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September 2013

Global Reinsurance – Segment ReviewThe Capital Challenge

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Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of this report or document may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of the A.M. Best Company. For additional details, refer to our Terms of Use available at the A.M. Best Company website: www.ambest.com/terms.

BEST’S SPECIAL REPORTOur Insight, Your Advantage.

The Capital Challenge: Reinsurance Capacity Overshadows MarketDespite a subpar operating climate, global reinsurers have managed to squeeze out relatively reasonable returns on capital and compensate investors while sustaining organic growth in capacity. Quite an accomplishment, especially considering all the various obstacles they have and continue to navigate.

Over the past two-and-a-half years, catastrophes worldwide have inflicted approxi-mately USD 190 billion in insured losses, according to Swiss Re’s Sigma. For global reinsurers, these events were primarily a drag on earnings, as balance sheets remained robust. The challenge of managing loss accumulation from global catastrophes was evi-dent in 2011, and since 2008 reinsurers have faced numerous hurdles due to a weak-ened global economy: deteriorating investment returns; more volatile investments; sup-pressed growth opportunities; increased client retentions and competitive pricing.

Now another hurdle has materialized on the horizon in the form of third-party capital. With excess capacity prevalent among the traditional reinsurers, pricing in the market is already very competitive. This is most evident in longer tail casualty classes, leaving only shorter tail specialty and property classes up for the chase. While the capital mar-kets historically have provided capacity out on the tail for property/catastrophe risk, generally in the form of catastrophe bonds, industry loss warranties (ILWs) and other collateralized structures, it now appears investors, asset managers and bankers are showing more interest in the lower layers of catastrophe programs, as well as in other specialty and casualty classes.

Various reinsurance brokers have reported that as much as USD 45 billion of additional capacity has entered the reinsurance market in recent years, representing 14% of the current global property limit. Hedge funds, pension funds, endowments and trusts looking for a bigger slice of the pie are lured by the relatively favorable returns, float

Segment ReviewAugust 26, 2013

Third-party capital intensifies competition.

Analytical ContactsRobert DeRose+1 (908) 439-2200 Ext. [email protected]

Greg Reisner+1 (908) 439-2200 Ext. [email protected]

Editorial ManagementAl Slavin

Global Reinsurance

ContentsTop 50 . . . . . . . . . . . . . . 7Top 50 Ranking . . . . . . . . 8 Lloyd’s Trends . . . . . . . . 11Brazil & Latin America . . 12Asia/Pacific . . . . . . . . . . 17Middle East & North Africa 20Regulation . . . . . . . . . . . 24Outlook . . . . . . . . . . . . . 26

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

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Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

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Exhibit 8Global Reinsurance Market – Top 15 Ranked on Non-Life Gross Premium Written (2012)

Exhibit 6Global Reinsurance – Return on Equity US/Bermuda, Lloyd's & European “Big Four” (2008-2Q 2013 YTD)

Exhibit 9Global Reinsurance – Total Shareholders' Funds by Region* (2012)

Exhibit 10Global Reinsurance – Gross Premium Written by Region* (2012)

Exhibit 10Global Reinsurance – Non-Life Gross Premium Written by Region (2012)

Exhibit 17Global Reinsurance – Premium Cession Rates in Select Regions (2002-2011)

Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%

Note: Region determined by the domicile of ultimate parent.*Americas includes the United States, Canada and Latin America. Americas Total Shareholders' Funds excludes non-reinsurance subsidiaries of Berkshire Hathaway. Source: A.M. Best data & research

Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%

Note: Region determined by the domicile of ultimate parent.* Americas includes the United States, Canada and Latin America, and gross premium of National Indemnity & General Re Corp. (subsidiaries of Berkshire Hathaway).Source: A.M. Best data & research

Note: Region determined by the domicile of ultimate parent.*Americas includes the United States, Canada and Latin America. Americas also includes GPW of National Indemnity & General Re Corp. (subsidiaries of Berkshire Hathaway).Source: A.M. Best data & research

Source: – Best's Statement File – Global

0

1

2

3

4

5

6

2008 2009 2010 2011 2012

Local Reinsurers Admitted & Occassional

Exhibit 11Brazil Reinsurance – Local Reinsurer Market Share (2008-2012) Admitted and occasional reinsurers have gained a larger share of ceded premium since Brazil's reinsurance market opened in 2008. (BRL Billions)

Exhibit 12Brazil – Reinsurance Ceded as a Percentage of Primary Market's Direct Premium (2008-2012)

Source: SUSEP website (Statistics System); data reflects industry totals and financial statements available from SUSEP as of July 12, 2013. Individual breakout of admitted and occassional figures not available.

* 2012 is gross of reinsurance commission (BRL 932.2 million).Source: SUSEP website (Statistics System); data reflects industry totals and financial statements available from SUSEP as of July 12, 2013.

Source: SUSEP website (Statistics System); data reflects financial statements available as of July 12, 2013.

Exhibit 13Brazil – Local Reinsurer Segment Profit/Loss (2008-2012) IRB Brasil Resseguros' monopoly ended in 2007, but it maintains a dominant share of the local reinsurance market's profit margin.

Exhibit 1Global Reinsurance – Shareholders’ Equity Plus Share Repurchases (2008-2Q 2013 YTD)

Exhibit 2

Source: A.M. Best data & research

Note: Excludes Lloyd's in all years and Alterra in 2Q 2013 YTD. Source: A.M. Best data & research

Source: A.M. Best research

Global Reinsurance – Net Premium vs. Shareholder’s Equity (2007-2012)

PH3

Exhibit 4 Global Reinsurance – Issued Sidecars and Cat Bonds (2006-2013 YTD)


Exhibit 3Global Reinsurance – Year-to-Date Stock Price Change for Select Reinsurers (2013)Prices as of Aug. 5, 2013

ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

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in

Endu

rance

Genera

li

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Munich

Re

Partn

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Swiss Re

Tokio

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orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons

Total Shareholders' Funds Share Repurchases

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)

NPW Shareholders' Equity

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GCC (Bahrain, KSA, Kuwait, Oman, Qatar, UAE) Levant (Jordan, Lebanon, Turkey)Indian Subcontinent (India, Pakistan) CIS (Kazakhstan, Russia, Ukraine)Far East (Malaysia, Thailand, Vietnam) Developed (France, Germany, UK)

GCC

Far East

LevantIndian Subcontinent

DevelopedCIS

Note: Excludes Lloyd's 2Q 2013 YTD; data unavailable at date of publication. Big Four includes Munich Re, Swiss Re, Hannover Re and SCOR.Source: A.M. Best data & research

22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)

Non-Life Gross Premium YE 2012 Combined Ratio


-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)

European "Big Four" US & Bermuda MarketLloyd's Five-Year Average

0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)

YTD % Price Change Avg Reinsurers % Change S&P 500

19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)

Direct Premium Ceded Reinsurance Premium Reinsurance Premium as % of Direct Premium

Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

2

Special Report Global Reinsurance

and uncorrelated risk that the reinsurance business offers. However, industry headlines may be aggrandizing the true reinsurance appetite of this third-party capital. Front-line sources indicate that capital is entering methodically and precisely, not just rushing in blindly.

A few hedge funds have chosen to enter the reinsurance market directly by forming new reinsurance companies, which certainly has drawn attention. However, with hedge-fund-backed companies, not all of the capital is dedicated to providing reinsurance capacity. A substantial portion of that capital supports investment risk. Other investors have found it easier to collaborate with traditional reinsurers or collateralized facilities that already have the operational infrastructure, established relationships and, most important, the intellectual capital to succeed at building a profitable underwriting portfolio.

Over the past year, numerous new side-cars have been formed by traditional rein-surers. Third party or managed capital is being spun as affording additional financial and operational flexibility. This source of capital provides additional underwriting capacity to better serve clients and com-plements the traditional balance sheet and risk appetite. Managed capital therefore should allow the reinsurer greater flexibil-ity with capital resources throughout the underwriting cycle and provides a low-risk source of income in the form of manage-ment fees and profit sharing. This revenue

offsets fixed operating costs that otherwise would fall to the bottom line.

Stickiness of Some Capacity Questionable The bad news is that more capacity only makes reinsurance pricing more competi-tive, especially when demand for cover is declining. The stickiness of this capacity also remains questionable. The traditional market has long prided itself on enduring, deep client relationships. Should this additional source of capacity decide to exit quickly, the underwriter might have some explaining to do! Reinsurers have seriously contemplated this reputational risk and should continue to do so. As is the case with SAC Re, a com-pany’s affiliation can greatly influence its destiny.

Some market observers believe that hedge funds are the biggest influence on the rein-surance market. Actually, it’s more likely pension funds, which control vast amounts of capital. These funds have been quietly involved in the reinsurance sector for some time. They have slowly taken the time to learn the industry, accumulate knowledge and gain some comfort with the sector’s cyclical characteristics and profitability. In addition, pension funds are typically long-term investors, which is more in line with reinsur-ance market fundamentals. Hedge funds typically are deemed to be fast money, but that should not be construed as criticism. Many hedge funds, not necessarily all, dart in and out of markets as opportunities arise and are careful not to overstay their welcome. That strategy has its place in the markets, and the key differences need to be under-stood. Many market observers would expect that over time the vast majority of hedge fund participants will move in and out of the reinsurance sector, while a minority of hedge funds may make a longer term commitment.

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

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Axis

Berksh

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Genera

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Hanno

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Mapfre

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Montpe

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MS&AD

Munich

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Partn

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4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

3


From a reinsurers’ perspective, this just might be the “wave of the future” where capital management includes managing third-party capital. The jury is still out on this, but tradi-tional reinsurers that don’t have a long history of managing third-party capital are wading into the water. This suggests that management teams believe third-party capital likely could linger in the reinsurance sector for some time, and that they understand a basic tenet – the best money managers attract the most capital. This subtle variation paints a different mind-set than the “disposable reinsurers” established after Hurricanes Katrina, Rita and Wilma in

2005. Currently, the traditional reinsurers’ move is both defensive and offensive. Reinsurers want to demonstrate success at managing third-party capital, because if the market continues to evolve in that direction, they need the ability to point to an established track record.

A year ago, A.M. Best stated that “overall, the (re)insurance market seems to be functioning in solid though unspectacular fashion,” a statement that is still valid today. Can a transition to easier days with hand-some pay take place without it first get-ting worse? It will continue to take a great deal of discipline. Traditional reinsurance companies may be able to emerge from this soft market in a strong position by sharing the brunt of any future losses with third-party capital, a vast majority of which then quickly exits. That will be the trial by fire. Until the staying power of recent third-party capital is tested by the wrath of a major loss, reinsurers will jockey for position to make sure they have a horse in that race.

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

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Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

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Endu

rance

Genera

li

Greenli

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Hanno

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Mapfre

Maiden

Montpe

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MS&AD

Munich

Re

Partn

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Renna

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Swiss Re

Tokio

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White M

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orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

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Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

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Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

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Axis

Berksh

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Genera

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Munich

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4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

4


Given the greater pricing pressure that abundant capacity has placed on some of the most attractive margin business, A.M. Best can only contemplate the near-term effect to be thinner underwriting profits. That, combined with lackluster investment yields, makes achieving a reasonable return on equity a challenging proposition. There is the hope that fee income and profit share on managed capital may help close the gap. It is argued that while pricing is under pressure, perhaps the traditional reinsurers have commanded too much rate on line. This new capacity may cut off the peaks and bring greater stability to pricing for the foreseeable future. Time will tell.

While the January and April renewal period seemed to progress in orderly fashion, June and July renewals in Florida and southern states gave way to the pressure of excess capacity and stagnant demand. U.S. property catastrophe pricing is reported to be off by as much as 20%. This class and region has been the bread and butter for the tradi-tional reinsurance sector since the hard market peaked in 2006, and it remains a leading opportunity relative to other classes and regions in the world. Historical results demon-strate that global reinsurers have done a commendable job in cycle management since 9/11. It now seems this endeavor will become even more challenging.

Cycle Management: The Key to Long-Term SuccessIn this challenging market environment, prudent cycle management remains the most important factor to long-term success. This cannot be overemphasized. Global reinsur-ers have successfully executed on this strategy in recent years, perhaps because of the

Exhibit 5Global Reinsurance – US/Bermuda, European “Big Four” & Lloyd’s Trend Summary (2008-2Q 2013 YTD)(USD Billions)

2008 2009 2010 2011 2012 2Q 2013 YTD*

5yr Avg

NPW (Non-Life only) $119.5 $120.9 $128.0 $137.0 $146.6 $59.2 $130.4 Net Earned Premiums (Non-Life only) 116.9 127.8 126.7 133.4 143.7 55.4 129.7 Net Investment Income 25.9 31.0 24.3 26.0 27.3 10.9 26.9 Realized Investment Gains / (Losses) (12.3) (4.2) 10.6 2.4 7.6 (4.4) 0.8 Total Revenue 175.1 206.0 227.9 226.4 250.4 102.8 217.1

Net Income 3.4 24.1 20.3 4.9 24.9 10.7 15.5

Shareholders' Equity 141.5 184.3 193.9 194.3 218.4 174.3 186.5

Loss Ratio 65.2% 58.9% 63.8% 76.1% 60.7% 59.2% 64.9%Expense Ratio 29.8% 30.6% 31.6% 31.3% 31.3% 30.1% 30.9%Combined Ratio 95.0% 89.5% 95.4% 107.4% 92.0% 89.3% 95.9%

Favorable Loss Reserve Development -7.6% -3.9% -4.9% -6.3% -6.1% -4.5% -5.8%

Net Investment Ratio 22.2% 24.2% 19.2% 19.5% 19.0% 19.6% 20.7%Operating Ratio 72.8% 65.3% 76.2% 87.9% 72.9% 69.6% 75.1%

Return on Equity (Annualized) 2.1% 14.6% 10.6% 2.5% 12.1% 12.0% 8.3%Return on Revenue (Annualized) 1.9% 11.7% 8.9% 2.2% 12.5% 20.8% 7.1%

NPW (Non-Life only/Annualized) to Equity (End of Period) 84% 66% 66% 71% 67% 68% 70%Net Reserves to Equity (End of Period) 357% 297% 293% 298% 264% 299% 298%Gross Reserves to Equity (End of Period) 405% 332% 327% 327% 293% 325% 332%

Note: 2Q 2013 YTD data excluded Lloyd’s and Alterra.Source: A.M. Best data & research

5


tough lessons learned in the late 1990s. Many reinsurers were badly burned by the severe financial and operational ramifications of adverse loss-reserve development that resulted from poorly underwritten and priced casualty business written during that period. The bleeding that emerged from that time continued into the first half of the next decade and strained some balance sheets, so much so that some reinsurers could not participate fully in the subsequent hard casualty cycle that began in 2001. For those reinsurers that were able to leverage capacity in the following years, the opportunity was enormous and continues to pay dividends in the form of favorable reserve runoff. Over the past five years, favorable reserve development has cumulatively contributed approximately $37 billion to the bottom line for the segment and added approxi-mately four points to the average annual return on equity (ROE). It would be fool-ish to believe this benefit will continue indefinitely, but the roller-coaster ride of the past serves as a powerful reminder that reinsurers must continue to care-fully chart their course.

Reinsurers have used several key cycle management strategies to manage or improve capital efficiency in the cur-rent market dynamic. Third-party capital seems to be emerging as a predomi-nant tool in todays’ tool box. Mergers and acquisitions have been used, but in a limited way to build larger bal-ance sheets, augment the top line and repatriate excess capital to investors. Expansion or “diversification” into fledg-ling business opportunities also has increased as companies look to offset the pressures associated with excess capacity chasing fewer opportunities in mature markets. Share repurchases continue to be the most favored capital management tool, providing reinsurers with a throttle on available capacity suitable to current market conditions. Since 2008, there have been approxi-mately $30 billion of share repurchases through June 30, 2013.

There have been relatively few visible M&A transactions: Validus Re/IPC and Flagstone, Transatlantic Re/Alleghany, Harbor Point/Max Re and Alterra/Markel. Each transaction expanded the scope of existing businesses. Low share valuations, difficulty in structur-ing mutually agreeable terms and conquering cultural issues remain as key obstacles to additional deals. Still, A.M. Best does expect activity to increase as share valuations improve and excess capacity builds, further fueling competition as the global economy continues to stabilize.

Some reinsurers have placed small bets on new ventures or classes of business such as agriculture (crop) insurance, accident and health, mortgage insurance, or even entered emerging markets such as Latin America, China, the Middle East and Africa, either directly or through investments and joint ventures. These opportunities generally present diversifi-cation benefits and help stabilize the top line as core businesses come under competitive pricing pressure and shrinking demand. It appears management is doing its homework before making these strategic decisions, assessing downside risks and acquiring the

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

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ire Hath

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QBE

Toa R

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Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

ayCatl

in

Endu

rance

Genera

li

Greenli

ght

Hanno

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e

Korean

Re

Mapfre

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Montpe

lier

MS&AD

Munich

Re

Partn

er Re

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um QBE

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Renna

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Swiss Re

Tokio

Mari

ne

Valid

us

White M

ounta

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Allegh

any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

6


needed expertise to profitably manage these operations and investments. These steps are necessary to assure the bottom line does not suffer as a consequence.

As previously discussed, reinsurers feeling the competitive pressure from capital market participants increasingly have sought to partner with this capacity rather than fight it. Using this lower cost capacity has enabled reinsurers to better control market share, if not retain or gain it. Sourcing profitable risk is the main value-added quality that tradi-tional reinsurance companies provide to third-party capital. These days, sourcing risk is just as hard, if not harder, than sourcing capital. The added revenues from management fees and profit sharing from these ventures, while not a fortune, enhance reinsurers’ earnings and solidify the overall client relationship by affording additional capacity at pricing that otherwise would not be obtainable.

7


The Top 50 Reinsurers: Reserve Releases, Diversity Drive ResultsThere was some movement among the ranks of global reinsurers during 2012, as pre-mium growth was mixed compared with 2011.

Despite a number of loss events in 2012 (including Superstorm Sandy, U.S. torna-does, wildfires and severe droughts), most reinsurers delivered underwriting profits and solid earnings. Combined ratios for most were below 100, driven in part by continued reserve releases and well-diversified books of business. Capacity for the industry remains strong, as outside investors continued to pour money into catas-trophe bonds, sidecars and other structured products. In 2012, close to $8 billion in capital went into sidecars and cat bonds alone, compared with about $6 billion in 2011. Such investments in 2013 are on track to beat 2012 figures.

Some noted movements within the ranking included Arch Capital Group Ltd., which moved up five spots in 2012 to reach No. 30. The company increased premiums by 28%, mainly on growth across all reinsurance lines of business, but particularly due to the full year of premiums from “other” lines, which included mortgage reinsur-ance and significant growth in property, excluding cat and casualty reinsurance. These opportunities are somewhat unique, but being selective and opportunistic is in Arch’s DNA.

Lloyd’s secured fourth place, moving up from fifth in 2011, as premiums grew 16%, an increase attributed to growth in treaty reinsurance and facultative property. At the same time, Berkshire Hathaway slipped to fifth place, in part due to the end of its 20% quota-share agreement with Swiss Re. The full impact of that change was tempered by new opportunities Berkshire found in Asia after the cat losses in 2011.

Tokio Marine moved up four spots in 2012 to reach No. 22. The company continued to focus on growing international business, particularly in commercial specialty and in standard reinsurance lines in the United States.

Also worth noting in the ranking are companies that lowered premiums slightly in 2012, likely through continued underwriting discipline under current market conditions. American Agricultural Insurance Co., Axis Capital, Maiden Holdings, MS&AD, Validus and Platinum Underwriters all dropped several spots in the rank-ing as they employed cycle management and elected to slightly reduce premiums compared with 2011. Companies that exited the ranking included Flagstone, which was acquired by Validus, and Ariel, which was sold in pieces to several companies. It appears that Enstar – a significant run-off specialist – will enter reinsurance through its recently announced acquisitions of Arden Re (formerly Ariel) and Torus. It will be interesting to see how much scale Enstar can gain. Newcomers to the top 50 include Milli Re from Turkey and Wilton Re.

Given the abundant capacity in the industry heading into 2013, rates continue to be under some pressure, particularly for areas that have experienced no losses over the past few years. Overall returns are increasingly dependent on underwriting as inter-est rates remain at historical lows and pricing continues to show signs of softness. The Jan. 1 renewal season saw pricing flat to increasing in the low single digits. April pric-ing was up slightly, particularly for loss-impacted contracts. However, June 1 renewals

8


Exhibit 7Top 50 Global Reinsurance GroupsRanked by gross premium written in 2012.(USD millions)

Reinsurance Premiums WrittenLife & Non-Life Non-Life only Ratios1

2013 Ranking Company Gross Net Gross Net

Total Shareholders’

Funds Loss Expense Combined1 Munich Reinsurance Co.2 $37,251 $36,167 $22,539 $22,038 $36,248 61.2% 30.0% 91.2%2 Swiss Reinsurance Co. Ltd. 31,723 25,344 19,468 15,117 34,026 53.1 30.0 83.13 Hannover Rueckversicherung AG 2 18,208 16,231 10,201 9,060 8,909 70.7 25.4 96.04 Lloyd’s 3,4 15,785 11,371 15,770 11,358 31,204 56.0 34.9 91.05 Berkshire Hathaway Inc. 5 15,059 15,059 9,668 9,668 191,588 N/A N/A 99.96 SCOR S.E. 12,576 11,286 6,146 5,558 6,358 65.4 29.0 94.37 Reinsurance Group of America Inc. 8,233 7,907 - - 6,910 N/A N/A N/A8 China Reinsurance (Group) Corp. 6,708 6,471 4,184 4,090 7,026 58.6 41.7 100.49 Korean Reinsurance Co. 6 5,113 3,390 5,113 3,390 1,275 79.7 18.1 97.910 PartnerRe Ltd. 4,712 4,567 3,910 3,768 6,934 58.5 29.3 87.811 Everest Re Group Ltd. 4,311 4,081 4,311 4,081 6,734 65.9 27.9 93.812 Transatlantic Reinsurance Co. 3,577 3,456 3,577 3,456 4,331 70.6 20.3 90.913 London Reinsurance Group Inc. 3,319 3,268 43 43 715 N/A N/A N/A14 Assicurazioni Generali SpA 2,979 2,979 958 958 29,830 62.3 23.7 86.015 General Insurance Corporation of India 6 2,776 2,534 2,758 2,520 5,012 82.1 22.7 104.816 XL Group plc 2,364 2,209 2,008 1,885 11,856 58.4 28.6 86.917 QBE Insurance Group Ltd. 2,265 1,675 2,265 1,675 11,417 67.1 32.1 99.218 MAPFRE RE, Compania de Reaseguros, S.A. 7 2,256 1,953 1,890 1,850 1,280 67.3 29.6 97.019 The Toa Reinsurance Co., Ltd. 6,8 2,155 1,821 2,155 1,821 2,157 80.4 27.6 108.020 Odyssey Re Holdings Corp. 2,044 1,916 2,044 1,916 3,679 57.0 27.6 84.621 R+V Versicherung AG 9 2,017 1,972 1,981 1,955 2,527 74.1 24.5 98.622 Tokio Marine Holdings, Inc. 6,8 1,966 1,579 1,966 1,579 35,196 N/A N/A N/A23 Catlin Group Ltd. 1,860 1,614 1,860 1,614 3,512 63.5 19.9 83.424 Axis Capital Holdings Limited 1,830 1,815 1,830 1,815 5,780 61.5 27.9 89.425 Caisse Centrale de Reassurance 1,719 1,719 1,645 1,595 2,330 52.5 12.0 64.526 MS&AD Insurance Group Holdings, Inc. 6,8,10 1,700 N/A 1,700 N/A 28,740 N/A N/A N/A27 Amlin plc 1,592 1,278 1,592 1,278 2,411 59.6 27.3 86.928 RenaissanceRe Holdings Ltd. 1,552 1,103 1,552 1,103 3,507 30.4 27.4 57.829 IRB - Brasil Resseguros S.A. 1,365 792 1,301 745 1,140 67.2 44.8 112.030 Arch Capital Group Ltd. 1,282 1,227 1,282 1,227 5,169 50.9 29.3 80.231 Deutsche Rueckversicherung AG 1,280 819 1,221 772 273 72.0 28.6 100.632 Aspen Insurance Holdings Ltd. 1,228 1,157 1,228 1,157 3,488 56.1 29.3 85.433 White Mountains Insurance Group, Ltd. 1,179 948 1,179 948 4,258 58.4 31.9 90.334 Validus Holdings, Ltd. 1,154 1,009 1,154 1,009 4,455 55.5 23.1 78.635 Endurance Specialty Holdings, Ltd. 1,119 1,087 1,119 1,087 2,711 62.8 32.0 94.836 ACE Ltd. 1,070 1,025 1,070 1,025 27,531 55.2 22.3 77.437 American Agricultural Insurance Co.11 955 284 955 284 440 86.3 13.1 99.438 Alterra Capital Holdings Ltd. 899 727 899 727 2,840 57.8 33.7 91.539 Pacific LifeCorp 882 882 - - 9,497 N/A N/A N/A40 Maiden Holdings, Ltd. 864 765 864 765 1,015 73.4 29.1 102.541 ACR Capital Holdings Pte, Ltd. 6 765 389 765 389 699 73.2 29.4 102.742 Allied World Assurance Co. Holdings, AG 760 748 760 748 3,326 69.0 26.1 95.143 Montpelier Re Holdings Ltd. 735 616 735 616 1,629 46.5 34.5 81.044 African Reinsurance Corp. 648 586 618 562 609 60.2 32.0 92.245 NKSJ Holdings, Inc. 6,8 608 501 608 557 19,857 N/A N/A N/A46 Milli Reasurans Turk Anonim Sirketi 12 576 518 565 508 548 77.2 30.0 107.247 Platinum Underwriters Holdings Ltd. 570 565 570 565 1,895 32.4 30.1 62.548 Wilton Re Holdings Ltd. 542 502 - - 1,540 N/A N/A N/A49 W.R. Berkley Corp. 509 477 509 477 4,336 60.5 40.0 100.550 Central Reinsurance Corp. 495 462 344 316 477 81.1 26.2 107.3Note: Premium figures for all companies exclude affiliated business. 1 – Non-life only.2 – Net premiums written data not reported, net premiums earned substituted.3 – Lloyd’s premiums are reinsurance only. GPW for certain groups within the rankings also may include Lloyd’s Syndicate GPW when applicable.4 – Total shareholders’ funds includes Lloyd’s members’ assets and Lloyd’s central reserves.5 – Loss reserve and expense ratio detail not available on a GAAP basis.6 – Fiscal year-end March 31, 2013.7 – Total shareholders’ funds, life & non-life NPW and non-life NPW figures were revised after report published on Aug. 26, 2013.8 – Total shareholders’ funds includes catastrophe and price fluctuation reserves.9 – Ratios are as reported and calculated on a gross basis.10 – Non-affiliated reinsurance information only available on a gross basis.11 – Data and ratios based on U.S. statutory filing.12 – Total shareholders’ funds includes equalization and unexpired risk reserve.N/A – Information not applicable or not available at time of publication. Source: A.M. Best data & research

9


saw prices decline as much as 20% for some programs. The bright spot remains some specialty lines such as marine and offshore energy. Property cat pric-ing is expected to remain under some pressure absent any major event. In an attempt to improve returns, companies continue to strategically shift portions of their investment portfolios into higher return investments, which includes alter-native investments.

Some companies continued to repur-chase their own shares during 2012, although not at the same pace as in previous years. Companies thus far in 2013 are again aggressively buying back shares and increasing dividends. Valuations, although better than one or two years ago, are still below the industry’s long-term average. For those companies still below book value, share buybacks remain a way to improve valuations and earnings per share. Merger and acquisition (M&A) activity is expected to remain muted.

Looking forward, the overall market environment remains challenging, and companies for the most part are realistic about the returns they can achieve in the current market. Pricing is not expected to improve for the Jan. 1 renewal, absent any major event. Management teams

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

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Re

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Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

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Genera

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Munich

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Tokio

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4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

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Berksh

ire Hath

away

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Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

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Axis

Berksh

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Genera

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Munich

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4.0

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25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

10


agree that reinsurance pricing still needs to improve, particularly for some casualty business where rates remain below profitable levels.

Reinsurers thus far have maintained a rational and disciplined approach to the market. Returns are expected to be around 8% to 10% for the next 12 months, and companies certainly will strive to deliver results at the double-digit end of that range. Performance anxiety is real, and that round number of 10% continues to be a threshold that is both tangible and psychological. Com-panies seem to be focused on profitable underwriting and strong enterprise risk management, as opposed to gaining market share and growing premium. Some M&A activity continued as 2012 saw a number of deals create stronger and more diversified companies. Man-aging risk exposure however, should remain the focus for the combined enti-ties to avoid the past missteps by some that led to higher than expected losses for certain events.

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

ayCatl

in

Endu

rance

Genera

li

Greenli

ght

Hanno

ver R

e

Korean

Re

Mapfre

Maiden

Montpe

lier

MS&AD

Munich

Re

Partn

er Re

Platin

um QBE

Evere

st Re

RGA

Renna

isanc

eReSCOR

Swiss Re

Tokio

Mari

ne

Valid

us

White M

ounta

insXL

Allegh

any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

11


Lloyd’s Premium Up; MarketEyes Developing CountriesLloyd’s is a significant writer of catastrophe and reinsurance business, with reinsur-ance representing 38% of gross premium in 2012 and direct insurance accounting for the balance. Reinsurance premiums increased nearly 11% in 2012, supported by rate increases in areas exposed to the natural catastrophes of 2011. While these losses led to a firming of reinsurance rates in loss exposed regions of the world, excess reinsurance capacity prevented a broader market hardening.

At the beginning of 2013, general market conditions were similar to those prevail-ing at the start of 2012 with excess capacity and a generally difficult rating envi-ronment overall, albeit with another strong improvement in catastrophe-affected areas of business. At the same time, there are few signs of recovery in the global economy, and weak conditions persist in the more developed economies, reducing the demand for some lines of insurance and continuing the prospect of increased recession-related claims.

Lloyd’s goal is that by 2025 the portion of its business from developing economies will exceed 25% of gross written premiums. This new strategic direction is part of Vision 2025, an approach launched in May 2012 that aims to position Lloyd’s as “the global centre for specialist insurance and reinsurance.” Based on its analysis of potential growth in developing countries, Lloyd’s has identified Mexico, India and Turkey as priority countries, alongside Brazil and China, where Lloyd’s already has reinsurance licenses. Subject to market demand, the initial focus will be on these countries, but Lloyd’s has indicated that other, smaller developing countries, such as Colombia, Vietnam and Poland, may present attractive opportunities.

2012 Performance Boosted by Prior-Year Reserve DevelopmentIn contrast to 2011’s series of natural catastrophes in the Asia-Pacific region, 2012 had few major catastrophe events, apart from the grounding of the Costa Concordia, an earthquake in Northern Italy and Hurricane Isaac – until Superstorm Sandy struck the eastern seaboard of the United States and became the most costly U.S. catastrophe since Hurricane Katrina in 2005. Losses from these events were the main drivers of an accident-year combined ratio of 97.9 for Lloyd’s reinsurance sector. On a calendar-year basis, the combined ratio was reduced to 91.0 by favorable development of prior years’ reserves.

Positive reserve development reduced combined ratios for Lloyd’s main classes of business. For property and reinsurance, prior-year releases improved the combined ratio by 8.2 and 6.9 percentage points respectively. Reserves for the 2011 catastrophes remained stable overall in 2012.

Lloyd’s U.S.-domiciled business consists primarily of reinsurance and surplus lines. In Canada, Lloyd’s writes primarily direct business, with reinsurance accounting for a much smaller share. In 2012, as measured by combined ratio, Lloyd’s outperformed the U.S. property and casualty industry, U.S. reinsurers and comparable European reinsurers, while performance was comparable to that of a peer group of Bermudian reinsurers.

12


Despite a Crowded Market,Brazil Is Still a DrawAbundant reinsurance capacity and the prevalence of coinsurance agreements in Brazil’s primary market are softening the near-term growth outlook for its reinsur-ers. A sense of weariness exists among underwriters contemplating profitability in a crowded reinsurance segment that has weakened pricing. Yet the increasing pre-mium volume in Latin America’s largest primary market still is proving difficult to resist.

Brazil’s limited exposure to catastrophe risks, such as hurricanes or earthquakes, leaves it well positioned as a diversity play relative to other emerging markets in Latin Amer-ica. Perhaps more important, the country’s need to build out infrastructure before host-ing the 2014 FIFA World Cup and 2016 Olympic Games remains a catalyst in the overall economy. Low insurance penetration, vast offshore oil reserves and a growing middle class also factor into long-term growth forecasts for insurers and reinsurers.

Pricing around July’s renewal season was flat to down 5%, with insurers able to secure additional capacity on a treaty basis under terms unavailable a year ago. This reflects the growth in their own portfolios. It is not yet clear whether an imbalance exists between this year’s reinsurance premium prices and the amount of coverage being purchased, which in some cases may be excessive for underlying risk. The existence of coinsurance arrangements also has generated potential accumulation risks for reinsurers placing treaty-based cover under this scenario, should a signifi-cant event coincide across separate treaties within a single reinsurer’s portfolio. While reinsurers would prefer facultative coverage, demand for this is driven down-ward by abundant capacity for treaty business.

These developments outline the growth trajectory of Brazil’s reinsurance market since it first opened five years ago, ending the monopoly held by IRB Brasil Resseguros S.A.

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

ayCatl

in

Endu

rance

Genera

li

Greenli

ght

Hanno

ver R

e

Korean

Re

Mapfre

Maiden

Montpe

lier

MS&AD

Munich

Re

Partn

er Re

Platin

um QBE

Evere

st Re

RGA

Renna

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Swiss Re

Tokio

Mari

ne

Valid

us

White M

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any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

13


since 1939. The road to an open reinsurance market took a detour in 2010 with legislation that required 40% of reinsurance premium be ceded to locally based reinsurers. Insurers also are prohibited from ceding more than 20% of premium to off-shore reinsurance affiliates, but a key exception involves the surety business, a line that factors heavily into Brazil’s build out.

M&A Should Tick UpwardThere are now 14 local reinsurers approved to operate in Brazil, with the balance of the reinsurance market composed of admitted and occasional reinsurers, and the latter primarily serving in a retrocession role. There is a market expectation that merger and acquisition activity will tick upward in this admitted and occasional segment, which includes more than 100 registered companies and 15 to 20 Lloyd’s syndicates. Smaller companies contending with administrative costs and competitive pricing may be forced to find local partners or exit the market. Local players seeking cheaper capital also may benefit by pairing with a foreign reinsurer that has a less formidable market presence.

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

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in

Endu

rance

Genera

li

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ght

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e

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lier

MS&AD

Munich

Re

Partn

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um QBE

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RGA

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Swiss Re

Tokio

Mari

ne

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us

White M

ounta

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any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

ayCatl

in

Endu

rance

Genera

li

Greenli

ght

Hanno

ver R

e

Korean

Re

Mapfre

Maiden

Montpe

lier

MS&AD

Munich

Re

Partn

er Re

Platin

um QBE

Evere

st Re

RGA

Renna

isanc

eReSCOR

Swiss Re

Tokio

Mari

ne

Valid

us

White M

ounta

insXL

Allegh

any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

e)


19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

14


Local reinsurers have maintained a steady market position with 59% of the BRL 5.53 billion in reinsurance premium generated in 2012 (see Exhibit 11), according to data from Superintendencia de Seguros Privados (SUSEP). In 2011, local reinsurers held a 57% share of the BRL 5.52 billion in reinsurance premium. As an aside, reinsurance com-missions totaled BRL 932 million in 2012 (a comparable figure for 2011 was unavail-able), according to SUSEP. It should be noted that some reporting and accounting anom-alies may exist within publicly available SUSEP data.

The level of reinsurance premium as a percentage of the primary market’s direct pre-mium has hovered at just under 9% since 2008, according to an A.M. Best review of company financial statements filed with SUSEP. This level of reinsurance penetration held steady as direct market premium climbed from BRL 42.9 billion in 2008 to BRL 73.2 billion in 2012, a cumulative increase of 70% (see Exhibit 12). This illustrates how, despite a modest percentage of ceded reinsurance premium, the overall premium vol-ume in Brazil’s insurance market remains attractive.

IRB Still Dominates, Preps for ExpansionDespite the opening of Brazil’s local reinsurance market to competition, IRB has main-tained a dominant market position and held its No. 29 spot in A.M. Best’s 2012 global rank-ing of top 50 reinsurers based on gross premium written. IRB generated gross premiums of BRL 2.4 billion in 2012, which was equivalent to 37% of the reinsurance premium ceded

from Brazil’s direct market. IRB’s share of the local reinsurance seg-ment in 2012 was far more pro-nounced at slightly more than 65%. The company notched a net profit of BRL 397.1 million in 2012, which was 79.3% of the overall net profit generated from the local reinsurer segment (see Exhibit 13), according to SUSEP filings.

IRB’s earned premium increased almost 11% to BRL 1.9 billion in 2012, more than five times the earned premium of the second-largest local reinsurer, Munich Re (see Exhibit 14). IRB also reported a return on equity of 18.7% last year, lower than the 23.7% reported for 2011.

IRB has continued with its transi-tion into a competitive market environment and has cleared necessary regulatory hurdles to privatize. This move coincides with IRB’s plan to expand beyond Brazil’s borders and provide an international reinsurance platform for multinational insurers operating within Brazil. This has required IRB to dedicate a team to catastrophe assessment and to license catastrophe modeling software, an operational aspect that required less emphasis given the less volatile catastrophe exposures in a Brazil-focused portfolio. In June 2012, IRB acquired a 4.8% stake in Africa Re. A.M. Best understands the relationship between IRB Brasil-Re and Africa Re to be strategic, owing to the reciprocal arrangement between the two entities to support development in their corresponding markets.

Exhibit 14Brazil – Local Reinsurers Earned Premium & Loss Ratios (2012)(BRL Millions)

Earned Premium Claims Incurred Loss Ratio

Rank Company 2012Y/Y %

ChangeMarket

Share 2012Y/Y %

Change 2012 20111 IRB 1,850.7 10.9 62.2 1,664.5 40.0 89.9 71.22 Munich Re 354.9 -22.5 11.9 307.2 -17.6 86.6 81.43 Ace 206.8 37.9 6.9 90.3 22.3 43.6 49.24 Mapfre 190.7 18.4 6.4 302.9 145.7 158.8 76.55 J. Malucelli 172.8 4.1 5.8 143.2 579.4 82.9 12.76 XL 89.9 7.1 3.0 68.4 1.2 76.1 80.67 Austral 82.8 700.9 2.8 83.2 778.1 100.4 91.68 AIG 16.2 1,852.4 0.5 8.5 2,144.7 52.1 45.39 Swiss Re* 6.4 n/a 0.2 1.6 n/a 24.7 n/a10 Alterra* 4.9 n/a 0.2 3.9 n/a 79.0 n/a11 Terra Re* 0.1 n/a 0.0 0.1 n/a 67.2 n/a

Total 2,976.2 10.3 2,673.5 44.0 89.8 68.8

Note: 2012 financial statements on file with SUSEP for Allianz Global Corporate & Specialty Resseguros Brasil and Zurich Resseguradora Brasil S.A. reflect no earned income. BTG Pactual received SUSEP authorization on Feb. 26, 2013. * 2011 financial statements unavailable through SUSEP website.Source: SUSEP website (Statistics System); data reflects financial statements available as of July 12, 2013.

15


In addition to operating in Argentina, IRB has signed up as a reinsurer in Peru, Mexico, Colombia, Paraguay, Uruguay and Ecuador, and is in the process of obtaining registration in Venezuela, according to the company’s annual report. The challenge in this next phase will be gaining scale as a foreign reinsurer without strong brand awareness or the transitional glide path to market competition that IRB experienced under legislation in Brazil.

Brazil’s local reinsurance market added a few new players in 2012, some of which had familiar corporate brands such as Allianz Global Corporate and Specialty Resseguros Brasil S.A.; Alterra Resseguradora Do Brasil S.A. (since acquired by Markel); Swiss Re Bra-sil Resseguros S.A.; and Zurich Resseguradora Brasil S.A. Two additional new players – Terra Brasis Re and BTG Pactual Resseguradora S.A. – have added distinctive local flavor to Brazil’s reinsurance market.

Two New Reinsurers Bring Local TouchTerra Brasis is a privately owned, start-up reinsurance company domiciled in the coun-try. Brazil-based financial conglomerate Brasil Plural is the majority shareholder, and the World Bank’s International Finance Corp. is a minority shareholder. Terra Brasis has a modest level of market-facing capacity, starting with BRL 100 million in policyholders’ surplus. The company was licensed on Oct. 4, 2012 and is focused on writing a diverse book of property, casualty and life reinsurance business as a “local reinsurer” in Brazil.

BTG Pactual, which was authorized as a local reinsurer on Feb. 26, 2013, is a subsid-iary of Banco BTG Pactual, a leading Latin America investment bank founded in Rio de Janeiro. BTG will target the primary insurance market with cover for engineering and oil projects, in addition to civil liability on construction projects. The company also has indicated it will partner with international reinsurers on products.

As Brazil’s reinsurance market matures, customer loyalty and personal relationships still have a role but may have become less crucial for insurers seeking the most profitable path to deploy capital. Reinsurers have grown stricter on requiring data, the quality of which continues to improve.

As Brazil and other Latin America countries move to align their respective regulatory schemes with international standards, added capital requirements are expected to gen-erate opportunity for reinsurers in the form of higher cession rates and needed techni-cal expertise. Non-life cession rates on a regional basis had declined over the past decade, driven down by softer rates and companies shifting to nonproportional schemes. Reinsurers also stand to benefit from rising cession rates in reinsurance-intensive lines of business such as surety and engineering.

Exhibit 15Latin America – A.M. Best-Rated Reinsurance CompaniesRatings as of Aug. 16, 2013.

Domicile Company AMB #

Best’s Financial Strength Rating (FSR)

Best’s Long-Term Issuer Credit Rating (ICR)

Best’s FSR & ICR Outlook

FSR & ICR Rating Action

Rating Effective Date

Brazil IRB-Brasil Resseguros S.A. 085590 A- a- Stable Affirmed Dec. 19, 2012Brazil Terra Brasis Resseguros 092722 B++ bbb Stable Assigned May 9, 2013Mexico Reaseguradora Patria, S.A.B. 086054 A- a- Positive Affirmed July 31, 2013Panama Barents Re Reinsurance Co. Inc. 091083 A- a- Positive Affirmed Sept. 27, 2012Panama QBE del Istmo Reinsurance Co. Inc. 078448 A- a- Stable Affirmed Jan. 10, 2013Source: – Best’s Statement File – Global

16


Low Penetration Persists in Latin AmericaWith the exception of Chile’s mature market, the level of insurance penetration in Brazil and other Latin America markets remain below 3%, and in some cases even below 2%. These positive growth indicators are bolstered further by the infrastructure gap that Latin America countries are trying to bridge via spending projects. Yet this upside for reinsurers is tem-pered by challenges to profitability that arise from competitive pressure on underwriting results, the low interest rate environment and pockets of regulatory uncertainty.

According to Guy Carpenter & Co., rates in Latin America and the Caribbean decreased at July 1 renewal because of a “high level and diversity of reinsurer offerings.” The exception noted by Guy Carpenter was Argentina, where market conditions were affected by heavy flooding in April and regulatory restrictions. Argentina’s insurance market remains susceptible to political volatility. This was evident during 2011from gov-ernment actions that prohibited insurers from ceding business to foreign reinsurers. A subsequent regulation required all insurers to liquidate and transfer foreign investments back to Argentina, while reinsurers were allowed to keep a level of foreign investments and capital not to exceed 50% of the company’s total capital.

Venezuela represents another market where an expanding middle class can fuel the industry’s growth, but it is subject to political dynamics. Yet some reinsurers still pursue these markets with eyes wide open, hoping to be agile enough to skillfully build market share despite the potential for more fluid market dynamics.

Like Brazil, Mexico represents a significant portion and more established component of Latin America’s insurance industry. An insurance law adopted this year marks further prog-ress in efforts to modernize the country’s regulatory scheme. A strong element of risk man-agement based principles will foster stronger capital and reserve measures. Mexico’s pri-mary market remains soft but is viewed as stable and increasingly professional. New capital requirements are expected to increase demand for reinsurance coverage and spur merger and acquisition activity.

With insurance penetration of just 2.12%, Colombia’s market has demonstrated its poten-tial with growth of 14.9% in 2012. Non-life business accounted for 54% of $8.76 billion in premium written last year. Colombia’s insurance market is opening to nonadmitted writers under a bilateral free-trade agreement reached with the United States, an aspect that under-scores Latin America’s business friendly environment. Government officials announced plans in April for a $2.7 billion stimulus package that would drive economic growth and create an estimated 300,000 new jobs. Projected spending on construction projects is $630 million, generating reinsurance opportunities in construction risks and surety bonds.

17


Asia’s Reinsurers AreLooking to Grow AgainReinsurers in Asia have resorted to capital replenishment following large catastrophe losses while the region’s growth prospects remain a lure for many reinsurers.

Most Asian reinsurers’ results turned negative following large-scale catastrophes, par-ticularly the 2011 Thailand flooding. Singapore, a major reinsurance hub in Asia-Pacific, reported significant deterioration in the combined ratio of reinsurers to 239.8 in 2011 from 95.1 in 2010.

Natural catastrophes in 2011 brought significant losses to many Asian reinsurers. Inter-estingly, many of these reinsurers, except for a few players, quickly restored their bal-ance sheet strength in terms of risk-based capital through raising new capital, issuing subordinated debt or reducing asset risks. Companies have also avoided writing pure catastrophe business.

Capitalization of Asia’s reinsurers significantly eroded in 2011, with the widest capi-tal and surplus drop of 86% and 57% for the Thailand-based Thai Re and Asian Re, according to A.M. Best data. Nevertheless, most reinsurers restored capital, changed their risk appetite and focused on underwriting and financial strength during the past year.

Exhibit 16Asia/Pacific – A.M. Best-Rated Reinsurance CompaniesRatings as of Aug. 16, 2013.




Best’s FSR & ICR Outlook/Implications


RatingEffective Date

Australia General Reinsurance Australia Ltd. 086052 A++ aa+ Stable Affirmed June 11, 2013Australia General Reinsurance Life Australia Ltd. 086652 A++ aa+ Stable Affirmed June 11, 2013China China Life Reinsurance Co. Ltd 090957 A a Stable Affirmed Sept. 12, 2012China China Reinsurance (Group) Corp. 090955 A a Stable Affirmed Sept. 12, 2012China China P&C Re 088692 A a Stable Affirmed Sept. 12, 2012Hong Kong Peak Reinsurance Company Ltd. 091406 A- a- Stable Assigned Dec. 28, 2012Hong Kong Taiping Reinsurance Company Limited 085029 A- a- Stable Affirmed Oct. 18, 2012India General Insurance Corp. of India 086041 A- a- Stable Affirmed Feb. 21, 2013Japan The Toa Reinsurance Co. Ltd. 085179 A+ aa- Stable Affirmed May 30, 2013Malaysia ACR ReTakaful Berhad 090060 A- a- Stable Affirmed Dec. 20, 2012Malaysia Asia Capital Reinsurance Malaysia Sdn 090756 A- a- Stable Affirmed Dec. 20, 2012Malaysia Labuan Reinsurance (L) Ltd. 086913 A- a- Stable Affirmed Dec. 12, 2012Malaysia Malaysian Reinsurance Berhad 078303 A- a- Stable Affirmed Dec. 13, 2012Philippines National Reinsurance Corp. of Philippines 086771 B++ bbb Stable Affirmed April 18, 2013Singapore Asia Capital Reinsurance Group Pte. Ltd. 078461 A- a- Stable Affirmed Dec. 20, 2012Singapore Samsung Reinsurance Pte Ltd 091577 A a Stable Affirmed Nov. 15, 2012Singapore SCOR Reinsurance Asia-Pacific Pte Ltd 088684 A a+ Stable Affirmed May 2, 2012Singapore Singapore Reinsurance Corp. Ltd. 085224 A- a- Stable Affirmed Nov. 21, 2012South Korea Korean Reinsurance Co. 085225 A a Stable Affirmed Feb. 28, 2013Taiwan Central Reinsurance Corp. 086496 A a Stable Affirmed July 30, 2013Thailand Asian Reinsurance Corp. 085568 B- u bb- u Developing Downgraded June 13, 2013Vietnam PVI Reinsurance Company 091541 B+ bbb- Positive Affirmed April 11, 2013u– Denotes rating under reviewSource: Best’s Statement File – Global

18


For instance, Japan’s Toa Re took a series of capital replenishment actions, includ-ing issuance of 30 billion yen (US$302 million) in subordinated notes in March 2012, reducing risk exposures in its investment assets and underwriting portfolio. Korean Re enhanced its capital position with a disposal of its treasury stocks worth around 134 billion won (US$120.3 million), together with reduction of underwriting risks during its 2011 fiscal year.

Malaysia’s Labuan Re restored its financial position through issuance of US$55 million subordinated bonds and revisions of underwriting guidelines, risk control and fur-ther risk retrocession. For new capital investment, Canada’s Fairfax Financial Holdings acquired around 25% of Thai Re for US$70 million in January 2012. Japan’s leading trad-ing company, Marubeni Corp., invested about a 22% stake in Singapore-based ACR Capi-tal Holdings to become one of its major shareholders in May 2012.

Companies became quite proactive in anticipation of a hardening market. Credit aware-ness in the market has also increased substantially over the years and those reinsurers worked quickly to avoid a downgrade in credit quality.

However, with additional reinsurance capital, the hardening of the market was less than many would have expected, except in catastrophe business.

Capital deployment into the reinsurance industry has grown, with a recent influx of capital estimated in the double-digit range.

Asia’s increased capacity has come from both newly established regional writers and regional expansion from existing global reinsurers. Bermuda reinsurers and Lloyd’s have also become notable additions to the Singapore market over the past two years.

In the past, a clear softening would be visible after a benign catastrophe year, such as 2012 in Asia with additional capacity, but companies are more underwriting focused, and the extent of softening is mild. Asia players have been quite disciplined for terms and conditions, which differs from previous cycles of strong capital influx. Current conditions could be explained by low investment return, along with the expectation of a continuing low-yield environment, which has made companies more underwriting-focused. This will reduce the volatility of operating performance, although there would not be a steep increase in profitability as the companies could expect.

Asia Growth and ChallengesStrong economic growth, low insurance penetration and risk diversification from exist-ing mature markets leave Asia’s emerging markets well positioned to attract industry players.

Buyers have increasingly used reinsurance as a form of risk transfer and commission gearing, as well as part of their capital management on balance sheets, in solvency trans-actions and loss portfolio transfers.

More direct insurance companies are looking to diversify their reinsurers, thus increas-ing demand and a greater awareness of credit risk.

Credit risk associated with reinsurance recoverables is a substantial factor for direct insurers, particularly in the wake of catastrophe loss. For instance, continuous deterio-ration of underwriting results of Malaysia-based Best Re has led to a rise of credit risk

19


on its buyer, South Korea’s Hanwha General Insurance. Hanwha Insurance recorded a “sharp increase” in credit risk associated with reinsurance recoverables due to the downward rating of Best Re on Dec. 18, 2012.

Global reinsurers see Asia as a diversification play given their peak exposures in the United States, Europe and Japan, along with Australia as an additional increasingly aggre-gated peak zone.

The 2011 catastrophes highlighted the need of reinsurers to quantify exposures in a region that lacks the full suite of vendor catastrophe models and where data transpar-ency can often be lacking.

Natural disasters are a challenging factor for Asia-Pacific writers and have affected a large population in Asia but the corresponding insurance impact remains comparatively low. The industry is in need of products that improve penetration levels on a wide-spread basis across emerging Asia.

Capacity and CompetitionAsia-Pacific accounted for 14% of total global nonlife reinsurance gross written pre-mium, according to A.M. Best’s 2012 ranking on global reinsurers. China Re (No. 8) and Toa Re (No. 19) each held their respective ranking from the prior year, while Korean Re moved up one spot to No. 9.

Much of Asian reinsurers’ premium growth is driven by market growth rather than competition, yet a growing number of players with a regional focus in Asia have limited impact on reinsurance terms and conditions.

Terms and conditions are still driven more by total capacity allocated to the region by local and global players. In aggregate, an oversupply of capacity has generally kept prices competitive for ceding companies.

20


MENA Reinsurance Demand Continues Despite Shift Toward Higher RetentionsInternational reinsurers play an important role in the Middle East and North Africa (MENA) insurance markets, providing capacity and technical expertise to local market participants, particularly on high-value risks. Primary insurers’ dependence on reinsurance support remains high among companies based in the region.

MENA insurance markets generated more than USD 30 billion of premiums in 2012, with the vast majority of high-value commercial risks ceded into the international reinsurance market. Despite the region’s economic slowdown in recent years, owing to depressed world financial markets, potential growth in commercial risks, such as infrastructure and energy, is expected to remain and continue to create opportunities for reinsurers.

Most markets within the MENA region are open, with limited restrictions on reinsurance activities. However, there are initiatives to foster growth and retain business within the region. Mandatory cessions are important to the dynamics of some markets, such as in Algeria and Morocco. In these countries, local players are obliged to cede a proportion of their reinsured premiums to the state reinsurers. This emphasizes the state’s involvement and intention to retain some of the risks within a country, or to support the country in case of natural catastro-phes.

Another mechanism in place to encourage retention is the establishment of long-standing local and regional reinsurance companies, in addition to reinsurance pools, whereby share-holders or pool members are largely local or regional insurance companies. In these cases, the companies may have vested interests in serving the local market and supporting the regional reinsurance markets.

Some jurisdictions, such as Saudi Arabia, are introducing specific rules whereby an increasing proportion of total premiums must be retained within the country. This encourages higher participation in risks among local participants. Moreover, in many jurisdictions, most business must be placed through a local participant or sponsor.

Despite these market dynamics, the MENA insurance markets are still young and depend on international reinsurance support, with local and regional reinsurers generally acting as “fol-lowers” in such markets.

Primary insurers have tended to maintain low retentions, relying heavily on the reinsurance market, in particular for commercial risks. This is in part a result of insurers encountering chal-lenges in developing technical expertise, and partly due to the increased reinsurance com-missions available. They have tended to be risk averse in part, while reinsurance commissions received have tended to cover the majority, if not all, of the commissions that insurers have been required to pay to agents. Despite insurers beginning to retain increasing amounts of business in recent years, the dependence on reinsurance remains high, with many risks being fronted locally and ceded to the international market.

For international reinsurers with greater capacities and expertise, the MENA insurance market has presented opportunities to diversify risk into countries perceived to have low exposures to natural catastrophes. Although there are indications that some rein-surers have more recently been seeking to reduce their exposure to the region, plenty of reinsurance capacity remains in the market. Furthermore, the expansion of regional

21


players operating within the Indian subcontinent, the Asia-Pacific territories and Africa has brought additional capacity to the market.

MENA Market Strategies VaryStrategies adopted by reinsurers to penetrate the MENA markets vary considerably. Five years ago, reinsurers tended to operate from a distance, with the vast majority of commercial risks placed through the London market. However, the dynamics of the landscape have changed materially. The introduction of financial free zones, such as the Dubai International Financial Centre (DIFC) and Qatar Financial Centre (QFC), have helped open the market and encour-aged international participants to establish operations in the region. This has been the case in particular for reinsurers and brokers, with most major insurance institutions having some form of regional presence.

Proximity to the market is seen as increasingly important to understanding the market’s char-acteristics; creating closer ties between companies and cedents; and demonstrating a keen willingness to support the market. While some reinsurers have left the market, overall the number of participants and capacity continue to increase. A growing amount of business is being placed directly within the MENA region, with this trend likely to continue. For reinsur-ers, risk selection is critical, with risk management practices of clients and cedents being important to the quality of risk underwritten.

Cession rates vary significantly among MENA insurers, although in general the level of busi-ness ceded has gradually decreased in the past few years. A.M. Best’s analysis of 130 compa-nies based in the Gulf Cooperation Council (GCC) countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) shows that in 2002 more than 60% of direct premiums written were ceded (see Exhibit 17). However, in 2011, cession rates for compa-nies in this data set were less than 40% of risks.

The reduction in part indicates a change in the market’s mix of business, with health care playing an increasingly important role in insurers’ profiles. The retention on medical remains high, and therefore primary insurers have improved their overall retention. For commercial risks, retention is gradually improving as companies seek to increase expertise and retain larger lines, yet insurers are still largely dependent on rein-surers.

A.M. Best’s analysis com-pares the performance of 1,766 companies in 19 countries over nine years. The data show that while GCC companies have improved retention ratios, they continue to cede the largest proportion of their premiums compared with other markets. Premium

Munich

Re

Swiss Re

Lloyd

's

Hanno

ver R

e

Berksh

ire Hath

away

SCOR S.E.

Korean

Re

Evere

st Re

China R

e

Partn

erRe

Trans

Re

GIC of In

dia

QBE

Toa R

e

Odyss

ey Re







Germany10%

Switzerland13%

Americas*28%

London7%

Asia - Pacific22%

Bermuda Market10%

Other Markets

10%


Switzerland15%

Other European 10%

London9%

Germany27%

Bermuda Market10%

Asia-Pacific11%

Americas*17%

Other1%




0

1

2

3

4

5

6

2008 2009 2010 2011 2012









Exhibit 2





PH3




ArchAsp

enAmlin

Allied

Axis

Berksh

ire H

athaw

ayCatl

in

Endu

rance

Genera

li

Greenli

ght

Hanno

ver R

e

Korean

Re

Mapfre

Maiden

Montpe

lier

MS&AD

Munich

Re

Partn

er Re

Platin

um QBE

Evere

st Re

RGA

Renna

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Swiss Re

Tokio

Mari

ne

Valid

us

White M

ounta

insXL

Allegh

any C

orp.

4.0

6.3 16.3 20.4

25.829.8

0

50

100

150

200

250

2008 2009 2010 2011 2012 2Q 2013YTD

USD

Billi

ons


0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(USD

Bill

ions

)


0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013YTD

USD

Billi

ons

Cat Bonds Sidecars

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


GCC

Far East


DevelopedCIS


22.5

19.5

15.8

10.2 9.7

6.1 5.1

4.3 4.2 3.9 3.6 2.8 2.3 2.2 2.0

91.2

83.191.0

96.099.9

94.3 97.993.8

100.487.8 90.9

104.899.2

108.0

84.6

0%

20%

40%

60%

80%

100%

120%

0

5

10

15

20

25

Com

bined Ratio(U

SD B

illio

ns)



-5

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2Q 2013 YTD

(%)


0 100 200 300 400 500 600

2008

2009

2010

2011

2012

BRL Millions

IRB

Other

22.9

15.6

8.8

20.424.4

32.3

1.6

33.9

6.6

18.5

-3.0 -0.4

23.1

32.5

14.7

57.5

12.210.3

26.7

58.6

23.327.9

5.8

21.9

13.5

36.8

1.6

15.9

26.322.8

-505

101520253035404550556065

(% C

hang

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19.7

20.4

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012*

(% of Direct Prem

ium)


Prem

ium

(BRL

Bill

ions

)

London13%

Other Markets9%

Bermuda Market

14%

Germany24%

Americas12%

Asia-Pacific14%

Switzerland14%

22


cession levels are approximately double those of the 111 companies that comprised the data set for the Commonwealth of Independent States (CIS) – Kazakhstan, Russia and Ukraine – and the 1,191 entities analysed in the developed markets of France, Germany and the United Kingdom.

The MENA market largely utilizes proportional reinsurance, although there has been a gradual shift toward nonproportional cover in recent years. Within the region there is extensive use of bouquet treaties, whereby most non-life lines are placed together under the same treaty to service group multirisk accounts. This makes pricing the treaty for the whole portfolio more critical, factoring in both under- and overperforming lines. In most cases, health care is placed separately. Historically, MENA insurers have benefited from reinsurance rates that have been among the lowest in emerging mar-kets. While reinsurance prices have been under pressure in recent years, it is likely that prices are starting to increase in the short term. For rates to materially increase there would need to be a major shock to the reinsurance market. This could be triggered by a major catastrophe in the region, or a series of large losses on high-value risks, such as in energy and infrastructure risks.

Medical business has historically been written on a proportional basis. However, the level of competition in medical has contributed to losses among many insurers and reinsurers. The latter may have suffered more in some instances because of the out-wards commission structures attached to these treaties. As a result, reinsurers are dic-tating terms more aggressively as they threaten to remove capacity, move from treaties to excess-of-loss cover, reduce commissions or shift to sliding-scale commissions. The dominance of medical in the region makes it important for the markets to have reinsur-ers’ continued support.

In the medium term, MENA insurers are under pressure to maintain greater focus on tech-nical profitability, given depressed investment returns. There is pressure from reinsurers to increase rates, enforce stricter terms or reduce commission levels, which will further encour-age companies to concentrate more on gross rather than net profitability. Furthermore, insur-ers are taking active steps to improve profitability, with increased retentions as one measure. They are also performing back-testing (sometimes with the assistance of third parties) on their reinsurance utilization to see the overall benefits of reinsurance coverage, aiming to leverage their positions to negotiate improved terms and conditions.

Retakaful TrendsRetakaful operators represent an important sector of the MENA reinsurance market, although these tend to be young companies finding it difficult to establish themselves and create a balance between market franchise and profitability. Rather than distinguish themselves through targeting new, untapped market segments, Retakaful operators tend to compete directly with their conventional counterparts. Given that some existing conventional reinsurers benefit from strong reputations and economies of scale, Retakaful operators find it dif-ficult to establish profitable operations. Moreover, pressure from shareholders to service capital can lead to the pursuit of premium income through pricing practices.

Retrocession should ideally be placed with Retakaful companies, but in reality, a lot of the risk is ceded to conventional reinsurers, as Retakaful operators have insufficient capacity to support large and volatile commercial risks or lack the ratings required by the ultimate insureds.

Ratings Issues for MENA ReinsurersAll A.M. Best-rated reinsurers based in the MENA region have secure Financial Strength Ratings

23


(FSRs). The highest rating achieved at present is an FSR of A (see Exhibit 18). In all but two instances, the outlook for the FSR and Issuer Credit Rating (ICR) is stable.

Most reinsurers in the MENA countries are now underwriting business outside of the region. While the markets continue to expand, reinsurers will find opportunities to grow but need to ensure underwriting is adequately controlled.

MENA insurers operating in countries that have suffered from regional political and economic instability have seen their top lines affected. However, many A.M. Best-rated Middle Eastern rein-surers have shown resilience in their operating performances due to their diversified portfolios and flexible business continuity plans. Reinsurers have felt obliged to support affected markets during the turbulent period however, after the initial unrest, policy wording has materially tight-ened in the region, driven by the international reinsurance market’s desire to alleviate uncer-tainty or conflict arising from strike, riot and civil commotion (SRCC) definitions.

Furthermore, in relation to the uncertainty of natural catastrophes across the world and the increased frequency of regional catastrophe events, focus has increased on introducing event limits in the region. This should provide further protection to reinsurers in the event of a major adverse loss scenario. These issues over the past few years have highlighted the need for greater transparency in policy wording and conditions offered in MENA markets.

MENA markets allow reinsurers to diversify into relatively less catastrophe-prone territo-ries. While insurers seek to increase their retention levels, reinsurers will continue to play an important role in the market. As the complexity of the market develops, the presence of reinsurers and proximity to clients in the region will remain important.

Exhibit 18Middle East & North Africa – A.M. Best-Rated Reinsurance CompaniesRatings as of Aug. 16, 2013.




Best’s FSR & ICR Outlook


Rating Effective Date

Algeria Compagnie Centrale de Reassurance 090777 B+ bbb- Stable Affirmed July 18, 2013Bahrain ACR ReTakaful MEA B.S.C. (c) 090059 A- a- Stable Affirmed Dec. 20, 2012Bahrain Arab Insurance Group (B.S.C.) 085013 B++ bbb+ Stable Affirmed Dec. 18, 2012Bahrain Trust International Insurance & Reinsurance Co. B.S.C. (c) Trust Re 086326 A- a- Stable Affirmed Aug. 30, 2012Kuwait Al Fajer Retakaful Insurance Co. K.S.C. (Closed) 088954 B++ bbb+ Stable Affirmed July 10, 2013Kuwait Kuwait Reinsurance Co. K.S.C. (Closed) 085585 A- a- Stable Affirmed April 25, 2013Lebanon Arab Reinsurance Co. S.A.L. 089190 B+ bbb- Stable Affirmed Dec. 11, 2012Morocco Societe Centrale de Reassurance 084052 B++ bbb Negative Affirmed July 10, 2013Qatar Q-Re LLC 092611 A a Stable Assigned Nov. 26, 2012Tunisia Societe Tunisienne de Reassurance 083349 B+ bbb- Stable Affirmed July 10, 2013Turkey Milli Reasurans Turk Anonim Sirketi 085454 B+ bbb- Negative Affirmed April 5, 2013United Arab Emirates Gulf Reinsurance Ltd. 088930 A- a- Stable Affirmed Aug. 2, 2013

Source: – Best’s Statement File – Global; Ratings as of Aug. 16, 2013.

24


Offshore Reinsurance Tax PlanStill Bears WatchingIn April 2013, a proposal to end some tax benefits enjoyed by most international (re)insurers doing business in the United States found its way into President Obama’s budget. A month later, a bill to enact a similar measure was again introduced in the U.S. House and Senate. This long-standing tussle among domestic and foreign reinsurers can be character-ized by one of baseball philosopher Yogi Berra’s famed quotes: “it’s déjà vu all over again.”

This subject has been argued for at least a decade, with very intense positions on both sides. What has changed is the charged political atmosphere surrounding this chapter in the ongoing debate. The thirst for reducing effective corporate tax rates is far from limited to the insurance industry or even U.S. soil.

As momentum for tax reform in the United States builds, so does concern among off-shore interests that the loophole benefiting foreign reinsurers with U.S. affiliates may be tightened within broader tax-reform legislation, as opposed to a stand-alone bill. Another new aspect is the evolving presence of third-party capital as a reinsurance solution, and whether this may quiet a rallying cry that foreign reinsurers’ capital is needed to help sustain affordable pricing levels in catastrophe-prone areas.

Exhibit 19Global Reinsurance – U.S. & Bermuda Market Trend Summary (2008-2Q 2013 YTD)(USD Billions)

2008 2009 2010 2011 20122Q YTD 2013* 5yr Avg

NPW (Non-Life only) $51.6 $50.3 $52.6 $55.0 $56.7 $31.1 $53.2 Net Earned Premiums (Non-Life only) 52.1 51.1 52.4 54.4 55.5 26.3 53.1 Net Investment Income 7.6 8.2 8.1 7.6 7.1 3.1 7.7 Realized Investment Gains / (Losses) (6.0) 0.8 2.2 (0.1) 2.2 0.2 (0.2)Total Revenue 55.9 63.1 65.7 64.6 68.6 33.3 63.6

Net Income (0.5) 12.4 11.2 0.9 10.1 5.7 6.8

Shareholders’ Equity (End of Period) 67.6 88.4 95.1 93.7 101.7 96.5 89.3

Loss Ratio 64.2% 56.1% 61.8% 77.3% 63.4% 56.1% 64.7%Expense Ratio 29.4% 29.7% 30.9% 30.0% 29.8% 30.6% 30.0%Combined Ratio 93.6% 85.8% 92.7% 107.3% 93.1% 86.7% 94.7%

Favorable Loss Reserve Development -7.3% -6.1% -6.2% -6.0% -5.8% -6.3% -6.3%

Net Investment Ratio 14.6% 16.0% 15.4% 14.0% 12.7% 11.8% 14.5%Operating Ratio 79.0% 69.8% 77.3% 93.3% 80.4% 74.9% 80.1%

Return on Equity (Annualized) -0.7% 16.0% 11.9% 1.0% 10.6% 11.8% 7.7%Return on Revenue (Annualized) -0.9% 19.7% 17.1% 1.5% 14.8% 34.6% 10.8%

NPW (Non-Life Only/Annualized) to Equity (End of Period)

76% 57% 55% 59% 56% 64% 60%

Net Reserves to Equity (End of Period) 168% 134% 128% 138% 130% 134% 138%Gross Reserves to Equity (End of Period) 215% 167% 158% 169% 158% 160% 171%

* 2Q 2013 YTD excludes Alterra.Source: A.M. Best data & research

25


Although this legislative issue warrants ongoing surveillance, A.M. Best does not believe the matter will lead to any ratings revisions over the near term. Depending on the final outcome, companies likely will continue to seek operating alternatives to ensure tax and capital efficiency if and when the tax benefits for foreign companies are eliminated. Some companies already have reacted, while others will continue to take steps that mitigate the impact of any potential tax exposure.

The current administration has tried but failed to eliminate this tax benefit in previous budget proposals. The opposition on this issue has the support of many members of Congress, particularly from states that have considerable exposure to natural catastrophes. Their concern is the possibility that a tax increase could lead to increased costs for (re)insurance coverage or possibly a decrease in allocated (re)insurance capacity for less profitable risks. Accordingly, any resolution of this issue still could be years away.

Over the past several years, there have been various initiatives to increase insurance capacity for catastrophe-prone states, the most recent being the relaxation of collateral requirements in some states for foreign (re)insurers operating within those jurisdic-tions. The proposed elimination of the existing tax benefits would be in direct opposi-tion to such initiatives.

26


Global Re Outlook Remains Stable; Industry Positioned to Bear UncertaintyDespite increasing challenges, the rating outlook on the global reinsurance segment is being held at stable, supported by continued strong risk-adjusted capitalization, judi-cious enterprise risk management practices and a slow improvement in the global eco-nomic environment, underpinned by the United States, which represents the world’s largest insurance market. A disciplined underwriting posture has enabled reinsurers to produce reasonable underwriting profits and benefit from favorable loss-reserve devel-opment, while helping to mitigate the continuing weakness in investment earnings.

From a capital perspective, global reinsurers are well capitalized and capable of absorb-ing significant losses from a combination of events. The fragility in the global economy continues to present a meaningful level of uncertainty and challenges. Assuming contin-ued stabilization in the global economy and a normal level of global catastrophe losses, A.M. Best expects reasonable organic growth in reinsurers’ capital for 2013, supported by core earnings and new opportunities presented by their primary insurance and spe-cialty (re)insurance operations, and tempered by mark to market adjustments due to ris-ing interests rates and capital management strategies.

However, A.M. Best remains concerned that reinsurance pricing, terms and conditions may come under increasing pressure as excess capacity continues to build and the con-vergence between capital market capacity and traditional reinsurance capacity evolves. Furthermore, while loss-reserve releases have helped to bolster profits and likely will continue to do so, this crutch will provide steadily decreasing support.

The continuing low interest-rate environment, however, appears to be reinforcing a focus on underwriting discipline, which should translate into a positive for the seg-ment. Pricing, terms and conditions are important aspects of the overall equation, given that operating performance helps drive balance sheet strength. With operating returns pressured by low investment yields, underwriting profits must drive overall earnings for the foreseeable future.


Published by A.M. Best Company

Special ReportChairman & President Arthur Snyder III

exeCutive viCe President Larry G. Mayewski

exeCutive viCe President Paul C. Tinnirello

senior viCe Presidents Manfred Nowacki, Matthew Mosher, Rita L. Tedesco, Karen B. Heine

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SR-2013-046

ContributorsRobert DeRose, OldwickGreg Reisner, OldwickScott Mangan, OldwickMariza Costa, OldwickAl Slavin, OldwickMahesh Mistry, London

Richard Hayes, LondonDavid Drummond, LondonYvette Essen, LondonVasilis Katsipis, DubaiIris Lai, Hong Kong

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