debt securities and other fi xed income securities 104,874 102,992

Loans secured by mortgage 3,724 3,664

Deposits with credit institutions 36 36

113,567 111,625

Debt securities and other fi xed income securities and loans secured by mortgage are all listed on recognised stock exchanges.

10. Debtors £’000

Arising out of direct insurance operations

Due from intermediaries 7,506

Arising out of reinsurance operations 509

Other 11,675

19,690

Other debtors include inter year loans of £10,785,000.

11. Amounts Due to Members

£’000


Members’ agents’ fee advances (881)

Distributions to members to date –

Amounts due to members at 31 December 2012 11,718


17

12. Creditors

£’000


Due to intermediaries 7,176

Arising out of reinsurance operations 848


Other 831

11,992

13. Reconciliation of Profi t for the Year of Account to Net Cash Outfl ow from Operating Activities

£’000

Profi t for the year of account 12,599

Realised and unrealised investment gains including foreign exchange (2,937)

Increase in debtors (5,519)

Decrease in creditors (22,420)

Non-cash consideration for net RITC receivable (137,950)

Net reinsurance to close premium payable 137,473

Net cash outfl ow from operating activities (18,754)

Consideration for net RITC receivable comprised:

£’000

Non-cash consideration:

Portfolio investments 128,577

Deposits with credit institutions 38


Debtors 14,436

Creditors (34,959)

137,950

Cash 8,374

146,324

570

18

570

14. Movement in Opening and Closing Portfolio Investments Net of Financing

£’000

Net cash infl ow from the three years 1,032

Cash fl ow

Decrease in overseas deposits (1,335)

Portfolio investments (19,332)

Movement arising from cash fl ows (19,635)

Received as consideration for net RITC receivable



Changes in market value and exchange rates 2,937

Total movement in portfolio investments 141,775

Portfolio at 1 January 2010 -

Portfolio at 31 December 2012 141,775

Movement in Cash, Portfolio Investments and Financing Received as At consideration Changes to At 1 Jan for net RITC market value 31 Dec 2010 Cash fl ow receivable and currencies 2012 £’000 £’000 £’000 £’000 £’000

Cash at bank and in hand - (7,342) 8,374 - 1,032

Overseas deposits - (1,335) 29,858 (1,347) 27,176

Portfolio investments:

Shares and other variable yield securities and units in unit trusts - (3,199) 8,445 (313) 4,933

Debt securities and other fi xed income securities - (16,037) 116,384 4,527 104,874

Loans secured by mortgage - (96) 3,748 72 3,724

Deposits with credit institutions - - 38 (2) 36

Total portfolio investments - (19,332) 128,615 4,284 113,567

Total cash, portfolio investments and fi nancing - (28,009) 166,847 2,937 141,775

The changes to market values and currencies include £(6.7)m relating to currency revaluation of non-Sterling denominated investments and deposits.

15. Net Cash Infl ow on Portfolio Investments

£’000

Purchase of debt securities and other fi xed income securities (88,478)

Purchase of loans secured by mortgage (606)

Sale of shares and other variable yield securities 3,199

Sale of debt securities and other fi xed income securities 104,515

Sale of loans secured by mortgage 702

Net cash infl ow on portfolio investments 19,332


19

570

16. Disclosures of Interest

Arden Holdings Limited (AHL), a company incorporated under the laws of Bermuda, is the ultimate holding company of Atrium Underwriting Group Limited (AUGL). AHL changed it’s name from Ariel Holdings Limited to Arden Holdings Limited on 5 April 2012, following the completion of the Goldman Sachs acquisition of the Ariel Re operations, name and brand.

AUGL is the holding company of the following wholly owned susidiaries; Atrium Underwriting Holdings Limited (AUHL), Atrium Insurance Agency Limited (AIAL), Atrium Group Services Limited (AGSL), Atrium Insurance Agency (Asia) Pte.Ltd (ASIA), Atrium Risk Management Services (Washington) Ltd (ARMS) and Atrium Risk Management Services (British Columbia) Ltd (ARMSBC). AUL is authorised and regulated by the Financial Services Authority and is the managing agent of Syndicates 570 and 609 (the ‘managed syndicates’). AUHL is the holding company of Atrium 5 Limited and ten non-continuing members of Lloyd’s.

AUGL participates on the managed syndicates through its corporate member subsidiary, Atrium 5 Limited whose participation on each year of account is as follows: 2010 2011 2012 2013 Capacity Capacity Capacity Capacity £m £m £m £m

Syndicate 570 31.0 25.9 – -

Syndicate 609 51.5 70.9 70.9 106.8 Atrium 5 Limited’s participation on the managed syndicates as % of syndicate capacity: Year of account 2010 2011 2012 2013 % % % %

Syndicate 570 24.8 24.8 – -

Syndicate 609 25.8 25.8 25.8 25.4

On 28 April 2011, Atrium wrote to the Council of Lloyd’s with a notice of the intention to merge Syndicate 570 and Syndicate 609 with eff ect from the commencement of the 2012 year of account. Consent to the merger was granted on 19 July 2011. Richard Harries was appointed Underwriter of Syndicate 570 with eff ect from 1 January 2012. In order to manage the run-off of Syndicate 570’s business, certain Syndicate 609 underwriters have authorities that enable them to service business on behalf of both managed syndicates.

AHL is the ultimate holding company of Arden Reinsurance Company Ltd (Arden Re). On 1 March AHL announced a transaction by which an affi liate of Goldman Sachs would aquire the Bermuda operations of Ariel Reinsurance Company Ltd (Ariel Re), another subsidiary in the Ariel Group. On March 2012 it was announced that Arch Capital Group Ltd intended to acquire Ariel Re’s Switzerland-based reinsurance operations. On 5 April 2012 the Goldman Sachs transaction was completed and Ariel Re was renamed Arden Re. On 9 April 2012 the Arch Capital Group Ltd transaction completed.

AIAL is a registered Lloyd’s UK coverholder and is authorised and regulated by the Financial Services Authority. Syndicate 609 leads a binding authority granted to AIAL to underwrite Space business. The binding authority is led by Syndicate 609. Syndicate 570 participated on this binding authority up until 31 December 2011. Under the terms of the binding authority, fees and profi t commission are payable to AIAL. Fee income of US$60 ,000 was paid by the syndicate to AIAL in relation to premium earned on the 2010 year of account. Profi t commission of US$63,000 is due in relation to the 2010 year of account.

AGSL is a group service company. All UK employee contracts and, where possible, all material service provider contracts are held by AGSL. A service agreement is in place whereby AGSL provides all management services to all Atrium Group companies. Under the service agreement AGSL will charge the costs to each Atrium group company, including AUL, for the respective services provided.

ASIA carries on for its own account the business of insurance intermediation in Singapore, operating on the Lloyd’s Asia platform. In this capacity it has been granted authority by Syndicate 609 to bind certain risks (including marine hull, energy, aviation and non-marine property risks) and has been approved by Lloyd’s and the Monetary Authority of Singapore to act as a Lloyd’s Singapore Service Company. Under the terms of the arrangement with Syndicate 609 ASIA charges fees to the Syndicate equal to its operating costs plus a small margin for tax reasons. Fees of S$1,644,000 were paid by Syndicate 609 on the 2010 year of account.

ARMS is incorporated in Washington State, USA and was established to support the Syndicate strategy to maintain and grow it’s North American direct portfolio and distribution network. ARMS charges fees to the Syndicates equal to its operating costs plus a small margin for tax reasons. Fees of U$349,000 were paid by Syndicate 609 in respect of the 2010 year of account.

ARMSBC is incorporated in British Columbia, Canada, and was established to support the Syndicate strategy to maintain and grow it’s North American direct portfolio and distribution network. ARMSBC charges fees to the Syndicates equal to its operating costs plus a small margin for tax reasons. Fees of C$596,000 were paid by Syndicate 609 in respect of the 2010 year of account.

20

570

16. Disclosures of Interest (continued)

AUL manages four underwriting consortia. The Atrium Aviation Consortium is an internal consortium arrangement between Syndicate 570 & 609 on a 40%/60% split basis. Lloyd’s approval was given on 21st July 2003 for this arrangement. An overrider is charged by Syndicate 609 to Syndicate 570. This consortium arrangement ceased for the 2012 year of account.

The Atrium Airline Hull War and Allied Perils Consortium and the two Atrium Aviation Reinsurance Consortia are led by Syndicate 609 and supported by various other Lloyd’s syndicates, including Syndicate 570. Lloyd’s approval is not required under the Multiple Syndicates Byelaw for these consortia. Fees and profi t commission are payable by all consortium members including Syndicate 570. AUL processes the fees and profi t commission on behalf of Syndicate 609 but currently retains no remuneration in its role as manager of these consortia. Two Aviation Reinsurance Quota share treaties are in place that replicate the Atrium Reinsurance Consortia. Profi t commissions and overriders are payable by Syndicate 570 to Syndicate 609 under this arrangement. Syndicate 570’s participation on all of these Consortia and Quota Share arrangements ceased for the 2012 year of account.

Syndicate 609 has entered into a quota share contract of their Space account for the 2009, 2010 ,2011 and 2012 years of account with Ariel Re. Permission for this arrangement was granted by Lloyd’s on 30 December 2008. Income expected to be ceded under this arrangement for the 2013 year of account is US$1. 1m (actual 2012 year of account - US$ 0.8m). Syndicate 609 agreed to transfer the quota share to the Goldman Sachs subsidiary during 2012 following it’s acquisition of the Bermuda operations of Ariel Re.

A quota share of Syndicate 609 by Syndicate 570 was entered into in relation to Aviation business underwritten on behalf of Syndicate 609 by ASIA. Under the terms of the quota share an overriding commission is payable by Syndicate 570 to Syndicate 609. The terms were set and agreed by the respective Active Underwriters. Lloyd’s gave consent of a waiver under the Multiple Syndicates Byelaw on 9 November 2009. No overriding commission has been paid by Syndicate 570 in calendar year 2010. This arrangement ceased for the 2012 year of account.

The implementation of the syndicate merger from 1 January 2012 has resulted in the related party transactions between the two managed syndicates ceasing with eff ect from 2012.

It is possible that further transactions may be entered into between the managed syndicates and Arden Re.

With eff ect from 2012 certain reinsurances purchased will be for the benefi t of both Syndicates 570 and 609. The Board determined that this was the most effi cient process to protect both the ongoing and run-off business. There is the possibility that one or other syndicate exhausting the available coverage, in which case we would examine the need to purchase back-up coverage. Costs will be charged on an equitable basis determined by the Board. Several of these shared reinsurance arrangements have renewed into 2013

The Directors’ participations on Syndicates 570 & 609 via Nomina No. 207 LLP are as follows:

Syndicate 570 Syndicate 609 2010 yoa 2011yoa 2012 yoa 2013 yoa 2010 yoa 2011yoa 2012yoa 2013 yoa £ £ £ £ £ £ £ £

Andrew Baddeley 7,534 7,534 - - 14,289 14,289 28,793 -

Steve Cook 11,213 11,213 - - 21,266 21,266 37,438 35,500

Simon Cooper 40,788 40,788 - - 77,357 77,357 135,145 -

Toby Drysdale 9,212 9,212 - - 17,472 17,472 29,173 27,707

Richard Harries 52,242 52,242 - - 99,079 99,079 199,973 250,000

Nick Marsh 37,671 37,671 - - 71,444 71,444 109,115 109,069

Samit Shah 10,197 10,197 - - 19,339 19,339 36,500 38,945

AUL has made no loans to directors of the company during 2012.

Managing agency fees of £1,007,000 were paid by the syndicate to AUL. Profi t commission of £3,137,000 is payable by the syndicate to AUL in relation to the 2010 year of account result. The managing agents agreement was amended in 2007 to enable managing agents to make payments on account of profi t commission, prior to the closure of a year of account. Payments on account can be made when the syndicate transfers open year surpluses from the syndicate level premium trust funds to the members’ personal reserve fund. No payment was made in 2012. Included within creditors is £3,137,000 in respect of profi t commission payable to AUL in relation to the 2010 year of account.


21

570

Year of Account 2010 2009 2008 2007 2006 2005 2004 Notes £m £m £m £m £m £m £m

Syndicate allocated capacity 145 125 125 125 150 150 164

Aggregate net premiums 134 128 117 129 124 124 141

Number of underwriting members 2,353 2,377 2,347 2,253 2,351 2,338 2,931

Results for an illustrative share of £10,000 £ £ £ £ £ £ £

Gross premiums 10,006 11,050 10,299 11,161 8,997 9,301 9,332

Gross premiums % 1 100.1% 110.5% 103.0% 111.6% 90.0% 93.0% 93.3%

Net premiums 9,271 10,232 9,371 10,329 8,290 8,245 8,576

Net premium % 2 92.7% 102.3% 93.7% 103.3% 82.9% 82.5% 85.8%

Premium for the reinsurance

to close an earlier year of account 3 9,702 11,343 11,330 10,404 9,157 6,031 5,461

Net claims 4 4,785 4,426 5,269 4,918 3,490 3,597 3,207

Premium for the reinsurance

to close the year of account 9,504 11,678 11,254 11,124 9,578 6,791 5,504

Underwriting profi t 4,684 5,471 4,178 4,691 4,379 3,888 5,326

Loss/(profi t) on exchange 148 1 (908) (959) (628) 155 779

Syndicate operating expenses 3,580 4,002 3,534 3,967 3,038 2,701 2,675

Balance on technical account 956 1,468 1,552 1,683 1,969 1,032 1,872

Balance on technical account % 5 9.6% 13.3% 15.1% 15.1% 21.9% 11.1% 20.7%

Investment return 273 309 471 663 612 682 458

Profi t for closed year of account 1,229 1,777 2,023 2,346 2,581 1,714 2,330

Illustrative managing agent’s profi t commission 217 339 388 438 486 324 417

Illustrative personal expenses 141 77 75 151 150 100 245

Profi t after illustrative profi t commission and

illustrative personal expenses 6 871 1,361 1,560 1,757 1,945 1,290 1,668

Notes

1. Gross premiums as a percentage of illustrative share.

2. Net premiums as a percentage of illustrative share.

3. The reinsurance to close premium that has been received by the 2010 year of account has been retranslated to the rates of exchange that were applicable as at 31 December 2012.

Reinsurance to close premiums receivable in respect of the 2009 and prior years of account have not been restated.

4. Net claims include internal claims settlement expenses.

5. Balance on technical account as a percentage of gross premiums.

6. Illustrative personal expenses, including illustrative profi t commission, are based on a calculation of amounts incurred by a member writing an illustrative share. For this purpose minimum fee charges are ignored.

Memorandum Item Year of Account 2010 2009 2008 2007 2006 2005 2004For an illustrative share of £10,000 £ £ £ £ £ £ £

Aggregation of annual fee, profi t commission and syndicate expenses 658 889 1,007 1,106 901 741 779

SEVEN YEAR SUMMARY OF RESULTSSYNDICATE 570 AT 31 DECEMBER 2012

22

UNDERWRITERS REPORTSYNDICATE 609

2010 YEAR OF ACCOUNTI am delighted to be able to report Syndicate 609 is declaring a profi t of £46m after all personal expenses but before members agents fees, representing a 16.7% return on capacity. This is an excellent result when set against the $70 billion of natural catastrophe losses in New Zealand and Japan that, although they occurred in 2011, primarily aff ected the 2010 year of account.

The Syndicate’s 2010 year of account should be considerably ahead of the Lloyd’s global result. One of our stated aims is to outperform the market and we have achieved that again this year.

The result has benefi tted from favourable run off from the back years which contributed 7.6% (£21m) to the overall result. All of the classes produced good profi ts with the exception of Property Reinsurance and Non Marine Property Direct as these both suff ered losses from the above mentioned natural catastrophes.

Investment returns have been disappointing contributing 2.4% (£6.6m) to the overall result but, in the context of the turmoil created fi rst through the credit crisis and latterly from the Euro zone’s sovereign debt travails, executing an investment plan that focuses on a short duration and high credit quality portfolio means that we are trading some potential return for the security of the assets we hold on your behalf.

2011 YEAR OF ACCOUNT2011 year of account was additionally aff ected by severe fl ooding in Thailand, further earthquakes in New Zealand, high frequency and severity of Tornadoes in the US and fi nally Hurricane Irene hitting the North East coast of the US.

As I reported last year there was considerable uncertainty about how these losses could develop, in particular Thailand. The good news is that the Syndicate’s initial reserves have remained robust. The Syndicate has a very good record of setting initial reserves and does not typically experience subsequent deterioration, as can be seen from the chart of gross estimates below. We rely on underwriter best estimates (as opposed to third party models) which is an example of underwriter’s thorough understanding of the classes they underwrite.

-

10

20

30

40

50

60

08Q4 09Q4 10Q4 11Q4 12Q4

$m

Hurricane Ike Chile Quake NZ Quake I

NZ Quake II Japan Quake Thai Floods

Superstorm Sandy

The major risk loss aff ecting the 2011 year of account was the sinking of the Costa Concordia. This loss has deteriorated signifi cantly during the year as the costs to remove the vessel continue to escalate. Initial market estimates were in the region of $200m but have increased to over $500m. The Syndicate had anticipated the majority of this deterioration and carries additional reserves in the event that the removal is more time consuming and complex than currently expected.

After a diffi cult start, the year of account is running off smoothly with an excellent result expected from Upstream Energy, Aviation Reinsurance and all War classes.

Our forecast range for the year has improved to between +3% and +13% and our income estimate is £185m which is 68% of stamp.

2012 YEAR OF ACCOUNT2012 represented our fi rst year trading as a merged syndicate. We are pleased that we have been able to deliver most of the benefi ts outlined in our ‘ Merger document’. These include off ering larger lines on certain accounts including Casualty Reinsurance, retaining more risk on our Terrorism, Space and Energy Wind accounts and increasing our US Property and Casualty ‘delegated underwriting’ book. The Syndicate is defi nitely stronger as a merged unit and will provide the optimal platform for a sustainable business in the future.

We have also been able to attract new underwriters, in particular Andrew Wadsworth who will be writing an International Casualty Account. Andrew has over 25 years experience underwriting International Casualty (in the Lloyd’s market) and has an excellent reputation in the market place. He has a very similar target risk profi le to our US Casualty book. His book will be written predominantly through Delegated Underwriting Authorities; Atrium has fi rst class procedures and processes for handling these arrangements.

The Syndicate has experienced no major risk losses in the 2012 year of account to date, although a gas leak on a North Sea platform with over $3bn of exposure in the vicinity, was a reminder of the type of loss to which the Syndicate could be exposed. Fortunately the leak was controlled but the cost to do that was over $300m. Our satellite consortium missed the 3 large launch losses and only experienced one minor loss on the last launch of the year.

For the fourth year in succession there were no major hurricanes through the Gulf of Mexico and towards the end of October most thought the US Hurricane season was over and bumper profi ts could be realised. The sting in the tail was Sandy. Sandy was classifi ed as a hurricane when tracking up the East coast, having already caused damage in the Caribbean. However, it was downgraded to a storm (or, depending on which paper you read, a Superstorm or even Frankenstorm) on making landfall. One of the eff ects of this downgrade classifi cation was that insurers could not apply the higher deductibles or excesses which can often apply to hurricane losses and consequently the insurance market loss increases.

609

23

609

Our current gross loss estimate for Sandy for 609 is $32m of which $30m is expected to fall to the 2012 year of account. We expect to recover approximately 12% of the loss from reinsurance although this percentage will vary across years of account depending on how and when the losses are paid.

Our loss stands up well against Lloyd’s and our peers, representing only 7% of net earned premium income and 32% of our North East RDS . Lloyd’s have advised that they expect a loss of between $2bn and $2.5bn, which represents a loss of up to 9% of net earned premium.

The loss is spread across several of our business classes, in particular Non Marine D&F and Property Binders, Property and Marine Reinsurance and Cargo, Fine Art and Specie. The Marine market was hit disproportionately hard by Sandy as there were several large cargo and specie losses with a total estimated loss of up to $3 billion, of which a large proportion was reinsured hitting marine reinsurers hard. This is in contrast to the property losses where only a fraction is estimated to be reinsured.

At this very early stage the syndicate is forecasting a range of results between 0% to +10 %. Final syndicate income is expected to be £285m which represents a stamp utilisation of 68%.

2013 AND BEYONDThe 2013 renewal season was fl at which was as expected. There was limited upside eff ect from Sandy although it may have prevented further softening in some areas. In view of the excellent results produced by many of the classes on which 609 participate, our books of business are always under pressure. In particular there are new entrants and intense competition on our General Aviation book and the recent very good profi ts from Space are leading to larger rate reductions. There is also a feeling in the market that War and Terrorism business can be written at any price, which puts obvious pressure on our underwriters who try to select risk intelligently.

Our operation in Singapore continues to grow; we have attracted three quality underwriters in the last year who will add to our product off ering in the region. The underwriting conditions remain very challenging and we have maintained our disciplined approach. I am pleased to report last year the operation was profi table and our loss ratios have outperformed the Lloyd’s Asia platform.

Our marketing operation in the United States has had a good year and continues to build stronger relationships with agents. 2013 will be a key year for the offi ce as it introduces some new products to agents using our AU Gold underwriting platform.

You will no doubt be aware that Atrium is currently going through a shareholder change as a result of its existing owners selling their insurance related holdings. This is not a surprise and our aim is for there to be minimal impact on our underwriting operations and independence. Atrium is a very good business and attractive to many potential buyers. We will welcome a new owner who respects our culture, understands our ambitions and who will add intellectual and fi nancial capital to our business.

In the meantime it remains business as usual which in this day and age means also increasing external compliance and regulation. Our immediate external regulation is from Lloyd’s and the FSA. We are very supportive of and work very hard with our compliance operation, and as a result regulatory reviews go smoothly. The net eff ect of this is by doing things right in the fi rst place, combined with strong performance, management and underwriter’s time is focused building a quality business and delivering superior returns to our investors.

I would like to thank Toby Drysdale for his support as Deputy Underwriter, all our underwriters for producing these very good results, and the agency for providing such excellent support.

Richard HarriesActive Underwriter, Syndicate 609 4 March 2013

24

PROFIT AND LOSS ACCOUNT:TECHNICAL ACCOUNT - GENERAL BUSINESSFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012`

PROFIT AND LOSS ACCOUNT:NON-TECHNICAL ACCOUNT - GENERAL BUSINESSFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

609

Notes £’000

Syndicate allocated capacity 274,537

Earned premiums, net of reinsurance

Gross premiums written 1 233,567

Outward reinsurance premiums (40,29 9)

Earned premiums, net of reinsurance 193,26 8

Reinsurance to close premium received, net of reinsurance

At transaction rates of exchange 152,28 5


Reinsurance to close premium received, net of reinsurance at closing rates of exchange 2 145,52 5

338,793


Claims incurred, net of reinsurance

Claims paid

Gross amount 89,321

Reinsurers’ share (18,800)

70,521

Reinsurance to close premium payable, net of reinsurance 3 164,3 19

234,840

Net operating expenses 4 64,770

Balance on the technical account for general business 8 45,821

Notes £’000

Balance on the technical account for general business 45,821

Investment income 7 6,848

Unrealised gains on investment 1,371

Investment expenses and charges 7 (1,581)

Allocated investment return transferred to general business technical account (6,638)


25

609BALANCE SHEET FOR THE 2010 CLOSED YEAR OF ACCOUNT AT 31 DECEMBER 2012

Notes £’000

Assets

Investments 9 252,176

Debtors 10 37,869

Reinsurance recoveries anticipated on gross reinsurance to close premium payable to close the account 3 34,485

Other assets

Cash at bank and in hand 14,993


Prepayments and accrued income 78

Total assets 344,270

Liabilities

Amounts due to members 11 44,175

Reinsurance to close premium payable to close the account - gross amount 3 198,804

Creditors 12 101,291

Total liab ilities 344,270

The 2010 closed year underwriting accounts were approved at a meeting of the Board of Directors of Atrium Underwriters Limited, and by the Active Underwriter, on 4 March 201 3 and were signed on its behalf by:

Kirsty Steward Richard Harries Director Active Underwriter 4 March 2013 4 March 2013

26

609STATEMENT OF CASH FLOWSFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

Notes £’000

Net cash infl ow from operating activities 13 69,654

Transfer to members in respect of underwriting participations -

Members’ agents’ fees paid on behalf of members (1,646)

14 68,008

Cash fl ows were invested as follows:

Increase in cash holdings 14 14,993

Decrease in overseas deposits 14 (741)

Net portfolio investment 14,15 53,756

Net investment of cash fl ows 68,008

27

609NOTES TO THE FINANCIAL STATEMENTSFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

1. Segmental Analysis

An analysis of the underwriting result before investment return is set out below: Gross premiums Gross claims Reinsurance written incurred Gross operating balance (note 1) (note 2) expenses (note 3) Total £’000 £’000 £’000 £’000 £’000

Direct insurance:

Accident and health 88 321 207 58 (382)

Motor (other classes) 2 (6) (3) (21) (10)

Marine, aviation and transport 133,167 47,768 45,982 5,217 44,634

Fire and other damage to property 56,022 28,884 17,450 (17,858) (8,170)

Third party liability 27,362 (427) 10,857 (8,196) 8,736

Credit and suretyship 76 (577) 33 2,082 2,702

216,717 75,963 74,526 (18,718) 47,510

Reinsurance 16,850 20,974 3,465 (1,855) (9,444)

233,567 96,937 77,991 (20,573) 38,066

RITC received 152,285 191,188 - 40,020 1,117

Total 385,852 288,125 77,991 19,447 39,183

1. Gross premiums written are treated as fully earned.

2. Gross claims incurred comprises gross claims paid and gross reinsurance to close premium payable.

3. The reinsurance balance comprises reinsurance premiums ceded less reinsurance recoveries on claims paid and reinsurance recoveries anticipated on reinsurance to close payable.

4. All premiums are concluded in the UK.

2. Reinsurance to Close Premium Receivable

£’000







Reinsurance to close premium receivable, net of reinsurance at transaction rates of exchange 159,045


Reinsurance to close premium receivable, net of reinsurance at closing rates of exchange 152,285

28

609NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE 2010 CLOSED YEAR OF ACCOUNT FOR THE THREE YEARS ENDED 31 DECEMBER 2012

3. Reinsurance to Close Premium Payable

£’000







Reinsurance to close premium payable, net of reinsurance 164,319

The reinsurance to close is eff ected to the 2011 year of account of Syndicate 609.

4. Net Operating Expenses

£’000

Acquisition costs 50,799

Administrative expenses 22,337

Loss on exchange 4,854

Allocation to reinsurance to close premium receivable, net of reinsurance (6,760)

71,230

Reinsurance commissions receivable (6,460)

64,770

Administrative expenses include: £’000

Auditors’ remuneration

Audit services 122

Other services 4


Members’ standard personal expenses are included within administrative expenses and amount to £15,228,000.

29

609

5. Staff Numbers and Costs All staff are employed by Atrium Group Services Limited. The following amounts were recharged to the syndicate in respect of salary costs: £’000

Wages and salaries 6, 629

Social security costs 78 8

Other pension costs 792

8, 209

The average number of employees employed by Atrium Group Services Limited, but working for the syndicate during the three years, was as follows:

Number

Management 6

Underwriting 44

Claims 5

Administration 33

88

6. Emoluments of the Directors of Atrium Underwriters Limited The fourteen Directors of Atrium Underwriters Limited received the following aggregate remuneration charged to the syndicate and included within net operating expenses: £’000

Emoluments 724

The Active Underwriter received the following remuneration charged as a syndicate expense: £’000

Emoluments 209

7. Investment Return

£’000

Investment income:

Income from investments 6,666

Gains on the realisation of investments 182

6,848

Investment expenses and charges:

Investment management expenses, including interest (402)

Losses on the realisation of investments (1,179)

(1,581)

30


8. Balance on Technical Account

£’000

Balance excluding investment return and operating expenses

Profi t attributable to business allocated to the 2010 pure year of account 83,265

Profi t attributable to business reinsured into the 2010 year of account 20,688

103,953


Net operating expenses (64,770)

45,821

9. Investments

Market value Cost £’000 £’000

Shares and other variable yield securities and units in unit trusts 16,082 16,082

Debt securities and other fi xed income securities 222,693 221,239

Loans secured by mortgage 13,401 13,266

252,176 250,587

Debt securities and other fi xed income securities and loans secured by mortgage are all listed on recognised stock exchanges.

10. Debtors £’000


Due from intermediaries 34,249

Arising out of reinsurance operations 3,504

Other 116

37,869

11. Amounts Due to Members

£’000


Members’ agents’ fee advances (1,646)

Distributions to members to date -

Amounts due to members at 31 December 2012 44,175

12. Creditors

£’000


Due to intermediaries 44,937

Arising out of reinsurance operations 5,196


Other 39,747

101,291

Other creditors include inter year loans of £37,417,000.

31

13. Reconciliation of Profi t for the Year of Account to Net Cash Infl ow from Operating Activities

£’000

Profi t for the year of account 45,821

Realised and unrealised investment gains including foreign exchange 12,786

Increase in debtors (5,251)

Decrease in creditors (8,717)

Non-cash consideration for net RITC receivable (139,304)

Net reinsurance to close premium payable 164,319

Net cash infl ow from operating activities 69,654

Consideration for net RITC receivable comprised:

£’000

Non-cash consideration:



Debtors 32,696

Creditors (110,008)

139,304

Cash 19,741

159,045

14. Movement in Opening and Closing Portfolio Investments Net of Financing

£’000

Net cash infl ow from the three years 14,993

Cash fl ow

Decrease in overseas deposits (741)


Movement arising from cash fl ows 68,008

Received as consideration for net RITC receivable



Changes in market value and exchange rates ( 12,786)

Total movement in portfolio investments 271,838

Portfolio at 1 January 2010 -

Portfolio at 31 December 2012 271,838

609

32


14. Movement in Opening and Closing Portfolio Investments Net of Financing continued

Movement in Cash, Portfolio Investments and Financing Received as At consideration Changes to At 1 Jan for net RITC market value 31 Dec 2010 Cash fl ow receivable and currencies 2012 £’000 £’000 £’000 £’000 £’000

Cash at bank and in hand - (4,748) 19,741 - 14,993

Overseas deposits - (741) 5,532 (122) 4,669

Portfolio investments:

Shares and other variable yield securities and units in unit trusts - (8,959) 26,050 (1,009) 16,082

Debt securities and other fi xed income securities - 63,675 169,278 ( 10,260) 222,693

Loans secured by mortgage - (960) 15,756 ( 1,395) 13,401

Total portfolio investments - 53,756 211,084 ( 12,664) 252,176

Total cash, portfolio investments and fi nancing - 48,267 236,357 ( 12,786) 271,838

The changes to market values and currencies include £(9.8)m relating to currency revaluation of non-Sterling denominated investments and deposits.

15. Net Cash Outfl ow on Portfolio Investments

£’000

Purchase of debt securities and other fi xed income securities ( 364,215)

Purchase of loans secured by mortgage ( 1,888)

Sale of shares and other variable yield securities 8,959

Sale of debt securities and other fi xed income securities 300,540

Sale of loans secured by mortgage 2,848

Net cash outfl ow on portfolio investments ( 53,756)

16. Disclosures of Interest

Arden Holdings Limited (AHL), a company incorporated under the laws of Bermuda, is the ultimate holding company of Atrium Underwriting Group Limited (AUGL). AHL changed it’s name from Ariel Holdings Limited to Arden Holdings Limited on 5 April 2012, following the completion of the Goldman Sachs acquisition of the Ariel Re operations, name and brand.

AUGL is the holding company of the following wholly owned susidiaries; Atrium Underwriting Holdings Limited (AUHL), Atrium Insurance Agency Limited (AIAL), Atrium Group Services Limited (AGSL), Atrium Insurance Agency (Asia) Pte.Ltd (ASI A), Atrium Risk Management Services (Washington) Ltd (ARMS) and Atrium Risk Management Services (British Columbia) Ltd (ARMSBC). AUL is authorised and regulated by the Financial Services Authority and is the managing agent of Syndicates 570 and 609 (the ‘managed syndicates’). AUHL is the holding company of Atrium 5 Limited and ten non-continuing members of Lloyd’s.

AUGL participates on the managed syndicates through its corporate member subsidiary, Atrium 5 Limited whose participation on each year of account is as follows: 2010 2011 2012 2013 Capacity Capacity Capacity Capacity £m £m £m £m

Syndicate 570 35.9 35.9 - -Syndicate 609 70.9 70.9 106.8 106.8 Atrium 5 Limited’s participation on the managed syndicates as % of syndicate capacity: Year of account 2010 2011 2012 2013 % % % %

Syndicate 570 24.8 24.8 - -Syndicate 609 25.8 25.8 25.4 25.4

33

609

16. Disclosures of Interest continued

On 28 April 2011, Atrium wrote to the Council of Lloyd’s with a notice of the intention to merge Syndicate 570 and Syndicate 609 with eff ect from the commencement of the 2012 year of account. Consent to the merger was granted on 19 July 2011. Richard Harries was appointed Underwriter of Syndicate 570 with eff ect from 1 January 2012. In order to manage the run-off of Syndicate 570’s business, certain Syndicate 609 underwriters have authorities that enable them to service business on behalf of both managed syndicates.

AHL is the ultimate holding company of Arden Reinsurance Company Ltd (Arden Re). On 1 March AHL announced a transaction by which an affi liate of Goldman Sachs would aquire the Bermuda operations of Ariel Reinsurance Company Ltd (Ariel Re), another subsidiary in the Ariel Group. On March 2012 it was announced that Arch Capital Group Ltd intended to acquire Ariel Re’s Switzerland-based reinsurance operations. On 5 April 2012 the Goldamn Sachs transaction was completed and Ariel Re was renamed Arden Re. On 9 April 2012 the Arch Capital Group Ltd transaction completed.

AIAL is a registered Lloyd’s UK coverholder and is authorised and regulated by the Financial Services Authority. Syndicates 609 leads a binding authority granted to AIAL to underwrite Space business. The binding authority is led by Syndicate 609. Syndicate 570 participated on this binding authority up until 31 December 2011. Under the terms of the binding authority, fees and profi t commission are payable to AIAL. Fee income of US$ 925,000 was paid by the syndicate to AIAL in relation to premium earned on the 2010 year of account. Profi t commission of US$ 974,000 is due in relation to the 2010 year of account.

AGSL is a group service company. All UK employee contracts and, where possible, all material service provider contracts are held by AGSL. A service agreement is in place whereby AGSL provides all management services to all Atrium Group companies. Under the service agreement AGSL will charge the costs to each Atrium group company, including AUL, for the respective services provided.

ASIA carries on for its own account the business of insurance intermediation in Singapore, operating on the Lloyd’s Asia platform. In this capacity it has been granted authority by Syndicate 609 to bind certain risks (including marine hull, energy, aviation and non-marine property risks) and has been approved by Lloyd’s and the Monetary Authority of Singapore to act as a Lloyd’s Singapore Service Company. Under the terms of the arrangement with Syndicate 609 ASIA charges fees to the Syndicate equal to its operating costs plus a small margin for tax reasons. Fees of S$1,644,000 were paid by Syndicate 609 on the 2010 year of account.

ARMS is incorporated in Washington State, USA and was established to support the Syndicate strategy to maintain and grow it’s North American direct portfolio and distribution network. ARMS charges fees to the Syndicates equal to its operating costs plus a small margin for tax reasons. Fees of U$349,000 were paid by Syndicate 570 in respect of the 2010 year of account.

ARMSBC is incorporated in British Columbia, Canada, and was established to support the Syndicate strategy to maintain and grow it’s North American direct portfolio and distribution network. ARMSBC charges fees to the Syndicates equal to its operating costs plus a small margin for tax reasons. Fees of C$596,000 were paid by Syndicate 570 in respect of the 2010 year of account.

AUL manages four underwriting consortia. The Atrium Aviation Consortium is an internal consortium arrangement between Syndicate 570 & 609 on a 40%/60% split basis. Lloyd’s approval was given on 21 July 2003 for this arrangement. An overrider is charged by Syndicate 609 to Syndicate 570. This consortium arrangement ceased for the 2012 year of account.

The Atrium Airline Hull War and Allied Perils Consortium and the two Atrium Aviation Reinsurance Consortia are led by Syndicate 609 and supported by various other Lloyd’s syndicates, including Syndicate 570. Lloyd’s approval is not required under the Multiple Syndicates Byelaw for these consortia. Fees and profi t commission are payable by all consortium members including Syndicate 570. AUL processes the fees and profi t commission on behalf of Syndicate 609 but currently retains no remuneration in its role as manager of these consortia. Two Aviation Reinsurance Quota share treaties are in place that replicate the Atrium Reinsurance Consortia. Profi t commissions and overriders are payable by Syndicate 570 to Syndicate 609 under this arrangement. Syndicate 570’s participation on all of these Consortia and Quota Share arrangements ceased for the 2012 year of account.

Syndicate 609 has entered into a quota share contract of their Space account for the 2009, 2010 ,2011 and 2012 years of account with Ariel Re. Permission for this arrangement was granted by Lloyd’s on 30 December 2008. Income expected to be ceded under this arrangement for the 2013 year of account is US$1. 1m (actual 2012 year of account - US$ 0.8m). Syndicate 609 agreed to transfer the quota share to the Goldman Sachs subsidiary during 2012 following it’s acquisition of the Bermuda operations of Ariel Re.

A quota share of Syndicate 609 by Syndicate 570 was entered into in relation to Aviation business underwritten on behalf of Syndicate 609 by ASIA. Under the terms of the quota share an overriding commission is payable by Syndicate 570 to Syndicate 609. The terms were set and agreed by the respective Active Underwriters. Lloyd’s gave consent of a waiver under the Multiple Syndicates Byelaw on 9 November 2009. No overriding commission has been paid by Syndicate 570 in calendar year 2010. This arrangement ceased for the 2012 year of account.

The implementation of the syndicate merger from 1 January 2012 has resulted in the related party transactions between the two managed syndicates ceasing with eff ect from 2012.

34

16. Disclosures of Interest continued

It is possible that further transactions may be entered into between the managed syndicates and Arden Re.

With eff ect from 2012 certain reinsurances purchased will be for the benefi t of both Syndicates 570 and 609. The Board determined that this was the most effi cient process to protect both the ongoing and run-off business. There is the possibility that one or other syndicate exhausting the available coverage, in which case we would examine the need to purchase back-up coverage. Costs will be charged on an equitable basis determined by the Board. Several of these shared reinsurance arrangements have renewed into 2013.

The Directors’ participations on Syndicates 570 & 609 via Nomina No. 207 LLP are as follows:

Syndicate 570 Syndicate 609 2010 yoa 2011 yoa 2012 yoa 2013 yoa 2010 yoa 2011 yoa 2012 yoa 2013 yoa £ £ £ £ £ £ £ £

Andrew Baddeley 7,534 7,534 - - 14,289 14,289 28,793 –

Steve Cook 11,213 11,213 - - 21,266 21,266 37,438 35,500

Simon Cooper 40,788 40,788 - - 77,357 77,357 135,145 –

Toby Drysdale 9,212 9,212 - - 17,472 17,472 29,173 29,707

Richard Harries 52,242 52,242 - - 99,079 99,079 199,973 250,000

Nick Marsh 37,671 37,671 - - 71,444 71,444 109,115 109,069

Samit Shah 10,197 10,197 - - 19,339 19,339 36,500 38,945

AUL has made no loans to directors of the company during 2012.

Managing agency fees of £1,918,000 were paid by the syndicate to AUL. Profi t commission of £11,411,000 is payable by the syndicate to AUL in relation to the 2010 year of account result. The managing agents agreement was amended in 2007 to enable managing agents to make payments on account of profi t commission, prior to the closure of a year of account. Payments on account can be made when the syndicate transfers open year surpluses from the syndicate level premium trust funds to the members’ personal reserve fund. Included within creditors is £11,411,000 in respect of profi t commission payable to AUL in relation to the 2010 year of account.


35

SEVEN YEAR SUMMARY OF RESULTSSYNDICATE 609 AT 31 DECEMBER 2012

Year of Account 2010 2009 2008 2007 2006 2005 2004 Notes £m £m £m £m £m £m £m

Syndicate allocated capacity 275 200 215 215 214 214 179

Aggregate net premiums 193 195 167 147 135 141 151

Number of underwriting members 3,102 2,991 2,976 2,906 2,668 2,789 3,544

Results for an illustrative share of £10,000 £ £ £ £ £ £ £

Gross premiums 8,508 12,072 9,290 8,860 8,557 8,274 10,264

Gross premiums % 1 85.1% 120.7% 92.9% 88.6% 85.6% 82.7% 102.6%

Net premiums 7,040 9,758 7,739 6,847 6,299 6,577 8,430

Net premiums % 2 70.4% 97.6% 77.4% 68.5% 63.0% 65.8% 84.3%

Premium for the reinsurance to

close an earlier year of account 3 5,301 7,929 6,842 6,441 7,619 4,635 4,850

Net claims 4 2,569 3,469 3,763 4,769 2,914 3,466 3,185

Premium for the reinsurance to

close the year of account 5,985 7,969 7,287 6,747 7,139 5,714 5,544

Underwriting profi t 3,787 6,249 3,531 1,772 3,865 2,032 4,551

(Profi t)/loss on exchange (69) 119 (814) (469) (858) 94 705

Syndicate operating expenses 1,944 2,719 2,063 1,836 1,888 1,672 2,216

Balance on technical account 1,912 3,411 2,282 405 2,835 266 1,630

Balance on technical account % 5 22.5% 28.3% 24.6% 4.6% 33.1% 3.2% 16.5%

Investment return 242 298 383 555 444 538 461

Profi t for closed year of account 2,154 3,709 2,665 960 3,279 804 2,091

Illustrative managing agent’s profi t commission 416 720 515 161 625 141 369

Illustrative personal expenses 69 95 76 150 150 100 245

Profi t after illustrative profi t commission and

illustrative personal expenses 6 1,669 2,894 2,074 649 2,504 563 1,477

Notes

1. Gross premiums as a percentage of illustrative share.

2. Net premiums as a percentage of illustrative share.

3. The reinsurance to close premium that has been received by the 2010 year of account has been retranslated to the rates of exchange that were applicable as at 31 December 2012.

Reinsurance to close premiums receivable in respect of the 2009 and prior years of account have not been restated.

4. Net claims include internal claims settlement expenses.

5. Balance on technical account as a percentage of gross premiums.

6. Illustrative personal expenses, including illustrative profi t commission, are based on a calculation of amounts incurred by a member writing an illustrative share. For this purpose

Memorandum Item Year of Account 2010 2009 2008 2007 2006 2005 2004For an illustrative share of £10,000 £ £ £ £ £ £ £

Aggregation of annual fee, profi t commission and syndicate expenses 815 1,330 973 594 1,038 481 717

609

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