qbe syndicate 2999 annual report 2008

QBE Syndicate 2999Annual report 2008

QBE Syndicate 2999

01 Introduction02 What makes QBE different?04 QBE Syndicate 2999 at a glance06 QBE Reinsurance Syndicate 566

Business of the syndicate07 QBE Marine and Energy Syndicate 1036

Business of the syndicate08 QBE Syndicate 1886

Business of the syndicate09 QBE Property Syndicate 2000

Business of the syndicate10 QBE Aviation Syndicate 5555

Business of the syndicate

11 Risk management12 Report of the directors of the

managing agent18 Managing agency – corporate information19 Independent auditors’ report to the

members of Syndicate 299920 Profit and loss account:

technical account – general business21 Profit and loss account:

non-technical account22 Balance sheet24 Statement of cash flows25 Notes to the financial statements37 QBE Syndicate 2999 contacts

QBE visionTo be internationally recognised as:

• A highly successful general insuranceand reinsurance group

• A builder of shareholders’ wealth

• A developer of “can do” people

• An organisation that excels in thecontinuous delivery of new andproven quality products and services

QBE values• Increasing the long term

wealth of shareholders

• Customer satisfaction and retention

• Employee motivation

• Integrity

01QBE Syndicate 2999Annual report 2008

Frank O’HalloranChief Executive Officer,QBE Insurance Group

Steven BurnsChief Executive Officer,QBE European Operations

This was achieved through focused underwritingdiscipline and high business retention ratioscoupled with a strong prior year performance.

Following the successful implementation ofour product and distribution model and thedevelopment of our UK National and EuropeanMarkets distribution capabilities, we are nowvery well positioned to deliver strong growththrough these local offices as and when marketconditions improve.

QBE’s philosophy remains based onunderwriting specialism, leadership andcontinuity, which, combined with the highestquality of products, enables us to provide asecure, professional environment to fullyservice clients’ insurance needs.

QBE European Operations overviewDespite less favourable marketconditions, two major hurricanes andan increase in large loss frequency for2008, QBE European Operations (EO)has produced another strong resultwith a combined operating ratio of85.6% (2007 84.8%).

Ireland

UK

National

Londonmarket

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QBECom

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Lloy

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British marine Specialty

Motor

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PropertyReinsurance

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2008 GWP

£2.4billion

EO’s eight product focused underwritingdivisions allow it to leverage thebreadth and depth of its capabilitiesin a coordinated and focused way.

This means brokers and clients have access to:

• A wider distribution network

• All expertise in one place

• A choice of Lloyd’s paper orcompany paper

• The strength and size of QBE

• The individuals who understandtheir business


What makes QBE different?

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StrongQBE is one of the world’s top 25 insurersand reinsurers and has been established inthe UK since 1904. At QBE we understand theimportance of security in the insurance decisionmaking process and the strength of our ratingsand financial backing gives us a real advantagein the market.

QBE is one of the world’s leading insurers andreinsurers with offices in 45 countries, backedby A+ ratings by S&P and Fitch. Our approachis one of leading not following, so when itcomes to product design or setting the termsand conditions we take the initiative.

EntrepreneurialWe are always looking for solutions to businessrisks which means working closely with all partiesto understand their business and creating theright product for them.

A groundbreaking six year deal signed witha major provider of transport infrastructureprovides a graphic illustration of an insurerthat has an appetite for tripartite partnershipswith brokers and clients built around sharedinformation. This also demonstrates our appetiteto tackle risks that others cannot and this dealprovided the client with the necessary insurancefirst to survive and, latterly, the confidence tobuild for the future.

EmpowersAt every stage of the relationship we encouragea “can do” spirit, which means everyone benefitsfrom quicker decision making and fastersolutions.

We emphasise the importance ofcooperation across all departments and thisin turn enables us to provide a bespoke serviceand excellent customer relations managementprogramme to our clients.

An example of this was provided recently to amajor UK based corporate catering companywhere a flexible, coordinated approach to clientcare was implemented, including scheduledquarterly meetings backed up by fully transparentmanagement reporting.

Strong andgrowing marketpresence

Entrepreneurialsolutions tobusiness risk

Empowers througha collaborative cando spirit across thebusiness and with allbusiness partners

1 2 3


Heading

3Empowers

4Delivers

5Specialist

1Strong

2Entrepreneurial

4 5TheQBE European Operations brand promise

strives for excellence in five core areas

DeliversBy understanding the market better and inparticular the risks associated with that product,we are more responsive and able to deliversolutions to everyone’s requirements.

Not only do we take great satisfaction from ourclaims record, we also place a great emphasis onrisk management, with regular forums heldaddressing the key risk issues facing our clients.This emphasis is recognised by brokers whorated QBE fourth for claims handling in arecent study*.

SpecialistOur teams are specialists in every businessline, which means they give equal importanceto the generation of new business as they do tosupporting the retention of key existing business.

Our underwriters are readily accessible and theirskills and in depth product knowledge of theirsector enable them to provide an answer straightaway. The sheer number of underwriters allowsus to have specialists for individual subclasses ofproduct and, if an answer is not readily available,then we are always looking for creative solutions.

These key attributes resulted in brokers rankingQBE underwriters in third place in a recentsurvey*. So whether it’s cover for aviationproducts or zoos, or anything in between, wecan provide a competitive and effective outcome.

Delivers reliableand responsiveservice at everystage of thestakeholderexperience

Specialist inevery businessline and consistentlyacross all disciplines

4 5

*Commercial Insurer Service study 2008 (Insurance Times).

Highlights• 2008 combined operating ratio of 79.7%

(2007 85.6%)

• 2008 GWP of £852 million(2007 £799 million)excluding third party RITC policies

(refer to note 18 on page 36)

• Continued focus on underwriting disciplineand service excellence

Strengths of the syndicate• Flexible sub-syndicate structure permitting

a high degree of autonomy for each of theunderlying sub-syndicates

• Service excellence and provision ofinnovative solutions – each syndicate hasexperienced and dedicated specialistunderwriting and support teams

• Part of QBE Underwriting Limited, one of thelargest managing agents at Lloyd’s with over£1 billion of underwriting capacity for 2009

• 100% QBE capital – capital to supportSyndicate 2999 is provided entirely by QBECorporate Limited, part of QBE InsuranceGroup Limited (S&P, “A+” (strong))

• Total syndicate funds of £1.5 billion

• Lloyd’s security – policies issued by the sub-syndicates benefit from the security,expertise and brand of the Lloyd’s insurancemarket (S&P, “A+” (strong)/A M Best, “A”(Excellent))

• S&P LSA “3+” – S&P interactive Lloyd’sSyndicate Assessment of “3+” reflects thestrength of support provided by QBE andits superior operational management


QBE Syndicate 2999 at a glance

QBE Syndicate 2999 continues to provide ascalable and efficient operating structure which,supported by QBE EO’s product and distributionmodel, enables the specialist product lines toadapt to prevailing market conditions.

The syndicate accounts are prepared on an annually accounted basis under UK GAAP.

£852 million2008 GWP

79.7%2008 combined operating ratio

£1.5 billionTotal syndicate funds

QBE Syndicate 2999 comprises fivesub-syndicates and is the primaryentity from a Lloyd’s reporting andregulatory perspective.

Under this arrangement, sub-syndicateunderwriters retain a high degree of autonomyto determine and fulfil their underwritingstrategies, whilst benefiting from thecombined size, strength and capital baseof the umbrella syndicate.

Syndicate 2999 is a wholly aligned syndicate,whereby 100% of its capital is provided byQBE Insurance Group. Sub-syndicate capacityallocations are not restrictive and maybe adjusted within the overall umbrellaallocation. This means the team can respondto underwriting opportunities as they arise,whilst minimising the cost of capital provision.

Each of the sub-syndicates (referred toherein as syndicates) has established licencesand premium trust funds under their ownnumber for the specific types of business theyunderwrite. They are all licensed and accreditedto underwrite both surplus lines and reinsurancebusiness in the United States and havefunded trust funds in accordance with localregulatory requirements.


£852million

In 2008, Syndicate 2999 wrote totalgross income of £852 million

QBE Aviation Syndicate 5555£99 million (12%)Managing Director – Emilio Di Silvio

QBE Property Syndicate 2000£86 million (10%)Managing Director – Bernard Mageean

QBE Syndicate 1886£92 million (11%)Managing Director – John Neal

QBE ReinsuranceSyndicate 566£293 million (34%)Managing Director – Jonathan Parry

QBE Marine and EnergySyndicate 1036£282 million (33%)Managing Director – Colin O’Farrell

QBE Reinsurance Syndicate 566 is a leadingexcess of loss reinsurance syndicatespecialising in non-marine property, aviation,marine, North American and Internationalcasualty treaty and personal accident in theLloyd’s market.

Underwriting reinsurance treaties from most partsof the world, 566’s underwriters have an in depthknowledge of their clients and the territories inwhich they operate.

The use of sophisticated catastrophe modelsenables us to estimate the magnitude andfrequency of large events and to analyse andunderstand our clients’ portfolios effectively.

As part of the product and distributionreorganisation outlined earlier for 2008, Syndicate566 has witnessed the transfer in of the NorthAmerican and International casualty treatyaccounts, previously written by Syndicate 2000.

International Property TreatyUlrich LoesslThe international property portfolio is heavilybiased towards catastrophe excess of lossreinsurance. Less than 5% of the portfolio isrisk exposed. The account is exceptionally wellspread geographically, with the United Kingdom,Europe, Japan, Australasia and Latin Americacomprising the major focus. Much of the portfoliois written in a lead position. Property is the mainfocus of the portfolio but the account alsoincludes agricultural and engineering portfolios.

North American Property TreatyPaul HorganOver 90% of the North American portfolioemanates from the US, with the remainder fromCanada. Of the combined book, the majority iswritten on a catastrophe excess of loss basiswith risk exposed programmes comprising lessthan 5%. Historically the account has focused onthose regional companies operating in single orlimited states, but more recently the account hasexpanded to afford cover to the large stockcompanies operating on a nationwide basis.The portfolio also includes a specialisedagricultural account.

International Casualty TreatyRichard FothergillSyndicate 566 is a recognised market leader inthis class. The account is written on both an excessof loss and proportional basis. Geographically,the syndicate focuses on all territories with theexception of the US. Incidental exposures in

the US can be accommodated. Syndicate 566underwrites a diverse book encompassing mostliability classes. The syndicate will also lookat retrocessional business.

AviationRichard SammonsThe syndicate’s aerospace focus is onnon-proportional aviation and space treatyreinsurance. The major part of the portfoliocomprises excess of loss treaties, protectinginsurers and reinsurers of the world’s majorairlines, airports and aerospace productmanufacturers. The account also targets insurersand co-insurers writing general aviation and hullliability for smaller planes.

Syndicate 566 is a member of the SATEC Poolproviding cover on satellite launch and in-orbitrisks on a proportional basis.

MarineJonathon DeanThe syndicate’s marine portfolio covers allaspects of marine business and also includesthird party coverages such as P&I and pollution.We write the account on a risk and catastropheexcess of loss basis and the syndicate has theability and capacity to act as a lead reinsurer.It focuses on middle to high layers avoidingattritional levels. The portfolio currently consistsof business emanating from over 50 countries.

Personal AccidentPeter WilkinsThe personal accident account written by thesyndicate is split almost equally between risk andcatastrophe excess of loss business and primarydirect and facultative insurance including lineslipsand binders. In addition to PA business, theaccount also comprises life and travel business.

Worldwide and RetrocessionJonathan ParryThis is the longest established portfolio inSyndicate 566. The account comprisescatastrophe retrocession, catastropheprotections of direct and facultative accounts,and tier 1 and tier 2 risk excess business. Thesyndicate leads over 80% of the account writtenand has a significant impact in the quotingprocess of the remainder. Syndicate 566 targetsbusiness with a high risk to reward ratio whilstpositioning itself away from attritional loss activity.The syndicate values continuity and has beentrading with its core clients for many years.

North American Casualty TreatyDavid WoodruffThis account is biased toward risk andcatastrophe excess of loss treaty, but mostreinsurance structures will be entertained.We split the account between standard linesand professional lines. Historically, professionallines have comprised errors and omissions,healthcare, fidelity and directors’ and officers’covers. From January 2008 the decision wastaken to focus exclusively on healthcarebusiness in this sector. Standard lines comprisegeneral liability, WCA, clash and motor covers.The syndicate tends to target small to mediumsized regional portfolios.

ClaimsMark WilsonOur adjusters are authorised to handle all classesof business. Technical strengths are combinedwith a pragmatic claims handling philosophy,which recognises the need for proactive andflexible claims management.


QBE ReinsuranceSyndicate 566Business of the syndicate

Jonathan ParryManaging Director

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2008 Portfolio split

1 International Property Treaty 18%2 North American Property Treaty 20%3 International Casualty Treaty 15%4 Aviation 5%5 Marine 6%6 Personal Accident 7%7 Worldwide and Retrocession 20%8 North American Casualty Treaty 9%

QBE Marine and EnergySyndicate 1036Business of the syndicate


Colin O’FarrellManaging Director

QBE Marine and Energy Syndicate 1036 isa leading marine syndicate specialising inhull, energy, liability, specie, cargo, war andallied risks.

Established in 1987, the syndicate underwrites aworldwide account, requiring underwriters to havea comprehensive knowledge of their clients’businesses and the territories in which they operate.

The use of sophisticated software, combined withextensive travel, enables the syndicate to analyseand understand its clients’ needs effectively.

As part of the product and distributionreorganisation in 2008, Syndicate 1036 nowincorporates the sabotage and terrorismportfolio, previously written by Syndicate 1886and QBE’s company operations.

CargoTim PembrokeWe write a high quality portfolio of cargobusiness and are recognised as a leader in high-tech, pharmaceutical and manufactured goodsas well as excess cargo business. We emphasisethe value of long term relationships with ourclients and work with them to develop mutuallybeneficial risk control programmes.

LiabilityDaryl EwerWe are a major leading underwriter in the globalliability market, with an account produced fromall the major brokers worldwide and from industryspecialists. The account comprises pure marinecoverages such as P&I, pollution, charterers, standalone energy liabilities and package policies.

Working closely with our colleagues in hull andenergy, particularly offshore, we specialise intailoring complex and unusual coverages toclients’ needs and requirements. We are theleading underwriter to many International GroupP&I associations, providing extended coverages,over and above those offered by club rules,as well as reinsurance capacity solutions.

Energy OffshoreSam HarrisonWrites a portfolio of risks worldwide, fromdedicated upstream entities to fully integratedenergy companies.

We insure offshore risks for oil and gascompanies worldwide, specialising in offshoreinsurance for assets located in the North Sea andthe Far East, particularly China. Approximately60% of the business written is in a lead capacity.

Energy OnshoreStephen SaundersA wide range of onshore assets for oil and gascompanies worldwide are insured, from wellheads to refineries and petro-chemical plants,with particular dominance in the Middle Eastand Indonesia. Approximately 75% is writtenin a lead capacity. To complement the above wealso underwrite an onshore construction accountfocusing on erection all risks and associated linesof third party liability.

SpecieRyan JosephWe underwrite a worldwide account specialisingin the areas of armoured car, general specie, fineart and jewellers’ block. Business is written to allthe major brokers, dealing with some of the mostprominent institutions in the financial sector andart world. We lead approximately 40% of thebusiness we write.

HullHaydn CostinWe write an established high quality hull account.The portfolio, which principally consists ofbluewater vessels, includes a significantproportion of builders’ risks, short-tail total lossonly, increased value and mortgagees’ interestrisks. Risks of physical damage to ports,worldwide are also included. Recognised asleaders in all aspects of the account, we aresupported by all the major hull brokers. Wemaintain a significant presence on market wideinitiatives, for example the Joint Hull Committee,which complement our underwriting.

WarHaydn CostinWe write a maritime war account, which includeswar risks on vessels, cargo, floating energy risksand maritime liabilities. We are an established leaderin the class and are instrumental in setting termsand conditions which are followed worldwide.

Political Risk and TerrorismNicky AblettThrough a specialist underwriting team, we havedeveloped a political risk and terrorism portfolioof broad based, worldwide business. This accountcomplements existing areas of the book, butparticularly onshore energy, cargo and specie.

ClaimsGary CrowleyOur well respected claims team works closelywith our underwriters to ensure claims aremanaged to an extremely high standard.The claims team have long standing relationshipswith surveyors, loss adjusters, lawyers and otherprofessional advisers whose expertise can bebrought to bear on our response to a claim. Weenjoy a good working relationship with brokersand London insurance market organisations.

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1 Cargo 7%2 Liability 18%3 Energy Offshore 33%4 Energy Onshore 17%5 Specie 7%6 Hull and War 11%7 Political Risk and Terrorism 7%


QBE Syndicate 1886 was established for the2006 year and specialises in non-marinecasualty and specialty.

The business is focused into a number ofareas, each with a specialist underwriting teamresponsible for its account. The underwritershave dual underwriting authorities allowing themaccess to Lloyd’s or company paper.

By operating on this basis, Syndicate 1886enables QBE company underwriters toparticipate in previously inaccessible marketsand provides existing Lloyd’s underwriters withadditional capacity. This adds significantly to thecompany’s underwriting capabilities and bringsnew business to the Lloyd’s market.

General LiabilityAsh BathiaWe offer a broad spectrum of insurance andreinsurance products backed by extensiveexperience in all classes. We have dedicatedprofessionals specialising in public liability,product liability, medical malpractice, productrecall, directors’ and officers’ liability, professionalindemnity and construction all risks.

Financial InstitutionsGary NormanWe underwrite a broad spectrum accountspecialising in leading middle market financialinstitutions and all commercial crime business.This includes comprehensive crime, professionalindemnity, directors’ and officers’ liability andcommercial crime.

Overseas MotorSteve StoneAiming to underwrite personal lines portfolios,the overseas motor team targets well managedand administered coverholders with good localknowledge and high integrity anywhere in theworld, outside North America.

SpecialtyThis division comprises the following portfolios:

Kidnap and RansomGraeme RaynerOffering worldwide cover for kidnap, extortion,hijacking and wrongful detention.

BloodstockGraeme RaynerOffering worldwide insurance products forbloodstock and equine, livestock, aquaculture,all risks of mortality, infertility, theft andassociated risks.

Product ProtectionGraeme RaynerWe have developed a reputation for deliveringsuccessful insurance programmes coveringextended warranty, GAP insurance andcreditor insurance.

Marine LiabilityRobert JohnstonWe offer intermodal and professional indemnityinsurance to companies in the shipping/transportfields. Cover is offered on a worldwide basis,including the US.

ClaimsAndrew McBrideThe team is focused on delivering outstandinglevels of service and expertise to clients acrossall lines of business. This embedded customerservice ethic is supported by innovation andtransparency in claims handling and management.The team is also proactive in supporting andembracing new technologies and market initiatives,including the use of electronic claims files.

QBE Syndicate 1886Business of the syndicate

John NealManaging Director

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1 General Liability 56%2 Financial Institutions 22%3 Overseas Motor 14%4 Specialty 7%5 Marine Liability 1%

QBE PropertySyndicate 2000Business of the syndicate


Bernard MageeanManaging Director

QBE Property Syndicate 2000 is a leadingsyndicate operating in the Lloyd’s market,specialising in direct property and accidentand health.

Dedicated professionals within specialist expertunderwriting teams have full authority to tradeand clear accountability and responsibility foreach account.

As part of the product and distributionreorganisation outlined earlier for 2008, Syndicate2000 has become the exclusive vehicle forproperty insurance and all accident and healthbusiness within umbrella syndicate 2999.

Property Direct and FacultativeAndrew StoutWe have a worldwide property accountpredominantly at present in North America,for business ranging from small surplus linescommercial and light industrial risks to largerFortune 1000 type accounts. We are still willing,and have the capacity, to write catastropheexposed business worldwide.

Property BindersMartin RowlingWe underwrite a select number of property relatedand commercial vehicle facilities, enabling agentsto bind, on underwriters’ behalf, a comprehensiveportfolio of business in the agent’s office.Business under these contracts, predominantlyfor US based agents, ranges from small tomedium sized commercial and industrial risks,homeowner/condominium and real estate typerisks and selective catastrophe peril facilities.

Accident and HealthMike BridgemanSyndicate 2000 has developed a broad rangeof insurance products supported by extensiveexperience in all classes. The syndicate hasdedicated professionals specialising in generalpersonal accident, high risk personal accident,sports personal accident and film and contingency.

ClaimsAndrew McBrideWe provide a professional, effective andefficient claims service to our clients and theiragents. Our claims handling expertise is usedby our underwriters to ensure our futureunderwriting success.

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1 Property Direct and Facultative 66%2 Property Binders 27%3 Accident and Health 7%


QBE Aviation Syndicate 5555 was launchedin September 2006 and began writingbusiness incepting 1 October 2006.

The objective has always been to develop abalanced portfolio across all classes of businessnamely general aviation, airlines, products andairports. After our second full year under ourbelts we are well on our way to achieving this.

We will continue to focus on growing the generalaviation portfolio in line with the improving marketwhich will further reduce the volatility in the majorareas of our business which is in line with ourlong term strategy of balance across theaccount. The last two months of 2008 saw usreduce our airline portfolio by approximately 20%on business which we felt was inadequatelypriced in an improving environment.

We have focused on achieving a lead positionon the business which allows us to control ourclaims more robustly and in the process havebeen successful in a large number of cases,but predominantly on the general aviationportfolio to date.

Undoubtedly price is still a major driver in theclient’s purchasing criteria, but our approachhas been to supplant price as the primaryrequisite by promoting competitive terms inrelation to the service, coverage and securitywe are able to offer.

General AviationAnthony ProkopiouWe are a leader of business in the generalaviation market. This is a position that we havecemented during the past 12 months as wecontinue to build our account in a structuredand measured way.

This leadership position enables us to manageour clients’ needs effectively and efficiently onboth underwriting and claims issues.

Our portfolio is very broad in terms of thegeographical location of our clients, the aircrafttypes that we insure and the coverages thatwe offer.

We sub-divide our portfolio into three sections:

Private Business and Pleasure, which isessentially light aircraft owned by privateindividuals and flying clubs.

Industrial Aid, which consists of fixed wing aircraftand helicopters owned or operated by corporationsfor the transport of their executives and employees.

Commercial, which we categorise as aircraft witha maximum of 50 seats conducting revenueearning flights.

The insurance solutions that we provide for all ofour clients, and our expertise in the general aviationarea, differentiates us from our competitors.

AirlinesDan BoultwoodOur airline business continues to be writtenon a co-insurance basis within the internationalsubscription market. Our capacity is availablefor a complete cross section of worldwide airlinebusiness ranging from international, national andregional carriers to charter and cargo airlines.Our focus has been on the major flag carriersduring our initial development phase, althoughour book is constantly under review as the marketand the syndicate develop. We have takenleadership on one account at present andalthough technical pricing of the business hasto be our main driver, our long term objectiveis to become an influential market leaderdemonstrating our knowledge, skills andexpertise in this sector.

Products and AirportsGraham DaldryOur objective and experience is that of a strongleader, having gained significant participationand influence in the aviation market. We haveexpanded our underwriting and claims servicesthat we offer directly to the brokers and to ourmutual clients. Our areas of expertise includeairframe, engine and component manufacturersas well as airport and airport related servicingrisks including refuelling operations.

ClaimsJerry FlaxmanProviding our customers with an efficient,sympathetic and speedy resolution to a claimis our primary aim as this is when the insurancepolicy and our promises come to life. Our claimshandling philosophy focuses on being preparedand proactive in providing an effective andprofessional claims handling service to our clients.

We adopt a sympathetic approach todetermining any claims issues and with ourbreadth of expertise and experience can managethe simplest to the most complex and potentiallycostly claims, fairly and in a timely fashion.

QBE AviationSyndicate 5555Business of the syndicate

Emilio Di SilvioManaging Director


1 General Aviation 52%2 Airlines 22%3 Products and Airports 26%

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Risk management


The syndicate’s activities expose the business to a number of key risks which have the potential to affect its ability to achieve its businessobjectives. The board is responsible for ensuring that an appropriate structure for managing these risks is maintained. The boardacknowledges that it is not realistic or possible to eliminate risk entirely, and therefore seeks to ensure that the appropriate controls are inplace to manage risks effectively in line with the agreed tolerance.

The syndicate continues to develop its risk management capability to ensure that an effective framework exists to support the managementof all types of risk. Elements of this framework include the regular identification and assessment of the key risks and controls and clearlydefined ownership of both the risks and controls.

Risk groupsThe key risks can be grouped under the following headings.

Insurance risk

Credit risk

Capital and liquidity risk

Market risk

Operational risk

Cash flow risk

The syndicate’s business is to accept insurance risk which is appropriate to enable it to meet itsobjectives. In line with the QBE Group risk strategy, the syndicate seeks to balance insurance risk withreward. All underwriting divisions are set specific and measurable performance targets which theyare expected to achieve by operating within the parameters of the approved business plan.

In addition to the insurance terms of trade offered as standard, a certain amount of credit riskis unavoidable, as it can arise as a result of the inability to pay or slow payment of any of thesyndicate’s counterparties. The syndicate therefore seeks to limit exposure as far as is practicaland therefore has established detailed guidelines, procedures, limits and monitoring requirementsto mitigate credit risk.

Capital and liquidity risk is the potential that the syndicate is unable to meet its obligations asthey fall due or its capital falls below that required by regulators. The objective of QBE’s capital andliquidity risk management is to ensure that capital is optimally managed, that the syndicate remainssolvent by a significant margin and that all withdrawals and funding requirements can be met outof readily available sources of funding. QBE undertakes capital exercises to ensure that capital isadequate to meet risks and seeks to maintain a strong liquidity position by holding its assets inliquid funds.

The syndicate’s exposure to financial market risk arises out of the investment decisions madein relation to the investment of Premium Trust Fund assets. Exposure to market risk is managedthrough the investment strategy, which reflects the appetite of the board. The strategy isdeliberately conservative in order to eliminate potential volatility to market fluctuations asmuch as possible.

The syndicate seeks to mitigate exposure to operational risks through ensuring that an effectiveinfrastructure, robust systems and controls and appropriately experienced and qualified individualsare in place throughout the organisation.

The syndicate’s exposure to cash flow risk is addressed under the heading of capital andliquidity risk.


Report of the directorsof the managing agent

The directors of QBE Underwriting Limited (QUL), the managing agent for Syndicate 2999, present the syndicate’s annual report and audited financialstatements for the year ended 31 December 2008.

This annual report is prepared using the annual basis of accounting as required by Statutory Instrument No 3219 of 2004 the Insurance Accounts Directive(Lloyd’s Syndicate and Aggregate Accounts) Regulations 2004 (the 2004 Regulations).

Principal activitySyndicate 2999 is an umbrella syndicate with Peter Grove as Active Underwriter. For 2008, it comprised the following five actively trading sub-syndicates:

Sub-syndicate Managing Director Specialist classes

566 Jonathan Parry Reinsurance: property; aviation; casualty treaty; personal accident; and marine1036 Colin O’Farrell Marine insurance: hull; energy; liability; specie; cargo; war; and political risks1886 John Neal Non-marine: general liability; bloodstock; specialty; product protection; overseas motor; and marine liability2000 Bernard Mageean Non-marine: property; and accident and health5555 Emilio Di Silvio Aviation: general aviation; airlines; and products and airports

Business review and future developmentsFor the 2008 financial year Syndicate 2999 produced a combined operating ratio of 79.7% (2007 85.6%) and an insurance profit for the financial year of£166.4 million (2007 £161.8 million), analysed by sub-syndicate as shown in the following table:

2008 20075661 1036 1886 2000 5555 Total Total2£000 £000 £000 £000 £000 £000 £000

Gross premium written 293,275 282,222 92,082 85,583 99,105 852,267 977,891

Net earned premiums 206,689 158,351 69,871 81,993 71,500 588,404 742,494Net claims (124,099) (83,907) (21,509) (14,724) (72,626) (316,865) (446,452)Acquisition costs (41,700) (43,726) (19,047) (30,976) (18,818) (154,267) (150,454)

Net underwriting profit 40,890 30,718 29,315 36,293 (19,944) 117,272 145,588

Profit/(loss) on exchange 31,102 19,491 5,381 37,497 6,120 99,591 10,011Other net operating expenses (26,640) (25,624) (14,335) (29,098) (1,450) (97,147) (48,780)Investment return 5,180 10,300 4,908 25,100 1,150 46,638 54,954

Total profit for the financial year 50,532 34,885 25,269 69,792 (14,124) 166,354 161,773

Claims ratio 60.0% 53.0% 30.8% 18.0% 101.6% 53.9% 60.1%Combined operating ratio 78.1% 84.5% 70.9% 45.5% 121.4% 79.7% 85.6%

1 Excludes 2000 and prior open year of account liabilities, which remain in a separate syndicate.2 Gross written premiums in 2007 included the reinsurance to close of syndicates 456, 980 and 1036 as required by UK GAAP (see note 18 on page 36).

On analysis of the account on an underwriting year basis, the 2008 year produced a modest loss in the financial year of £12.2 million, reflecting the toughtrading conditions and severity and frequency of losses. This was materially outweighed by a strong prior year performance, coupled with significant releasesarising from the run-off portfolios.

The Managing Director comments for each sub-syndicate are as follows:

Jonathan Parry – QBE Reinsurance Syndicate 566We are pleased to report an insurance profit of £50.5 million for the 2008 financial year, which represents a combined operating ratio of 78.1%. Unlike theprevious two years, 2008 was a more active year for US hurricanes and the syndicate suffered losses from both Ike and Gustav. Hurricane Ike causednearly US$20 billion of market insured damage both offshore and onshore, producing a loss to the syndicate of US$77.0 million gross, US$41.5 million net.Thankfully, with the exception of the marine account, attritional losses remained low, enabling the account to remain profitable. The result was also assistedby the favourable earn-out of the 2006 and 2007 underwriting years as well as the strong US dollar.

With the turmoil in financial markets, demand for reinsurance capacity has again increased, and with a reduction in supply, this has led to a hardening inthe market for 2009. We can see terms improving throughout this year and into 2010, which will obviously help the syndicate’s ability to deal with anycatastrophic losses.


The long-tail classes are now fully integrated, and with a new marine reinsurance underwriter on board, we believe the syndicate is well placed to takeadvantage of the current market upturn.

We are also pleased to report the acceptance of Syndicate 566 open year reinsurance to close premium following a successful consultation with allcapital providers.

Colin O’Farrell – QBE Marine and Energy Syndicate 1036After what can only be described as a quite extraordinary year it is particularly pleasing to be able to record another exceptional result where the syndicatehas delivered a combined operating ratio of 84.5% and a profit of £34.9 million.

I say extraordinary because who would have predicted that the global economic crisis would deepen at such speed, whilst the market endured yet anotheryear of significant hurricane activity culminating in Hurricane Ike battering the coastline of the Gulf of Mexico. Both events have had substantial impact onthe syndicate.

As we entered 2008, market conditions in all areas we trade continued to worsen. Underwriters’ memories had been wiped clean of the troubles of 2005and they were fooled into thinking that 2006 and 2007 years were the norm. New entrants had also emerged and intermediaries were quick to remindunderwriters that there were always alternatives. All was not lost, as in the spring of 2008 the onshore energy market had a short and sharp reminder of theexposures that exist when several mining losses occurred causing a temporary halt to the rate cutting.

As the year progressed the effects of the economic crisis became apparent, and accelerated sharply in the last quarter. At this time the market began toreact. No longer was it acceptable to offer reductions, but business that sought such terms were stringently reviewed and risk management processesthey deployed rigorously evaluated. However, there still appears to be resistance to this hardening. Brokers and clients alike continue to seek reductions:brokers, for fear of being the individual who delivers bad news to the client and; clients due to the effects that the current global recession is having ontheir own business. Cost savings became of paramount importance as opposed to expertise and security.

Hurricane Ike has tested the resolve of the market. Few experts would have predicted that a category 2 hurricane could have caused such damage.As a consequence, capital providers, risk modellers and industry experts alike have reviewed their positions and thinking with regard to hurricanes.

As we enter 2009 many capital providers have withdrawn their capacity for such risks, both insurance and reinsurance. We remain firmly in the marketplace but our underwriting of this risk will become even more vigilant and we will only provide the product to the companies that can show outstandingrisk management.

We highlighted last year that the diversity of our product offering had enabled us to deliver the result we had. This comment is echoed for 2008. Whilst ourenergy portfolio has suffered in 2008 other accounts have made substantial contributions. Of particular note are our political risk and political violenceaccounts, whilst we only started underwriting these for the 2005 year they are now producing healthy profits.

Another important contributor to the result has been the development of our prior years. Disappointingly our 2007 underwriting year has had a numberof large risk losses during 2008, however this has been offset by prior years and it demonstrates the robustness of the syndicate’s reserving policy.The tenacity shown by all involved in this process is tremendous and I express a special note of thanks to the syndicate’s claims team for their contribution.

In the aftermath of the catastrophic losses of 2005, reinsurance was a scarce commodity. However, there was a surfeit of capacity in 2008 following therelatively benign loss environment in recent years. How times change. The full effects of the “credit crunch” and subsequent lack of capital has meantreinsurers have retrenched and the amount of capacity being deployed for catastrophic risks, particularly USA exposed, has become almost non-existent.

Having expanded our product capability in 2008 with the ability to offer dual pens utilising either our Lloyd’s or QBE paper and licenses, it is very pleasingto announce further diversification. During 2008 we expanded our distribution by opening an office in Singapore operating on the Lloyd’s Asia platform andnow offer capacity for risks in the region in conjunction with our Asian colleagues.

Furthermore, in December 2008 we purchased Burnett & Co, a USA based MGA, with offices in both Houston and New Orleans to enable us to furtherstrengthen our position in a very important market for QBE. Both platforms will enable us to offer our products in a fast and efficient way as our customerdemands change.

Given the current global economic conditions, it will be a tremendous challenge to replicate the 2008 result for 2009. A worldwide recession is upon us,capital is difficult to acquire, assureds face challenges not seen for a generation or more and commodity prices have plummeted from their recent all timehighs. However, I am sure that with the team we have within the syndicate, allied to the support we receive from management we will meet the challengehead on and succeed.

Lastly, a personal note of thanks to all the syndicate staff for their continued fortitude and hard work in producing the result.


Report of the directorsof the managing agentcontinued

John Neal – QBE Syndicate 1886Syndicate 1886 remains a cornerstone in enabling QBE European Operations’ underwriters to deliver its products to brokers and clients around the globe.

In 2008 gross written premiums increased to £92 million (2007 £53 million) coupled with an impressive combined operating ratio of 70.9%. Whilstappropriate provisions have been made on the 2008 underwriting year for the potential of claims arising from the global credit and liquidity crisis,the profitable outturn of the 2007 underwriting year and a significant surplus on the motor account prior years have bolstered profits.

The syndicate continues to add to both its product range and its geographical reach, further increasing our presence in Canada and adding professionalindemnity covers and a contractors all risks package to its stable.

Bernard Mageean – QBE Property Syndicate 2000Syndicate 2000 was restructured with effect from 1 January 2008, becoming the exclusive vehicle for the property, leisure and sports insurance portfolioswithin Syndicate 2999. Prior to 2008 the syndicate wrote a range of non-marine business, property and casualty, insurance and reinsurance.

The 2008 calendar year produced a profit of £69.8 million and a combined operating ratio of 45.5%, due primarily to 2006 and prior underwritingyear performances.

The property portfolio experienced a difficult year in 2008 which also adversely impacted 2007. The causes have been inadequate and reducing rates,and a large increase in both the frequency and more importantly the severity of losses. This was especially true in the mineral, metals and utility industries.On top of this there has been a frequency of natural catastrophe losses, the largest of which, Hurricane Ike, has slightly impacted our reinsuranceprogramme; but others such as Gustav and Dolly have also contributed lesser amounts.

The 2007 underwriting year deteriorated during 2008, not only because of the increased attrition on the property account, but also due to adversedevelopments on the financial institutions portfolio. Our analysis of the syndicate’s US sub-prime exposures has not changed materially over the past12 months. However, as the turmoil in worldwide financial markets gathered pace during 2008, we had to strengthen our overall reserves for this sector.

The 2006 and prior years have performed extremely well during 2008. Significant releases have been made from the various run-off syndicatespreviously reinsured into Syndicate 2000, the largest element relating to an anticipated global settlement of the so-called “IPO Laddering” claims, whichmainly impacted the 2000 and 2001 years of account. There have also been material releases from the 2004-2006 years of Syndicate 2000’s reinsurancecasualty portfolios.

The outlook for 2009 is more encouraging. From late 2008, rates, especially in the USA and in the problem industries, started rising and so far in 2009the pace of increase has accelerated. Rates in other territories have so far been slow to follow suit but we are expecting all rates to harden as theyear progresses.

Emilio Di Silvio – QBE Aviation Syndicate 5555We are disappointed to have produced an underwriting loss for 2008. This is a reflection of difficult market trading conditions for all sectors of our business.The underwriting loss comes largely from our airlines account, from risks written during the fourth quarter of 2007 when the world’s major aviationrisks renew.

During 2008, airline rates increased most significantly towards the end of the year although, irrespective of improving market conditions, we took thedecision to reduce our airline portfolio until such time that we are able to achieve further improvement of rates. We have developed an airline rating toolto support our decision making process in this regard. The most noticeable incident in the year was the Spanair loss of 20 August 2008.

Our general aviation business is developing to plan although market conditions have been such that an underwriting loss resulted. Our products and airportaccount continues to be profitable.

During the latter part of 2008, the products, airports and general aviation portfolios began to stabilise and with airline risks receiving the much needed rateincreases, there is now a brighter prospect of returning to underwriting profit.

We are optimistic about 2009 and believe that the market will improve further thus offering us greater opportunities.


Investment policyQBE European Operations operates an investment committee which is responsible for recommending to the QUL agency board appropriate investmentpolicy and strategy, and which also monitors the performance of investment managers and their compliance with internal guidelines and external regulation.The investment policy is designed to ensure that appropriate levels of liquidity, credit and investment risk are maintained.

Syndicate investments are currently limited to fixed income bonds and money market instruments. The majority of portfolios have an average credit ratingequivalent to or better than Standard and Poor’s “AA”. The minimum permitted credit quality is “A-”. The performance of the investment manager ismonitored against an absolute return mandate with other reference benchmarks or peer group performance used as key performance indicators.

Management of the investment portfolios for the syndicate is delegated under an arm’s length agreement to Minster Court Asset Management (UK) Ltd,(the investment manager), a wholly owned subsidiary of the QBE Group. The activities of the investment manager are regulated by the Financial ServicesAuthority (FSA).

Investment performanceThe total investment returns achieved for each calendar year are set out below. These include income earned on funds which are not managed by theinvestment manager, such as short term liquid deposits and certain regulatory overseas deposits. The combined total currency return for the year was3.8% (2007 5.2%).

2008 2008 2008 2007 2007 2007Average Actual Target Average Actual Target

funds return return funds return returnPortfolio currency 000 % % 000 % %

Canadian dollar 183,311 5.0 4.3 139,114 4.3 4.0Euro 46,770 1.9 4.0 51,593 3.3 3.4Sterling 228,482 6.9 5.2 242,845 5.6 4.8US dollar 1,643,560 3.0 4.6 1,512,068 5.3 4.9

The benchmark target for fixed income portfolios is now an absolute return yield to be agreed for each currency on an annual basis by the QBE EuropeanOperations executive board. Targets for each currency agreed for each calendar year are shown above.

Individual currency investment returns varied in performance when compared to their respective currency targets for the year. Outperformance wasachieved in the sterling and Canadian portfolios whilst the euro and US dollar funds fell short of their benchmark. Overall performance for the syndicatewas below the weighted target return of 4.6% but slightly better than the currency weighted cash equivalent return.

During 2008, the investment manager adopted a cautious stance by maintaining relatively short duration in all portfolios. As the intensity of the creditcrunch worsened during the year, the investment strategy adopted for the syndicate was dominated by an emphasis on preservation of capital as theprimary goal. As a result of this strategy, the syndicate investment portfolios performed favourably when compared with returns in the insurance industrypeer group and managed funds avoided any credit defaults in 2008.

After taking account of the investment return, profit payments and significant exchange rate movements, overall syndicate funds closed the year belowbudgeted target but materially above their opening level.

Corporate governanceManaging agency boardThe board is committed to high standards of corporate governance and has established a practical governance framework which includes the delegationof considerable authority to divisional product management committees and a number of other authorised committees. All of the committees compriseappropriately skilled and experienced members, and operate under formal terms of reference. The board comprises 19 executive directors and threenon-executive directors and meets seven times a year.

Divisional product management committeesThese committees are responsible for the reporting and review of all aspects of the division’s day to day management of underwriting and meet monthly.Each committee is chaired by the divisional Managing Director and comprises senior underwriting and management representatives of the division,together with representatives of the managing agency board.


Report of the directorsof the managing agentcontinued

Other committees• Strategic underwriting committee: the committee is responsible for developing the business strategy and agrees and oversees the implementation

of appropriate policies and controls for underwriting activities. The committee is chaired by the Chief Operating Officer.

• General business committee: the committee reviews and approves routine matters where the board has delegated authority to the committee;it makes recommendations where board approval is required; and reviews and approves routine matters and regulatory returns which do not requireboard approval. The committee is chaired by the Compliance and Risk Management Director.

• Group security committee: the committee is responsible for establishing and monitoring procedures and systems for the evaluation of all reinsurancesecurity and outwards reinsurance intermediaries to be utilised by regulated entities within the Group. The committee is chaired by the ChiefUnderwriting Officer.

• Information technology committee: the committee is responsible for reviewing and recommending the IT strategy to the board, recommendingthe annual IT plan, implementing strategy and providing oversight of material IT projects. The committee is chaired by the Chief Operating Officer.

• Investment committee: the committee is responsible for making recommendations to the board as to the appropriate investment policy andguidelines for each of the syndicates’ funds and to take responsibility for the day to day implementation and monitoring of the agreed strategy.The committee is chaired by the Chief Financial Officer.

• Audit committee: the committee is responsible for assisting the boards in discharging their oversight responsibilities, by overseeing the financialreporting process and reviewing the effectiveness of the internal financial control and risk management system, the effectiveness of the internal auditfunction, the independent audit process including recommending the appointment and assessing the performance of the external auditor, and theprocess for monitoring compliance with laws and regulations. The committee is chaired by a non-executive director.

• Reserving committee: the committee is primarily responsible for undertaking a review of the reserve information (including reinsurance to close andopen year reserve information produced by each managed syndicate) in support of the accounts and solvency returns, and to be satisfied that the levelof total closed and open year reserves have been calculated, where appropriate having regard to Lloyd’s Code for Management for Reserving Risks,Regulations and Byelaws, and are consistent with the standards required to attain satisfactory audit and actuarial opinions. The committee is chairedby the Chief Actuarial Officer.

• Capital committee: the committee is responsible for providing guidance and review on capital assessment issues in relation to the FSA and Lloyd’sregimes. The committee is chaired by the Chief Actuarial Officer.

• Risk management committee: the committee is responsible for ensuring that all risks to QUL’s objectives are identified, assessed and monitoredin accordance with the overall risk policy. The committee is chaired by a non-executive director.

• Internal audit committee: the committee provides assurance that an appropriate control framework is in place to mitigate business risk and that thesecontrols are both functioning in practice and consistent with QBE Group and QUL procedures together with legislative and regulatory requirements.The committee also provides assurance that compliance and monitoring procedures are operating effectively. The committee is chaired by a non-executive director.

Internal auditAn independent internal audit function provides assurance to the internal audit committee as to the effectiveness of internal systems and controls, makesrecommendations for improvement and monitors progress towards completion via management action plans. Internal audit also provides independentfeedback on the risk management process.

Risk managementDetails of the principal risks and uncertainties facing the syndicate are shown on page 11.

Other governance issuesQUL has adopted a code of conduct which outlines a set of general business ethics that apply to all employees when conducting any activity on behalfof the company. The code of conduct requires employees to carry on business in an open and honest manner with customers, shareholders, employees,regulatory bodies, outside suppliers, intermediaries and the community at large. The code also deals with a number of other requirements including whistleblowing, confidentiality, disclosure of information and conflicts of interest. Other policies are in place to cover areas such as health and safety, harassment,equal opportunities and financial crime.


DirectorsDetails of the directors of the managing agent that served during the year are shown on page 18.

Creditor payment policyThe managing agent’s policy on the payment of creditors is to abide by London insurance market practices, including those of Lloyd’s and the InternationalUnderwriting Association. The managing agent agrees terms with its other suppliers when it enters into binding purchase contracts. The managing agentseeks to abide by the payment terms agreed with these suppliers whenever it is satisfied that the supplier has provided the goods or services inaccordance with the agreed terms and conditions.

Statement of managing agent’s responsibilitiesThe Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2004 require the managing agent to prepare syndicateannual accounts at 31 December each year which give a true and fair view of the state of affairs of the syndicate as at that date and of its profit or lossfor that year.

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

• Select suitable accounting policies which are applied consistently, subject to changes arising on the adoption of new accounting standards in the year

• Make judgements and estimates that are reasonable and prudent

• State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in thefinancial statements

• Prepare the financial statements on the basis that the syndicate will continue to write future business unless it is inappropriate to presume that thesyndicate will do so

The directors confirm that they have complied with the above requirements in preparing the annual accounts for Syndicate 2999.

The managing agent is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of thesyndicate and enable it to ensure that the syndicate annual accounts comply with the 2004 Regulations. It is also responsible for safeguarding the assetsof the syndicate and hence for taking reasonable steps for prevention and detection of fraud and other irregularities.

Statement of disclosure of information to auditorsEach of the persons who is a director of the managing agent at the date of this report confirms that:

• So far as each of the directors is aware, there is no information relevant to the audit of the syndicate’s financial statements for the year ended31 December 2008 of which the auditors are unaware; and

• The director has taken all the steps that he ought to have taken in his duty as a director in order to make himself aware of any relevant audit informationand to establish that the syndicate’s auditors are aware of that information.

AuditorsThe directors of the managing agent intend to reappoint PricewaterhouseCoopers LLP as the syndicate’s auditors.

By order of the Board

S M BolandCompany SecretaryQBE Underwriting LimitedPlantation Place30 Fenchurch StreetLondonEC3M 3BD

17 March 2009

Managing agency –corporate information

DirectorsThe directors of QUL, the managing agent, who served during the year ended 31 December 2008 and subsequently are:

A M Bathia Appointed 1 January 2008I D BeckersonS P BurnsD A ConstableM F Crane Appointed 1 January 2008E Di SilvioP A DodridgeD Grossman Appointed 1 January 2008P E GroveR B M Johnston Appointed 10 March 2009B Mageean Appointed 11 June 2008V McLenaghanJ D NealC R O’FarrellF M O’HalloranP J O’Neill Appointed 1 January 2008 Resigned 11 June 2008P V Olsen*J W ParryB W Pomeroy*H M Posner*G S Rayner Appointed 1 January 2008T J Whittaker Appointed 1 January 2008D J Winkett

*non-executive director

Directors’ interestsNone of the directors were members of the syndicate for the years of account open during the period of these accounts.

SecretaryS M Boland

Registered officePlantation Place30 Fenchurch StreetLondonEC3M 3BD

AuditorsPricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsHay’s Galleria1 Hay’s LaneLondonSE1 2RD



Independent auditors’ report tothe members of Syndicate 2999

We have audited the syndicate annual accounts of Syndicate 2999 for the year ended 31 December 2008 which comprise the profit and loss account,the balance sheet, the cash flow statement and the related notes. These accounts have been prepared under the accounting policies set out therein.

Respective responsibilities of managing agent and auditorsThe managing agent’s responsibilities for preparing the syndicate annual accounts in accordance with the Insurance Accounts Directive (Lloyd’s Syndicateand Aggregate Accounts) Regulations 2004 and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are setout in the statement of managing agent’s responsibilities.

Our responsibility is to audit the syndicate annual accounts in accordance with relevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the syndicate’s members as a body and for no otherpurpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown orinto whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the syndicate annual accounts give a true and fair view and are properly prepared in accordance with theInsurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2004. We also report to you whether, in our opinion, the informationgiven in the report of the directors of the managing agent is consistent with the syndicate annual accounts. We also report to you if, in our opinion, themanaging agent has not kept proper accounting records in respect of the syndicate, if the syndicate annual accounts are not in agreement with theaccounting records, if we have not received all the information and explanations we require for our audit or if information specified by law regardingremuneration of the directors of the managing agent and the active underwriter and other transactions is not disclosed.

We read other information attached to the syndicate annual accounts and consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the syndicate annual accounts. This other information comprises only the report of the directors of themanaging agent and the information on pages 01 to 11. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts and disclosures in the syndicate annual accounts. It also includes an assessment of thesignificant estimates and judgements made by the managing agent in the preparation of the syndicate annual accounts, and of whether the accountingpolicies are appropriate to the syndicate’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the syndicate annual accounts are free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the syndicate annual accounts.

OpinionIn our opinion:

• the syndicate annual accounts give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state ofthe syndicate’s affairs as at 31 December 2008 and of its profit and cash flows for the year then ended;

• the syndicate annual accounts have been properly prepared in accordance with the Insurance Accounts Directive (Lloyd’s Syndicate and AggregateAccounts) Regulations 2004; and

• the information given in the report of the directors of the managing agent is consistent with the syndicate annual accounts.

PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsLondon, United Kingdom

17 March 2009

Note:The maintenance and integrity of the QBE website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these mattersand, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Profit and loss account:technical account – general businessFor the year ended 31 December 2008

2008 2007Notes £000 £000 £000 £000

Earned premiums, net of reinsuranceGross premiums written – continuing operations 3 851,963 836,516

discontinued operations 304 141,375

Gross premiums written 3 852,267 977,891

Outward reinsurance premiums (217,767) (226,993)

Net premiums written 634,500 750,898Changes in the provision for unearned premiums:Gross amount (49,975) (9,216)Reinsurers’ share 3,879 812

(46,096) (8,404)

Earned premiums, net of reinsurance 588,404 742,494

Investment return transferred from the non-technical account 46,638 54,954

Claims incurred, net of reinsuranceClaims paidGross amount (458,859) (442,453)Reinsurers’ share 144,759 198,704

(314,100) (243,749)Changes in the provision for claimsGross amount (55,371) (189,071)Reinsurers’ share 52,606 (13,632)

(2,765) (202,703)Claims incurred, net of reinsurance 4 (316,865) (446,452)Net operating expenses 5 (151,823) (189,223)

Balance on technical account – general business 166,354 161,773

Attributable to:Continuing operations 119,523 140,362Discontinued operations 46,831 21,411

166,354 161,773


The notes on pages 25 to 36 form an integral part of these financial statements.



Profit and loss account:non-technical accountFor the year ended 31 December 2008

2008 2007Notes £000 £000

Balance on technical account – general business 166,354 161,773

Investment income 8 50,400 55,480Unrealised losses on investments (2,445) –Unrealised gains on investments – 609Investment expenses and charges 8 (1,317) (1,135)

Investment return 46,638 54,954Allocated investment return – transferred to general business account (46,638) (54,954)

Profit for the financial year 166,354 161,773

There are no recognised gains or losses for the current and preceding year other than those included in the profit and loss account above and thereforeno statement of recognised gains and losses has been presented.

Balance sheetAs at 31 December 2008

2008 2007Assets Notes £000 £000

InvestmentsFinancial investments 9 1,414,383 1,078,880

Reinsurers’ share of technical provisionsProvision for unearned premiums 37,226 33,347Claims outstanding 743,313 530,572

780,539 563,919

DebtorsDebtors arising out of direct insurance operations 11 367,450 291,499Debtors arising out of reinsurance operations 242,249 169,620Other debtors 875 928

610,574 462,047

Other assetsCash at bank and in hand 10,136 12,658Overseas deposits 12 69,768 65,750

79,904 78,408

Prepayments and accrued incomeAccrued interest 15,287 26,094Other payments and accrued income 89 –Deferred acquisition costs 71,618 63,109

86,994 89,203

Total assets 2,972,394 2,272,457




2008 2007Liabilities Notes £000 £000

Capital and reservesMember’s balance 13 172,318 105,426

Technical provisionsProvision for unearned premiums 357,564 307,588Claims outstanding 2,098,100 1,642,221

2,455,664 1,949,809

CreditorsCreditors arising out of direct insurance operations 14 109,952 88,547Creditors arising out of reinsurance operations 143,085 95,692Other creditors 91,290 32,789

344,327 217,028

Accruals and deferred income 85 194

Total liabilities 2,972,394 2,272,457

These financial statements on pages 20 to 36 were approved by the Board of QUL on 17 March 2009 and were signed on its behalf by

D J WinkettDirector17 March 2009


2008 2007Notes £000 £000

Net cash inflow from operating activities 129,861 376,772Transfer to member in respect of underwriting participationsDistribution of profits (19,950) (46,476)Open year profit release (79,624) (59,197)Other – (520)FinancingCash calls received 40 44

30,327 270,623

Cash flows were invested as follows:(Decrease)/increase in cash holdings 15 (5,382) 5,081(Decrease)/increase in overseas deposits 15 (5,909) 11,091Net portfolio investments 15 41,618 254,451

Net investment of cash flows 30,327 270,623

2008 2007Notes £000 £000

Reconciliation of profit to net cash flow from operating activitiesProfit for the financial year 166,354 161,773Unrealised investment (gains) (306,672) (3,817)Increase in net technical provisions 289,235 208,414(Increase)/decrease in debtors (146,318) 25,536Increase/(decrease) in creditors 127,190 (14,987)Other 72 (147)

Net cash inflow from operating activities 129,861 376,772


Statement of cash flowsFor the year ended 31 December 2008



Heading

1 Accounting policies

a) Basis of preparationThese financial statements have been prepared in accordance with the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts)Regulations 2004 and applicable Accounting Standards and comply with the Statement of Recommended Practice on Accounting for Insurance Businessissued by the Association of British Insurers dated December 2005 (as amended in December 2006), except that foreign exchange gains and losses aretaken to the profit and loss technical account.

The accounts incorporate all transactions committed to by the 2008 year of account and prior years of account.

The directors of the managing agent have prepared the financial statements on the basis that the syndicate will continue to write future business. The abilityof the syndicate to meet its obligations as they fall due is underpinned by the support provided by Lloyd’s solvency process and its chain of security for anymembers who are unable to meet their underwriting liabilities. Members’ funds at Lloyd’s are further explained in note 2.

b) InsuranceThe result is determined on an annual basis whereby the incurred cost of claims, commission and related expenses are charged against the earned portionof premiums, net of reinsurance, as described below.

i) Premiums writtenPremiums written comprise premiums on contracts incepted during the financial year, together with adjustments made in the year to premiums writtenin prior years. Premiums are shown gross of commissions payable to intermediaries and exclude taxes and duties levied on them. Estimates areincluded for premiums due but not yet received or notified, less an allowance for cancellations.

ii) Unearned premiumsUnearned premiums represent the proportion of premiums written in the year that relate to unexpired terms of policies in force at the balance sheetdate, calculated on the basis of established earnings patterns.

iii) Reinsurance premium cededOutwards reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct or inwards businessbeing reinsured.

iv) Claims provisions and related recoveriesClaims incurred comprise claims and related expenses paid in the year and changes in provisions for outstanding claims, including provisions for claimsincurred but not reported and related expenses, together with any other adjustments to claims from previous years. Where applicable, deductions aremade for salvage and other recoveries.

Provision is made at the year end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claimsincurred but not yet reported to the syndicate. The estimated cost of claims includes expenses to be incurred in settling claims and allows for theexpected value of salvage and other recoveries.

Outstanding claims and reinsurance recoveries are estimated by reviewing individual claims and making allowance for claims incurred but not reportedusing past experience and trends adjusted for foreseeable events.

Case estimates are set by experienced claims technicians, applying their skill and specialist knowledge to the circumstances of individual claims.The ultimate cost of outstanding claims, including claims incurred but not reported, is estimated by the syndicate actuaries who apply recognisedactuarial techniques considered appropriate for each portfolio, such as the Chain Ladder and Bornhuetter-Ferguson methods. These methods takeinto account, amongst other things, statistical analysis of the development of the value and frequency of past claims and the results of analysesundertaken at the point of underwriting. Techniques considered appropriate for specific portfolios include contract by contract analysis, segmentationby subclass, and stochastic analysis. Classes of business are analysed at a level of detail appropriate to their materiality. Allowance is made forchanges or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase ordecrease when compared with the cost of previously settled claims, for example, one-off occurrences and changes in mix of business, policyconditions or the legal environment.

The syndicate actuaries produce an estimate of reserves, which is reviewed by an independent actuarial firm, and is then assessed by QBEmanagement with input from the syndicate underwriting and claims experts.

Notes to the financial statementsForming part of the financial statements


Notes to the financial statementscontinuedForming part of the financial statements

1 Accounting policies continued

iv) Claims provisions and related recoveries continuedAs provisions for claims outstanding are based on information which is currently available, the eventual outcome may vary from the original assessmentdepending on the nature of information received or developments in future periods. For certain classes of business including liability and other long-tailclasses written by the syndicate, claims may not be apparent for many years after the event giving rise to the claim has happened. These classes willtypically display greater variation between initial estimates and final outcomes. Differences between the estimated cost and subsequent re-estimationor settlement of claims are reflected in the technical account for the year in which these claims are re-estimated or settled.

Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurersbased upon the gross provisions and having due regard to collectability.

v) Unexpired risks provisionProvision is made for any deficiencies arising when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claimsand expenses after taking into account future investment return on the investments supporting the unearned premiums provision and unexpired risksprovision. The expected claims are calculated having regard to events that have occurred prior to the balance sheet date.

Unexpired risks surpluses and deficits are offset where business classes are managed together.

vi) Acquisition costsAcquisition costs, which represent commission and other costs related to the acquisition of new insurance contracts, are deferred subjectto recoverability and amortised over the period to which the related premiums are earned.

vii) Reinsurance to closeFollowing the end of the third year, the underwriting account of each Lloyd’s syndicate is normally closed by reinsurance into the following year ofaccount. The amount of the reinsurance to close (RITC) premium is determined by the managing agent, generally by estimating the cost of claimsnotified but not settled together with the estimated cost of claims incurred but not reported at that date and claims handling costs.

The payment of an RITC premium does not eliminate the liability of the closed year for outstanding claims. If the reinsuring syndicate was unable tomeet its obligations, and other elements of Lloyd’s chain of security were to fail, then the closed underwriting account would have to settle theoutstanding claims. The directors of the managing agent consider that the likelihood of such a failure of the RITC is extremely remote, andconsequently the RITC has been deemed to settle liabilities outstanding at the closure of an underwriting account.

c) Foreign currency transactionsTransactions denominated in foreign currencies are translated into sterling at the rate of exchange prevailing at the time of the transaction.

Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date with theexception of non-monetary assets and liabilities which are maintained at historic rates.

Exchange differences are included in the technical account, except for differences arising on the member’s balance, which are included in members’ balances.

d) Financial assetsFinancial assets are managed on a fair value basis in accordance with the syndicate’s investment strategy. The syndicate has therefore elected to measureall financial assets at fair value through the profit and loss non-technical account, except where noted below.

Listed investments are stated at fair value on current bid prices quoted by the relevant exchanges. Unlisted investments are carried at the directors’estimate of the current fair value, except as stated below.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently stated at fair value obtainedfrom quoted market prices in active markets.

Financial assets are derecognised when the right to receive future cash flows from the assets has expired, or has been transferred, and the Group hastransferred substantially all the risks and rewards of ownership.


Heading

1 Accounting policies continued

e) Investment returnInvestment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investmentexpenses, charges and interest.

Realised gains and losses on investments carried at fair value are calculated as the difference between net sale proceeds and purchase price.

Unrealised gains and losses on investments represent the difference between the valuation at the balance sheet date and their purchase price, or if theyhave previously been valued, their valuation at the previous balance sheet date, together with a reversal of unrealised gains and losses recognised in earlieraccounting periods in respect of investment disposals in the current year.

Investment return is initially recorded in the non-technical account. A transfer is made from the non-technical account to the general business technicalaccount. Investment return has been wholly allocated to the technical account as all investments related to the technical account.

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

No provision has been made for any United States Federal Income tax payable on underwriting results or investment earnings. Any payments on accountmade by the syndicate during the year are included in the balance sheet under the heading “member’s balance”.

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

g) Administrative expensesAdministrative expenses are taken into account on an accruals basis. These recharged expenses include the costs of staff, who are employed by QBEManagement Services (UK) Limited. QBE Management Services (UK) Limited operates both defined benefit and defined contribution pension schemes,the expense of which is included in the recharges.

h) Profit commissionProfit commission is recognised on the basis of the annual accounting result for each year of account, and charged to the syndicate as incurred.For the 2008 year of account no profit commission has been charged by the managing agent. For prior years of account profit commission was chargedby the managing agent at a rate of 20% of profit subject to the operation of a deficit clause.

i) Change in accounting standardsThe following accounting standards were adopted by the syndicate this year as a result of the purchase of derivative contracts in the year and accountingfor them at fair value:

i) The syndicate has adopted FRS 26, “Financial Instruments: Measurement”. There is no impact on current or prior years’ profit or net assetsresulting from the adoption of this standard as previously the syndicate has valued its financial instruments at fair value. In addition, the syndicatehas reviewed the classification of its contracts with policyholders and has determined that they are all insurance contracts.

ii) Following adoption of FRS 26, the syndicate has adopted FRS 23, “The Effects of Changes in Foreign Exchange Rates”. There is no impacton the current or prior years’ profit or net assets resulting from the adoption of this standard.

iii) Following adoption of FRS 26, the syndicate has adopted FRS 29, “Financial Instruments: Disclosures”. There is no impact on the currentor prior years’ profit or net assets resulting from the adoption of this standard.



2 Capital

Each syndicate in Lloyd’s is required to carry out a self assessment of the capital it requires, the Individual Capital Assessment (ICA). This is requiredto reflect the level of capital needed to ensure that the syndicate will remain solvent for the next 12 months in 99.5% of future foreseeable scenarios.

QBE has developed a sophisticated stochastic risk-based capital model over the past three years, which incorporates the key risks being faced by eachof the legal entities. The output from this model, which is tailored to QBE’s risk profile, is reported to the Capital Committee, which in turn recommendsit to the relevant QBE Boards for adoption. The ICAs have been reviewed by Lloyd’s, and form the basis of the minimum capital required by the syndicate.

Every member is required to hold capital at Lloyd’s which is held in trust and known as Funds at Lloyd’s (FAL). These funds are intended primarily to covercircumstances where syndicate assets prove insufficient to meet participating members’ underwriting liabilities.

The level of FAL that Lloyd’s requires a member to maintain is determined by Lloyd’s based on FSA requirements and resource criteria. FAL has regardto a number of factors including the nature and amount of risk to be underwritten by the member and the assessment of the reserving risk in respectof business that has been underwritten. Since FAL is not under the management of the managing agent, no amount has been shown in these financialstatements by way of such capital resources. However, the managing agent is able to make a call on the member’s FAL to meet liquidity requirementsor to settle losses.

All externally imposed capital requirements have been complied with during the year.

QBE’s capital model has been embedded in the business, and as well as assessing minimum capital requirements for QBE entities, it has also beenused to:

• allocate capital to class of business for business planning and performance monitoring

• assess the effectiveness of existing reinsurance protections and new reinsurance strategies

• consider the implications of Solvency II on the business

3 Segmental information

Gross Gross Gross Gross Re-premiums premiums claims operating insurance

written earned incurred expenses balance Total2008 £000 £000 £000 £000 £000 £000

Direct insurance:Accident and health 15,669 12,132 (4,186) (3,019) (2,707) 2,220Motor (third party liability) 11,142 5,245 (3,669) (2,034) 119 (339)Marine, aviation and transport 113,079 107,325 (93,643) (21,624) (207) (8,149)Fire and other damage to property 80,931 81,921 (52,954) (29,012) (9,659) (9,704)Third party liability 136,129 146,638 (139,520) (25,049) 33,442 15,511Credit and suretyship 18,042 13,971 1,452 (5,324) (6,235) 3,864Miscellaneous (4) (4) 1,733 (11) (1,400) 318

374,988 367,228 (290,787) (86,073) 13,353 3,721Reinsurance acceptances 477,279 435,064 (223,443) (65,751) (29,876) 115,993

Total 852,267 802,292 (514,230) (151,824) (16,523) 119,714


3 Segmental information continued

Gross Gross Gross Gross Re-premiums premiums claims operating insurance

written earned incurred expenses balance Total2007 £000 £000 £000 £000 £000 £000

Direct insurance:Accident and health 10,238 8,864 (1,224) (2,372) (919) 4,349Motor (third party liability) 9,733 9,859 (9,462) (2,432) (143) (2,178)Marine, aviation and transport 104,979 98,213 (50,488) (25,503) (15,086) 7,136Fire and other damage to property 75,282 77,479 (31,527) (21,296) (20,220) 4,436Third party liability 145,117 119,254 (95,413) (33,783) (1,191) (11,133)Credit and suretyship 12,425 12,376 (3,503) (2,935) (5,883) 55Miscellaneous (53) (38) 171 (46) (140) (53)

357,721 326,007 (191,446) (88,367) (43,582) 2,612Reinsurance acceptances 620,170 642,668 (440,078) (100,857) 2,473 104,206

Total 977,891 968,675 (631,524) (189,224) (41,109) 106,818

The geographical analysis of gross premiums written by destination of risk is as follows:

2008 2007£000 £000

UK 83,776 267,071Other EU countries 78,740 68,748US 191,909 214,984Other countries 497,842 427,088

852,267 977,891

The above includes the effects of RITC accepted as per note 18, which is wholly included in the “reinsurance acceptances” segment. All premiums wereconcluded in the UK.

4 Claims outstanding

During the year there was a positive net run-off development of £126,187,000 (2007 £42,938,000), of which the main contributor was reinsuranceaccepted, with a positive development of £97,123,000 (2007 £39,767,000).

5 Net operating expenses

2008 2007£000 £000

Acquisition costs – direct commission 126,871 116,763Acquisition costs – other 36,693 35,768Change in deferred acquisition costs (8,509) (1,696)Administrative expenses 97,147 48,780Reinsurance commission revenue (788) (381)(Profit)/loss on exchange (99,591) (10,011)

151,823 189,223

Administrative expenses include auditors’ remuneration:Fees payable to the syndicate’s auditor for the audit of the syndicate’s annual accounts 336 362Other services pursuant to legislation 288 294



6 Directors’ emoluments

The directors of QUL and the Active Underwriter received the following aggregate remuneration charged to the syndicate and included withinnet operating expenses:

2008 2007£000 £000

Directors of the managing agent 5,895 2,123Active Underwriter 142 138

Further information in respect of the directors of QUL is provided in that company’s financial statements.

7 Employees

All staff are employed by QBE Management Services (UK) Limited, a wholly owned subsidiary of QBE Insurance Group Limited.

The following amounts were charged to the syndicate in respect of salary costs:

2008 2007£000 £000

Wages and salaries 46,979 23,018Social security costs 5,606 2,564Other pension costs 3,466 2,811

56,051 28,393

The average number of staff represented by the above recharge for the period was:

2008 2007Number Number

Underwriting 137 105Claims 52 80Administration 249 156

438 341

8 Investment income, expenses and charges

2008 2007Investment income £000 £000

Income from investments 46,590 51,963Gains on the realisation of investments 3,810 3,517

50,400 55,480

2008 2007Investment expenses and charges £000 £000

Investment management expenses 1,317 1,135


Heading

9 Financial investments

a) Designated at fair value through profit and lossCost Market value

2008 2007 2008 2007£000 £000 £000 £000

Shares and other variable yield securities and units in unit trusts 66,075 95,923 66,075 95,923Debt securities and other fixed income securities 1,286,232 907,035 1,283,884 908,553Participation in investment pools 57,078 63,279 57,078 63,279Deposits with credit institutions 7,346 11,125 7,346 11,125

1,416,731 1,077,362 1,414,383 1,078,880

Shares and other variable yield securities, units in unit trusts, and debt securities and other fixed income securities are all listed on recognised stock exchanges.

b) Derivative financial instruments2008 2007

Fair value £000 £000

Foreign currency derivativesIncluded in other creditors 30,891 –

Foreign currency derivativesThe company uses forward foreign exchange derivatives in order to hedge its exposure to foreign currencies. These are valued using the underlying foreignexchange rates at the year end. Contractual amounts for foreign currency exchange derivatives outstanding at the balance sheet date include foreignexchange contracts to transact the net equivalent of £30,891,000 (2007 £nil). All derivative forward contracts entered into during the financial year were topurchase US dollars.

The forward foreign exchange derivatives outstanding at year end expire by 5 February 2009 (2007 n/a).

During the year an unrealised loss of £30,891,000 (2007 £nil) relating to such contracts was recognised. This is included in the net foreign exchange gainof £99,591,000 (2007 £10,001,000) in the profit and loss non-technical account.

10 Financial risk management

The activities of the syndicate expose it to financial risks such as market risk (including currency risk, cash flow and fair value interest rate risk and pricerisk), credit risk and liquidity risk. The syndicate’s risk management framework recognises the unpredictability of financial markets and seeks to minimisepotential adverse effects on the financial performance of the syndicate.

The key objectives of the syndicate’s asset and liability management strategy are to ensure sufficient liquidity is maintained at all times to meet thesyndicate’s obligations, including its settlement of insurance liabilities and, within these parameters, to optimise investment returns for the syndicate.

i) Market riskCurrency riskThe syndicate is exposed to foreign currency risk in respect of its foreign currency exposures and forward foreign exchange derivatives are used to protectthe currency positions.

In the past the syndicate has not undertaken currency hedging, and the results shown in converted sterling were susceptible to material fluctuations arisingfrom movements in the exchange rate. During the year this policy was changed, and from the fourth quarter the syndicate now hedges foreign currency risks.

The risk management process covering forward foreign exchange derivatives involves close senior management scrutiny, including regular board and othermanagement reporting. All forward foreign exchange derivatives are subject to delegated authority levels provided to management, and levels of exposureare reviewed on an ongoing basis.



10 Financial risk management continued

The table below shows the impact on profit/(loss) and equity of changes in the value of the syndicate’s financial instruments as a result of movementsin foreign exchange rates.

2008 2007Movement in Profit (loss) Equity Profit (loss) Equityvariable % £000 £000 £000 £000

US dollar +10 (8,415) (8,415) (12,959) (12,959)–10 10,284 10,284 15,838 15,838

Canadian dollar +10 (701) (701) (777) (777)–10 856 856 950 950

Euro +10 105 105 1 1–10 (128) (128) (2) (2)

The syndicate manages its exposure to foreign currencies based on the balance sheet by currency which also include insurance assets and liabilities.

Interest rate riskThe syndicate is exposed to interest rate risk arising on interest bearing assets. Assets with floating interest rates expose the syndicate to cash flow interestrate risk. Fixed interest rate assets expose the syndicate to fair value interest rate risk. The syndicate’s strategy is to invest in high quality, liquid fixed interestsecurities and cash and to actively manage duration. The investment portfolios are actively managed to achieve a balance between cash flow interest raterisk and fair value interest rate risk bearing in mind the need to meet the liquidity requirements of the business.

The syndicate’s exposure to interest rate risk and the effective weighted average interest rates for each significant class of interest bearing financial assetsand liabilities is as follows:

Floating Fixed interest rate maturing ininterest 1 year 1 to 2 2 to 3

rate or less years years Total2008 £000 £000 £000 £000 £000

Interest bearing assets 429,960 1,042,048 2,466 19,813 1,494,287Weighted average interest rate 3.0% 2.9% 5.0% 5.3% 3.0%

Financial liabilities – – – – –Weighted average interest rate – – – – –

Net interest bearing financial assets 429,960 1,042,048 2,466 19,813 1,494,287

Floating Fixed interest rate maturing ininterest 1 year 1 to 2 2 to 3

rate or less years years Total2007 £000 £000 £000 £000 £000

Interest bearing assets 296,122 833,603 60,045 2,984 1,192,754Weighted average interest rate 4.6% 4.8% 5.0% 5.3% 4.7%

Financial liabilities – – – – –Weighted average interest rate – – – – –

Net interest bearing financial assets 296,122 833,603 60,045 2,984 1,192,754


Heading

10 Financial risk management continued

The syndicate’s sensitivity to movements in interest rates in relation to the value of fixed interest securities is shown in the table below.

2008 2007Movement in Profit (loss) Equity Profit (loss) Equityvariable % £000 £000 £000 £000

Interest rate movement – fixed interest securities +1.5 (13.234) (13.234) (6,530) (6,530)-1.5 13.234 13.234 6,530 6,530

Price riskPrice risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than thosearising from interest rate or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factorsaffecting all similar financial instruments traded on the market.

The syndicate holds no equity investments and so has a low exposure to price risk.

ii) Credit riskCredit risk is the risk that one party to a financial instrument will cause financial loss to the other party by failing to discharge an obligation.

Credit risk exposures are calculated regularly and compared with authorised credit limits before further transactions are undertaken with counterparties.99.6% (2007 99.4%) of total fixed interest and cash investments are with counterparties having a Moody’s rating of Aa or better. The syndicate doesnot expect any investment counterparties to fail to meet their obligations given their strong credit ratings. The syndicate only uses derivatives in highlyliquid markets.

The reinsurers share of claims outstanding is also exposed to credit risk. 94.9% (2007 95.7%) of the balance is with reinsurers with an S&P rating of A-or greater.

The following table provides information regarding the carrying value of the syndicate’s financial assets, excluding amounts in respect of insurancecontracts. All amounts are neither past due nor impaired at the balance sheet date.

2008 2007£000 £000

Cash and cash equivalents 10,136 12,658Interest bearing investments 1,484,151 1,144,630Other receivables 16,456 27,022

iii) Liquidity riskIn addition to the treasury cash held for working capital requirements, a minimum percentage of the syndicate’s total financial assets is held in liquid, shortterm money market securities to ensure there are sufficient liquid funds available to meet current obligations.

The table below summarises the maturity profile of all financial liabilities based on the remaining contractual obligations.

2008 2007Within Over Within Over1 year 1 year 1 year 1 year£000 £000 £000 £000

Trade and other payables 252,976 61 183,675 564Derivative financial instruments 30,891 – – –Borrowings 14,394 – 32,983 –

The syndicate has no significant concentration of liquidity risk.



11 Debtors arising out of direct insurance operations

2008 2007£000 £000

Due within one yearDue from policyholders 1,384 705Due from intermediaries 365,460 289,541

Due after one yearDue from intermediaries 606 1,253

367,450 291,499

12 Overseas deposits

Overseas deposits are lodged as a condition of conducting underwriting business in certain countries.

2008 2007£000 £000

Joint Asset Trust Funds 8,025 9,005Canadian Margin Fund 14,147 9,841Kentucky Trust Funds 4,153 2,973Australian Trust Funds 18,205 17,323South African Trust Funds 9,423 10,962ASL Overseas Deposit 4,355 2,844Illinois Deposit 11,460 12,802

69,768 65,750

The deposits with Additional Securities Limited are required to allow names to write business in various overseas countries.

13 Reconciliation of member’s balance

2008 2007£000 £000

At 1 January 105,426 49,949Profit for the financial year 166,354 161,773Payments out of profit to member’s personal reserve funds (99,574) (106,296)Other 112 –

At 31 December 172,318 105,426

Members participate on syndicates by reference to years of account and their ultimate result, assets and liabilities are assessed with reference to policiesincepting in that year of account in respect of their membership of a particular year.


14 Creditors arising out of direct insurance operations

2008 2007£000 £000

Due within one yearDue to policyholders 1,277 1,521Due to intermediaries 108,650 86,867

Due after one yearDue to intermediaries 25 159

109,952 88,547

15 Movement in opening and closing portfolio investments net of financing

2008 2007£000 £000

(Decrease)/increase in cash holdings (5,382) 5,081(Decrease)/increase in overseas deposits (5,909) 11,091Cash inflow from portfolio investments 41,618 254,451

Movement arising from cash flows 30,327 270,623Changes in market value and exchange rates 306,671 3,817

Total movement in portfolio investments, net of financing 336,998 274,440At 1 January, net of financing 1,157,288 882,848

At 31 December, net of financing 1,494,286 1,157,288

ChangesAt to market At

1 January Cash value and 31 December2008 flow currencies 2008

Movement in cash, portfolio investments and financing £000 £000 £000 £000

Cash at bank and in hand 12,658 (5,382) 2,860 10,136Overseas deposits 65,750 (5,909) 9,926 69,767Shares and other variable yield securities and units in unit trusts 95,923 (58,854) 29,006 66,075Debt securities and other fixed income securities 908,553 124,033 251,298 1,283,884Participations in investment pools 63,279 (15,826) 9,625 57,078Deposits with credit institutions 11,125 (7,735) 3,956 7,346

Total cash, portfolio investments and financing 1,157,288 30,327 306,671 1,494,286



16 Cash flows invested in portfolio investments

2008 2007£000 £000

Purchase of shares and other variable yield securities (1,035,357) (300,046)Purchase of debt securities and other fixed income securities (3,198,645) (2,390,484)Purchase of participations in investment pools (115,385) (52,391)Decrease in deposits with credit institutions – (372)Sale of shares and other variable yield securities 1,094,211 258,799Sale of debt securities and other fixed income securities 3,074,612 2,207,821Sale of participation in investment pools 131,211 13,838Increase in loans with credit institutions 7,735 8,384

Net cash outflow on portfolio investments (41,618) (254,451)

17 Related parties

The managing agent of the syndicate, QUL, and the corporate member that provides capital to the syndicate, are wholly owned subsidiaries of theirultimate parent company, QBE Insurance Group Limited.

All transactions between the syndicate and companies within the QBE Insurance Group are conducted on normal market terms on an arm’s length basis.

The syndicate is exempt under the terms of FRS 8 from disclosing related party transactions.

18 Reinsurance to close accepted

In 2007, the syndicate accepted the reinsurance to close of three other syndicates, Syndicate 456, Syndicate 980 and Syndicate 1036.

Syndicate 456 ceased writing in 2001 and had three years of account open, 1999, 2000 and 2001. It wrote mainly following lines on US and UK liabilityclasses. The reinsurance to close of all these years totalled £48.9 million which included a risk premium of £3.5 million.

Syndicate 980 ceased writing at the end of 2004 when its business was transferred from the Lloyd’s market. It wrote mainly motor business.The reinsurance to close of £91.9 million did not include a risk premium.

Syndicate 1036 ceased writing as a separate syndicate at the end of 2004 when it became a sub-syndicate of Syndicate 2999. It was a direct marineand energy syndicate. The reinsurance to close of £38.4 million did not include a risk premium.

Those amounts, totalling £179.2 million, have been treated as gross written premium in the technical account.

The business of Syndicate 456 and Syndicate 980 has been treated as discontinued, because their lines of business are no longer written within the2999 umbrella.

Syndicates 1036 has been treated as continuing business on the basis that this business continues to be written within the 2999 umbrella.

In early 2009, the syndicate agreed to accept the RITC of Syndicate 566’s 2000 and prior years of account, following a successful consultation withcapital providers.


HeadingQBE Syndicate 2999 contacts

QBE Reinsurance Syndicate 566Managing DirectorJonathan [email protected] +44 (0)20 7105 4077

Head of Underwriting ManagementDavid [email protected] +44 (0)20 7105 4638

Head of Reinsurance OperationsSteve [email protected] +44 (0)20 7105 4686

QBE Marine and Energy Syndicate 1036Managing DirectorColin O’Farrellcolin.o’[email protected] +44 (0)20 7105 4073

Head of OperationsDavid [email protected] +44 (0)20 7105 4753

Head of ClaimsGary [email protected] +44 (0)20 7105 4792

QBE Syndicate 1886Managing DirectorJohn [email protected] +44 (0)20 7105 4054

Operations ManagerRoger [email protected] +44 (0)20 7105 4401

Claims DirectorAndrew [email protected] +44 (0)20 7105 4050

QBE Property Syndicate 2000Managing DirectorBernard [email protected] +44 (0)20 7105 5621

Operations ManagerNick [email protected] +44 (0)20 7105 4210

Claims DirectorAndrew [email protected] +44 (0)20 7105 4050

QBE Aviation Syndicate 5555Managing DirectorEmilio Di [email protected] +44 (0)20 7105 5714

Operations ManagerKen [email protected] +44 (0)20 7105 5707

Claims and Business Development ManagerJerry [email protected] +44 (0)20 7105 5706

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QBE Syndicate 2999Plantation Place

30 Fenchurch StreetLondon EC3M 3BD

tel +44 (0)20 7105 4000fax +44 (0)20 7105 4019

For more information:

e-mail [email protected]

or visit www.QBEeurope.com

QBE Syndicate 2999 is managed by QBE Underwriting Limited (no. 01035198), registered office Plantation Place, 30 Fenchurch Street, London, EC3M 3BD, a Lloyd’s managing agent authorisedand regulated by the Financial Services Authority.

qbe syndicate 2999 annual report 2008

Documents