Ironshore Insurance Ltd.

Financial Condition Report (“FCR”)

For Year Ending: 31st December 2017

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CONTENT: SUMMARY .......................................................................................................................................... 2 

1.  BUSINESS AND PERFORMANCE ............................................................................................. 3 

1.1  Business ........................................................................................................................... 3 

1.2  Underwriting Performance ............................................................................................. 6 

2.  GOVERNANCE STRUCTURE .................................................................................................... 9 

2.1  Governance ..................................................................................................................... 9 

2.2  Fitness and Proper Requirements ................................................................................... 9 

2.3  RM and Solvency Self‐Assessment ................................................................................ 12 

2.4  Internal Controls and Internal Audit ............................................................................. 13 

2.5  Outsourcing ................................................................................................................... 15 

3.  RISK PROFILE .......................................................................................................................... 15 

4.  SOLVENCY VALUATION ......................................................................................................... 17 

5.  CAPITAL MANAGEMENT ......................................................................................................... 19 

5.1  Eligible Capital ............................................................................................................... 19 

5.2  Regulatory Capital Requirements ................................................................................. 20 

5.3  Approved Internal Capital Model .................................................................................. 20 

6.  SUBSEQUENT EVENTS .......................................................................................................... 21 

LIST OF ABBREVIATIONS ............................................................................................................... 22 

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SUMMARY

This document represents the Financial Condition Report (“FCR”) that is required to be published by Ironshore Insurance Ltd. (“IIL” or “the Company”).

This report covers the Business and Performance of IIL, its Governance Structure, Risk Profile, Valuation for Solvency Purposes and Capital Management. The ultimate administrative body that has the responsibility for all of these matters is the IIL Board of Directors. The Board is supported in discharging this responsibility by Group’s governance structures, including its Committees, Senior Management and Internal Control Functions.

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1. BUSINESS AND PERFORMANCE

1.1 Business

Name of Insurer: Ironshore Insurance Ltd.

Supervisors Insurance Supervisor Bermuda Monetary Authority BMA House 43 Victoria Street, Hamilton Bermuda

Approved Auditor Statutory and Generally Accepted Accounting Principles (“GAAP”) Reporting Ernst & Young Ltd. 3 Bermudiana Road Hamilton, HM08 Bermuda

Ownership Details and Overview of Operating Segments IIL was incorporated under the laws of Bermuda and is registered as a Class 4 Bermuda Insurance Company to provide specialty property and casualty insurance and reinsurance on a global basis to commercial customers. IIL is a wholly owned subsidiary of Ironshore Inc. (“Ironshore”) a Cayman Islands company formed in 2006.

Ironshore was established by an investor group led by Robert Clements, John Clements and Robert Deutsch in December 2006 through a private equity placement of over $1.03 billion. A further $300 million private placement investment was completed in July 2009. Ironshore is currently a wholly owned subsidiary of Liberty Mutual Holding Company (“Liberty Mutual”). The acquisition of all stock of Ironshore by Liberty Mutual closed on May 1, 2017.

Liberty Mutual is a diversified insurer with operations in 29 countries and economies around the world. Liberty rank 75th on the Fortune 100 list of largest corporations in the U.S. based on 2016 revenue. As of December 31, 2017, Liberty Mutual had $125.6 billion in consolidated assets, $105.2 billion in consolidated liabilities, and $38.3 billion in annual consolidated revenue. Liberty employs more than 50,000 people in over 800 offices throughout the world and offer a wide range of insurance products and services, including personal automobile, homeowners, accident & health, commercial automobile, general liability, property, surety, workers compensation, group disability, group life, specialty lines, reinsurance, individual life and annuity products.

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The Ironshore Group underwriting business is organised into three operating platforms: United States (“US”), Bermuda, and International.

US The US operating segment writes a range of specialty casualty products, property, healthcare liability, professional lines, political risk, construction, energy, environmental, surety, yacht, and aviation on both a US Excess & Surplus Lines and an admitted basis. The US operation consists of Ironshore Holdings (U.S.) Inc. ("Ironshore Holdings U.S." or “Holdings”) and its principal subsidiaries Ironshore Indemnity Inc. (“III”) and Ironshore Specialty Insurance Company (“ISIC”). Holdings is incorporated in Delaware and is a wholly owned subsidiary of IIL. Bermuda The Bermuda operating segment provides property catastrophe and property all-risk insurance for small to mid-sized commercial risks, excess casualty, financial lines, and healthcare products. The Bermuda platform consists of IIL, which was incorporated under the laws of Bermuda on October 19, 2006 and is a registered Class 4 insurer under the Insurance Act 1978 in Bermuda and related regulations and amendments thereto. IIL commenced underwriting in late January 2007. IIL also operates two independent branches in Singapore and Canada. The Singapore Branch, is registered as a direct insurer to carry on general insurance in Singapore effective January 26, 2012, and the Canada Branch, which writes property and casualty insurance for Canadian-domiciled risks effective March 29, 2014. International The International segment consists of Ironshore Europe Designated Activity Company ("IEDAC") incorporated in Ireland, Ironshore International Ltd., Pembroke Managing Agency (“PMA”), Ironshore Agency Ltd ("IAL") all incorporated in England and Wales, Ironshore Canada Ltd. ("ICL") incorporated in Canada, and Ironshore Australia PTY Ltd, ("IAPL") incorporated in Australia,

The International operations write primarily through PMA through Lloyd’s Syndicate 4000, benefiting from Lloyd's licenses to underwrite insurance in multiple jurisdictions globally, and through IEDAC, providing marine, short tail, specialty property and specialty casualty insurance.

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Ironshore Group structure

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1.2 Underwriting Performance

Specialty Property & Casualty IIL has established a Property & Casualty business focused on both critical and non-critical catastrophe business in Bermuda and globally. IIL provides this platform through in-house highly trained Underwriters. All risks in excess of an individual underwriter's authorities are referred to underwriting executives for further review and consideration. Property All Risk Policies including wind and quake; and Inland Marine programs The limits being offered currently are up to $50M on properties with or without catastrophe exposed locations.

The minimum Premium is $100,000 for cat exposed property. The minimum deductible is $25,000. All classes of business are eligible providing minimum premium amounts are reached.

Casualty Primary General Liability – The required minimum retention is $25,000 for primary accounts, although many of them will have significantly higher retentions. Emphasis is on self-insured retentions or large deductibles.

Umbrella – Umbrella coverages may provide limits up to $50M gross with a net retention of no more than $10M. The Umbrella coverages offered are self-contained and not strictly a follow-form product. Interest in higher risk accounts result in fewer competitors and a greater opportunity for the lead $10M net limit threshold.

Excess Liability – Excess Liability may provide excess limits as part of a large layered excess program, typically in the first $100M of the tower. Gross limits of $50M are available based on underwriter’s discretion.

Credit The credit products are organized around the international and domestic trade flows and foreign investment strategies of our clients. Internationally and domestically domiciled manufacturing and trading companies and financial institutions benefit from flexible underwriting guidelines and availability of country limits. Traditional failure to pay insurance coverage is available on private obligors as well as public sector sovereign and non-sovereign entities. On the political risk side, currency inconvertibility, non-transfer risk, confiscation, expropriation, nationalization and deprivation insurance are several of the perils that IIL will consider.

Financial Lines Director and Officer Liability – These policies typically include additional coverage features such as employment practices liability insurance (“EPLI”), to a degree not found in common public company policies, and this broader coverage is a necessity to create the sale. Alternatively, these policies often are sold in combination with ancillary policies in packages. The component pieces include pension trust, fidelity, EPLI, and errors and omission (“E&O”). Some include kidnap and ransom coverage.

Excess Director and Officer – Most insureds layer their programs with primary coverage purchased from one carrier and excess layers from other carriers. Private/non-profit, small cap and micro-cap public companies usually buy 2 or 3 excess layers, with up to 12 excess layers purchased by larger companies. A large portion of the premium market transacts in the excess layers.

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All D&O coverages are offered to public, private and not-for-profit companies and limits of up to $50M are available at the underwriter's discretion. Errors and Omissions (E&O) The E&O product mix includes specially designed packages for both standard market practices such as accountants, lawyer's professional liability as well as for unique market niches such as mutual funds, community banks, schools, private companies, private equity portfolio companies, etc. IIL may selectively and opportunistically add other specialty E&O classes in the future as the market need arises. Miscellaneous professional liability may also be written across most service sectors. Reinsurance IIL will consider any reinsurance submissions from insurance carriers who hold an AM Best rating of A- or better, and are authorized to operate in their home jurisdiction. All types of risks will be considered. Captives will also be considered if the opportunity arises and the captive is duly authorized in its home jurisdiction. In addition, IIL assumes business from affiliated Ironshore companies, Pembroke Managing Agency (PMA) and Ironshore Europe Designated Activity Company (IEDAC). These affiliated Ironshore Companies cede up to 80% of their direct written premium to IIL. Iron-Starr Excess Agency Ltd.

In addition to the direct lines detailed, IIL also accepts risks that are procured by Iron-Starr Excess Agency Ltd (IronStarr). IronStarr is an agency domiciled in Bermuda that will procure various risks globally on behalf of IIL as well as unaffiliated third party insurance underwriters. The IronStarr lines of business are as follows:

Excess Casualty IronStarr offers limits of up to $100M USD in the excess casualty lines with a minimum attachment point of $75M USD. The targeted lines of business include:

Agricultural Businesses, Construction – Master Programs, Owner and contractor Controlled Insurance Programs, Consumer Products, Chemical, Energy – Utilities, Integrated Oil Companies, Upstream, Midstream and Downstream operations, Heavy Industrial, Medical Products, Real Estate, Telecommunication, Transportation – Class 1 Rail, Commuter Rail and Bus Companies

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Financial Lines IronStarr provides excess capacity across a full suite of financial lines products. These are available for Public, Private and not for profit entities globally. IronStarr offers limits of $75M USD that sit excess of traditional primary financial products. The targeted lines of business include:

Directors and Officers Liability - Public, Private and Non-Profit, Side A, Employment Practices Liability, Fiduciary Liability, Fidelity/Crime, E&O, Blended Policies

Healthcare IronStarr provides meaningful capacity to Healthcare risks across all venues. This includes the unique ability to provide drop down capacity over multiple lines of coverage where required. IronStarr offers limits up to $75M.

The targeted lines of business include:

Hospital and Medical Professional Liability, Managed Care, Directors & Officers, Errors & Omissions, Employment Practices Liability, Fiduciary Liability, Crime, Cyber Risk

Gross premiums written by type of business and geographical segment for years ending December 31, 2017 and December 31, 2016 are as follows: December 31, 2017

In USD ’000 U.S. International Bermuda Total

Casualty 1,026,147 176,419 44,036 1,246,602

Property 178,194 84,064 132,613 394,871

Specialty Short Tail 84,789 221,343 - 306,131

Total 1,289,130 481,825 176,649 1,947,604

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December 31, 2016

In USD ’000 U.S. International Bermuda Total

Casualty 1,061,092 164,002 39,997 1,265,091

Property 169,778 73,627 132,583 375,988

Specialty Short Tail 131,230 209,683 - 340,913

Total 1,362,100 447,312 172,580 1,981,992

2. GOVERNANCE STRUCTURE

2.1 Governance

i. Board and Senior Executives Structure, Role, Responsibilities and Segregation of Responsibilities

As of December 31, 2017 the IIL Board consisted of 7 directors, and their roles and responsibilities are outlined in the Company’s Bye-Laws and comply with the regulatory requirements of Bermuda. In addition to the Board, IIL maintains an Audit Committee, and an Underwriting and Risk Committee. Each of these committees meet at least on a bi-annual basis or sooner as required.

In March 2018, IIL elected a further non-executive director to its board increasing the number of directors to 8. In addition, the treasurer and secretary were replaced at the same time due to staff turnover.

2.2 Fitness and Proper Requirements

i. Description of the Fit and Proper Process in Assessing the Board and Senior Executive

IIL ensures that all key functions are fit to provide sound and prudent management through their professional qualifications, knowledge and experience. IIL is guided by various criteria when assessing fitness and proprietary of key functions. The most important factors considered by IIL include honesty, integrity and reputation, competence and capability and financial soundness.

In order to ensure that board and senior executives are fit, they are recruited giving due regard to the interview requirements, referencing, required skillset, professional and personal background and other checks as required and relevant to the role to be undertaken. Examples of general checks include educational background check and professional qualifications check. In order to ensure that board and senior executives are proper they are subject to a variety of checks at the commencement of their assessments. Examples include identity checks, social media, criminal record and other relevant checks. If Ironshore is notified or becomes aware of, any circumstances under which any board or senior executive ceases to meet fit and proper criteria, we will perform a further review if necessary. This review may result in a temporary or full suspension of them being able to continue to carry out their function.

ii. Description of the Professional Qualifications, Skills, and Expertise of the Board and Senior Executives to Carry Out Their Functions

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The Board of Directors

Mitchell E. Blaser is the CEO of IIL, CEO of Iron-Starr Excess Agency Ltd., and CEO of IronServe. Prior to joining Ironshore, Mr. Blaser was CFO for Swiss Re's Americas Division from 2001 through 2005 and served as a director of Swiss Re America. Prior to Swiss Re, he was part of the leadership team at Marsh, the insurance services subsidiary of Marsh & McLennan Companies, and served in a variety of roles from 1973 until 2001 including Global Chief Financial Officer and Head of Technology and Corporate Services, as well as a member of the Marsh Board of Directors. Mr. Blaser chairs the Advisory Board at The George Washington University School of Business. He holds a B.B.A. from The George Washington University and an M.B.A. in Finance from Pace University.

Mark Heintzman is Senior Vice President and director of IIL. He has over 20 years insurance industry experience in Bermuda and Canada and has acted in CFO, Chief Accounting Officer (“CAO”) / Controller positions for various public and private companies including Fairfax Financial Holdings, Scottish Re Group, Western General (started Max Re and Catlin Group), Loyalist Insurance and Markel Insurance Company of Canada. Mark has also managed the investment assets for many of these insurance entities. He has also worked in investment banking group for Scotia Capital Markets and been an integral part of the debt and equity capital structure activities for all of these organizations. Mr. Heintzman is a member of the Canadian and Bermuda Institute of Chartered Accountants, a CPA affiliated with the Illinois Institute, is a CFA Charter holder, and holds an Associate in Reinsurance Designation.

Shane Rozario is Senior Vice President and Head of Property Claims of IIL. Prior to joining Ironshore, he was Vice President of Claims at XL Capital Ltd (now XL Catlin) in Bermuda, were he gained his first experience of the unique Bermuda market and its forms. Prior to XL, Mr. Rozario was the Assistant Regional Manager for McLarens Toplis North America, Inc. (now VeriClaim, Inc.) based in Chicago, Illinois. He was responsible for not only the Midwest region, but also marketing and development of the London market business. Mr. Rozario started his career at Lloyd’s with DP Mann Syndicate 435 (now Faraday).

Mark Wheeler joined the Ironshore Group in 2008 and was elected CEO of Ironshore International in 2009. Mr. Wheeler serves on the board of Ironshore’s subsidiary, PMA, at Lloyd's and is Chairman of IEDAC which is domiciled in Dublin with a branch in London. Mr. Wheeler serves as Chairman of ICL and IAPL. He was the founding Underwriting Director of PMA and the first Active Underwriter of the group's Syndicate 4000 which was established in 2004. Mr. Wheeler worked at SVB from 1990 to 2003 where he served on a number of group boards and held several senior management positions including Active Underwriter of Syndicate 1007. He has worked at Lloyd's since 1987; his first role was at Sturge Marine Syndicate 203. Mr. Wheeler became an Associate of the Chartered Institute of Insurance in 1991.

Ian Smith is Senior Vice President and Head of Bermuda Property. Mr. Smith joined Ironshore Bermuda over 4 years ago as Vice President / Property Underwriter having previously been with Arch Insurance (Bermuda) where he underwrote the Technical Risk book, which included both Energy and International Property accounts, a position he held for 5 years. Prior to Arch, Mr. Smith was Assistant Vice President of the XL Insurance (Bermuda) Ltd. Energy department for over 3 years where he underwrote and maintained a portfolio of U.S. Energy accounts. With his career beginning at Aon as a Property / Energy broker, Ian has over 15 years Industry experience from both the Underwriting and Brokering perspective. Ian holds a B.A. (Hons) in Business Studies from the Hull Business School at the University of Lincolnshire and Humberside, England along with 3 A – Levels and 10 GCSE’s from Bishop’s Stortford College in Hertfordshire, England. Susan Pateras is COO of IIL and Head of Iron-Starr’s Healthcare Practice, overseeing ongoing initiatives and business development. Ms. Pateras joined Iron-Starr Excess Agency Ltd. in April 2013 and has over 22 years of experience in the Healthcare Industry in London, New York and Bermuda. Prior to joining Ironshore she served as a Senior Vice President at Integro Bermuda Ltd., she has specialized knowledge

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of university teaching facilities, specialty pediatric hospitals, managed care organizations, long term care, integrated delivery systems, physician group practices, and other healthcare risks. Prior to joining Integro, Ms. Pateras served as a Senior Vice President with Willis Bermuda Ltd. and also served as a Vice President in Marsh New York's Global Broking Healthcare Unit. She is a graduate of Temple University with a BA in RM Insurance and Business Law. Steve Horton joined Ironshore in October 2008 and currently holds the position of CEO of Iron-Starr Excess Agency Ltd., a position he has held since January 2018. Prior to this, Mr. Horton held various position with Ironshore and the Ironshore Lloyds Syndicate. Prior to his role within Ironshore companies, Mr. Horton was an Underwriter with AIG specializing in the CAT Excess Liability lines of business. Mr. Horton holds a B.A. (Hons) from The University of Westminster and recently completed the Harvard Business School Program for Leadership Development and the Cybersecurity application at the Massachusetts Institute of Technology. Joseph M. Hobbs is Senior Vice President and General Counsel for the international segments of Liberty Mutual’s Global Risk Solutions (“GRS”) business. In March 2018, Mr. Hobbs was appointed as General Counsel and Director for IIL. As Senior Vice President and General Counsel, he is responsible for providing strategic legal advice to senior management on all international business strategies and operations globally within GRS. Prior to joining Liberty Mutual, Mr. Hobbs was Vice President and Associate General Counsel for The Chubb Corporation (“Chubb”). Prior to Chubb, Mr. Hobbs was in private legal practice for an international law firm. Mr. Hobbs holds a B.S. in Accounting from Seton Hall University and a J.D. from Seton Hall University Law School. IIL Senior Executives

Colin James is Senior Vice President and CFO of IIL. Mr. James has over 15 years insurance industry experience in Bermuda. Prior to joining Ironshore as Group Controller in 2014, Mr. James was Group Controller at Alterra Capital Holdings Ltd prior to their merger with Markel. He was with Alterra and its predecessor companies for 10 years during which time he held various controllership roles. Mr. James is a member of the Bermuda Institute of Chartered Accountants and is a CFA Charter holder.

Pierre Samson has been CRO of the Ironshore group since November 2010. Previously, Mr. Samson provided consulting services to Ironshore, from May 2010 to November 2010. Mr. Samson has more than 25 years of P&C insurance industry experience in the fields of risk management, underwriting and actuarial. Prior to joining Ironshore, Mr. Samson was Risk Officer at IPCRe Limited (2008-2009); and President and COO at Assured Guaranty Re (2004-2005). From 1995 to 2004, Mr. Samson held various underwriting positions at ACE Bermuda. Finally, Mr. Samson was an actuarial consultant at Tillinghast, from 1987 to 1995. Mr. Samson is a Fellow of the Casualty Actuarial Society (“FCAS”) and a Member of the American Academy of Actuaries (“MAAA”).

Domenic Serratore has been the Global Head of Compliance and Chief Compliance Officer of the Ironshore Group and IIL and since May 2009 and was appointed to the position of Secretary of IIL in March 2018. Mr. Serratore has over 25 years of experience in the insurance industry with 18 of those years being in the compliance, governance, regulatory or internal controls field. Prior to Joining Ironshore, Mr. Serratore was the Director of Internal Controls at SunLife Financial and from 1998 to 2008, Mr. Serratore held the position of Compliance Director at Lexington Insurance Company. Mr. Serratore holds a BA in Business, with a major in Accounting, from the Peterasham College in Sydney, Australia, an MBA from Suffolk university in Boston, MA and is a Chartered Accountant in Australia and a lifetime member of Beta Gamma Sigma. Heath A. Merrill who was appointed as Treasurer of IIL in March 2018, has spent his 18-year career in various roles within Liberty Mutual’s home office in Boston, MA. He currently serves as the VP & Financial

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Officer – International Finance for the organization’s newly-formed GRS business unit. Mr. Merrill was VP & Financial Controller for Liberty Mutual’s Global Specialty business unit (now GRS) from 2015 to 2018 and previously served as VP & Senior Internal Audit Manager from 2008 to 2015. He held a variety of staff and management roles within Corporate Accounting and Internal Audit from 2000 through 2008. Mr. Merrill is a Board Observer of REIN, a Chapel Hill-based insuretech MGA platform company. He holds a B.A. in Finance from Bentley University and an M.B.A. from Suffolk University.

2.3 RM and Solvency Self-Assessment

i. Description of the RM Process and Procedures to Effectively Identify, Measure, Manage and Report on Risk Exposures

The primary goal of Risk Management (“RM”) is to improve IIL’s risk / return profile by identifying, monitoring and controlling key corporate risks. Ironshore views risk management as the responsibility of every employee within the Company. Management believes that all aspects of IIL’s business incorporate daily risk decisions. Communicating and outlining IIL’s risk appetites and tolerances aids employees in making sound RM decisions. Senior management is responsible for setting the risk appetites and tolerances, and communicating this information.

IIL’s Enterprise Risk Management (“ERM”) Framework is based on the industry leading practice “three lines of defense" model. Under this model, management, functional leaders and risk owners ("first line" of defense) have responsibility for the day to day ERM framework. RM, compliance, and policies represent the “second line” of defence. The Audit Committee, Internal and External Audit that provide independent assurance represent the “third line” of defense. Senior Management has ownership and oversight roles to ensure that RM practices are made a priority and help ensure stated tolerances and appetites are adhered to. IIL also has its own Board of Directors, including an Audit Committee and Underwriting & Risk Committee (“URC”). The URC, in particular, is responsible for discussing and reviewing the effectiveness of the Company's ERM framework. The CRO facilitates and co-ordinates RM activity for IIL and reports to the URC accordingly. The CRO also attends the Audit Committee meetings to report risks and tolerances outside of underwriting risk. Additionally, the CRO is an attendant of the IIL Board.

RM is implemented and integrated into the operations through risk management processes, procedures and risk mitigating controls. Risk mitigating controls are reviewed by RM to ensure their effectiveness and provide recommendations for any actions as necessary. RM is responsible for completing the Commercial Insurer’s Solvency Self-Assessment (CISSA). The main purpose is to ensure that IIL assesses all the risks inherent to its business and determine the corresponding capital needs. The solvency self-assessment capital is calibrated at 99% confidence level using the Value-at-Risk (VaR) with a time horizon of 1 year. The solvency self-assessment is prepared and reviewed every year to ensure that capital adequacy and liquidity resources are sufficient based on the risks that arise from operations.

ii. Description of the Relationship between the Solvency Self-Assessment, Solvency Needs, and Capital and RM Systems

The solvency self-assessment outlines the quality and quantity of capital needed to support IIL’s business goals. The solvency self-assessment seeks to identify and measure all material risks. Our ERM Framework outlines the level of Board approved risk appetite and tolerances for each category of risk, ensures risks are managed within its defined risk appetite and tolerances and ensure that an appropriate balance between risk and reward is achieved. IIL seeks to provide an optimal return (maximizing returns within the given risk appetite) while preserving its capital at a level that is consistent with its business plan and risk appetite. The appropriate level of capital is determined by multiple factors including regulatory capital requirements, the business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments.

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iii. Description of the Solvency Self-Assessment Approval Process Including the Level of Oversight and Independent Verification By the Board and Senior Executives

The solvency self-assessment reports are prepared by the RM team in consultation with the relevant functions and business units. After review by the CRO, the assessment report is provided to the Board for the approval emphasising significant changes during the year, and any current or emerging risk exposures.

2.4 Internal Controls and Internal Audit

i. Description of the Internal Control System

Ironshore has systems, processes and procedures to ensure that data and reporting is reliable, organizational policies are adhered to, and adequate security measures are implemented. In addition to Internal Audit, the Group uses the services of external consultants to perform independent assessment of the internal control system. If any deficiencies or material weaknesses are found, they are documented and presented to the Board which monitors the progress on remediation plans through the internal audit reports. Ironshore utilizes the internal control model that comprises three lines of defense. The three lines of defense addresses how specific duties related to risk and control are assigned and managed within the organization. The three separate lines of defense are organized in the framework developed by the Institute of Internal Auditors (“IIA”) and each line performs the following activities:

Functions that own and manage risk and control (front line operating management): The majority of employees comprise the first line of defense. Senior management has responsibility setting the organization’s objectives, defining strategies to achieve those objectives, and establishing governance structures. Operational management identifies, assesses, controls, and mitigates risks, guiding the development and implementation of internal policies and procedures and ensuring that activities are consistent with goals and objectives. Managers design and implement detailed policies and procedures that serve as controls and supervise execution of those procedures by their employees.

Functions that monitor risk and control in support of management (RM and Compliance functions): RM assists risk owners in defining the target risk exposure and reporting adequate risk-related information throughout the organization. The Compliance Function monitors various specific risks such as noncompliance with applicable laws and regulations.

The function that provides independent assurance to the Board and senior management concerning the effectiveness of management of risk and control (Internal Audit): Internal Audit provides senior management and the Audit Committee with assurance based on independence and objectivity. Internal Audit provides assurance on the effectiveness of governance, risk management, and internal controls, including the manner in which the first and second lines of defense achieve risk management and control objectives. The Internal Controls team within the Internal Audit function provides independent testing of management’s controls. Some of this work is relied upon by the external auditors, who also perform a necessary independence function.

ii. Description of How the Compliance Function is Executed

Ironshore has regional compliance officers who manage their local area following the global compliance standard with some region specific exceptions. Regional compliance officers have the responsibility to monitor the regulatory changes in relevant jurisdictions and compliance with the applicable laws, regulatory reporting and other public disclosure requirements. They report directly to the Global Chief Compliance Officer (“CCO”), and also provide any legal and compliance updates to the relevant Committees and/or

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the legal entity boards. The Global CCO provides the compliance update to the IIL Board on a quarterly basis.

Ironshore is committed to complying with all laws that govern our business and expect every employee to follow the law in their day-to-day business dealings. To ensure compliance with applicable laws and regulations, Ironshore Compliance department assists with setting various policies, procedures and guidelines. The Compliance department also provides trainings to help employees stay abreast of increasing laws and regulations. The Liberty Global Compliance and Ethics (CG&E) team monitors the adherence to the Company’s Code of Business Conduct and Ethics. All material violations are reported to the Board and rectified accordingly. A Whistleblower Hotline is available which may be contacted on an anonymous nature. Calls to the hotline are reported through the CG&C chain and the Global CCO will notify the board as required.

iii. Description of How the Internal Audit Function is Implemented and How It Maintains its Independence and Objectivity When Conducting its Functions

Internal Audit works in collaboration with management and external auditors to assess the effectiveness of the internal controls framework. The internal controls framework consists of policies, procedures and activities that safeguard the assets of the organization to ensure that the financial reporting is reliable, and prevent and detect fraudulent activities. Internal Audit accomplishes this by evaluating business processes, strategy and the risks. Consistent with the organization’s needs, the company develops and executes a flexible, risk-based audit plan to determine the priorities of the Internal Audit activity. Risks considered when building the audit plan include financial, operational, compliance, strategic and reputational risks. Internal Audit is also responsible for auditing information systems and the controls embedded within those systems to support organizational processes and goals. Audits are designed to ensure that IIL is functioning in the most efficient manner, and that controls are adequate. Audit activities are complemented by periodic follow-up procedures for confirmation of remedial actions.

Through the execution of this plan, the department is able to determine whether the governance processes are adequate and functioning in a manner to ensure the following: significant financial, managerial, and operating information is accurate, reliable and timely; employees’ actions are in compliance with policies, standards, procedures, and applicable laws and regulations; resources are acquired economically, used efficiently, and adequately protected; programs, plans, and objectives are achieved; quality and continuous improvement are fostered in the control process; and, significant legislative and regulatory issues impacting IIL are recognized and addressed appropriately. The purpose, scope, authority and responsibilities of the Internal Audit function are set out within the Internal Audit Charter, which has been reviewed and approved by the Audit Charter is reviewed and updated on an annual basis, or more frequently, if required. Internal Audit’s independence and objectivity depends largely on having no operational responsibility for or authority over any of the activities subject to review. Further, the Internal Audit review and appraisal does not relieve other personnel in the organization of the responsibilities assigned to them. Internal Audit can, however, make recommendations regarding the quality of those operations or adequacy of internal controls in the normal course of the reviews. While Internal Audit may take an active role in the formulation of policy or development of new systems (process or technical), it will be an advisory capacity only, with final decisions and implementation being the responsibility of appropriate management.

iv. Description of How the Actuarial Function is Implemented

The Actuarial Function has a number of responsibilities; these include the following:

Reserving Responsibilities include calculating loss and LAE reserves on a quarterly basis, calculating Technical Provisions (“TP”) on an annual basis.

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Pricing Responsibilities include building and maintaining rating models and the process of rate monitoring.

Other Responsibilities include providing an opinion on the underwriting policy, providing opinion on the reinsurance arrangements, and contributing to the effective implementation of the risk management system.

2.5 Outsourcing

i. Description of the Outsourcing Policy and Information on Any Key or Important Functions That Have Been Outsourced

The Group has an outsourcing policy and boards for each company within the group hold broad responsibility for review and approval of critical business functions of their company. The terms and conditions of the outsourcing contract are approved by the respective boards. The outsourcing policy also outlines the process of selection of the service providers, and the procedures to be taken to monitor the work of outsourced partners and ensure that arrangements do not negatively affect the Ironshore’s reputation. Designated individuals manage services provided by outsourced vendors.

The Board is responsible for ensuring that an outsourcing arrangement does not diminish IIL’s ability to fulfil its obligations to customers or its regulator, nor impede effective supervision by its regulator. Fundamental responsibilities such as the setting of strategies and policies, the oversight of the operation of the processes, and the final responsibility for customers, are not outsourced.

Control functions that being Actuarial, RM, Compliance and Internal Audit have not been outsourced, although an agreement is in place with external partners that provides for staff to be seconded to the Internal Audit for designated projects or provide other services as needed.

ii. Description of Material Intra-Group Outsourcing

The information technology platform has been centralized for efficiency and economies of scale. Further centralization will be completed as the Ironshore group integrate into the Liberty Mutual structure. The Ironshore Group and IIL are dependent upon a third party, Genpact, for certain administrative and operational services. Genpact provides us with global administrative and operational services, including limited information technology services, back office services related to insurance operations and accounting functions, database management and reporting services.

3. RISK PROFILE

Particulars on exposures to underwriting risk, market risk, credit risk, liquidity risk, operational risk and other material risks.

i. Material Risk Insurer is Exposed to During the Reporting Period

Ironshore’s main risk categories are strategic, insurance, investment, credit, operational, reputational and liquidity risk.

Strategic Risk - Risk associated with the selection of strategies and the macro factors that provide the context for the execution of these strategies.

Insurance Risk - Risk of loss arising from the inherent uncertainties as to the occurrence, amount and timing of insurance liabilities.

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Investment Risk - Risk of financial loss due to movements in investment market factors, including interest rates, foreign exchange rates and credit ratings of investments.

Credit Risk - Risk of loss if another party fails to perform its obligations or fails to perform them in a timely fashion. Depending on the source of risk it is classified as either insurance or investment category within the Risk Register.

Operational Risk - The risk of loss resulting from inadequate or failed internal processes, people and / or systems or from external events, including financial reporting risk, technology risk and compliance risk. This also includes regulatory risks.

Liquidity Risk - Risk that sufficient financial resources are not maintained to meet liabilities as they fall due

ii. Risk Mitigation in the Organization

RM is primarily represented at the URC Meetings. This ensures adequate flow of risk information and provides an opportunity to discuss with key staff the existing risk areas, identification of potential emerging risks and risk mitigation techniques. RM meets with Risk Owners regularly to review their risks, assess whether any changes to either the inherent or residual risk measurements are required, discuss the current mitigating controls for their risk, discuss emerging risks and consider whether any future management actions have been identified.

The main changes to risk controls are agreed with risk control owners and documented in a set of meeting notes and subsequently in the Risk Register. RM regularly reviews the Risk Register in respect of the appropriateness of the measure of risk at both inherent and residual levels. If in the opinion of RM an amendment is required, it will be discussed with risk owners.

The risk and control owners have responsibility for monitoring their respective risks but are assisted and challenged by RM and Internal Audit. Risk owners have the responsibility of escalating or communicating any issues they find with the mitigating controls that are in place for these risks. The ongoing and formal risk assessment process ensures that the risk profile of IIL is monitored against the stated risk appetite and risk tolerance levels.

iii. Material Risk Concentrations

IIL maintains and monitors tolerances around key risk exposures including but not limited to exposure to natural catastrophes, net exposures by insured and ceded reinsurance exposures. Exposures are monitored by the RM function.

In addition, our investments are subject to several risk limits and formal tolerances. IIL has policies governing risk concentrations in relation to counterparties, credit quality, sectors and geographical locations.

iv. Investment in Assets in Accordance with the Prudent Person Principles of the Code of Conduct

Ironshore’s investment portfolio is managed by Liberty Mutual Investment (LMI) in accordance with the Liberty Mutual Group investment policy guidelines. In order to achieve the investment objectives, the portfolio is diversified and is managed with consideration for risks such as market risk, credit risk, interest rate risk, currency risk and liquidity risk. The guidelines ensure that highly liquid and low volatility fixed income securities support the Technical Provisions (TP) to ensure that claims can be paid on a timely basis. The size of the high quality investment portfolio is determined by the amount of TP recorded for the

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quarter plus a large safety buffer. These guidelines are reviewed on an annual or ad hoc basis if any significant deviations have occurred that affect the financial markets.

v. Stress testing and Sensitivity Analysis to Assess Material Risks

Various stress tests are performed to determine the adequacy of capital/liquidity to ensure regulatory requirements are met. The tests performed relate to underwriting risk exposures. Underwriting risk exposure is tested for risk concentration by considering the net exposures to several selected scenarios. This analysis facilitates discussions around emerging risks and aggregation/clash across our profit centers. The remaining traditional risk categories (e.g. credit risk, interest rate risk and market risk) are also estimated.

4. SOLVENCY VALUATION

i. Valuation Bases, Assumptions and Methods to Derive the Value of Each Asset Class

The valuation principles outlined by Bermuda Monetary Authority’s (“BMA”) “Guidance Note for Statutory Reporting Regime” are used for the reporting period statutory filing. The economic valuation principles outlined in the BMA guidance measure assets and liabilities on a fair value basis (which is the value that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between open market participants at the measurement date). The fair value principles used for the assets are as follows:

Cash and Short Term Investments - Cash and cash equivalents have an original maturity of ninety days or less. Short term investments, which are managed as part of the Group’s investment portfolio, have a maturity of one year or less when purchased and are carried at cost which approximates fair value.

Fixed Maturity Securities are valued in accordance with mark to market principles where possible. Quoted market prices in active markets for similar assets with adjustments to reflect differences are considered f mark to market valuation is not possible. Fixed income securities that are not actively traded and for which similar assets are also not actively traded pricing services are used to prepare inputs to assist with mark to model valuations.

Equity Securities includes common stock and are valued using the quoted market prices.

Accounts and Premium Receivables are recorded at a fair value and adjusted for any likelihood of non-recoverability where appropriate.

Deferred Acquisition Costs arise from accrual accounting in the GAAP financial statements and are unrelated to the timing of the acquisition cost cash flows which is the criteria under which Economic Balance Sheet TP’s are recognised. Future acquisition cost cash flows are values included in TP’s, which are further discussed in part 4.ii.

Deferred Tax Assets are recorded at value to which the extent of projected future taxable income and deferred tax liabilities that can offset deferred tax assets.

ii. Valuation Bases, Assumptions and Methods to Derive the Value of Technical Provisions

Technical Provisions (TP) are based on best estimates of future cash flows needed to settle the insurance obligations associated with existing business as of December 31, 2017. This also applies to business with inception dates subsequent to December 31, 2017 for which the terms cannot be unilaterally changed. (referred to as Bound but Not Incepted (“BBNI”) business).

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The starting point for the TP is the U.S. GAAP undiscounted unpaid loss and LAE, gross and net of reinsurance, for losses occurring on or before December 31, 2017. TP’s also reflect future claims events associated with unpaid loss and LAE for unexpired risks associated with business incepting prior to December 31, 2017 and BBNI exposures. These unpaid losses and LAE are then adjusted for the following:

Events not in dataset (“ENID”) - The estimate of the TP’s includes an additional 2.5% provision for events not adequately reflected in the data used for traditional loss reserving approaches.

Any other expenses incurred during the run-off of the existing policies - The best estimate reflects all cash flows arising from expenses that will be incurred servicing existing policies during their lifetime. These expenses consist of future acquisition expenses plus an assessment for future administrative expenses, claims management expenses, and overhead expenses. Investment expenses were reflected through an adjustment in the discount rate of 0.10%.

An estimate of uncollectible reinsurance - This provision reflects expected losses due to counterparty default (for whatever reason, including reinsurer insolvency or contractual disputes) in relation to reinsurance recoveries.

An offset by premium receivables for premiums not yet due.

All provisions were then discounted to take into account the time value of money, using the relevant risk-free interest rate term structure provided by the BMA as of December 31, 2017 with appropriate illiquidity and investment expense adjustments.

The calculations were performed for earned, unexpired and incepted business, and unexpired and BBNI business separately, both gross and net of reinsurance.

The loss and loss expenses provisions are comprised of cash flows associated with the earned business; the premium provisions are comprised of cash flows associated with the unexpired and BBNI business.

In addition, TP’s include a risk margin to reflect the uncertainty inherent in the underlying cash flows. The risk margin is calculated based on the cost of capital approach described in the BMA's Risk Margin template. This method calculates the risk margin as the discounted cost of capital, net of investment expenses, required to support the liabilities until they have all been paid.

The total TP amounted to the following for years ending December 31, 2017 and 2016:

In USD ’000 2017 2016

Best Estimate Loss and Loss Expense Provision (Net) 49,165 75,763

Best Estimate Premium Provision (Net) 594,870 2,307,677

Risk Margin 85,886 215,047

Total Technical Provision 729,921 2,598,487

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iii. Description of Recoverable Amounts from Reinsurance Contracts

Reinsurance recoverable is presented on the balance sheet net of any reserves for uncollectible reinsurance. The method of determining the reinsurance recoverable on unpaid losses and loss adjustment expenses involves actuarial estimates in a manner consistent with the determination of unpaid losses and LAE.

iv. Valuation Bases, Assumptions and Methods to Derive the Value of Other Liabilities

Similar to the valuation principles for assets, the Group’s liabilities follow the valuations principles outlined by BMA’s “Guidance Note for Statutory Reporting Regime” which values liabilities at a fair value basis. All other liabilities values are disclosed within GAAP financials as at December 31, 2017.

v. Any Other Material Information

No additional material information to report.

5. CAPITAL MANAGEMENT

5.1 Eligible Capital

i. Capital Management Policy and Process for Capital Needs, How Capital is Managed and Material Changes During the Reporting Period

As the profile and strategic plans change, so do capital needs. The Board recognizes the importance of having a plan for addressing capital requirements to meet its strategic plans for growth and in times of crisis. The capital management process seeks to provide a thorough and realistic structure for maintaining an efficient level of capital. Shortfalls are managed by setting out actions that may be undertaken based on the severity and urgency of the deficit.

In the short to medium term, capital management is closely aligned with the business planning process and utilizes the risk appetite to guide business decisions. In the long term, the strategy is to consistently deliver superior profitable growth through a balanced and diversified portfolio with a keen focus on execution. This is accomplished through revenue growth, expense management, investment management, focus on underwriting specialty lines and developing top talent.

ii. Confirmation of Eligible Capital That is Subject to Transitional Arrangements

Not applicable

iii. Identification of Any Factors Affecting Encumbrances on the Availability and Transferability of Capital to Meet the ECR

Not applicable

iv. Identification of Ancillary Capital Instruments approved by the BMA

Not applicable

v. Identification of Differences in Shareholder’s Equity as Stated in the Financial Statements Versus the Available Statutory Capital and Surplus

Other than the impact of employing statutory-based TP valuation techniques, significant differences between GAAP shareholder equity and available statutory capital and surplus include the following:

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Reduction in available statutory capital for non-admitted goodwill and other intangible assets, prepaid assets and fair value adjustments on debt obligations to parent company.

Increase in available statutory capital arising from liabilities on Letters of Credit obligations.

5.2 Regulatory Capital Requirements

i. ECR and MSM Requirements at the End of the Reporting Period

As at December 31, 2017, regulatory capital requirements were assessed as follows:

In USD ’000 2017 2016

Minimum Margin of Solvency 265,348 587,704

Enhanced Capital Requirement 456,043 990,624

Enhanced Capital Requirement Ratio (%) 382% 170%

ii. Identification of Any Non-Compliance with the MSM and the ECR

IIL was compliant with the requirements of the MSM and the ECR at the end of the reporting period.

iii. A Description of the Amount and Circumstances Surrounding the Non-Compliance, the Remedial Measures and Their Effectiveness

Not applicable.

iv. Where the Non-Compliance is not Resolved, a Description of the Amount of the Non-Compliance

Not applicable.

5.3 Approved Internal Capital Model

i. Description of the Purpose and Scope of the Business and Risk Areas Where the Internal Model is Used

Not applicable.

ii. Where a Partial Internal Model is Used, Description of the Integration with the BSCR Model

Not applicable.

iii. Description of Methods Used in the Internal Model to Calculate the ECR

Not applicable.

iv. Description of Aggregation Methodologies and Diversification Effects

Not applicable.

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v. Description of the Main Differences in the Methods and Assumptions Used for the Risk Areas in the Internal Model Versus the BSCR Model

Not applicable.

vi. Description of the Nature & Suitability of the Data Used in the Internal Model

Not applicable.

vii. Any Other Material Information

Not applicable.

6. SUBSEQUENT EVENTS

There have been no subsequent material events during the time of the closing and December 31, 2017.

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LIST OF ABBREVIATIONS

Acronym Term

BBNI Bound But Not Incepted

BCAR A.M. Best Capital Adequacy Ratio

BMC Bermuda Management Committee

BMA Bermuda Monetary Authority

BSCR Bermuda Solvency Capital Requirement

CAO Chief Accounting Officer

CCO Chief Compliance Officer

CFA Chief Financial Advisor

CFO Chief Financial Officer

COO Chief Operating Officer

CPCU Chartered Property Casualty Underwriter

CRO Chief Risk Officer

CEO Chief Executive Officer

D&O Directors & Officers

ECR Enhanced Capital Requirement

E&O Errors & Omissions

GAAP Generally Accepted Accounting Principles

IIA Institute of Internal Auditors

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Acronym Term

IIL Ironshore Insurance Ltd.

LAE Loss Adjustment Expenses

LOB Line Of Business

M.B.A. Master in Business Administration

MSM Minimum Margin of Solvency

PMA Pembroke Managing Agency

P&C Property & Casualty

ROE Return On Equity

FCR Financial Condition Report

VaR Value at Risk

WTW Willis Towers Watson