Executive Summary New Entrants Mergers Acquisitions Lloyd ID: 188676
Download Pdf The PPT/PDF document "Empower ResultsTM s Update July 2014" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Empower ResultsTM s Update July 2014 Executive Summary New Entrants Mergers & Acquisitions Lloyds Strategy Strategic Plan 2014-16 Premium Income Underwriting Performance Pre-Tax Results Technical Reserves Capital Standalone Syndicate Ratings/Rankings 19Appendix 1 Top 40 Reinsurers at Lloyds 21Appendix 2 Active Syndicate Listing 24Appendix 3 Lloyds Ten Year Segmental Results 26About Aon Benfield Aon Benfield, a division of Aon plc, is the worlds leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the worlds markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com. Aon Benfield Executive Summary The Lloyds market began 2014 with 93 active syndicates (including six new entrants) and ty of GBP26.4 billion, up 6% on the prior year. One mid-year syndicate launch and three M&A transactions completed so far in 2014, demonstrate the continued attractiveness of the Lloyds platform. New leadership has brought a fresh approach to the delivery of the Vision 2025 agenda, m income in high-growth economies. A three year strategic plan released in April 2014 placed increased emphasis on growing insurance business, through the establishment of a local presence where required. pact alternative capital is having on the reinsurance market and is looking at how best to access it in support of indemnity-based products. 2013, representing a return on capital employed of 16.2%. The combined ratio improved by 4.3 percentage points to 86.8%, drlosses and more favourable development of prior year reserves. Lloyds balance sheet is strong: overall investment allocation remains relatively conservative, Fitch upgraded its rating of Lloyds by one notch to AA- in June 2014 and A.M. Best and Standard & Poors both maintain positive outlooks on their ratings of the market. Lloyds Update July 2014 GBP608 million of sidecar pecial purpose syndicates (SPSs). Exhibit 1: Lloyds Underwriting Capacity Source: Company reports, Lloyds, Aon Benfield Market Analysis Top 10 Syndicates The capacity of the ten largest syndicates aggregates to GBP10.8 billion in 2014 (41% of the market). Excluding ate capacity now stands at GBP339 million. A full active syndicate list can be found in Appendix 2. Exhibit 2: Top 10 Syndicates by 2014 Capacity Source: Company reports, Lloyds, Aon Benfield Market Analysis crease over time, but aims to maintain the conditions that will allow smaller operations to flourish. There will be no minimum size threshold for managing agents, but the maximum size will remain at 15% of premium. New entrants (particularly overseas trade capital providers with a franchise) will be encouraged. Any broker-owned managing agents will be subject to the existing 20% 12.214.415.013.714.816.116.017.422.823.224.225.026.42002200320042005200620072008200920102011201220132014EGBP (billions) 1,4001,3911,1751,1071,0641,0601,0001,0008607005001,0001,5002001(Amlin)2003(Catlin)4472(Liberty)2623(Beazley)0510(R J Kiln)2999(QBE)0033(Hiscox)2987(Brit)1084(Chaucer)4444(Canopius)GBP (millions) 2013 2014 Aon Benfield nched as standalone Syndicate 2014 effective January 1, 2014, alongside five other newly-authorized syndicates. Combined underwriting capacity of these new entrants totaled GBP366 million. Vibe Syndicate 5678 was authorized as a mid-year start-up, effective July 1, Exhibit 3: New Entrants in 2014 Syndicate Number Active Underwriter Comments Asta Alistair Robson Backed 100% by Axis Capital. Commenced underwriting on January 1, 2014 with capacity of GBP119 million. Business consists of full or partial transfer of selected classes of business from Axis company platforms in London, Bermuda and Dublin. 1729 Asta Duncan Dale Backed 51% by ProAssurance Corporation and 49% by third parties, including private Names. Commenced underwriting on January 1, 2014 with capacity of GBP75 million. 2014 Pembroke David Bruce Formerly SPS 6110 supporting Pembroke Syndicate 4000, Acappella launched as a standalone syndicate on January 1, 2014. Capacity stands at GBP75 million, provided by private Names. 6117 Asta Darren Lednor SPS providing whole account quota share support to Ariel Syndicate 1910 from January 1, 2014. Capacity stands at GBP58 million, provided by private Names. 6118 Barbican David Booth SPS providing whole account quota share support to Barbican Syndicate 1955 from January 1, 2014. Capacity stands at GBP25 million, provided 50:50 by ARIG and Labuan Re. 6119 Catlin Nicolas Burkinshaw SPS providing whole account quota share support to Catlin Syndicate 2003 from January 1, 2014. Capacity stands at GBP14 million, provided by GIC Re, India. 5678 Vibe Bradley Knight Former RITC Syndicate 5678. Commenced underwriting on July 1, 2014 with capacity of GBP6 million, provided by Soros and Pine Brook. Source: Company announcements, Lloyds, Aon Benfield Market Analysis Three new managing agents have been established so far in 2014. Turnkey managingcontrol of Allied World Syndicate 2232 to Allied World Managing Agency Ltd, effective April 1, 2014. Similarly, 1945 to Sirius International Managing Agency Ltd, effective April 1 and July 1, respectively. Astas turnkey portfolio was partially replenished when it took over management of Skuld Syndicate 1897 from R&Q from April July 1, 2014, there were 94 active syndicates, overseen by 56 managing agents. Lloyds businesses continue to be attractive acquisition targets and a popular route for gaining a presence in the market, although the number of available businesses is now limited. Three transactions have completed so far in 2014 and one recently announced deal is pending regulatory approval. Exhibit 4: Corporate Activity in 2013/2014 Date Acquirer Comments Apr 2013 Aquiline Equity Manager of Motor Syndicate 0218 May 2013 Markel Alterra Alterra Syndicate 1400 merged into Markel Syndicate 3000 effective January 1, 2014 Nov 2013 Enstar/Stone Point Atrium Manager of Syndicate 0609 Nov 2013 Lancashire Manager of Syndicates 2010 and 3010 AmTrust Sagicor Europe Manager of Syndicates 0044 and 1206 ANV Jubilee Group Manager of Syndicates 0779 and 5820 Apr 2014 Enstar/Stone Point Torus Manager of Syndicate 1301 May 2014 NKSJ Canopius Manager of Syndicates 0260, 0958 and 4444 Jun 2014 QIC Antares Manager of Syndicate 1274 2H 2014* BTG Pactual Ariel Capital provider to Syndicate 1910 Source: Company announcements, Lloyds, Aon Benfield Market Analysis *Subject to Lloyds/regulatory approval (estimated completion date) Lloyds Update July 2014 Lloyds Strategy New leadership has brought a fresh approach to the delivery of the Vision 2025 agenda, which focuses, among other things, on driving growth in developing ed in April 2014 placed increased emphasis establishment of a local presence where Management Changes Inga Beale, previously Chief Executive Officer of Canopius, replaced Richard Ward as Chief Executive Officer of been split in two, with Shirine Khoury-Haq joining from Caup as Acting Director of Finance. In the United Kingdom (UK), the precise impact of the new regime introduced in April 2013 continues to evolve. In response to increased scrutiny of the insurance industrys behaviour by the Financial Conduct Authority (FCA), Lloyds has opened consultation on proposed minimum conduct standards for managing agents and published a e latter area is of particular concern, given that the ional business and generated 28% of total premium income in 2013. Lloyds is on track to meet the revised Solvency II implementation date of January 1, 2016 and capital-setting is already in-line with the requirements of the new regime. However, the prospect of a referendum on the UKs membership of the European Union (EU) by the end of 2017 has created new uncertainty. Lloyds has warned that withdrawal would be damaging, for the following reasons: Lloyds might lose the passporting rights that allore) without having to comply with additional local prudential regulations. Excluding the UK, Lloyds generates 11% of its premium income from the EU. Lloyds might lose the ability to influence the regulations to which it will be subject. Over the years and as a result of intensive lobbying, EU rules have taken legislative account of Lloyds unique legal and economic the markets clear benefit. Lloyds would no longer be able to shape trade liberalization and insurance regulatory discussions conducted by the European Commission with non-EU countries on behalf of all Member States. At the global level, the International Association of Insurance Supervisors (IAIS) will shortly be publishing a list of systemically important reinsurers. Work is continuing on the development of a Common Framework (ComFrame) for regulating internationally active insurance groups and the IAIS is also engaged in developing global capital standards. Lloyds is monitoring these developments closely. Vision 2025 In May 2012, Lloyds published Vision 2025, a long-term strategic plan aimed at ensuring that the market grows beyond the English-speaking world to become the true global hub for specialist insurance and reinsurance expand in underinsured, high-growth economies, with in the largest ten high-growth economexceeds non-life premium growth. Progress has already been made. The Lloyds Asia platform in Singapore now has 17 participating syndicates, 250 staff and revenues of USD600 million. Lloyds Chinese premiums grew by over 20% to USD370 million in 2013. The number of participating syndicates in Shanghai has increased to 10 and Lloyds has now applied to open a branch in Beijing. In Brazil, Lloyds is the second largest foreign player in the reinsurance market. Aon Benfield Strategic Plan 2014-16 In April 2014, Lloyds published its strategic plan for the next three years, which seeks to promote a mindset based around more actively seeking business. As far as the developing markets are concerned, the main changes n addition to reinsurance), establishing a local presence r business access and ensuringholders find it as easy to access Lloyds as they would local market carriers. The main priorities are laid out below. With no end in sight to the low interest rate environment, an emphasis on underwriting discipline continues to ght regime is required to operate in such a way that it supports Lloyds reputation for innovation and increases the markets geographic footprint. During 2014, the Corporation of Lloyds will: Develop a framework that provides transparency around Lloyds supervisory approach and priorities to Implement a plan to comply with the Solvency II regime that will enable Lloyds to obtain approval of its Internal Model in 2015. minimum standards for managing agents. Diversity of Capital The Lloyds model was built around the management of third party capital and this remains a core competency ate, trade and institutional investment and this diversity is viewed as a strength. However, the increasing portability of capital and the growing relevance of capital markets and hedge funds in providing reinsurance solutions present competitive challenges. Managements main goals are to maintain Lloyds attractiveness to a range of capital providers, while increasing the weighting towards developing markets. During 2013, Lloyds facilitated members agents efforts to increase l into the market through the authorisation of Syndicates 1729 and 2014 and Special Purpose Syndicate 6117. Investment from trade investors in developing markets was increased through the authorisation of Special Purpose Syndicates 6118 and 6119 (backed respectively by ARIG/Labuan Re and GIC Re). Finally, new relationships with institutional investors have been established through the authorisation of Syndicates 2357 (backed by Nephila) and the development of Syndicate5678 (backed Soros/Pine Brook). Lloyds has acknowledged the impact alternative capital is having on the reinsurance market and is looking at how best to access it in support of the underwriting of indemnity-based products. The aim is to be a risk selector, rather than a capital provider to a commoditised access some of the under-insured highruled out in the longer term. Lloyds now believes that accessing cross-border reinsurance from London will not be sufficient to meet the aims of Vision 2025 and that increasing the markets share ofrequired. In some cases, this will necessitate a shift away from Lloyds historic preferred models. Trading rights blishment and other access options in selected territories will be required. Business development activity will focus on forecast insurance market development and managing agent appetite. During 2014, the Corporation of Lloyds will: Work with the Turkish Government to secure necessary legislative changes to enable a trading licence to be Conduct a feasibility study for insurance licence opportunities in Brazil. ce in Indonesia, Malaysia and South Korea. Open a reinsurance-focused branch office in Beijing. Lloyds Update July 2014 Investigate options for a regional reinsurance office in Latin America. Subject to regulatory position, investigate options in Colombia and Mexico. Continue the pursuit of an onshore Given current market conditions, short-term growth opportunities are said to lie in more traditional markets like North America, France and Germany, where premium rates have been more stable. Lloyds is looking for growth in all existing distribution channels (brokerslocal underwriting offices) in order to maximize the markets access to business. Lloyds has also indicated that managing agents should consider new options, such as joint ventures with local (re)insurers. Lloyds recognizes the key role that London and international brokers must play in accessing new business in brokers are making significant investments in their own networks and reviewing their business models. Lloyds views recently introduced broker facilities as both an opportunity and a threat, but it is accepted that they can add value where there are appropriate checks anclaims authority. Many of the initiatives being pursued resmaller number of carriers. Lloyds is responding by encouraging the use of consortia underwriting, which enables leading Lloyds specialists to offer significantly enlarged capacity by accepting risk on behalf of other syndicates. This is particularly relevant in the case of challenging risks such as cyber, where a coordinated approach is needed to muster the capacity necessary to compete with global peers. During 2014, the Corporation of Lloyds will: Develop and execute mutually agreed action plans with at least ten of Lloyds largest producing brokers to drive market development activity. Work with interested managing agents to develocoordinated promotion of Lloyds to international The advantages of the subscription market will be negated if the complexity and additional cost of the associated processes cannot be addressed. The first components of the Central Services Refresh Programme will be bedded as the way of moving ACORD standard data messages and documents across the market, resulting in increased use of structured data by brokers and sis, which aims to develop a shared service which will take placement information and turn it into rich structured ACORD standard data and make this data available to the back office systems of all subscribing insurers. Finally the Claims Transformation Programme continues to strengthen the markets claims-handling capabilities. In 2013, Lloyds launched a new central processing facility for service companies operating on its Singapore platform called Insurance Services for Lloyds Asia. This will provide a single point of contact for back-office functions, easier payment processing and cost reductions. Aon Benfield partly offset by a weaker investment result. The return on capital employed stood at 16.2%, taking the five yearExhibit 5: Lloyds Results Income Statement GBP (millions) Full Year 2009 Full Year 2010 Full Year 2011 Full Year 2012 Full Year 2013 Change Gross premiums written 21,973 22,592 23,477 25,500 26,106 2% Net premiums written 17,218 17,656 18,472 19,435 20,231 4% Net premiums earned 16,725 17,111 18,100 18,685 19,725 6% Underwriting result 2,320 1,143 -1,237 1,661 2,605 57% Investment result 1,769 1,258 955 1,311 839 -36% Pre-tax result 3,868 2,195 -516 2,771 3,205 16% Key Ratios Full Year 2009 Full Year 2010 Full Year 2011 Full Year 2012 Full Year 2013 Change Combined ratio 86.1% 93.3% 106.8% 91.1% 86.8% -4.3pp Investment yield 3.9% 2.6% 1.9% 2.6% 1.6% -1.0pp Return on capital* 23.9% 12.1% -2.8% 14.8% 16.2% 1.4pp *Capital, reserves, subordinated loan notes and securities Source: Lloyds, Aon Benfield Market Analysis Gross premiums written totaled GBP26.1 billion in 2013, ll by 0.3%. Outwards reinsurance premiums fell by 3.1% to GBP5.9 billion, representing a cession rate of 22.5% (2012: 23.8%). Net premiums written rose by 4.1% to GBP20.2 billion, while net premiums earned rose by 5.6% to GBP19.7 billion. Exhibit 6: Gross Premiums Written Source: Lloyds, Aon Benfield Market Analysis In the Reinsurance segment, gross premiums written fell by 3.0% to GBP9.5 billion in 2013, representing 37% of the total portfolio (2012: 38%). The 5% reduction in property treaty volumes exceeded the internally monitored rate change, indicating that some business was actively declined due to unsatisfactory terms. 20002001200220032004200520062007200820092010201120122013GBP (billions) Gross Premiums Written Net Premiums Written Lloyds Update July 2014 10 Direct classes generated gross premiums written of GBP16.6 billion in 2013, up 5.7% on the prior year. Growth in Property (+11.4%, driven by the US market), Casualty (+6.8%, partly due to increased demand for cyber partially offset by reductions in Energy (-3.4%) and Aviation (-16.0%). Exhibit 7: Gross Premiums Written by Segment Source: Lloyds, Aon Benfield Market Analysis The geographic spread of the portfolio was North America 43% (2012: 41%), United Kingdom 18% (18%), Europe 15% (15%), Asia Pacific 12% (13%), Other Americas 8% (8%) and Rest of the World 4% (5%). Exhibit 8: Gross Premiums Written by Region *prior to 2007 Canada was included in Other Americas Source: Lloyds, Aon Benfield Market Analysis 2004200520062007200820092010201120122013GBP (billions) Life & adj Aviation Motor Energy Marine Casualty Reinsurance 18.02004200520062007200820092010201120122013GBP (billions) Rest of World Other Americas Asia Pacific Europe US & Canada* Aon Benfield 11 2013 gross premiums written by region across the seven high-level business segments used by Lloyds for reporting purposes. Exhibit 9: Lloyds Segment Breakdown by Region 2013 US & Canada Americas UK Europe Asia Pacific Rest of World Reinsurance 27% 75% 29% 37% 46% 61% 37% Property 34% 7% 21% 15% 16% 8% 23% Casualty 20% 7% 19% 18% 25% 10% 19% Marine 7% 5% 6% 18% 7% 9% 8% Energy 9% 4% 3% 7% 3% 5% 6% Motor 1% 1% 20% 1% 1% 2% 5% Aviation 2% 1% 2% 4% 2% 5% 2% Total (GBP millions) 11,226 2,088 4,699 3,916 3,133 1,044 26,106 Source: Lloyds Growth in net premium earned by segment in 2014 was as follows: Reinsurance +0.7%, Property +14.8%, tor -4.5%, Aviation -7.8% and Life +5.8%. Exhibit 10: Net Premiums Earned by Segment Source: Lloyds, Aon Benfield Market Analysis 13.8200520062007200820092010201120122013GBP (billions) Life & adj Aviation Energy Casualty Property Lloyds Update July 2014 12 Underwriting Performance Lloyds combined ratio improved by 4.3 percentage points to 86.8% in 2013, driven by reduced major losses and more favourable development of prior year reserves. The five-year average stands at 92.8%. Exhibit 11: Lloyds Combined Ratio History Source: Lloyds, Aon Benfield Market Analysis Underwriting profit stood at GBP2.6 billion (2012: GBP1.7 billion), the accident year contributing GBP1.0 billion (GBP0.3 billion) and prior year reserve releases GBP1.6 billion (GBP1.4 billion). Excluding major claims, the accident year combined ratio rose by 1.8 percentage points to 90.4%, the weakest result since 2002. This was attributed to increasingly competitive market conditions, combined with foreign exchange losses. Exhibit 12: Composition of Lloyds Combined Ratio Source: Lloyds, Aon Benfield Market Analysis *Excluding major losses Lloyds reported reserve releases for the ninth successive year, supported by underlying claims experience being more favourable than expected across most classes and yethe soft market conditions of 1997-2001 continues to be within expectations and initial claims estimates for the on financial institutions and general liability business written in more recent years and on the Costa Concordia ent was overall reserve strengthening required, with Lloyds warning that any possible alteration to the discount claims, in addition to high claims inflation levels, could affect current claims reserves in the future. Major losses halved to GBP873 million in 2013, split GBP531 million to natural catastrophes (the largest being the Alberta floods at GBP120 million) and GBP342 million to man-made losses. These added 4.4 percentage points to the combined ratio, well below the five and ten year averages of 10.9% and 11.3%, respectively. 96.6%111.8%83.1%84.0%91.3%86.1%93.3%106.8%91.1%86.8%-10%10%30%50%70%90%110%130%2004200520062007200820092010201120122013 Attritional Loss Ratio Expense Ratio Major Losses Prior Year Reserve Development AttritionalLossRatio52.2%90.4%86.8%Expense Ratio38.2%4.4%Accidentyear*MajorlossesReservereleasesCalendaryear2013 AttritionalLossRatio51.5%88.6%91.1%Expense Ratio37.1%9.7%-7.2%20%40%60%80%100%Accidentyear*MajorlossesReservereleasesCalendaryear2012 Aon Benfield 13 Exhibit 13: Lloyds Major Loss History *Indexed to 2013 Source: Lloyds, Aon Benfield Market Analysis cept Motor in 2013. The largest contribution came from Reinsurance at GBP1.3 billion, representing 51% of the total for the market as a whole. Exhibit 14: Combined Ratios by Segment Source: Lloyds, Aon Benfield Market Analysis Stripping out prior year reserve adjustments, four of the segments reported underwriting losses in 2013. The , Motor 104.4%, Marine 102.8%, Casualty 101.2%, Energy Exhibit 15: Segmental Reserve Releases as a % of Net Premium Earned Source: Lloyds, Aon Benfield Market Analysis A ten year summary of Lloyds results by segment is included in Appendix 3. 3.50.30.21.60.11.90.42.34.81.810%20%30%40%50%60%2001200220032004200520062007200820092010201120122013GBP (billions) Lloyd'sMajorClaims* MajorClaims as %of NPE MajorClaims as %of Capital 108.6%98.8%95.4%85.0%83.0%81.4%80.5%20%40%60%80%100%120%MotorCasualtyMarinePropertyEnergyAviationReinsurance 2012 2013 23.7%11.3%11.2%8.4%7.4%2.4%-4.2%10%15%20%25%AviationEnergyReinsurancePropertyMarineCasualtyMotor 2012 2013 Lloyds Update July 2014 14 Investment Return Lloyds investments produced a total return of just GBP839 million or 1.6% in 2013, down from GBP1.3 billion or 2.6% in 2012, driven by the low interest rate environment and mark-to-market losses on bonds caused by e. The three components of the result are shown in Exhibit 16. Exhibit 16: Investment Return Source: Lloyds, Aon Benfield Market Analysis The syndicate investment return fell by 62% to GBP379 million in 2013, a yield of just 1.1% (2012: 3.0%). This included GBP255 million of realized and unrealized investment losses (versus gains of GBP310 million in 2012). Only a third of the 72 non-life syndicduration asset classes continue to dominate portfolios, although investment risk has increased in some cases. The average duration of syndicate fixed income securities was 2.3 years (2012: 2.4 years), compared with an average duration for claims provisions of approximately 3 years. Members capital is generally held centrally at Lloyds, but a proportion is maintained in investment assets and managed at members discretion. A notional return on Funds at Lloyds (FAL) is included in the financial statements, based on the investment disposition of the relevant assets and market index returns. This doubled to GBP400 million in 2013, equating to a yield of 2.5% (2012: 1.3%), driven by a 14% allocation to equities. The return generated by mutually-held central assets almost halved to GBP60 million in 2013, a yield of 2.3% (2012: 4.5%). Most of these investments are held within the Central Fund, the majority being fixed interest veloped market equities achieved strong returns, driving the overall positive result. However emerging market equities, high yield bonds and commodities performed poorly. 0.00.51.01.52.02.53.02004200520062007200820092010201120122013GBP (billions) Investment returnon Society assets Notional returnon Funds atLloyd's (GBP) Syndicateinvestment return Investment return Aon Benfield 15 Lloyds reported a 16% increase in pre-tax profit to GBP3.2 billion in 2013. Prior year reserve releases have contributed strongly to overall results in the past several years, as can clearly be seen in Exhibit 17. In 2013, these represented 49% of Lloyds total pre-tax profit. Exhibit 17: Pre-Tax Result Composition Source: Lloyds, Aon Benfield Market Analysis The pre-tax return on net resources (capital, reserves, subordinated loan notes an2013, taking the five year average to 12.8%. Exhibit 18: Pre-Tax Return on Average Net Resources Source: Lloyds, Aon Benfield Market Analysis 2004200520062007200820092010201120122013GBP (billions) underwriting result Prior year reservereleases Investment result Other Pre-tax result 12.3%-0.9%31.4%29.3%13.7%23.9%12.1%-2.8%14.8%16.2%-10%10%20%30%40%2004200520062007200820092010201120122013 Lloyds Update July 2014 16 Overall investment allocation remains relatively conservative, capital resources are at Exhibit 19: Year-End Balance Sheet Summary Balance Sheet GBP (millions) 2009 2010 2011 2012 2013 Change Cash and investments 46,254 48,483 51,415 51,767 51,494 -1% Gross technical provisions 43,544 46,428 51,918 51,517 49,821 -3% Reinsurers share 9,931 10,237 12,153 12,439 11,466 -8% Net technical provisions 33,613 36,191 39,765 39,078 38,355 -2% Net resources* 19,121 19,121 19,114 20,193 21,107 5% *Capital, reserves, subordinated loan notes and securities Source: Lloyds, Aon Benfield Market Analysis Cash and investments totaled GBP51.5 billion at December 31, 2013, a reduction of 0.5% from the end of 2012. Allocations to corporate bonds and equities were increased at the expense of government bonds. Exhibit 20: Investment Allocation at December 31, 2013 *Includes supra nationals and government agencies Source: Lloyds, Aon Benfield Market Analysis Increased risk appetite was evident within the Central Fund, which accounts for 5% of Lloyds total cash and investments. The allocation to government bonds fell from fund a GBP180 million subordinated debt repurchase in May 2013. The allocation to global equities was increased from 5% to 13%. 40%26%Total Invested Assets: GBP51.5 billion Corporate bonds Government bonds* Cash and LOCs Equities Alternative investments %-1;�.20;Central Assets: GBP2.4 billion Fixed income - corporate Fixed income - government* Global equity Emerging markets & high yield bonds Hedge funds Emerging equity Property equity Cash Commodities Aon Benfield 17 P38.0 billion at the end of 2013, while reinsurers share declined by 11% to GBP9.6 billion. The ratio of claims reserves to overall net resources stood at 180% on a gross mber of orphan years of account in run-off reduced from 8 to 6 over Exhibit 21: Claims Reserve Leverage Source: Lloyds, Aon Benfield Market Analysis Capital Lloyds is a partially mutualized market and does not hold conventional equity. The components of the capital base are shown in Exhibit 22. Both Funds at Lloyds (FAL) and members balances operate on a several liability basis. Overall net resources rose by 5% to a record level of GBP21.1 billion at December 31, 2013. Solvency deficits fell to GBP34 million at the end of 2013, from GBP94 million at the end of 2012, with no new exposures to the Central Fund. Assets admissible for solvency purposes stood at almost GBP3.2 billion. Exhibit 22: Lloyds Capital Base Source: Lloyds, Aon Benfield Market Analysis FAL represents capital lodged and held in trust to support members underwriting commitments.4% to GBP15.1 billion at December 31, 2013, of which 49% was held in the form of letters of credit (LOCs) and bank guarantees. Many members seek to match their capital disposition by currency against their peak exposures. At the end of 2013, approximately half of all capital deployed at Lloyds was provided in US dollars. Amounts reported under members balances almost doubled to GBP3.6 billion, including GBP2.5 billion of underwriting capital (members that participate on only one syndicate have the option of holding supporting capital in their syndicates premium trust funds, potentially enhancing investment returns). The remainder represented the net profit/(loss) to be distributed/(collected) by syndicates to/(from) capital providers. Central assets fell by 4% to GBP2.4 billion, including GBP0.7 billion of subordinated loan notes and perpetual capital securities. Mutual assets stood at GBP1.7 billion, including the Central Fund at just over GBP1.5 billion. 237%343%228%200%178%190%180%19192004200520062007200820092010201120122013GBP (billions) Reinsurers'share of claimsprovision Net claimsprovision Net resources 19.119.120.221.12004200520062007200820092010201120122013GBP (billions) Subordinatedliabilities Central assets Members' balances Funds at Lloyd's Solvency surplus Lloyds Update July 2014 18 The Chain of Security The resources available to pay claims at Lloyds are linked together in a Chain of Security as follows: 0 billion. All premiums received by syndicates are held in trust as the first resource for paying policyholders claims. Until all liabilities have been provided for, es reserves for future liabilities are independently Members assets: FAL of GBP15.1 billion. Each member, whether corporate or individual, must provide sufficient capital to support their underwriting at Lloyds. The capital is held in trust for the benefit of policyholders, but is not available to support the liabilities of other members. Assets supporting FAL requirements must be liquid but may include LOCs and bank guarantees. Central resources: Society of Lloyds net assets of GBP1.7 billion, plus subordinated debt of GBP0.7 billion. Should the first link need additional funds, the second link ensures members have resources available. In the rare event that these two links are insufficient, central resources can be made available at the discretion of the Council Exhibit 23: Lloyds Chain of Security at December 31, 2013 Source: Lloyds, Aon Benfield Market Analysis Capital Setting at Lloyds syndicates Individual Capital Assessment (ICA). This is the level of capital required to cover underlying business risks at a 99.5% confidence level. Lloyds reviews all ICAs to assess the adequacy of the proposed capital level. When agreed, each ICA is then uplifted by 35% to ensure there is sufficient capital to support the markets ratings and financial strength. This uplifted ICA is known as the syndicates Economic Capital Assessment (ECA) and drives members capital levels. of the ICA prepared centrally for the market as a whole. The Corporation regularly runs detailed analyses aiming to balance the need for financial security with the need for cost-effective mutuality of capital. Members contributions to the Central Fund remain at 0.5% of gross premiums written for 2014. Funds at Lloyd's (underlying capital set by Lloyd's)GBP15,088 millionPremium Trust FundsGBP41,990 millionSubordinated Debt GBP721 millionCentral Fund GBP1,513 millionCorporation Assets GBP150 millionCallable Layer (=3%)GBP788 million Central Assets Members'Assets Several assets Mutual assets Contingent Syndicate Assets Aon Benfield 19 Exhibit 24: Lloyds Market Ratings Rating Outlook Action A.M. Best A+ (Excellent) Positive Positive outlook assigned July 19, 2013 Fitch AA- (Very Strong) Stable Upgraded June 10, 2014 Standard & Poor's A+ (Strong) Positive Positive outlook assigned August 28, 2012 Source: Rating agencies Lloyds Market Ratings On June 10, 2014, Fitch upgraded their financial strength rating by one notch to AA- (Very Strong), reflecting expectations of improved cross-cycle underwriting performance, a level of risk-adjusted capitalization that is in line with the new rating level, low financial leverage and Lloyds significant market position in both insurance and reinsurance classes. A.M. Best and Standard & Poorspositive outlooks on July 24, 2014 and November 27, 2013 respectively. Standalone Syndicate Ratings/Rankings Three of the leading rating agencies assign ratings or rankings to individual syndicates, all of which are captured in Exhibit 25. The methodologies differ widely and none of them is endorsed by Lloyds. A.M. Best Syndicate financial strength ratings are assigned through the application of A.M. Bests interactive rating process. They are a complementary analytical service to A.M. Bests rating on the overall Lloyds market and should be considered only in this context. Syndicate ratings include the modifier s, and the rating scale follows that used Syndicate Continuity Opinions are based on an assessment of both quantitative and qualitative information and indicate the rating agencys view of a syndicates relative long-run potential future performance and continuity characteristics based on currently known factors. Some are based solely on public information. The rating scale ranges from Excellent (A+) to Below Average (anything below B). Standard & Poor's Lloyds Syndicate Assessments (LSAs) rely on both qualitative and quantitative analysis to evaluate the relative infrastructure and the Central Fund. The assessment reflects the syndicate's ability to offer business continuity to policyholders, ranked on a scale of 1 to 5 (where 5 denotes the highest levels of continuity). LSAs carry a pi subscript where they are based solely on public information. Lloyds Update July 2014 20 Exhibit 25: Lloyds Syndicate Ratings/Rankings Syndicate Managing Agent A.M. Best Financial Strength Rating Moodys Continuity Opinion S&P Lloyds Syndicate Assessment Hiscox Syndicates Ltd A s A Equity Syndicate Management Ltd - Canopius Managing Agents Ltd - R J Kiln and Co Ltd - 2pi Beaufort Underwriting Agency Ltd - 3pi Hardy (Underwriting Agencies) Ltd - 3pi QBE Underwriting Ltd - 5/Stable Faraday Underwriting Ltd - A-* 4pi Munich Re Underwriting Ltd - 3pi R J Kiln and Co Ltd A s A- 4pi R J Kiln and Co Ltd - 2pi Atrium Underwriters Ltd - A- Beazley Furlonge Ltd A s A- S A Meacock & Co Ltd - 2pi ANV Syndicates Ltd - 2pi Advent Underwriting Ltd - Canopius Managing Agents Ltd - Chaucer Syndicates Ltd - 3pi Chaucer Syndicates Ltd - 3pi Talbot Underwriting Ltd A s B+ Argo Managing Agency - AmTrust at Lloyd's Ltd - C+* 1pi XL London Market Ltd - Newline Underwriting Management Ltd - 2pi Navigators Underwriting Agency Ltd - AEGIS Managing Agency Ltd A s - 3pi Torus Underwriting Management Ltd - 2pi Ascot Underwriting Ltd - 3pi Starr Managing Agents Ltd - 2pi Amlin Underwriting Ltd A+ s A 4+/Stable Catlin Underwriting Agencies Ltd A s A-* 4+/Stable Novae Syndicates Ltd - 3-/Stable Cathedral Underwriting Agencies Ltd A s - 4pi Argenta Syndicate Management Ltd - 2pi Marketform Managing Agency Ltd - 1pi ACE Underwriting Agencies Ltd - A- Beazley Furlonge Ltd A s A- Managing Agency Partners Ltd - A- 3pi Brit Syndicates Ltd - 3pi QBE Underwriting Ltd - A- 5/Stable Markel Syndicate Management Ltd A s A- 3pi Mitsui Sumitomo Insurance Underwriting at Lloyd's Ltd - Sportscover Underwriting Ltd - 1pi Beazley Furlonge Ltd A s - Beazley Furlonge Ltd A s - Ark Syndicate Management Ltd - 3pi Asta Managing Agency Ltd - 2pi Canopius Managing Agents Ltd - 3+/Stable Liberty Syndicate Management Ltd - Source: Rating Agencies *Continuity Opinion based solely on public information or limited non-public information Ratings/rankings as at July 22, 2014 Aon Benfield 21 Appendix 1 Top 40 Reinsurers at Lloyds The Reinsurance segment represented 37% of gsection focuses on the performance of the 40 books, based on disclosure in the 2013 syndicate accounts. Exhibit 26: 2013 Gross Premiums Written Source: Syndicate annual reports, Aon Benfield Market Analysis Exhibit 27: 2013 Reinsurance Gross Premiums Written, % Change Source: Syndicate annual reports, Aon Benfield Market Analysis 2004006008001,0001,2001,4001,6001,8002,000 GBP (millions) Insurance (Direct) Reinsurance (Facultative and Treaty) -40%-30%-20%-10%10%20%30%40%50%60%70%80%90% Lloyds Update July 2014 22 Exhibit 28: 2013 Combined Ratios Source: Syndicate annual reports, Aon Benfield Market Analysis Exhibit 29: Five Year Average Combined Ratios (2009 2013) *Four year average Source: Syndicate annual reports, Aon Benfield Market Analysis 20%40%60%80%100%120% Loss Ratio Expense Ratio 20%40%60%80%100%120%140%160%180%200% Aon Benfield 23 Exhibit 30: 2013 Pre-Tax Results as % of Net Premiums Earned Source: Syndicate annual reports, Aon Benfield Market Analysis Exhibit 31: Five Year Average Pre-Tax Results as % of Net Premiums Earned (2009 2013) *Four year average Source: Syndicate annual reports, Aon Benfield Market Analysis -20%-10%10%20%30%40%50%60% -100%-80%-60%-40%-20%20%40%60% Lloyds Update July 2014 24 Syn. No. Managing Agent Agency Owner* Largest Capital Provider in 2014* 2013 Gross Premiums Written GBP million 2013 Combined Ratio 2013 Pre- Tax Result as % of NPE 2014 GBP million** 0033 Hiscox Hiscox Hiscox (72.5%) 823 75.2% 26.6% 1,000 AmTrust AmTrust AmTrust 90.4% -3.6% Aquiline Aquiline (66.7%) 406 107.7% -5.0% Canopius NKSJ (92.8%) 67 105.9% -3.5% Kiln Tokio Marine Tokio Marine (50.4%) 31 94.0% 6.6% Beaufort Munich Re Munich Re (91.2%) 149 78.9% 22.1% Hardy CNA 291 91.0% 9.8% QBE (69.6%) 449 94.4% 10.3% Faraday Berkshire Berkshire 43.6% 59.3% Munich Re Munich Re Munich Re 511 88.2% 12.4% Kiln Tokio Marine Tokio Marine (55.2%) 1,169 87.5% 13.3% 1,064 Kiln Tokio Marine Hampden (52.6%) 30 57.0% 44.1% QBE Operates as a trading division of Syndicate 2999 Atrium Enstar/Stone Point Hampden (36.5%) 380 82.1% 17.9% Hampden (53.6%) 240 78.3% 20.4% Hiscox Operates as a trading division of Syndicate 0033 Meacock Family-owned Hampden (43.2%) 70 87.0% 16.7% ANV ANV Hampden (40.0%) 26 87.8% 12.9% Advent Fairfax Fairfax 135 103.2% 2.6% Operates as a trading division of Syndicate 2001 Canopius NKSJ (69.0%) 172 98.2% 4.0% QBE Operates as a trading division of Syndicate 2999 Hanover Ins Hanover Ins 888 88.7% 11.9% Argenta Argenta ProSight Specialty 103 117.3% -16.7% Hanover Ins Hanover Ins (57.0%) 27 45.1% 56.4% Talbot Validus Validus 698 80.6% 19.8% Argo Argo Argo (68.9%) 425 93.0% 7.7% AmTrust AmTrust AmTrust 183 115.1% -13.8% XL 307 93.5% 6.2% Newline Fairfax Fairfax 106 97.4% 20.2% Navigators Navigators Navigators 87.8% 11.9% AEGIS AEGIS AEGIS (93.0%) 367 87.1% 15.8% Antares Qatar Ins Qatar Ins (75.6%) 246 88.3% 12.7% Torus Enstar/Stone Point Torus (64.0%) 148 104.0% -3.8% Ascot AIG (20%) AIG (97.8%) 625 80.2% 20.5% RenRe 141 95.8% 4.3% Asta Tawa/Paraline/Skuld Axis Commenced trading January 1, 2014 119 Asta Tawa/Paraline/Skuld ProAssurance (57.6%) Commenced trading January 1, 2014 75 ANV ANV ANV 105.3% -4.8% Kiln Tokio Marine Tokio Marine 237 48.9% 52.6% Chubb Chubb Chubb 81 120.5% -19.7% QBE Operates as a trading division of Syndicate 2999 Asta Tawa/Paraline/Skuld Skuld (66.7%) 75 110.6% -10.6% Asta Tawa/Paraline/Skuld BTG Pactual 57.9% 43.3% Starr Starr International Starr International 289 85.6% 15.5% Sirius White Mountains White Mountains 59 107.6% -7.4% 95.2% 5.2% W.R. Berkley W.R. Berkley W.R. Berkley 136 94.0% 6.2% ANV ANV Argenta (79.8%) 121 97.2% 3.2% Operates as a trading division of Syndicate 4472 *100% unless otherwise stated **Unofficial and subject to change Subject to Lloyds/regulatory approval 1/2 Aon Benfield 25 Syn. No. Managing Agent Agency Owner* Largest Capital Provider in 2014* 2013 Gross Premiums Written GBPmn Combined Ratio 2013 Pre- Tax Result as % of NPE 2014 GBPmn** Argenta (21.2%) 5 n.m. n.m. Amlin Amlin Amlin 1,472 92.1% 12.8% 1,400 Catlin Catlin Catlin 1,922 93.0% 9.9% 1,391 Novae Novae Novae (90.0%) 608 93.4% 8.2% Lancashire Lancashire (57.8%) 273 66.9% 34.0% Arch Arch Arch 99.0% -5.0% Pembroke Ironshore Hampden (81.5%) Formerly SPS 6110, re-launched from January 1, 2014 75 Channel SCOR SCOR 112.2% -12.0% Catlin Catlin China Re 49 102.0% -0.2% Argenta Argenta Argenta (86.9%) 239 87.4% 13.6% Allied World Allied World Allied World 96 116.6% -15.5% Asta Tawa/Paraline/Skuld Nephila 33.6% 66.5% Marketform American Financial American Financial (70.0%) 186 99.1% 5.7% ACE ACE ACE 81.2% 19.7% Asta Tawa/Paraline/Skuld Hampden (45.3%) 39 67.6% 34.2% Asta Tawa/Paraline/Skuld AmTrust (60.8%) 53 125.1% -23.3% Beazley 1,093 78.0% 24.9% 1,107 MAP MAP (90.0%) Hampden (38.1%) 261 69.6% 35.3% 1,183 93.6% 9.4% 1,000 QBE QBE 1,118 80.7% 21.0% 1,060 Markel Markel Markel 369 88.8% 16.9% Catlin Catlin Catlin 10 88.7% 11.3% Lancashire Lancashire 27 108.8% -8.6% Mitsui MS&AD MS&AD 90.3% 12.3% Sportscover Sportscover Wild Goose 88 108.9% -8.3% Beazley 13 115.0% -15.3% Beazley Beazley 105.2% -5.3% Hiscox Hiscox Hiscox 306 100.8% -0.4% Operates as a trading division of Syndicate 4020 Pembroke Ironshore Ironshore 89.9% 11.0% Ark Ark Ark 86.0% 18.1% HCC 87 85.1% 16.2% Asta Tawa/Paraline/Skuld Paraline (15.7%) 76 89.2% 10.9% Canopius NKSJ (74.0%) 704 89.8% 12.5% Liberty Liberty Liberty 1,268 94.7% 6.5% 1,175 Aspen Aspen Aspen 279 97.4% 3.0% Travelers Travelers Travelers 331 79.9% 21.0% Montpelier Montpelier Montpelier 150 90.0% 13.0% Vibe Soros/Pine Brook Soros/Pine Brook Commenced trading July 1, 2014 6 ANV ANV ANV (51.1%) 130 83.5% 16.8% MAP MAP (90.0%) Hampden (55.1%) 21 18.6% 80.3% Hiscox Hiscox Hampden (45.9%) 43 43.0% 58.6% Ark Ark Argenta (43.3%) 13 87.4% 15.2% Beazley Hampden (49.9%) 29 61.0% 35.8% Catlin Catlin Hampden (58.0%) 108 96.0% 5.2% Catlin Catlin Everest Re 38 96.0% 5.4% Hampden (35.8%) 23 60.6% 40.1% Canopius NKSJ (50.0%) 71 108.7% -8.5% Asta Tawa/Paraline/Skuld Hampden Commenced trading January 1, 2014 ARIG/Labuan Re Commenced trading January 1, 2014 Catlin Catlin GIC Commenced trading January 1, 2014 *100% unless otherwise stated **Unofficial and subject to change Subject to Lloyds/regulatory approval Hampden and Argenta are Lloyd's members' agents acting mainly on behalf of third party capital providers Source: Lloyd's, Aon Benfield Market Analysis Lloyds Update July 2014 26 Appendix 3 Lloyds Ten Year Segmental Results Reinsurance Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 4,353 5,261 5,557 5,453 6,298 7,989 8,388 8,813 9,763 9,468 Underwriting Result (GBP million) 177 -1,307 802 790 734 1,245 590 -1,945 605 1,321 Combined Ratio 95% 135% 81% 82% 84% 78% 90% 131% 91% 81% Prior Year Reserve Release -5% -1% -4% 5% 12% 6% 10% 8% 7% 11% Accident Year Combined Ratio 89% 134% 77% 86% 96% 84% 100% 138% 98% 92% Property Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 3,276 3,199 3,638 3,809 3,971 4,954 4,908 4,965 5,476 6,103 Underwriting Result (GBP million) 113 -457 495 408 103 292 283 -10 221 681 Combined Ratio 96% 119% 82% 86% 97% 92% 92% 100% 94% 85% Prior Year Reserve Release 1% 1% 4% 6% 7% 3% 7% 6% 8% 8% Accident Year Combined Ratio 97% 120% 86% 92% 103% 96% 99% 106% 103% 93% Casualty Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 3,883 3,402 3,572 3,364 3,762 4,320 4,397 4,245 4,543 4,850 Underwriting Result (GBP million) -278 179 327 205 148 316 113 117 152 47 Combined Ratio 109% 94% 89% 93% 95% 91% 97% 97% 96% 99% Prior Year Reserve Release -11% -4% 7% 9% 9% 8% 5% 2% 5% 2% Accident Year Combined Ratio 80% 80% 87% 103% 111% 114% 99% 91% 100% 101% Marine Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 977 1,017 1,153 1,226 1,334 1,606 1,671 1,968 2,090 2,195 Underwriting Result (GBP million) 101 73 105 127 160 147 128 89 84 Combined Ratio 87% 91% 89% 87% 85% 89% 91% 95% 100% 95% Prior Year Reserve Release 4% 7% 10% 8% 8% 7% 8% 8% 4% 7% Accident Year Combined Ratio 91% 99% 99% 95% 92% 96% 98% 102% 104% 103% Energy Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 739 804 1,125 1,019 1,150 1,371 1,419 1,523 1,727 1,668 Underwriting Result (GBP million) 96 -238 206 -194 157 164 130 275 201 Combined Ratio 83% 147% 99% 73% 124% 84% 83% 88% 76% 83% Prior Year Reserve Release 8% 2% -15% 4% 8% 6% 18% 10% 19% 11% Accident Year Combined Ratio 90% 149% 84% 77% 132% 90% 102% 98% 95% 94% Motor Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 1,016 895 923 983 939 1,118 1,103 1,187 1,155 1,184 Underwriting Result (GBP million) 61 82 30 14 -83 -520 -82 -42 -87 Combined Ratio 93% 91% 96% 98% 100% 108% 152% 107% 104% 109% Prior Year Reserve Release % 9% 6% 5% 6% 1% -4% -37% 2% 1% -4% Accident Year Combined Ratio 102% 97% 102% 105% 101% 105% 115% 109% 105% 104% Aviation Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Gross Premiums Written (GBP million) 510 375 393 464 481 551 642 708 669 562 Underwriting Result (GBP million) 102 96 97 50 48 10 115 196 170 90 Combined Ratio 73% 71% 65% 85% 87% 97% 75% 65% 68% 81% Prior Year Reserve Release 7% 10% 22% 18% 24% 17% 25% 27% 19% 24% Accident Year Combined Ratio 80% 80% 87% 103% 111% 114% 99% 91% 86% 105% Source: Lloyds Should you have any questions about this report, please contact marketanalysis@aonbenfield.com, or a member of Aon Benfield Analytics, including: Mike Van Slooten mike.vanslooten@aonbenfield.com Mike McClane Aon Benfield 55 Bishopsgate London t +44 (0)20 7088 0044 aonbenfield.com on UK Limited trading as Aon Benfield subsidiary company of Aon Plc) (Aon Benfield) reserves all rights to the content of this report. This document is intended as a courtesy to the recipient for general information and marketing purposes only and should not be construed as giving advice or opinions of any kind (including but not limited to insurance, tax, regulatory or legal advice). The contents of this party sources in respect of which Aon Benfield has no control and which have not necessarily been verified. The content o f this document is made available without warranty of any kind and without any other assurance whatsoever as to its completeness or accuracy. Aon Benfield disclaims any legal or other liability to any person or organization or (together a "Recipient") for loss or damage caused by or resulting from any reliance placed on this document or its contents by such Recipient.