Aon Benfield Analytics | Market Analysis
The Aon Benfield Aggregate
Results for the year ended December 31, 2014
Risk. Reinsurance. Human Resources.
Table of Contents
Global Reinsurer Capital ...... 3 Executive Summary ...... 4 ABA Capital ...... 5 Capital Development ...... 5 Capital Management ...... 6 Premium Income ...... 8 Earnings ...... 12 Underwriting Performance ...... 13 Investment Results ...... 15 Net Income ...... 16 Return on Equity ...... 17 ABA Business Model Evolution ...... 19 Who Are The New Investors? ...... 19 How Is New Money Being Deployed? ...... 19 Implications for ‘Traditional’ Reinsurers ...... 19 How Are The ABA Companies Responding? ...... 19 Mergers & Acquisitions ...... 21 ABA Valuation ...... 22 Financial Strength Ratings ...... 23 Appendix 1: ABA Data ...... 24
2 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Global Reinsurer Capital
Aon Benfield estimates that global reinsurer capital totaled USD575 billion at the end of 2014, an increase of 6% over the course of the year. This calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurer capital.
Exhibit 1: Global Reinsurer Capital
700 Traditional Capital 575 600 Alternative Capital 540 Global Reinsurer Capital 505 470 6% 500 455 410 7% 400 11% 385 -3% 400 340 18% 6% -17% 18% 511 300 490 466 447 428
USD (billions) USD 200 368 388 378 321 100
22 22 50 64 0 17 19 24 28 39 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Analytics
Traditional capital rose by 4% to USD511 billion. Major insurers and reinsurers generally maintained their solid operating performance during 2014, aided by below average insured catastrophe losses, economic recovery in the United States, exposure growth in emerging markets and relatively stable capital market conditions. Retained earnings were bolstered by unrealized gains on bond portfolios, driven in particular by lower yields in the eurozone, providing a boost to reported capital positions.
Alternative capital continued its strong growth, rising by 28% to USD64 billion in 2014. This was reflected in record levels of catastrophe bond issuance, expansion of fully collateralized placements, the establishment of new sidecar vehicles and the exploration of alternative business models by hedge fund managers.
Evolution of the ABA Aon Benfield Aggregate (ABA) reports are produced on a half-yearly basis and cover the reported results of 31 major reinsurers worldwide, with the aim of identifying current trends in the P&C reinsurance marketplace.
The study comprises 29 publicly-listed holding companies (‘the listed ABA’) and two US-domiciled subsidiaries of Berkshire Hathaway, namely National Indemnity Company (NICO) and General Reinsurance Corporation (Gen Re).
NICO’s 2014 results were significanty impacted by intra-group transactions involving GEICO. To provide a more meaningful picture of the sector’s underlying performance, many of the charts and ratios used in this report focus on the listed ABA.
Platinum was acquired by RenaissanceRe effective March 2, 2015 and therefore will not feature in future editions.
Aon Benfield Analytics | Market Analysis 3
Executive Summary
Reinsurance industry capital continues to build, with Underwriting performance remains strong, given low material alternative capital growth. global catastrophe losses.
Aon Benfield estimates that global reinsurer capital rose by 6% The combined ratio of the listed ABA improved by 0.3 to USD575 billion in 2014, including a 28% increase in percentage points to 89.9% in 2014. P&C underwriting profit alternative capital to USD64 billion. rose by 6% to USD16.8 billion.
The shareholders' funds of the 31 ABA companies rose by 2% The attritional loss and expense ratios were impacted by to USD346 billion, driven by net income of USD38.5 billion weakening pricing and increased volumes of longer tail and unrealized gains of USD8.1 billion. proportional business.
Alternative capital has driven catastrophe risk transfer Investment returns have been resilient, despite the costs down. impact of low interest rates.
Reinsurers are incorporating material alternative capital The listed ABA reported a 2% increase in ordinary investment (through ILS, sidecars, and asset management mandates) to income to USD26.5 billion in 2014, driven by underlying asset lower their cost of underwriting capital. growth and portfolio repositioning.
Dividends and share buybacks rose by 18% to USD18.3 billion Headline return on equity has been stable at around in 2014. This was equivalent to 8.0% of opening capital, up 11% for the last three years. from 6.4% in 2013. Across the listed ABA, net income attributable to common Premium growth is being achieved, despite difficult shareholders rose by 4% to USD25.5 billion in 2014. market conditions. Sector consolidation is underway as companies look to Property and casualty (P&C) premiums written by the 29 achieve the advantages of scale and diversification. listed ABA companies rose by 2% to USD198 billion in 2014. Three recently announced M&A transactions between ABA Reinsurance volume was unchanged at USD89 billion, despite companies will reduce the number of entities in the study. the industry’s pricing pressure.
4 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
ABA Capital
The reported shareholders’ funds of the 31 ABA companies stood at USD346 billion at December 31, 2014, an increase of 2% or USD9 billion over the course of the year. The total for the listed ABA was USD240 billion, an increase of 5% or USD11 billion.
Exhibit 2: ABA Shareholders’ Funds
400 337 346 NICO & Gen Re Listed ABA Total ABA 317 283 278 2%
300 6% 109 106 242 12% 90 226 2% 201 15% 78 79 187 48 200 45 12% 29% 44 -17% 37
USD (billions) USD 227 229 240 100 180 193 200 204 157 151
0 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
Capital Development The drivers of ABA capital growth were net income of USD38.5 billion and unrealized investment gains of USD8.1 billion. These positive factors were partly offset by dividends of USD13.8 billion, share buybacks of USD8.5 billion, foreign exchange losses of USD8.2 billion and a net reduction in issued capital of USD5.2 billion. The latter was driven by a USD7.1 billion transfer of subsidiary interests from NICO to Berkshire Hathaway.
Exhibit 3: ABA Shareholders’ Funds Development
375 38.5 -8.2 8.1 -8.5 -13.8
-2.8 350 345.5
337.4 -5.2
325 USD (billions) USD
300 FY 2013 Additional Net FX Investment Share Dividends Other FY 2014 SHF capital income gains buybacks SHF
Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis 5
Between them, NICO and Gen Re reported USD106 billion of shareholders’ funds at December 31, 2014, representing 31% of the ABA total. On a combined basis, Munich Re, Swiss Re and ACE contributed USD102 billion or 30%. More than half of the ABA companies reported shareholders’ funds in excess of USD5 billion, while five remained below USD2 billion.
Exhibit 4: Shareholders’ Funds at December 31, 2014
100 90 8040 70 6030 50 4020 30 2010 10 USD (billions) USD 0
Source: Company reports, Aon Benfield Market Analysis
All but five ABA companies reported capital growth in 2014, mainly driven by retained earnings. Unrealized gains taken directly to equity impacted outcomes at Hannover Re (USD0.8 billion), Mapfre (USD0.9 billion), Munich Re (USD3.5 billion), Swiss Re (USD3.8 billion) and XL (USD1.2 billion).
NICO’s capital fell by 3% to USD94 billion, driven by a USD7.1 billion upstreaming of subsidiary interests and USD3.9 billion of unrealized losses on equities. Reductions in shareholders’ funds at Lancashire, Validus, RenaissanceRe and Platinum were driven by active capital management.
Exhibit 5: Growth in Shareholders’ Funds
30%
20%
10%
0%
-10%
Source: Company reports, Aon Benfield Market Analysis
Capital Management Surplus equity is being returned to investors in growing amounts, partly reflecting increased interaction with third party capital structures. Capital repatriation by the listed ABA rose by 28% to USD18.3 billion in 2014. This was equivalent to 8.0% of opening shareholders’ funds, up from 6.4% in the prior year period. Public dividends rose by 6% to USD9.9 billion, while share buybacks climbed by 68% to USD8.5 billion.
6 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 6: Dividends & Share Buybacks as a Percentage of Opening Capital
25% Dividends Share buybacks 20%
15%
10%
5%
0%
Source: Company reports, Aon Benfield Market Analysis
The first few months of 2015 have provided further evidence of the quickening pace of capital repatriation. Most ABA companies increased their final dividends alongside the release of their full-year results. In addition, Amlin, Beazley, Catlin, Hannover Re, Hiscox, Lancashire, Platinum and Swiss Re announced special dividends. New share buyback authorizations were announced at ACE (USD1.5 billion), Aspen (USD0.5 billion), Munich Re (EUR1.5 billion), Swiss Re (CHF1.0 billion) and Validus (USD0.75 billion).
Aon Benfield Analytics | Market Analysis 7
Premium Income
Total premiums written by the ABA rose by 9% to USD311 billion in 2014. The portion related to P&C business rose by 12% to USD226 billion, but was up by only 2% to USD198 billion excluding NICO and Gen Re.
Exhibit 7: ABA Total Premiums Written
350 311 Other GPW P&C GPW Total GPW 285 274 300 261 9% 84 229 4% 250 221 222 5% 84 207 82 191 14% 80 200 1% 3% 6% 62 67 70 58 50 9% 150
226 USD (billions) USD 100 202 181 192 142 149 158 156 159 50
0 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
Gross P&C premiums written by NICO more than tripled to USD27.0 billion in 2014, driven by a new 50% intra-group quota share reinsurance agreement with GEICO Group. Non-affiliated premiums at NICO rose by 8% to USD4.6 billion. The listed ABA reported 3% growth in P&C insurance premiums to USD109 billion in 2014, while P&C reinsurance premiums were flat at USD89 billion. Exhibit 8 shows total P&C volumes for years prior to 2013, as consistent segmental splits are not available.
Exhibit 8: ABA P&C Gross Premiums Written
250 226 NICO & Gen Re Insurance Reinsurance Total 202 192 28 200 181 7 9
158 159 149 156 8 142 7 6 150 6 7 7 106 109
100 174 183 USD (billions) USD 151 149 153 135 143 50 89 89
0 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Source: Company reports, Aon Benfield Market Analysis
8 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Strong P&C premium growth of 34% at Lancashire and 23% at Markel was driven by the acquisitions of Cathedral and Alterra, effective November 7, 2013 and May 1, 2013 respectively. Arch reported an increase of 15%, driven by acquisitions in the mortage segment and USD80 million of non-affiliated business written by Watford Re (which is fully consolidated).
At the other end of the spectrum, Platinum’s P&C book showed a broad-based contraction of 12%, while QBE reported a reduction of 6% on a constant currency basis, mainly due to reduced volumes in North America and Europe.
Exhibit 9: Growth in P&C Gross Premiums Written
380% 340% 300%40% 260% 220%30% 180%20% 140% 100%10% 60%0% 20% -10%-20% -20%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
Exhibit 10 shows the split of P&C premiums between primary insurance and assumed reinsurance across all of the ABA companies in 2014, based on our best interpretation of sometimes inconsistent company disclosure.
Exhibit 10: 2014 P&C Segmental Splits
30 P&C Insurance P&C Reinsurance 25
20
15
10 USD (billions) USD 5
0
Source: Company reports, Aon Benfield Market Analysis *Of which only USD4.6 billion was non-affiliated ** P&C insurance relates to Risk Solutions (ERGO excluded)
Aon Benfield Analytics | Market Analysis 9
Exhibit 11 shows the growth of the primary insurance and assumed reinsurance books of the ABA companies in 2014, based on our best interpretation of sometimes inconsistent company disclosure. Absent acquisition effects at Markel and Lancashire, the most significant growth in reinsurance was seen at Everest Re (mainly property treaty and Mt Logan Re), Amlin (Zurich office and multi-year contracts) and Catlin (international diversification and multi-year contracts).
Hiscox, Beazley and Validus reported reductions of 14%, 9% and 8% in their reinsurance books, driven predominantly by lower volumes of property catastrophe business.
Exhibit 11: 2014 P&C Segmental Growth
100% Reinsurance GPW Insurance GPW 90% 80%40% 70% 30% 60% 50%20% 40%10% 30% 0% 20% -10%10% -20%0%
Source: Company reports, Aon Benfield Market Analysis * P&C insurance relates to Risk Solutions (ERGO excluded)
Total P&C premiums ceded to third parties by the listed ABA rose by 5% to USD29.2 billion in 2014, a cession ratio of 14.7% (2013: 14.3%). Retained premiums rose by 1% to USD169 billion. Reinsurance utilisation rose most significantly at Endurance, RenaissanceRe, XL, Everest Re and Hiscox. The biggest reductions were at Amlin, Swiss Re, Montpelier Re, Validus and ACE.
Exhibit 12: Reinsurance Cession Ratios
35% FY 2014 FY 2013 30% 25% 20% 15% 10% 5% 0%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
10 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Total P&C net premiums earned by the ABA rose by 13% to USD190 billion in 2014. The listed ABA reported a 2% increase to USD166 billion, with the five largest constituents contributing USD87.6 billion, or 53% of the total.
Exhibit 13: 2014 P&C Net Premiums Earned
25
20
15
10 USD (billions) USD
5
0
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
Exhibit 14 shows the year-on-year movements in P&C net premiums earned across the ABA in 2014. The strong growth at Lancashire, Markel and Arch was influenced by acquisitions, while the 11% increase at Aspen was driven by the continued build-out of the group’s US insurance operations. Seven companies reported reduced volumes on this basis.
Exhibit 14: Growth in P&C Net Premiums Earned
310% 300% 290%30% 280%25% 270% 260%20% 250%15% 240%10% 230%5% 220%0% 210%-5% 200% 190%-10% 180% 170%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
Aon Benfield Analytics | Market Analysis 11
Earnings
Profitability in 2014 was in line with the two prior years, but earnings are becoming increasingly reliant on unsustainable factors such as benign catastrophe experience, material reserve releases and capital gains. Increasing competition and low interest rates continue to pressure underlying returns on equity.
Exhibit 15: Listed ABA Pre-Tax Profit
Other Pure life technical result P&C underwriting result Investment income Capital gains/losses Pre-tax profit 60
50 40 35.4 31.2 31.3 29.2 29.2 28.0 30 25.8 20 11.6 9.3 10
USD (billions) USD 0 -10 -20 -30 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
The listed ABA reported pre-tax profit of USD31.2 billion in 2014, an increase of 11% relative to the prior year. P&C underwriting profit rose by 6% to USD16.8 billion, with favourable prior year reserve development of USD8.0 billion contributing 48% of the total. Ordinary investment income rose by 2% to USD26.5 billion, driven by underlying asset growth and portfolio repositioning. Capital gains rose by 41% to USD7.1 billion, as declining interest rates impacted bond values.
Exhibit 16 shows the distribution of reported pre-tax profits across the 31 ABA companies. NICO’s result was heavily influenced by a USD7.1 billion intra-group dividend from GEICO.
Exhibit 16: 2014 Pre-Tax Results
12.0
5.04.5 4.0 3.5 3.0 2.5 2.0
USD (billions) 1.5 USD (billions) USD 1.0 0.5 0.0
Source: Company reports, Aon Benfield Market Analysis
12 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Underwriting Performance The combined ratio of the listed ABA improved by 0.3 percentage points to 89.9% in 2014. Reported catastrophe losses were significantly reduced relative to the prior year and well below the long-term average. Support from favourable development of prior year reserves increased for the second year in a row, notwithstanding deterioration of the New Zealand earthquake and Costa Concordia losses. Underlying trends were negative, as weakening pricing and business mix changes, particularly a shift towards longer-tail proportional contracts, impacted attritional loss and expense ratios.
Exhibit 17: Listed ABA Combined Ratio Composition
104.9% Total catastrophe 94.5% 89.9% 94.2% 92.6% 90.2% 89.9% 89.2% 89.5% 20.3% losses 8.4% 9.8% 8.2% 5.6% 3.8% 2.8% 3.7% 3.2% Attritional loss ratio 59.4% 59.7% 62.0% 60.9% 58.7% 59.8% 58.7% 58.5% 59.5% Expense ratio
30.2% 30.8% 31.4% 27.7% 28.8% 28.7% 29.3% 29.9% 29.9% Prior year reserve adjustment -0.7% -2.7% -4.6% -3.4% -4.2% -5.1% -4.4% -4.6% -4.8%
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
Exhibit 18 shows the distribution of reported combined ratios across the listed ABA for 2014. All of the constituents were profitable on a calendar year basis, although half of them reported weaker results relative to the prior year. On a non-weighted basis, the average result was 85.6%.
Exhibit 18: 2014 Calendar Year Combined Ratios
120% Loss ratio Expense ratio Listed ABA combined ratio 100%
80% 89.9%
60%
40%
20%
0%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed) **Excluding funds withheld
Aon Benfield Analytics | Market Analysis 13
Exhibit 19 shows the P&C underwriting results reported by the listed ABA companies. On a combined basis, Swiss Re, ACE and Munich Re contributed USD6.2 billion, or 37% of the total.
Exhibit 19: 2014 P&C Underwriting Results
3.0
2.5
2.0
1.5
1.0 USD (billions) USD 0.5
0.0
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed) **Excluding funds withheld
Exhibit 20 shows prior year reserve development as a percentage of P&C net premiums earned by the listed ABA constituents in the last two years. Half of the companies reported lower releases in 2014.
Exhibit 20: Prior Year Loss Reserve Adjustments
30% FY 2014 FY 2013 25%
20%
15%
10%
5%
0%
-5%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
14 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 21 shows the reported accident year combined ratios (excluding prior year reserve movements) of the listed ABA companies. Only Markel and PartnerRe were unprofitable on this basis.
Exhibit 21: 2014 Accident Year Combined Ratios
120% Listed ABA 100% 94.7% 80%
60%
40%
20%
0%
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed) **Excluding funds withheld Investment Results The listed ABA reported cash and investments of USD899 billion at December 31, 2014, split fixed- income 66%, cash/short-term 9%, loans 8%, deposits with cedants 6%, equities 5% and other 6%.
The underlying and total investment yields reported through income statements since 2006 are captured in Exhibit 22. The former has fallen by a third since 2007, reflecting the impact of the low interest rate environment.
Exhibit 22: Listed ABA Investment Yield
6% Total investment yield (incl. capital gains/losses)* 4.9% 4.8% Ordinary investment yield* 5% 4.2% 3.9% 3.9% 3.7% 3.7% 4% 4.3% 3.4% 4.1% 3.9% 3% 3.7% 3.3% 3.4% 3.0% 2.9% 2.9% 2% 1.9% 1% FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Source: Company reports, Aon Benfield Market Analysis *Reported through income statements, excluding unit-linked and with-profit business
Aon Benfield Analytics | Market Analysis 15
Exhibit 23 shows the underlying and total investment yields reported by the ABA companies through their income statements in 2014 (excluding the impact of derivatives where separately disclosed). Investment classification varies and result comparison can therefore be misleading. Unrealized gains and losses are recognized in the income statements of some companies (e.g. PartnerRe, Fairfax and White Mountains), but in other cases are taken directly to equity.
Exhibit 23: 2014 Investment Yields
10% Ordinary investment yield* 9% Total investment yield* 8% 7% 6% 5% 4% 3% 2% 1% 0%
Source: Company reports, Aon Benfield Market Analysis *Reported through income statements, excluding unit-linked and with-profit business
Net Income The ABA reported net income attributable to common shareholders of USD38.1 billion in 2014, an increase of 12% relative to 2013. Net income across the listed ABA rose by 4% to USD25.5 billion.
Exhibit 24: ABA Net Income Attributable to Common Shareholders
45 NICO & Gen Re Listed ABA 40 38.1 35 34.0 31.2 31.3 29.3 12.5 30 4.8 26.8 9.3 7.4 25.8 25 5.9 2.8 6.6 20 14.7 15 26.6 25.5 USD (billions) USD 23.8 23.0 6.2 23.4 24.7 10 7.1 20.2 1.4 5 8.5 5.7 0 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
16 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 25 shows the distribution of net income by ABA constituent. The combined results of NICO, Munich Re, Swiss Re and ACE rose by 7% to USD22.5 billion, representing 59% of the total.
Exhibit 25: 2014 Net Income Attributable to Common Shareholders
12
10
58
4 6
3 USD (billions) USD 4 USD (billions) USD 2
2 1
0
Source: Company reports, Aon Benfield Market Analysis
Return on Equity Exhibit 26 shows the development of net income attributable to common shareholders relative to average common shareholders’ funds across the ABA since 2006. Return on equity over this period (which encompasses both the financial crisis and the record year for insured catastrophe losses) averaged 11.2% for the listed ABA and 10.8% for the ABA as a whole.
Exhibit 26: ABA Common Net Income ROE
20% 17.7% 16.6% Listed ABA
14.1% ABA 15% 17.6% 15.3% 10.8% 11.4% 11.1% 11.3%
10% 12.5% 10.7% 10.6% 11.1% 3.7% 5.4% 10.1%
5%
4.4% 3.6% 0% FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis 17
Exhibit 27 shows return on equity by ABA constituent, based on reported net income in 2014. Only 12 companies reported improved performance on this measure in 2014 (see data in Appendix 1). The result at XL was impacted by a one-off charge associated with the sale of the group’s discontinued life reinsurance operations.
Exhibit 27: 2014 Common Net Income ROE
25% Listed ABA
20%
15%
11.1% 10%
5%
0%
Source: Company reports, Aon Benfield Market Analysis
18 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
ABA Business Model Evolution
A structural shift in the way capital is raised and Implications For ‘Traditional’ Reinsurers deployed to mitigate insurance risk is underway. The New vehicles operating at a lower cost of capital are making in- roads into higher-margin areas that remain a key driver of profits pool of potential investors is broadening and new for ‘traditional’ reinsurers. These dynamics are forcing many ABA money is flowing towards structures offering access to constituents to rethink their business models in the pursuit of quality business at relatively low cost. These changes differentiation and relevance in the market. In the catastrophe have forced the ABA companies to re-evaluate their reinsurance space, this increasingly means being able to offer larger line sizes, a full product suite including collateralized limits business models. and enhanced claims service. Companies that are successful in attracting and deploying third party capital will potentially be Who Are The New Investors? able to advance their client offering, reduce earnings volatility Reinsurance as an asset class has performed relatively well in an through fee income, lower their own risk transfer costs and environment of low interest rates and is viewed as having limited manage their capital bases more effectively. correlation with broader capital market movements. These attributes have attracted new investors such as pension funds, How Are The ABA Companies Responding? high net worth individuals and sovereign wealth funds, who Most ABA constituents are now moving strongly to incorporate typically: alternative capital into their business models (see Exhibit 28 for a summary of recent activity). Many are now actively involved in • only enter the sector after extensive due diligence; raising and managing third party capital. Others have invested in • invest a small percentage of the substantial assets at their strategic partnerships with established independent specialist disposal as a diversifying strategy; fund managers. Sidecar structures that allow sponsors to grow their footprint in the market without assuming additional balance • seek lower, more stable returns over longer timeframes than sheet risk continue to be in vogue. has historically been the case. The availability of lower cost capital has allowed most ABA How Is New Money Being Deployed? companies to drive down their own risk transfer costs. Much of the new capital is being channelled to specialist fund Retrocession pricing has reduced and in some cases additional managers, who then deploy it into the insurance-linked securities protection has been purchased, with consequent impact on (ILS) sector via catastrophe bonds or other ‘alternative’ structures disclosed modeled exposures. In addition, a number of such as industry loss warranties, sidecars and collateralized catastrophe bond transactions have recently been brought to the reinsurance. The current focus is property catastrophe and market by ABA sponsors. retrocession business, particularly in the US market where exposures tend to be best understood, although diversification into other lines and territories is underway.
Aon Benfield Analytics | Market Analysis 19
Exhibit 28: Recent Incorporation of Alternative Capital
Company Cat Bonds Third Party Capital Vehicles Other The Altair Re reinsurance sidecar series provides collateralized support for ACE A new global cat program at Jul 1, 2014 reduced the modelled peak 1-in- ACE Tempest Re. Committed capital stood at $95m in 2013 and 2014. ACE is 250-year PML from 10.3% to 8.1% of shareholders’ equity. Approximately currently working with BlackRock to form Bermuda-based reinsurer ABR Re. 20% of the coverage was placed on a fully collateralized basis. TransRe ownership of Pillar Capital increased to 50% in Jun 2014. TransRe Ongoing investment partnership with Ares Management. Investments in Alleghany operates the Pangaea Re reinsurance sidecar series and is reported to be Pillar Capital and its managed funds contributed a return of $22m in 2014 working in partnership with Providence on a reinsurance captive. and totaled $235m at the year-end. Allied World has a minority interest in Aeolus Capital and contributed $350m of Retro programs were purchased on a fully collateralized basis in 2013 and Allied World funds for investment during 2014. Reported to have worked with Pine River 2014. A collateralized property cat quota share reinsurance contract with Capital in trying to establish a new hedge fund reinsurer in 2H 2014. Aeolus Re generated $87m of assumed premium in 2014. Tramline Re Amlin raised its ownership of Leadenhall Capital from 40% to 75% in Oct 2014. Syndicate 2001 and Amlin AG fronted £25m of business for Leadenhall in Amlin (Dec 2011, Jun 2013, AuM totalled $1.9bn at year-end, including £64m from Amlin. SPS 6106 (2009- 2014. From 2015, Amlin purchased a single retro program and cut its Dec 2014) 2013). tolerance for RDSs by £50m to £300m net. Arch co-sponsored Watford Re with Highbridge Capital, investing $100m for an Increased retro purchases reduced Arch's largest 250-year PML for a single Arch 11% interest (Mar 2014). Watford Re takes 10% of Arch’s property cat book and event (North-East US wind) to a record low of 9% of common shareholders' wrote $80m of open market business in 2014. equity at Jan 1, 2015. Loma Re (Jun 2011, The Harambee Re sidecar series provides Argo with fully collateralised Argo Formed ILS fronting partnership with Horseshoe Re (Mar 2014). Dec 2011, Dec 2013) reinsurance support. The Silverton Re sidecar series writes a collateralized quota share of Aspen Aspen Capital Markets (est Mar 2013) now has $185m of third party AuM Aspen Bermuda's property cat book. Committed capital rose from $65m in 2014 to and is being used to help manage net cat exposure. ACM contributed $85m in 2015. $13m to Aspen's results in 2014. Formed AXIS Ventures with $50m of third party capital (Nov 2013). Class 3A AXIS Ventures completed 8 transactions and contributed $3m towards Northshore Re Axis insurer AXIS Ventures Reinsurance Ltd provides AXIS with fully collateralized group earnings in 2014. AXIS Ventures Re had total assets of $97m at the (Aug 2013) reinsurance support. end of 2014. Beazley SPS 6107 (since 2010). Catlin has operated SPSs since 2012, providing whole account quota share Commissions and fees recognised by Catlin from third-party capital Galileo Re Catlin support to Syndicate 2003. From 2014, a ‘Portfolio Participation Vehicle’ providers totalled $66m in 2014. The group is writing ~15% of its business (Oct 2013, Feb 2015) provides similar collateralised protection to Catlin’s non-Lloyd’s entities. against almost $350m of third party capital in 2015. Additional retro was purchased in 2014 and at Jan 1, 2015. The peak 1-in- Endurance 100 year PML reduced to 10.3% of shareholders' equity at Dec 31, 2014, from 11.0% a year earlier. The Mt. Logan Re sidecar series writes worldwide cat on a fully collateralized Everest Re is growing its property cat book, but has kept its net risk appetite Kilimanjaro Re basis. Third party AuM totalled $690m at the end of 2014, all of which was Everest Re stable by transferring risk to Mt.Logan Re, sourcing $950m of retro capacity (Apr 2014, Nov 2014) deployed in the January renewals. Mt. Logan Re generated $28m of fees for from cat bonds and purchasing ILWs to hold its Florida PML steady. Everest Re in 2014. Hannover Re is active as a rated fronting market for collateralized Hannover The K-Cessions sidecar series provides fully collateralized quota share retro Eurus (Sep 2012) reinsurance vehicles and opened its internal ILS fund to third parties via Re support. Capacity rose by 25% to $400m for 2015. Leine Investment from Jan 2013. Kiskadee Investment Managers (est Jun 2013) expects to have $500m of The Kiskadee Re sidecar series has provided collateralized reinsurance support Hiscox committed capital by mid-2015. Hiscox currently manages $4bn of cat since Jun 2013. SPS 6104 (since 2008). quota share capacity for investors. Kinesis Re I Ltd (est. Jun 2013) writes multi-class reinsurance business on a fully- Bermuda-based third party capital manager Kinesis Capital Management collateralized basis, deploying around $340m of limit in 2014. Previous vehicles was formed in Jun 2013. Lancashire's peak 1-in-250 year PMLs have been Lancashire include Saltire Re (aggregate covers) and the Accordian Re series (property reduced via the purchase of additional retro. Most of the cover is retro). reinstateable in 2015. The New Point Re sidecar series underwrites property retro business on a fully Erik Manning joined as Managing Director of Alternative Solutions at Markel Markel collateralized basis. Re in Jun 2014. Blue Capital Management was launched in Dec 2012 to offer a range of Montpelier Collateralized property cat reinsurance is written via Blue Water Re and Blue property cat-linked investment products to institutional and retail investors. Re Capital Re. AuM totalled $790m in Jan 2015. Reinsurance sidecars Eden Re I and Eden Re II provide a combined $365m of Munich Re has operated an internal ILS fund for 6+ years. Increased retro Munich Re Multiple sponsor property cat XL capacity in 2015. purchases have reduced peak PMLs. Sidecar Lorenz Re formed with $75m of third party capital to provide additional PartnerRe capacity for a diversified portfolio of cat reinsurance treaties over a multi-year Lorenz Re had total assets of $101m at the end of 2014. period on a fully collateralized basis (Mar 2013). PMLs have been reduced through the purchase of additional retro Platinum protection. VenTerra Re QBE (Dec 2013) RenRe operated Upsilon Re (Jan 2013, Jan 2014) and Timicuan Re (Jun 2009, Jun Managed property cat-oriented joint ventures include DaVinci, Top Layer Mona Lisa Re RenRe 2012) sidecars. In Nov 2014, the Upsilon platform was converted into perpetual Re, Medici, Upsilon RFO and Upsilon Fund. Third-party capital spread across (Jul 2013) funds, writing fully collateralized reinsurance and retro and investing in ILS. these vehicles totalled $1.1bn at the end of 2014. Sidecar Atlas X ($55m of capital) provides 3 years of collateralized quota share SCOR Global Investments has operated the Atropos ILS funds since Aug SCOR Multiple sponsor capacity to SCOR Global P&C’s property cat book (Jan 2014). 2011. AuM totalled $460m in mid 2014. Swiss Re Multiple sponsor Sector Re sidecar series. No plans to open internal ILS fund to third parties. The AlphaCat sidecar series writes collateralized property cat and retro. Top At the end of 2014, AlphaCat had $1.5bn of third party AuM ($289m in the Validus layer cat is written via PaCRe (owned 10% by Validus). AlphaCat sidecars, $786m in the AlphaCat ILS funds and $459m in PaCRe). During 4Q, the strategic direction of Sirius Capital Markets (launched in White Class 3 Bermudian insurer Alstead Re was formed to write collateralized May 2013) was reviewed and entities that were formed for this initiative are Mountains reinsurance and retro business from Jan 2014. being dissolved or redeployed. XL and Stone Point established New Ocean Capital Management in Nov Vector Re writes global property cat business on a collateralized basis from Jan XL 2013. The net assets of the New Ocean Cat Fund and Vector Re were $94m 2014. and $47m at Dec 31. Source: Company reports, Aon Benfield Market Analysis SPS = Special Purpose Syndicate; AuM = assets under management
20 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Mergers & Acquisitions
Four high profile M&A deals involving ABA companies have been announced in recent months. RenaissanceRe’s acquisition of Platinum completed on March 2, 2015. Proposed transactions between XL and Catlin, Axis and PartnerRe and Fairfax and Brit remain subject to regulatory and/or shareholder approvals.
Exhibit 29 provides an indication of the scale the combined entities would achieve in capital terms, were all of the transactions to complete, albeit based only on the aggregation of reported figures at the end of 2014.
Exhibit 29: Shareholders’ Funds at December 31, 2014
95 Combined entities on a pro forma basis 90 8540 8035 7530 7025 6520 15
USDbn 60 5510 USD (billions) USD 505 0
Source: Company reports, Aon Benfield Market Analysis
Exhibit 30 provides an indication of the scale the combined entities would achieve in terms of P&C gross premiums written, were all of the transactions to complete, albeit based only on the aggregation of 2014 volumes.
Exhibit 30: 2014 P&C Gross Premiums Written
30 Combined entities on a pro forma basis 25 20 15 10 5 USD (billions) USD 0
Source: Company reports, Aon Benfield Market Analysis *P&C reinsurance segment only (as disclosed)
Aon Benfield Analytics | Market Analysis 21
ABA Valuation
The overall market capitalization of the ABA companies was relatively stable during 2014, but has increased by 6% since the beginning of 2015. The trailing price-to-book ratio began 2014 at 1.14x and dipped briefly below 1.0x in October, but has since rebounded to 1.16x.
Exhibit 31: ABA Market Capitalization Exhibit 33: ABA Trailing Price-to-Book Ratio
140 1.3 1.2 120 1.1 100 1.0 80 0.9 60 0.8
40 0.7 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Bloomberg Note: As of March 27, 2015, excluding Berkshire Hathaway Source: Bloomberg Note: As of March 27, 2015, excluding Berkshire Hathaway
Exhibit 32 shows the share price development of individual ABA Exhibit 34 shows the evolution of the trailing price-to-book values companies since the beginning of 2014. of individual ABA companies since the beginning of 2014.
Exhibit 32: Share Price Development Since Jan 1, 2014 Exhibit 34: Trailing Price-to-Book Ratios
Fairfax Hiscox Hannover Re Beazley Markel Amlin Montpelier Re Hannover Re Swiss Re Fairfax Platinum Markel Munich Re Arch Catlin Lancashire Alleghany ACE Beazley QBE SCOR Mapfre Argo Munich Re XL Catlin White Mountains RenaissanceRe Aspen Montpelier Re Amlin SCOR QBE Everest Re Everest Re Alleghany Hiscox Endurance Endurance Allied World PartnerRe White Mountains Axis Aspen Allied World Axis ACE Validus Mapfre Platinum Arch XL Validus Swiss Re March 27, 2015 RenaissanceRe PartnerRe January 1, 2014 Lancashire Argo
-20% 0% 20% 40% 60% 80% 0.0 0.5 1.0 1.5 2.0 Source: Bloomberg Note: As of March 27, 2015 Source: Bloomberg
22 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Financial Strength Ratings
Several ABA companies have benefited from positive rating actions since the beginning of 2014, as shown in Exhibit 35. Recently announced M&A transactions have provoked a cautious response, pending further discussion with senior management teams.
Exhibit 35: Financial Strength Ratings
Main Operating Company A.M. Best Standard & Poor’s ACE Tempest Reinsurance Ltd A++ Stable AA Stable Allied World Assurance Co Ltd A Stable A Stable Amlin AG A Stable A Stable Arch Reinsurance Ltd A+ Stable A+ Stable Argo Re Ltd A Stable - - Aspen Bermuda Ltd A Stable A Stable AXIS Specialty Ltd A+ Review Negative A+ Stable Beazley Insurance Company, Inc A Stable - - Catlin Insurance Company Ltd A Review Positive A Stable Endurance Specialty Insurance Ltd A Stable A Stable Everest Reinsurance (Bermuda) Ltd A+ Stable A+ Stable General Reinsurance Corporation A++ Stable AA+ Stable Hannover Rück SE A+ Stable AA- Stable Hiscox Insurance Company (Bermuda) Ltd A Stable - - Lancashire Insurance Company Ltd A Stable A- Stable MAPFRE Re, Compania de Reaseguros SA A Stable A Stable Markel Bermuda Ltd A Stable A Stable Montpelier Reinsurance Ltd A Stable A- Stable Munich Reinsurance Co A+ Stable AA- Stable National Indemnity Company A++ Stable AA+ Stable Odyssey Reinsurance Company A Stable A- Negative Partner Reinsurance Co Ltd A+ Review Negative A+ Stable Platinum Underwriters Bermuda Ltd A Review Developing A- CreditWatch Positive QBE Re (Europe) Ltd A Stable A+ Negative Renaissance Reinsurance Ltd A+ Review Negative AA- Stable SCOR Global P&C SE A Stable A+ Positive Sirius International Insurance Corp A Stable A- Stable Swiss Reinsurance Co A+ Stable AA- Stable Transatlantic Reinsurance Co A Positive A+ Stable Validus Reinsurance Ltd A Stable A Stable XL Re Ltd A Review Negative A+ Stable
Source: A.M. Best, Standard & Poor’s Upgrade / outlook raised since Downgrade / outlook lowered since Ratings as at March 2015 January 1, 2014 January 1, 2014
Aon Benfield Analytics | Market Analysis 23
Appendix 1: ABA Data
Exhibit 36: Results for the year ended December 31, 2014
P&C Gross P&C Gross P&C Net P&C Net Reporting Premiums Premiums Premiums Premiums Currency Written Written Earned Earned Company (millions) FY 2013 FY 2014 Change FY 2013 FY 2014 Change Listed Groups
ACE USD 20,752 21,261 2% 14,708 15,464 5% Alleghany USD 4,886 5,097 4% 4,239 4,411 4% Allied World USD 2,739 2,935 7% 2,006 2,183 9% Amlin GBP 2,467 2,564 4% 2,095 2,201 5% Arch USD 4,197 4,841 15% 3,146 3,594 14% Argo USD 1,888 1,905 1% 1,304 1,338 3% Aspen USD 2,647 2,903 10% 2,172 2,405 11% Axis USD 4,697 4,712 0% 3,707 3,871 4% Beazley USD 1,970 2,022 3% 1,591 1,659 4% Catlin USD 5,309 5,966 12% 3,948 4,160 5% Endurance USD 2,665 2,894 9% 2,016 1,864 -8% Everest Re USD 5,219 5,749 10% 4,754 5,169 9% Fairfax USD 7,227 7,460 3% 5,994 5,985 0% Hannover Re EUR 7,818 7,903 1% 6,866 7,011 2% Hiscox GBP 1,699 1,756 3% 1,283 1,316 3% Lancashire USD 680 908 34% 568 716 26% Mapfre EUR 16,278 16,409 1% 13,229 13,227 0% Markel USD 3,920 4,806 23% 3,232 3,841 19% Montpelier Re USD 706 740 5% 600 645 8% 1 Munich Re EUR 17,013 16,730 -2% 16,237 16,150 -1% PartnerRe USD 4,590 4,667 2% 4,235 4,387 4% Platinum USD 580 509 -12% 553 507 -8% QBE USD 17,975 16,332 -9% 15,396 14,084 -9% RenaissanceRe USD 1,605 1,551 -3% 1,115 1,062 -5% SCOR EUR 4,848 4,935 2% 4,256 4,287 1% Swiss Re USD 20,670 20,288 -2% 17,464 19,042 9% Validus USD 2,401 2,363 -2% 2,102 2,002 -5% White Mountains USD 2,297 2,499 9% 1,987 2,059 4% XL USD 7,417 7,761 5% 6,014 5,717 -5% ABA (Listed Sector) USD 194,606 198,367 2% 162,054 165,997 2% Gen Re USD 1,073 1,165 9% 554 564 2% NICO USD 5,964 26,957 352% 5,884 23,680 302% ABA (Total) USD 201,643 226,490 12% 168,492 190,240 13%
Source: Company reports, Aon Benfield Market Analysis 1P&C reinsurance segment only (as disclosed) Figures in reporting currencies, but converted to USD (millions) for ABA lines
24 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Calendar Year Expense Expense Combined Combined Loss Ratio Loss Ratio Ratio Ratio Ratio Ratio Company FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 Change Listed Groups
ACE 59.6% 58.3% 28.3% 29.5% 88.0% 87.7% -0.2pp Alleghany 58.5% 56.6% 31.6% 32.2% 90.1% 88.8% -1.3pp Allied World 56.0% 54.9% 30.2% 30.3% 86.2% 85.2% -0.9pp Amlin 52.2% 55.6% 33.5% 33.0% 85.7% 88.5% 2.9pp Arch 53.4% 53.4% 32.5% 33.8% 85.9% 87.2% 1.3pp Argo 57.8% 55.9% 39.7% 40.3% 97.5% 96.2% -1.3pp Aspen 56.3% 54.4% 36.3% 37.3% 92.6% 91.7% -0.9pp Axis 57.6% 56.5% 33.4% 35.1% 91.0% 91.6% 0.6pp Beazley 45.0% 49.0% 39.0% 40.0% 84.0% 89.0% 5.0pp Catlin 52.3% 52.5% 33.3% 34.3% 85.6% 86.8% 1.3pp Endurance 60.5% 52.1% 29.7% 33.9% 90.2% 86.0% -4.2pp Everest Re 58.9% 56.2% 25.6% 26.6% 84.5% 82.8% -1.6pp Fairfax 61.6% 59.0% 31.1% 31.8% 92.7% 90.8% -1.9pp 1 Hannover Re 70.2% 68.9% 24.9% 26.1% 95.1% 95.0% -0.1pp 3 Hiscox 40.5% 40.4% 42.6% 43.5% 83.0% 83.9% 0.9pp Lancashire 33.1% 31.7% 37.1% 37.0% 70.2% 68.6% -1.6pp Mapfre 67.0% 68.0% 29.1% 27.7% 96.1% 95.7% -0.4pp Markel 56.2% 57.3% 40.6% 38.0% 96.8% 95.4% -1.4pp Montpelier Re 21.1% 29.4% 35.0% 36.3% 56.1% 65.6% 9.6pp 2 Munich Re 61.7% 60.2% 30.4% 32.5% 92.1% 92.7% 0.6pp PartnerRe 56.7% 56.1% 28.6% 30.0% 85.3% 86.2% 0.9pp Platinum 30.3% 36.2% 32.4% 33.2% 62.7% 69.4% 6.7pp QBE 64.5% 63.2% 33.3% 32.9% 97.8% 96.1% -1.7pp RenaissanceRe 15.4% 18.6% 28.4% 31.5% 43.8% 50.2% 6.4pp SCOR 64.1% 61.1% 29.7% 30.3% 93.9% 91.4% -2.5pp Swiss Re 55.3% 55.4% 30.0% 30.0% 85.3% 85.4% 0.1pp Validus 37.8% 38.6% 33.5% 35.1% 71.2% 73.7% 2.5pp White Mountains 52.4% 56.8% 35.6% 34.4% 88.0% 91.2% 3.2pp XL 62.0% 57.0% 30.5% 31.2% 92.5% 88.2% -4.3pp ABA (Listed Sector) 59.4% 58.5% 30.8% 31.4% 90.2% 89.9% -0.4pp 3 Gen Re 30.7% 41.7% 44.2% 47.1% 75.0% 88.9% 13.9pp 3 NICO 49.2% 79.3% 25.3% 14.8% 74.5% 94.1% 19.7pp ABA (Total) 59.0% 61.0% 30.7% 29.4% 89.6% 90.4% 0.7pp
Source: Company reports, Aon Benfield Market Analysis 1Excluding funds withheld 2P&C reinsurance segment only (as disclosed) 3As calculated by Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis 25
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Accident Year Prior Year Prior Year Prior Year Prior Year Reserve Reserve Accident Year Accident Year Reserve Reserve Adjustment as Adjustment as Combined Combined Adjustment Adjustment % of NPE % of NPE Ratio Ratio Company FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 Change Listed Groups
ACE -530 -527 3.6% 3.4% 91.6% 91.1% -0.4pp Alleghany -203 -215 4.8% 4.9% 94.9% 93.7% -1.2pp Allied World -180 -213 9.0% 9.7% 95.1% 95.0% -0.2pp Amlin -134 -90 6.4% 4.1% 92.0% 92.6% 0.6pp Arch -264 -327 8.4% 9.1% 94.3% 96.3% 2.0pp Argo -34 -38 2.6% 2.8% 100.0% 99.0% -1.1pp Aspen -108 -104 5.0% 4.3% 97.6% 96.0% -1.6pp Axis -219 -259 5.9% 6.7% 96.9% 98.3% 1.4pp Beazley -218 -158 13.7% 9.5% 97.8% 98.6% 0.8pp Catlin -167 -120 4.2% 2.9% 89.8% 89.7% -0.1pp Endurance -222 -234 11.0% 12.5% 101.2% 98.6% -2.7pp Everest Re -18 -40 0.4% 0.8% 84.8% 83.6% -1.2pp Fairfax -440 -446 7.3% 7.4% 100.0% 98.2% -1.8pp 1 Hannover Re -424 -276 6.2% 3.9% 101.3% 98.9% -2.4pp Hiscox -140 -172 10.9% 13.1% 94.0% 97.0% 3.0pp Lancashire -16 -34 2.8% 4.8% 73.0% 73.4% 0.4pp Mapfre -87 -443 0.7% 3.3% 96.8% 99.1% 2.3pp Markel -411 -436 12.7% 11.3% 109.5% 106.7% -2.8pp Montpelier Re -144 -152 24.1% 23.5% 80.2% 89.2% 9.0pp 2 Munich Re -759 -900 4.7% 5.6% 96.8% 98.3% 1.5pp PartnerRe -721 -660 17.0% 15.1% 102.3% 101.2% -1.1pp Platinum -161 -128 29.0% 25.3% 91.7% 94.7% 3.0pp QBE 552 -1 -3.6% 0.0% 94.2% 96.1% 1.9pp RenaissanceRe -144 -144 12.9% 13.5% 56.7% 63.7% 7.0pp SCOR -31 0 0.7% 0.0% 94.6% 91.4% -3.2pp Swiss Re -1,137 -673 6.5% 3.5% 91.8% 88.9% -2.9pp Validus -205 -252 9.8% 12.6% 81.0% 86.3% 5.3pp White Mountains -48 -6 2.4% 0.3% 90.4% 91.5% 1.1pp XL -290 -255 4.8% 4.5% 97.3% 92.6% -4.7pp ABA (Listed Sector) -7,486 -8,003 4.6% 4.8% 94.9% 94.7% -0.2pp 3 Gen Re -248 -170 44.7% 30.2% 119.7% 119.1% -0.6pp 3 NICO -968 -896 16.5% 3.8% 90.9% 97.9% 7.0pp ABA (Total) -8,702 -9,069 5.2% 4.8% 94.8% 95.2% 0.3pp
Source: Company reports, Aon Benfield Market Analysis 1Excluding funds withheld Figures in reporting currencies, but converted to USD (millions) for ABA lines 2P&C reinsurance segment only (as disclosed) n.d. = not disclosed 3As calculated by Aon Benfield Market Analysis
26 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Net Net Capital Capital Total Total Investment Investment Gains / Gains / Investment Investment Income Income Losses Losses Return Return Company FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 Change Listed Groups
ACE 2,144 2,252 504 -507 2,648 1,745 -34% Alleghany 466 460 188 211 654 671 3% Allied World 158 177 50 128 208 305 47% Amlin 33 36 101 101 134 137 2% Arch 267 303 85 49 352 351 0% Argo 100 87 71 94 171 181 5% Aspen 186 190 36 32 223 222 0% Axis 409 343 68 142 477 484 2% Beazley 58 57 -15 26 43 83 92% Catlin 116 119 8 107 124 226 82% Endurance 166 132 13 13 179 145 -19% Everest Re 549 531 300 84 849 615 -28% Fairfax 474 510 178 1,667 652 2,177 234% Hannover Re 1,314 1,350 98 122 1,412 1,472 4% Hiscox 38 42 16 11 55 53 -2% Lancashire 36 36 13 -6 49 30 -38% Mapfre 1,660 2,146 297 0 1,956 2,146 10% Markel 317 363 63 46 381 409 8% Montpelier Re 64 47 -49 5 15 52 253% 1 Munich Re 6,907 6,675 1,323 2,395 8,230 9,070 10% PartnerRe 498 495 -161 372 337 867 157% Platinum 72 69 22 2 94 71 -24% QBE 665 678 112 103 777 781 1% RenaissanceRe 231 150 35 41 266 192 -28% SCOR 443 474 48 112 491 586 19% 1 Swiss Re 3,947 4,103 741 393 4,688 4,496 -4% Validus 101 108 -55 -35 46 74 61% White Mountains 111 105 162 284 273 389 43% XL 1,096 885 88 123 1,184 1,008 -15% ABA (Listed Sector) 26,057 26,470 4,985 7,050 31,042 33,520 8% Gen Re 706 642 191 -19 897 623 -31% NICO 6,109 12,567 2,163 2,241 8,272 14,808 79% ABA (Total) 32,872 39,679 7,339 9,271 40,210 48,950 22%
Source: Company reports, Aon Benfield Market Analysis 1Reported through income statements, excluding unit-linked and with-profit business Figures in reporting currencies, but converted to USD (millions) for ABA lines n.m. = not meaningful
Aon Benfield Analytics | Market Analysis 27
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Pre-Tax Pre-Tax Pre-Tax Pre-Tax Result Result Return on Equity Return on Equity Company FY 2013 FY 2014 Change FY 2013 FY 2014 Change Listed Groups
ACE 4,238 3,487 -18% 15.0% 11.9% -3.1pp Alleghany 855 932 9% 12.8% 12.9% 0.1pp Allied World 428 521 22% 12.5% 14.3% 1.8pp Amlin 326 259 -21% 20.5% 14.9% -5.6pp Arch 743 844 14% 13.7% 13.2% -0.5pp Argo 180 216 20% 11.7% 13.5% 1.8pp Aspen 343 368 7% 10.1% 11.0% 0.9pp Axis 734 830 13% 12.6% 14.1% 1.5pp Beazley 313 262 -16% 24.6% 19.5% -5.1pp Catlin 432 488 13% 11.8% 12.6% 0.7pp Endurance 318 349 10% 11.4% 11.5% 0.1pp Everest Re 1,555 1,446 -7% 22.5% 19.4% -3.2pp Fairfax -1,001 2,338 n.m. -11.5% 25.7% 37.2pp Hannover Re 1,102 1,371 24% 16.6% 18.5% 1.9pp Hiscox 245 231 -6% 17.6% 16.1% -1.5pp Lancashire 218 227 4% 15.3% 16.1% 0.8pp Mapfre 1,564 1,824 17% 15.6% 17.1% 1.5pp Markel 362 440 22% 6.7% 6.1% -0.6pp Montpelier Re 211 245 17% 12.0% 12.9% 0.9pp Munich Re 3,441 2,859 -17% 12.8% 10.1% -2.7pp PartnerRe 722 1,308 81% 10.5% 18.9% 8.3pp Platinum 258 182 -29% 14.2% 10.4% -3.7pp QBE -448 931 n.m. -4.1% 8.7% 12.8pp RenaissanceRe 841 687 -18% 17.7% 13.7% -4.0pp SCOR 640 675 5% 13.1% 12.6% -0.5pp Swiss Re 4,825 4,227 -12% 14.4% 12.2% -2.2pp Validus 597 538 -10% 13.7% 12.8% -0.9pp White Mountains 345 302 -13% 8.0% 6.8% -1.2pp XL 1,094 259 -76% 9.4% 2.3% -7.2pp ABA (Listed Sector) 28,017 31,172 11% 11.9% 12.8% 0.9pp Gen Re 1,040 689 -34% 9.3% 5.9% -3.4pp NICO 9,041 11,867 31% 10.2% 12.4% 2.2pp ABA (Total) 38,098 43,727 15% 11.4% 12.5% 1.1pp
Source: Company reports, Aon Benfield Market Analysis *Calculated by excluding the impact of net realized and unrealized investment Figures in reporting currencies, but converted to USD (millions) for ABA lines gains/losses reported through income statements n.m. = not meaningful
28 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Common Net Common Net Return on Return on Income Income Equity* Equity* Company FY 2013 FY 2014 Change FY 2013 FY 2014 Change Listed Groups
ACE 3,758 2,853 -24% 13.3% 9.8% -3.6pp Alleghany 628 679 8% 9.4% 9.4% 0.0pp Allied World 418 490 17% 12.2% 13.4% 1.2pp Amlin 299 237 -21% 18.8% 13.7% -5.1pp Arch 688 812 18% 13.5% 14.6% 1.1pp Argo 143 183 28% 9.3% 11.4% 2.1pp Aspen 294 317 8% 10.2% 11.3% 1.1pp Axis 684 771 13% 13.1% 14.8% 1.8pp Beazley 264 218 -18% 20.8% 16.2% -4.5pp Catlin 392 418 7% 12.8% 12.7% -0.1pp Endurance 279 316 13% 11.8% 12.1% 0.3pp Everest Re 1,259 1,199 -5% 18.4% 16.6% -1.8pp Fairfax -634 1,576 n.m. -8.5% 20.3% 28.8pp Hannover Re 895 986 10% 15.0% 14.7% -0.4pp Hiscox 238 216 -9% 17.1% 15.1% -2.0pp Lancashire 223 229 3% 15.6% 16.3% 0.7pp Mapfre 790 845 7% 10.1% 10.0% -0.2pp Markel 281 321 14% 5.3% 4.5% -0.8pp Montpelier Re 191 211 10% 12.9% 14.1% 1.2pp Munich Re 3,304 3,153 -5% 12.4% 11.3% -1.2pp PartnerRe 597 998 67% 10.0% 16.6% 6.5pp Platinum 223 165 -26% 12.3% 9.5% -2.8pp QBE -254 742 n.m. -2.3% 6.9% 9.3pp RenaissanceRe 666 510 -23% 20.1% 14.6% -5.5pp SCOR 549 512 -7% 11.3% 9.6% -1.6pp Swiss Re 4,444 3,500 -21% 13.3% 10.2% -3.1pp Validus 533 481 -10% 13.8% 13.2% -0.6pp White Mountains 322 313 -3% 8.4% 7.9% -0.5pp XL 1,060 188 -82% 10.3% 1.9% -8.5pp ABA (Listed Sector) 24,656 25,539 3.6% 11.1% 11.1% 0.0pp Gen Re 931 538 -42% 8.4% 4.6% -3.7pp NICO 8,391 12,007 43% 9.5% 12.6% 3.1pp ABA (Total) 33,978 38,084 12% 10.6% 11.3% 0.7pp
Source: Company reports, Aon Benfield Market Analysis *Common net income as a percentage of average common equity Figures in reporting currencies, but converted to USD (millions) for ABA lines n.m. = not meaningful
Aon Benfield Analytics | Market Analysis 29
Exhibit 36: Results for the year ended December 31, 2014 (cont’d)
Cash and Cash and Shareholders’ Shareholders’ Investments Investments Funds Funds Company FY 2013 FY 2014 Change FY 2013 FY 2014 Change Listed Groups
ACE 61,977 64,063 3% 28,825 29,587 3% Alleghany 19,490 19,441 0% 6,924 7,473 8% Allied World 9,026 9,263 3% 3,520 3,778 7% Amlin 4,510 4,564 1% 1,678 1,783 6% Arch 14,037 15,842 13% 5,647 6,130 9% Argo 4,237 4,179 -1% 1,563 1,647 5% Aspen 8,300 8,654 4% 3,300 3,419 4% Axis 14,768 14,980 1% 5,818 5,821 0% Beazley 4,430 4,451 0% 1,339 1,343 0% Catlin 9,209 9,276 1% 3,783 3,992 6% Endurance 6,575 6,720 2% 2,887 3,185 10% Everest Re 16,824 17,664 5% 6,968 7,451 7% Fairfax 24,893 25,803 4% 8,353 9,526 14% Hannover Re 46,149 52,080 13% 5,888 7,551 28% Hiscox 3,157 3,490 11% 1,409 1,453 3% Lancashire 2,484 2,343 -6% 1,460 1,357 -7% Mapfre 40,133 48,673 21% 7,834 9,153 17% Markel 17,612 18,638 6% 6,674 7,595 14% Montpelier Re 3,306 3,190 -3% 1,642 1,648 0% 1 Munich Re 203,535 219,965 8% 25,945 30,033 16% PartnerRe 18,274 17,988 -2% 6,710 7,049 5% Platinum 3,612 3,398 -6% 1,747 1,738 0% QBE 30,632 28,597 -7% 10,356 11,030 7% RenaissanceRe 7,230 7,269 1% 3,904 3,866 -1% SCOR 23,755 25,894 9% 4,940 5,694 15% 1 Swiss Re 143,332 137,355 -4% 32,952 35,930 9% Validus 8,110 8,409 4% 3,704 3,588 -3% White Mountains 8,003 7,803 -3% 3,906 3,997 2% XL 36,192 30,712 -15% 9,998 10,034 0% ABA (Listed Sector) 917,805 898,912 -2% 228,620 239,804 5% Gen Re 15,810 15,672 -1% 11,562 11,707 1% NICO 148,939 162,422 9% 97,226 93,998 -3% ABA (Total) 1,082,554 1,077,006 -1% 337,408 345,508 2%
Source: Company reports, Aon Benfield Market Analysis 1Excluding unit-linked and with-profit business Figures in reporting currencies, but converted to USD (millions) for ABA lines
30 The Aon Benfield Aggregate – Results for the year ended December 31, 2014
Contacts
Mike Van Slooten Jonny Eggins Head of Market Analysis - International Analyst Aon Benfield Analytics Market Analysis - International +44.207.7522.8106 Aon Benfield Analytics [email protected] +44.207.7522.3898 [email protected]
Mike McClane Head of Market Analysis - Americas Marie Teissier Aon Benfield Analytics Analyst +1.215.751.1596 Market Analysis - International [email protected] Aon Benfield Analytics +44.207.7522.3951
Eleanore Obst Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.3823 [email protected]
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Aon Benfield Analytics | Market Analysis 31
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