lloyd s update - aon benfieldthoughtleadership.aonbenfield.com/documents/20130625...2013/06/25 ·...

Empower ResultsTM

Lloyd´s Update Results for the full year ended December 31, 2012

Contents

Executive Summary 3

2012 Results 4

Premium Income 4

Underwriting Performance 6

Investment Return 8

Pre-Tax Results 8

Balance Sheet 10

Investments 10

Technical Reserves 11

Capital 11

Lloyd’s in 2013 13

Market Capacity 13

Market Structure 13

Mergers and Acquisitions 14

Vision 2025 14

Market Oversight 14

Licensing 14

Catastrophe Risk Management 15

Financial Strength Ratings 15

Appendix 1 - Top 40 Reinsurers at Lloyd’s 16

Appendix 2 – Lloyd’s 10 Year Segmental Results 19

Appendix 3 – Active Syndicate Listing 20

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Aon Benfield

3

Executive Summary Lloyd’s reported a pre-tax profit of GBP2.8 billion for 2012, after a loss of GBP0.5 billion in

2011. This represented a return on capital employed of 14.8%.

Gross premiums written rose by 8.6% to GBP25.5 billion, aided by an average risk-adjusted rate increase of 3.0% and transfers of business from the company market.

The growth rates by reporting segment were Energy +13%, Reinsurance +11%, Property +10%, Casualty +7%, Marine +6%; Motor -3% and Aviation -6%.

The account split was Reinsurance 38%, Property 21%, Casualty 18%, Marine 8%, Energy 7%, Motor 5% and Aviation 3%.

The geographic spread was North America 41%, the UK 18%, Europe 15%, Asia Pacific 13%, Other Americas 8% and the rest of the world 5%.

Outwards reinsurance premiums rose by 22% to GBP6.1 billion, a cession rate of 23.8% (2011: 21.3%). Net premiums written rose by 5.2% to GBP19.4 billion.

The underwriting result was a profit of GBP1.7 billion, after a loss of GBP1.2 billion in 2011. The combined ratio improved from 106.8% to 91.1%.

The overall surplus on prior year reserves stood at GBP1.4 billion (2011: GBP1.2 billion), representing 7.2% (6.5%) of net premiums earned.

The net cost of large losses was GBP1.8 billion (2011: GBP4.6 billion), representing 9.7% (25.5%) of net premiums earned, of which GBP1.4 billion related to Hurricane Sandy.

The total investment return rose by 37% to GBP1.3 billion, the increase being driven by capital gains on bonds and equities.

Total net resources rose by 6% to a new high of GBP20.2 billion at the end of 2012, split GBP17.7 billion to members’ assets and GBP2.5 billion to central assets.

The continued attractiveness of the Lloyd’s platform is reflected in record levels of market capacity (estimated at GBP25.1 billion in 2013) and high levels of M&A activity.

Currently 57 Lloyd’s managing agents oversee 89 active syndicates. This includes 12 Special Purpose Syndicates providing GBP530 million of reinsurance ‘sidecar’ capacity.

From January 1, 2013, syndicates must manage gross and net exposures to a single Lloyd’s specified Realistic Disaster Scenario to a maximum of 80% and 30% of both Gross Net Premium and their Economic Capital Assessment. Exceptions are possible by agreement.

Lloyd’s has outlined its long-term strategy to grow, internationalize and diversify in ‘Vision 2025’. China, Brazil, Mexico, India and Turkey are currently seen as higher priority countries.

Lloyd’s Update – Results for the full year ended December 31, 2012

4

2012 Results Lloyd’s reported a pre-tax profit of GBP2.8 billion for 2012, after a loss of GBP0.5

billion in 2011. This represented a return on capital employed of 14.8%, taking the

five-year average to 12.1%.

Exhibit 1: Lloyd’s Pro Forma Results

Income Statement

GBP (millions)

Full Year

2008

Full Year

2009

Full Year

2010

Full Year

2011

Full Year

2012

Year-on-Year

Change

Gross premiums written 17,985 21,973 22,592 23,477 25,500 9%

Net premiums written 14,217 17,218 17,656 18,472 19,435 5%

Net premiums earned 13,796 16,725 17,111 18,100 18,685 3%

Underwriting result 1,198 2,320 1,143 -1,237 1,661 n.m.

Investment result 957 1,769 1,258 955 1,311 37%

Pre-tax result 1,899 3,868 2,195 -516 2,771 n.m.

Key Ratios

Full Year

2008

Full Year

2009

Full Year

2010

Full Year

2011

Full Year

2012

Year-on-Year

Change

Combined ratio 91.3% 86.1% 93.3% 106.8% 91.1% -15.7pp

Investment yield 2.5% 3.9% 2.6% 1.9% 2.6% 0.7pp

Return on capital 13.7% 23.9% 12.1% -2.8% 14.8% 17.6pp

Source: Lloyd’s, Aon Benfield Market Analysis

Premium Income Gross premiums written rose by 8.6% to GBP25.5 billion in 2012, aided by an average risk-adjusted rate increase of 3.0%, transfers of business from the company market onto the Lloyd’s platform and double-counting associated with greater use of Special Purpose Syndicates as sidecars. Exchange rate movements had minimal impact. Underlying growth of 2.4% occurred mainly in treaty reinsurance and direct and facultative property, with smaller increases seen in marine, general liability and accident and health. Overall, reported growth rates by major class were Energy +13%, Reinsurance +11%, Property +10%, Casualty +7%, Marine +6%; Motor -3% and Aviation -6%. Outwards reinsurance premiums climbed to GBP6.1 billion (2011: GBP5.0 billion), a cession rate of 23.8% (21.3%). Net premiums written rose by 5.2% to GBP19.4 billion.

Exhibit 2: Gross and Net Premiums Written


The breakdown of gross premiums written by Lloyd’s reporting segment in 2012 was Reinsurance 38%, Property 21%, Casualty 18%, Marine 8%, Energy 7%, Motor 5% and Aviation 3%, as shown in Exhibit 3.

0

10

20

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bill

ions

)

Gross Premiums Written

Net Premiums Written

Aon Benfield

5

Exhibit 3: Gross Premiums Written by Segment


North America continues to be Lloyd’s largest market, representing 41% of total business in 2012, followed by the UK at 18%, Europe at 15%, Asia Pacific at 13%, Other Americas at 8% and the rest of the world at 5%.

Exhibit 4: Gross Premiums Written by Region

*Prior to 2007 Canadian premiums were included in Other Americas


Exhibit 5 shows the distribution of 2012 gross written premiums by region across the seven high-level business segments used by Lloyd’s for reporting purposes.

Exhibit 5: Lloyd’s Segment Breakdown by Region

2012

US &

Canada

Other

Americas UK Europe Asia Pacific

Rest of

World Total

Reinsurance 27% 77% 32% 38% 47% 64% 38%

Property 33% 6% 18% 14% 15% 7% 21%

Casualty 19% 6% 18% 16% 26% 10% 18%

Marine 7% 5% 6% 18% 6% 9% 8%

Energy 10% 3% 3% 8% 3% 3% 7%

Motor 1% 1% 21% 1% 1% 2% 5%

Aviation 3% 2% 2% 5% 2% 5% 3%

Total (GBP millions) 10,455 2,040 4,590 3,825 3,315 1,275 25,500

Source: Lloyd’s

14.6 15.016.4 16.4

18.0

22.0 22.6 23.525.5

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bill

ions

)

Life & adj

Aviation

Motor

Energy

Marine

Casualty

Property

Reinsurance

14.6 15.016.4 16.4

18.0

22.0 22.6 23.525.5

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bill

ions

)

Rest of World

Other Americas

Asia Pacific

Europe

UK

US & Canada*


6

Underwriting Performance Lloyd’s reported an underwriting profit of GBP1.7 billion for 2012, after a loss of GBP1.2 billion in 2011. The combined ratio improved from 106.8% to 91.1%.

Exhibit 6: Lloyd’s Combined Ratio History


In 2012, the overall surplus on prior year reserves stood at GBP1.4 billion (2011: GBP1.2 billion), representing 7.2% (6.5%) of net premiums earned. This was the eighth successive year of releases, with almost all classes of business and years of account contributing. Actual claims experience remained significantly below projected levels and Lloyd’s reserve monitoring did not identify any new specific areas of concern. Development on longer-tail business written in the soft market conditions of 1997-2001 remained within expectations and claims estimates for the major natural catastrophe events in 2011 were stable.

Exhibit 7: Composition of Lloyd’s Combined Ratio

*Excluding major losses


The net cost of large losses in 2012 was GBP1.8 billion (2011: GBP4.6 billion), representing 9.7% (25.5%) of net premiums earned. Approximately three-quarters of the total related to Hurricane Sandy (GBP1.4 billion). Other major events included the sinking of the Costa Concordia (~GBP0.2 billion) and Hurricane Isaac (GBP55 million). Drought-related US crop losses were not considered material.

The annual cost of major claims net of reinsurance has averaged 12.5% of net premiums earned over the last five years and 11.0% of net premiums earned over the last ten years.

81.3% 86.0%

112.0%

87.3% 84.0%91.3% 86.1%

93.3%106.8%

91.1%

-10%

10%

30%

50%

70%

90%

110%

130%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Attritional Loss Ratio Expense Ratio Major Losses Prior Year Reserve Development

AttritionalLossRatio

51.5%

88.6% 91.1%

Expense Ratio

37.1%

9.7% -7.2%

Accidentyear*

Majorlosses

Reservereleases

Calendaryear

FY 2012AttritionalLossRatio

52.3%

87.8%

106.8%

Expense Ratio

35.5%

25.5% -6.5%

0%

20%

40%

60%

80%

100%

120%

Accidentyear*

Majorlosses

Reservereleases

Calendaryear

FY 2011

Aon Benfield

7

Exhibit 8: Lloyd’s Major Loss History

*Indexed to 2012


Segmental Results Underwriting profits were reported in all segments other than Motor in 2012. The largest contribution came from Reinsurance (GBP0.6 billion or 36% of the total), the greatly improved combined ratio being driven by the lower level of major losses.

Exhibit 9: Combined Ratios by Segment


For the second year in a row, the reserves in all segments developed positively in 2012, with Energy and Aviation in particular seeing sizeable releases. Stripping-away this support, the accident year combined ratios by segment were Motor 104.9%, Marine 103.8%, Property 102.6%, Casualty 100.4%, Reinsurance 97.9%, Energy 95.1% and Aviation 86.2%.

Exhibit 10: Prior Year Reserve Releases by Class


3.5

0.30.2

1.6

4.3

0.10.6

1.9

0.4

2.3

4.7

1.8

0%

10%

20%

30%

40%

50%

60%

0

1

2

3

4

5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bill

ions

)

Lloyd's Major Claims*

Major Claims as % of NPE

Major Claims as % of Capital

104.0% 99.9% 95.6% 94.4% 91.0%76.0%

67.7%

0%

20%

40%

60%

80%

100%

120%

140%

Motor Marine Casualty Property Reinsurance Energy Aviation

2011 2012

19.1% 18.5%

8.2% 6.9%4.8% 3.9%

0.9%0%

5%

10%

15%

20%

25%

30%

Energy Aviation Property Reinsurance Casualty Marine Motor

2011 2012


8

Investment Return Lloyd’s total investment return rose by 37% to GBP1.3 billion in 2012, a yield on average invested assets of 2.6% (2011: 1.9%), the increase being driven by capital gains on bonds and equities. The three components of the result – the return on centrally-held mutual assets, the notional return on the capital supporting members’ underwriting and the return on syndicate-level assets – are shown in Exhibit 11.

Exhibit 11: Investment Return


The syndicate investment return rose by 26% to GBP1.0 billion in 2012, a yield of 3.0% (2011: 2.4%). This is modest by historic standards, but better than anticipated in the prevailing low interest rate environment, as falling credit spreads on many corporate debt securities and further reduction in risk free yields generated capital gains on bond portfolios.

Members’ capital is generally held centrally at Lloyd’s, but a proportion is maintained in investment assets and managed at members’ discretion. A notional return on Funds at Lloyd’s is included in the financial statements, based on the investment disposition of the relevant assets and market index returns. This almost trebled to GBP0.2 billion in 2012, a yield of 1.3% (2011: 0.5%), driven by rising equity markets.

The return generated by mutually-held central assets rose by 26% to GBP0.1 billion in 2012, a yield of 4.5% (2011: 3.7%). Most of these investments are held within the Central Fund, the majority being fixed interest securities of high credit quality. These produced solid returns during the period, aided by capital gains. Exposures to other asset classes, including global equities and high yield debt, are said to have performed strongly.

Pre-Tax Results Lloyd’s reported a pre-tax profit of GBP2.8 billion for 2012, after a loss of GBP0.5 billion in 2011. This represented a return on capital employed of 14.8%, taking the five-year average to 12.1%.

Exhibit 12: Lloyd’s Pre-Tax Results


0%

1%

2%

3%

4%

5%

6%

0.0

0.5

1.0

1.5

2.0

2.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bi

llion

s)

Investment return on Society assets (GBP)

Notional return on Funds at Lloyd's (GBP)

Syndicate investment return (GBP)

Investment return (%)

-10%

0%

10%

20%

30%

40%

-1

0

1

2

3

4

5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bi

llion

s) Pre-tax result (GBP)

Pre-tax return on capital (%)

Aon Benfield

9

Releases from prior year reserves represented almost half of the pre-tax result in 2012. The contribution from accident year underwriting profit was relatively small (11%), bearing in mind that major losses were slightly below the long-term average.

Exhibit 13: Pre-Tax Result Composition


-3

-2

-1

0

1

2

3

4

5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bi

llion

s)

Investment result

Prior year reserve releases

Accident year underwriting result

Other

Pre-tax result


10

Balance Sheet Members’ funds and central assets strengthened to new highs at the end of 2012.

Capital adequacy is underpinned by the relatively conservative investment allocation

and the established track record of favorable prior year reserve development.

Exhibit 14: Lloyd’s Balance Sheet

Balance Sheet

GBP (millions)

Full Year

2008

Full Year

2009

Full Year

2010

Full Year

2011

Full Year

2012

Year-on-Year

Change

Cash and investments 44,370 46,254 48,483 51,416 51,767 1%

Gross technical provisions 47,463 43,544 46,428 51,918 51,517 -1%

Reinsurers’ share 11,671 9,931 10,237 12,153 12,439 2%

Net technical provisions 35,792 33,613 36,191 39,765 39,078 -2%

Net resources* 15,264 19,121 19,121 19,114 20,193 6%

*Capital, reserves, subordinated loan notes and securities

Source: Lloyd’s

Investments Cash and investments increased by 1% to GBP51.8 billion over the course of 2012, with no significant change in allocation observed.

Exhibit 15: Investment Allocation at December 31, 2012

Source: Lloyd’s, Aon Benfield Market Analysis *Includes supra nationals and government agencies

At the year-end, the credit rating profile of the largest component, the GBP18.1 billion corporate bond portfolio, was ‘AAA’ 30%, ‘AA’ 26%, ‘A’ 31% and lower/unrated 13%. The majority of the GBP16.6 billion government bond portfolio is derived from the UK, US and Canada. Direct exposure to peripheral eurozone sovereign debt is described as negligible. The implications of a eurozone break-up have been considered via stress tests looking not only at potential write-downs following bank debt restructuring, but at the operational impact of functioning in different currencies and at the possible effect on Lloyd’s European liability portfolio. The outcome was said to be similar in scale to other Realistic Disaster Scenario output and is described as ‘absolutely manageable’ in the context of the size of the market as a whole.

35%

32%

27%

4% 2%

Total Invested Assets: GBP51.8 billion

Corporate bonds

Government bonds*

Cash and LOCs

Equities

Alternative investments

42%

36%

5%

4%

4%3%2%2%2%

Central Assets: GBP2.5 billion

Fixed income - government*Fixed income - corporateGlobal equityCashEmerging markets & high yield bondsHedge fundsProperty equityEmerging equityCommodities

Aon Benfield

11

Technical Reserves Gross provisions for outstanding claims fell by 3% to GBP40.2 billion over the year to December 31, 2012. Reinsurers’ share rose by 1% to GBP10.7 billion and net provisions fell by 4% to GBP29.5 billion.

Exhibit 16: Claims Reserve Leverage


Capital Lloyd’s does not hold conventional equity - the components of the capital base are shown in Exhibit 17. Both Funds at Lloyd’s and members’ balances operate on a several liability basis. Total net resources rose by 6% to a new high of GBP20.2 billion in 2012, split GBP17.7 billion to members’ assets and GBP2.5 billion to central assets. Assets admissible for solvency purposes were estimated to exceed solvency deficits by GBP3.1 billion at December 31, 2012.

Exhibit 17: Lloyd’s Capital Base


Funds at Lloyd’s represents capital lodged and held in trust at Lloyd’s to support members’ underwriting commitments. The total rose by 3% to a record level of GBP15.7 billion at the end of 2012, of which 50% (2011: 53%) was held in the form of letters of credit (LOCs) and bank guarantees. Under the Solvency II regime, Tier 1 capital must comprise 50% of regulatory capital and LOCs are currently eligible as Tier 2 capital only.

Members’ surpluses represent the net profit/(loss) to be distributed/(collected) by syndicates to/(from) capital providers. The total rose by 32% to GBP2.0 billion during the year, reflecting profit accumulation.

Central assets rose by 4% to a new high of GBP2.5 billion, including GBP0.9 billion of subordinated loan notes and perpetual capital securities. The Central Fund balance of GBP1.5 billion is said to be comfortably in excess of immediate regulatory and rating agency requirements.

28 29

38

30 29

3834 36

41 40

10 12 11 13 14 1519 19 19 20

0

10

20

30

40

50

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bill

ions

)

Net claims provision Reinsurers' share of claims provision Net resources

10.112.2

11.0

13.314.5 15.3

19.1 19.1 19.1 20.2

-2

2

6

10

14

18

22

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GBP

(bi

llion

s)

Subordinated liabilities

Central assets

Members' balances

Funds at Lloyd's

Solvency surplus


12

The Chain of Security The resources available to pay claims at Lloyd’s are linked together in a ‘Chain of Security’ as follows:

1. Syndicate assets: Premium Trust Funds (PTFs) of GBP41.1 billion. All premiums received by syndicates are held in trust as the first resource for paying policyholders’ claims. Until all liabilities have been provided for, no profits can be released. Every year, each syndicate’s reserves for future liabilities are independently audited and receive an actuarial review.

2. Members’ assets: Funds at Lloyd’s (FAL) of GBP15.7 billion. Each member, whether corporate or individual,

must provide sufficient capital to support their underwriting at Lloyd’s. The capital is held in trust for the benefit of policyholders, but is not available to support the liabilities of other members. Assets supporting FAL requirements must be liquid but may include letters of credit and bank guarantees.

3. Central resources: Society of Lloyd’s net assets of GBP1.6 billion, plus subordinated debt of GBP0.9 billion. In

May 2013, Lloyd’s announced that it was buying-back GBP180 million of its outstanding debt securities. Should the first link need additional funds, the second link ensures members have resources available. In the rare event that these two links are insufficient, central resources can be made available at the discretion of the Council of Lloyd’s to ensure valid claims are paid.

Exhibit 18: Lloyd’s Chain of Security at December 31, 2012


Capital Setting at Lloyd’s From January 2013, managing agents are required to use Solvency II internal models to determine each syndicate’s Individual Capital Assessment (ICA). This is the level of capital required to cover underlying business risks at a 99.5% confidence level. Lloyd’s reviews all ICAs to assess the adequacy of the proposed capital level. When agreed, each ICA is then ‘uplifted’ to ensure there is sufficient capital to support the market’s ratings and financial strength. This uplifted ICA is known as the syndicate’s Economic Capital Assessment (ECA) and drives members’ capital levels.

Central assets are currently managed to a minimum of 250% of the ICA prepared centrally for the market as a whole. The Corporation regularly runs detailed analyses aiming to balance the need for financial security with the need for cost-effective mutuality of capital. Members’ contributions to the Central Fund remain at 0.5% of gross premiums written for 2013.

Solvency The Corporation of Lloyd’s is responsible for calculating the statutory solvency position of the Society and reporting it to the UK regulators. Net assets for solvency purposes comprise central assets plus ‘the callable layer’, an amount equivalent to 3% of aggregate premiums limits which the Council of Lloyd’s is authorized to call from members’ PTFs in any one year. The total rose by 4% to GBP3.2 billion at December 31, 2012. Solvency deficits (the aggregation of the shortfalls in members’ assets) fell by 18% to GBP94 million and the Society therefore had an estimated solvency surplus of GBP3.1 billion at the year-end.

Funds at Lloyd's (underlying capital set by Lloyd's)GBP15,660 million

Premium Trust FundsGBP41,126 million

Subordinated Debt GBP893 million

Central Fund GBP1,459 millionCorporation Assets GBP133 million

Callable Layer (=3%)GBP745 million

Central Assets

Members'Assets

Several assets Mutual assets Contingent

Syndicate Assets

Aon Benfield

13

Lloyd’s in 2013 The continued attractiveness of the Lloyd’s platform is reflected in record levels of

market capacity and high levels of M&A activity. The market has outlined its long-

term strategy to grow, internationalize and diversify in ‘Vision 2025’.

Market Capacity The upward trend in market capacity continued into 2013. The total at the beginning of the year stood at an estimated GBP25.1 billion. Corporate vehicles operating on a limited liability basis supplied 89% of the market’s underwriting capacity in 2012. The balance was provided by individual members operating on a limited and unlimited liability basis (8% and 3% respectively).

Exhibit 19: Lloyd’s Underwriting Capacity

Source: Company reports, Lloyd’s, Aon Benfield Market Analysis

Market Structure Lloyd’s global reach is delivered through its global license network, nearly 2,800 cover-holders and 40 offices across the world. The four largest individual markets are the US, the UK, Australia and Canada. There are currently 57 Lloyd’s managing agents overseeing 89 active syndicates. This includes 12 Special Purpose Syndicates (SPSs) which operate as ‘sidecars’ and are not available to write open market business. Excluding life syndicates and SPSs, average syndicate capacity now stands at GBP340 million. A full active syndicate list can be found in Appendix 3.

Exhibit 20: New Syndicates For 2013

Syndicate Number Managing Agent 2013 Capacity GBPmn Comments

1991 R&Q 77 Non-marine syndicate with a mixed capital base

focusing on binding authority business

2357† Asta 100 Catastrophe excess of loss reinsurance syndicate

backed by Nephila Capital

6113 Barbican 24 SPS backed by private capital providing reinsurance

support to Barbican Syndicate 1955

6115 Canopius 70 SPS capitalized by Tower Group to provide

reinsurance support to Canopius Syndicate 4444 †Approved in principle February 2013, subject to Lloyd’s/regulatory approval

Source: Company reports, Lloyd’s, Aon Benfield Market Analysis

10.2 9.9 10.1 11.3 12.214.4 15.0 13.7 14.8

16.1 16.017.4

22.8 23.2 24.2 25.1

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

GBP

(bill

ions

)


14

Mergers and Acquisitions Lloyd’s remains attractive to would-be new participants. The entry criteria have not changed, but market conditions make the existing hurdles harder to clear. These dynamics have resulted in continued high levels of merger and acquisition activity. Three managing agents have changed hands in 2013 and at least two others are actively engaged in sales processes. Lloyd’s has made it clear that new owners of syndicate capacity face considerable challenges in revising previously agreed business plans, particularly if new proposals involve growth.

Vision 2025 In May 2012, Lloyd’s published ‘Vision 2025’, a strategic plan aimed at ensuring that the market grows beyond the English-speaking world to become the true global hub for specialist insurance and reinsurance business by 2025. The key goal is to position Lloyd’s to take advantage of the opportunities presented by the world’s developing economies, which it is hoped will grow to represent at least 25% of total business. Detailed analysis incorporating managing agents’ appetite, broker penetration, local business environment, business mix and catastrophe exposure indicated that China, Brazil, Mexico, India and Turkey were higher priority countries.

The ambition extends to attracting overseas trade capital that can bring-in new specialist business and people from territories where Lloyd’s needs to increase its market share. A structured relationship management program has been launched to forge links with potential partners. At present 80% of Lloyd’s capital is derived from the traditional markets of Europe, Bermuda, the US and Japan.

Lloyd’s expects the number of large managing agents to increase, but aims to ensure that smaller managing agents can continue to flourish. Private ‘Names’ will continue to supply capital, but on a more flexible and efficient basis, mainly via SPSs.

Market Oversight Effective April 1, 2013, a new regulatory regime was introduced in the UK under the auspices of the Bank of England. The Corporation of Lloyd’s is working closely with the new regulatory bodies to enhance their knowledge of the market and its central oversight role. This includes setting standards, approving business plans, providing support services, managing the Central Fund and optimizing the network of international licenses. The Corporation’s Executive Team exercises the day-to-day powers and functions of the Council of Lloyd’s and the Franchise Board. At the end of 2012, the Corporation and its subsidiaries had 890 staff.

Lloyd’s is engaged in ongoing lobbying to influence the evolution of the UK, European and global regulatory frameworks, with the aim of securing the competitive position of the market. Lloyd’s has materially completed its Solvency II project and has started phasing-in elements of the regime that add most value for managing agents. There is continued close monitoring of the implementation timetable to understand the impacts on the market.

Licensing Lloyd’s continually reviews the competitiveness of its license network to ensure Lloyd’s businesses have optimal market access around the world. During 2012, Lloyd’s Japan negotiated an easier and more flexible use of the Lloyd’s direct license in Japan. The Indian Government agreed that the legislation needed to allow Lloyd’s to establish a reinsurance branch operation in the country should be put forward for Parliamentary approval, although speedy resolution is not anticipated. Lloyd’s was awarded an establishment authorization in Lithuania, which will be its regional focus for promoting business in all three Baltic States. Efforts continue to engage with the Turkish Government and regulator to explore ways in which Lloyd’s can achieve a license to write direct and reinsurance business onshore in Turkey. Discussions have also begun with regulators in Colombia.

Lloyd’s was granted eligible reinsurer status in New York and Florida in July and October 2011 respectively. In both states, syndicates writing reinsurance business are permitted to post collateral equivalent to 20% of their liabilities. The market filed an application to become an admitted carrier in New Jersey in April 2013, but has no plans at present to apply for this status in any other state.

Cover-holders continue to be viewed as a vital distribution channel, offering a local route to Lloyd’s in many insurance markets around the world. A shift towards securing more direct licenses is described as one of the market’s strategic imperatives over the next 20 years.

Aon Benfield

15

Catastrophe Risk Management Lloyd’s recently reset its internal catastrophe exposure thresholds. With effect from January 1, 2013, the Franchise Guidelines state that the maximum gross and final net exposures to a single Lloyd’s specified Realistic Disaster Scenario for a syndicate are up to 80% and 30% of Gross Net Premium respectively and up to 80% and 30% of Syndicate ECA respectively. The capital guideline is new; both tests must be met simultaneously. Variances can be agreed by exception.

Financial Strength Ratings All Lloyd’s syndicates benefit from Lloyd’s central resources, including the Lloyd’s brand, its global licenses and the Central Fund. As all Lloyd’s policies are backed by this common security, a single market rating can be applied. Lloyd’s financial strength ratings apply to all policies issued by Lloyd’s syndicates since 1993.

Exhibit 21: Lloyd’s Market Ratings

Rating Outlook Action

A.M. Best A+ (Excellent) Stable Affirmed July 26, 2012

Fitch Ratings A+ (Strong) Positive Affirmed June 25, 2013

Standard & Poor's A+ (Strong) Positive Affirmed May 23, 2013

Source: Rating agencies

Best's Credit Ratings are under continuous review and subject to change and/or affirmation. For the latest Best’s Credit Ratings and Best’s Credit Reports (which include Best’s Credit Ratings), visit the A.M. Best website at http://www.ambest.com. See Guide to Best’s Credit Ratings for explanation of use and charges.

Best's Credit Ratings reproduced herein appear under license from A.M. Best and do not constitute, either expressly or impliedly, an endorsement of (Licensee's publication or service) or its recommendations, formulas, criteria or comparisons to any other ratings, rating scales or rating organizations which are published or referenced herein. A.M. Best is not responsible for transcription errors made in presenting Best's Credit Ratings. Best’s Credit Ratings are proprietary and may not be reproduced or distributed without the express written permission of A.M. Best Company.

A Best’s Financial Strength Rating opinion addresses the relative ability of an insurer to meet its ongoing insurance obligations. It is not a warranty of a company’s financial strength and ability to meet its obligations to policyholders. View our Important Notice: Best's Credit Ratings for a disclaimer notice and complete details at http://www.ambest.com/ratings/notice.


16

Appendix 1 - Top 40 Reinsurers at Lloyd’s Lloyd’s Reinsurance segment represented 38% of gross premiums written in 2012. The exhibits

in this section display the results of the 40 syndicates with the largest reinsurance books, based

on the disclosure in the 2012 syndicate accounts. These represented 85% of the total

Reinsurance segment.

Exhibit 22: 2012 Gross Premiums Written

Source: Syndicate annual reports, Aon Benfield Market Analysis

Exhibit 23: Reinsurance Gross Premiums Written, % Change


0

300

600

900

1,200

1,500

1,800

GBP

(mill

ions

)

Insurance (Direct)

Reinsurance (Facultative and Treaty)

-50%-20%10%40%70%

100%130%160%190%220%250%280%310%

GB

P (m

illio

ns)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Aon Benfield

17

Exhibit 24: 2012 Combined Ratios


Exhibit 25: Five Year Average Combined Ratios

Allied World 2232, RenRe 1458 and Tokio 1880 are excluded due to less than five years of operations


0%

20%

40%

60%

80%

100%

120%

140%

0%

20%

40%

60%

80%

100%

120%


18

Exhibit 26: 2012 Pre-Tax Results as % of Net Premiums Earned


Exhibit 27: Five Year Average Pre-Tax Results as % of Net Premiums Earned

Allied World 2232, RenRe 1458 and Tokio 1880 are excluded due to less than five years of operations


-25%

0%

25%

50%

75%

-10%

0%

10%

20%

30%

40%

50%

Aon Benfield

19

Appendix 2 – Lloyd’s 10 Year Segmental Results Exhibit 28: Lloyd’s Segment Data

Reinsurance Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Premiums Written (GBPmn) 4,034 4,353 5,261 5,557 5,453 6,298 7,989 8,388 8,813 9,763

Underwriting Result (GBPmn) 291 177 -1,307 802 790 734 1,245 590 -1,945 605

Combined Ratio 89% 95% 135% 81% 82% 84% 78% 90% 131% 91%

Prior Year Reserve Release -4% -5% -1% -4% 5% 12% 6% 10% 8% 7%

Accident Year Combined Ratio 85% 89% 134% 77% 86% 96% 84% 100% 138% 98%

Property Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Underwriting Result (GBPmn) 308 113 -457 495 408 103 292 283 -10 221

Combined Ratio 89% 96% 119% 82% 86% 97% 92% 92% 100% 94%

Prior Year Reserve Release % 0% 1% 1% 4% 6% 7% 3% 7% 6% 8%


Casualty Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Underwriting Result (GBPmn) -352 -278 179 327 205 148 316 113 117 152

Combined Ratio 110% 109% 94% 89% 93% 95% 91% 97% 97% 96%

Prior Year Reserve Release % -16% -11% -4% 7% 9% 9% 8% 5% 2% 5%


Marine Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Premiums Written (GBPmn) 1,098 977 1,017 1,153 1,226 1,334 1,606 1,671 1,968 2,090

Underwriting Result (GBPmn) 78 101 73 105 127 160 147 128 89 2

Combined Ratio 90% 87% 91% 89% 87% 85% 89% 91% 95% 100%



Energy Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Premiums Written (GBPmn) 676 739 804 1,125 1,019 1,150 1,371 1,419 1,523 1,727

Underwriting Result (GBPmn) 78 96 -238 9 206 -194 157 164 130 275

Combined Ratio 83% 83% 147% 99% 73% 124% 84% 83% 88% 76%

Prior Year Reserve Release % 5% 8% 2% -15% 4% 8% 6% 18% 10% 19%


Motor Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Premiums Written (GBPmn) 1,134 1,016 895 923 983 939 1,118 1,103 1,187 1,155

Underwriting Result (GBPmn) 68 61 82 30 14 3 -83 -520 -82 -42

Combined Ratio 94% 93% 91% 96% 98% 100% 108% 152% 107% 104%

Prior Year Reserve Release % 3% 9% 6% 5% 6% 1% -4% -37% 2% 1%


Aviation Segment 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gross Premiums Written (GBPmn) 556 510 375 393 464 481 551 642 708 669

Underwriting Result (GBPmn) 31 102 96 97 50 48 10 115 196 170

Combined Ratio 93% 73% 71% 65% 85% 87% 97% 75% 65% 68%



Source: Lloyd’s


20

Appendix 3 – Active Syndicate Listing Syn.

No.

Managing

Agent Agency Owner*

Largest Capital

Provider in 2013*

2012 Gross

Premiums Written

GBPm

2012

Combined

Ratio

2012 Pre-

Tax Result as

% of NPE

2013 Indicative

Capacity

GBPm** 0033 Hiscox Hiscox Hiscox (72.5%) 825 75.7% 31.2% 950

0044 Sagicor Sagicor Sagicor 7 106.9% -6.9% 7

0218 Equity Aquiline Aquiline (65.6%) 449 108.1% -4.9% 438

0260 Canopius Canopius Canopius (92.1%) 47 111.9% -7.1% 70

0308 Kiln Tokio Marine Tokio Marine (50.4%) 30 98.3% 1.9% 26

0318 Beaufort Munich Re Munich Re (91.2%) 163 77.2% 24.3% 235

0382 Hardy CNA CNA 290 110.6% -9.5% 330

0386 QBE QBE QBE (69.6%) 444 82.7% 26.9% 413

0435 Faraday Berkshire Berkshire 277 62.1% 43.6% 325

0457 Munich Re Munich Re Munich Re 494 82.4% 20.2% 425

0510 Kiln Tokio Marine Tokio Marine (55.3%) 1,153 93.8% 7.8% 1,064

0557 Kiln Tokio Marine Hampden (48.0%) 34 75.6% 26.8% 46

0566 QBE Operates as a trading division of Syndicate 2999

0609 Atrium Enstar† Hampden (36.2%) 353 79.3% 23.7% 420

0623 Beazley Beazley Hampden (53.6%) 226 87.8% 13.8% 225

0626 Hiscox Operates as a trading division of Syndicate 0033

0727 Meacock Family-owned Hampden (45.8%) 93 90.5% 17.2% 81

0779 Jubilee Ryan Specialty Hampden (50.7%) 26 108.2% -2.5% 22

0780 Advent Fairfax Fairfax 158 98.9% 16.8% 200

0887 Amlin Operates as a trading division of Syndicate 2001

0958 Canopius Canopius Canopius (61.1%) 231 124.8% -23.1% 220


1084 Chaucer Hanover Ins Hanover Ins (97.7%) 906 90.4% 15.6% 770

1110 Argenta Argenta ProSight Specialty 67 123.9% -23.1% 110

1176 Chaucer Hanover Ins Hanover Ins (56.4%) 28 72.3% 29.7% 32

1183 Talbot Validus Validus 681 91.0% 11.8% 620

1200 Argo Argo Argo (78.3%) 376 88.2% 73.9% 350

1206 Sagicor Sagicor Sagicor 194 109.4% -7.3% 200

1209 XL XL XL 321 95.9% 11.2% 300

1218 Newline Fairfax Fairfax 116 108.4% 26.1% 105

1221 Navigators Navigators Navigators 231 81.1% 27.9% 195

1225 Aegis Aegis Aegis (93.0%) 371 89.9% 18.2% 310

1274 Antares Antares Antares (74.7%) 197 91.3% 10.6% 222

1301 Torus Torus Torus (82.5%) 82 116.6% -15.7% 160

1400 Alterra Markel Markel 198 103.4% 1.3% 235

1414 Ascot AIG (20%) AIG (98.5%) 654 81.0% 22.1% 650

1458 RenRe RenRe RenRe 98 109.0% -8.8% 138

1861 ANV ANV ANV 142 105.7% -4.0% 150

1880 Kiln Tokio Marine Tokio Marine 240 66.0% 38.0% 360

1882 Chubb Chubb Chubb 79 144.8% -44.1% 82


1897 R&Q R&Q Skuld (58.3%) 51 130.7% -30.7% 70

1910 Asta Tawa/Paraline/Skuld Global Atlantic 262 71.2% 35.6% 255

1919 Starr Starr International Starr International 255 94.1% 8.9% 220

1945 Asta Tawa/Paraline/Skuld White Mountains 44 117.0% -16.9% 93

1955 Barbican Barbican Barbican 220 95.8% 5.9% 186

1967 W.R. Berkley W.R. Berkley W.R. Berkley 116 102.5% -2.0% 150

1969 ANV ANV Argenta (80.1%) 104 90.6% 10.0% 110

1991 R&Q R&Q R&Q (22.7%) - - - 77

Aon Benfield

21

Syn.

No.

Managing

Agent Agency Owner*

Largest Capital Provider

in 2013*

2012 Gross

Premiums Written

GBPm

2012

Combined

Ratio

2012 Pre-

Tax Result as

% of NPE

2013 Indicative

Capacity

GBPm** 2001 Amlin Amlin Amlin 1,470 94.7% 9.4% 1,400

2003 Catlin Catlin Catlin 1,791 93.5% 12.5% 1,500

2007 Novae Novae Novae (90.0%) 612 93.1% 10.6% 575

2010 Cathedral Cathedral Cathedral (57.8%) 285 77.8% 23.9% 350

2012 Arch Arch Arch 169 110.1% -6.0% 200

2015 Asta Tawa/Paraline/Skuld SCOR 82 96.4% 3.9% 120

2088 Catlin Catlin China Re 48 121.8% -20.1% 50

2121 Argenta Argenta Argenta (91.6%) 255 97.7% 4.0% 200

2232 Capita Capita Allied World 69 104.0% -2.6% 76

2357† Asta Tawa/Paraline/Skuld Nephila Capital - -- -- 100

2468 Marketform American Financial American Financial (70.0%) 179 133.0% -25.1% 145

2488 ACE ACE ACE 352 103.2% 17.2% 350

2525 Asta Tawa/Paraline/Skuld Hampden (45.2%) 35 64.9% 40.8% 42

2526 Asta Tawa/Paraline/Skuld Alpha (23.7%) 43 98.9% 3.8% 59

2623 Beazley Beazley Beazley 1,019 87.8% 17.0% 1,025

2791 MAP MAP (90.0%) Hampden (37.6%) 307 68.1% 40.6% 511

2987 Brit Brit Brit 1,089 98.4% 6.6% 940

2999 QBE QBE QBE 1,155 89.3% 14.6% 1,060

3000 Markel Markel Markel 386 92.8% 18.3% 340

3002 Catlin Catlin Catlin 10 86.7% 13.4% 13

3010 Cathedral Cathedral Cathedral 29 95.1% 5.3% 30

3210 Mitsui MS&AD MS&AD 302 98.0% 8.2% 340

3334 Sportscover Sportscover Wild Goose 87 114.3% -13.6% 43

3622 Beazley Beazley Beazley 13 97.8% 2.4% 15

3623 Beazley Beazley Beazley 110 111.0% -9.8% 125

3624 Hiscox Hiscox Hiscox 245 108.2% -7.1% 250

3902 Ark Operates as a trading division of Syndicate 4020

4000 Pembroke Ironshore Ironshore 226 94.2% 7.5% 250

4020 Ark Group Ark Group Ark 341 96.3% 10.7% 381

4141 HCC HCC HCC 91 89.3% 16.6% 131

4242 Asta Tawa/Paraline/Skuld Paraline (18.6%) 73 89.2% 10.9% 80

4444 Canopius Canopius Canopius (65.8%) 648 94.8% 10.8% 550

4472 Liberty Liberty Liberty 1,107 94.3% 19.4% 1,000

4711 Aspen Aspen Aspen 267 92.4% 8.3% 290

5000 Travelers Travelers Travelers 320 91.7% 11.3% 300

5151 Montpelier Montpelier Montpelier 155 88.6% 15.8% 180


5820 Jubilee Ryan Specialty Argenta (36.8%) 129 107.3% -5.4% 131

6103 MAP MAP (90.0%) Hampden (51.1%) 27 77.8% 24.0% 41

6104 Hiscox Hiscox Hampden (41.6%) 44 79.6% 22.5% 66

6105 Ark Group Ark Argenta (69.2%) 8 98.3% 14.5% 19

6106 Amlin Amlin Hampden (59.1%) 36 66.3% 34.2% 42

6107 Beazley Beazley Hampden (40.4%) 9 79.5% 17.7% 12

6110 Pembroke Ironshore Hampden 19 139.6% -39.3% 45

6111 Catlin Catlin Hampden (57.6%) 71 108.2% -7.1% 86

6112 Catlin Catlin Everest Re 32 111.2% -10.0% 29

6113 Barbican Barbican Argenta (58.6%) - - - 24

6115 Canopius Canopius Tower - - - 70

*100% unless otherwise stated **Unofficial and subject to change †Subject to Lloyd’s/regulatory approval

Hampden and Argenta are Lloyd's members' agents acting mainly on behalf of third party capital providers.

Source: Lloyd's, Aon Benfield Market Analysis


22

Contact Information Should you have any questions about this report, please contact [email protected], or a member of Aon Benfield Analytics, including:

Mike Van Slooten [email protected]

Eleanore Obst [email protected]

Mike McClane [email protected]

Aon Benfield 55 Bishopsgate London EC2N 3BD t +44 (0)20 7088 0044 f +44 (0)20 7575 7001 aonbenfield.com

© Aon UK Limited trading as Aon Benfield. All rights reserved. 2012.This document is intended as a courtesy to the recipient for general information and marketing purposes only and should not be construed as giving advice or opinions of any kind (including but not limited to insurance, tax, regulatory or legal advice). The contents of this document are based on publicly available information and/or third party sources in respect of which Aon Benfield has no control and which have not necessarily been verified. The content of this document is made available without warranty of any kind and without any other assurance whatsoever as to its completeness or accuracy. Aon Benfield disclaims any legal or other liability to any person or organization or any other recipient of this document (together a "Recipient") for loss or damage caused by or resulting from any reliance placed on this document or its contents by such Recipient. Aon Benfield reserves all rights to the content of this document.

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