Global Reinsurance Highlights 2019

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Global Reinsurance Highlights 2019 Edition

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Global Reinsurance Highlights | 2019 3 Enabling stability in shifting currents

S&P Global Ratings’ Annual Bermuda November 5-6, 2019 Reinsurance Conference The Hamilton Princess Hot topic panels and key insights from Hotel, Bermuda leading industry experts will cover: Register now: – Economic conditions and geopolitical risks spglobal.com/bermuda – Structural changes in the sector – Reinsurance pricing adequacy heading into 2020 – The future state of ILS and alternative capital – Evolution of the reinsurance value chain – Climate change and catastrophe risk – Cyber threats and opportunities

Don’t miss this year’s leading reinsurance industry event, offering essential market insights, top industry trends and valuable networking opportunities!

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Project Leaders Editorial Project Coordinator Publisher Johannes Bender Fleur Hollis, London Graeme Cathie Taoufik Gharib Tel: +44 (0) 203 301 8238 David Masters Editorial Team [email protected] Heather Bayly, London Contributors Rose Burke, Paris Editor Manuel Adam, Frankfurt Elizabeth Kusta, Chicago Wyn Jenkins Johannes Bender, Frankfurt Jo Parker, Toronto Charles-Marie Delpuech, London Alexandria Vaughan, London Tel: +44 (0)203 301 8214 Tracy Dolin, New York [email protected] Mathieu Farnarier, London Taoufik Gharib, New York Sub editor Robert Greensted, London Ros Bromwich Jean Paul Huby Klein, Frankfurt Maren Josefs, London Director Milan Kakkad, Mumbai Nicholas Lipinski Ali Karakuyu, London Saurabh Khasnis, Centennial Design and Production Hardeep Manku, Toronto David Masters, London Garrett Fallon Lauren Slade, New York Russell Cox Brian Suozzo, New York Simon Virmaux, Paris Cover image Shutterstock / vertre Data Team Samantha Byrne, London Antun Zvonar, New York

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Global Reinsurance Highlights | 2019 5 Contents

8 Soundbites

10 Reinsurance Outlook Secular Headwinds Continue Despite Positive Pricing Momentum

18 Catastrophe Risk Global Reinsurers Aim To Rebalance Their Natural Catastrophe Exposure

24 California Wildfires Jolted By California Wildfires, Re/Insurers Recalibrate Their Risk Appetite

28 Cyber Risk Global Reinsurers Face The Iceberg Threat Of Cyber Risk

32 ILS Convergence Capital Will Remain Key For Reinsurers Despite Recent Losses

38 Adverse Development Covers Re/Insurers Seek Structured Solutions For Their Legacy Business

44 Reinsurance M&A More Consolidation To Come For Global Reinsurers

51 Global Reinsurance Peer Review

58 Top 40 By Company

60 Global Reinsurers By Country

72 Ratings Definitions

74 Addresses

6 Global Reinsurance Highlights | 2019 Foreword

Reinsurance Secular Headwinds Continue Despite Positive Pricing Momentum By Johannes Bender, Taoufik Gharib, and David Masters

he renewal discussions for 2020 in Monte Carlo this year subpar shareholder returns due to cost inefficiency, margin are happening after back-to-back record catastrophe pressure, and still-excess capacity. In More Consolidation To T years in 2018 and 2017, which hit traditional reinsurers Come For Global Reinsurers, we outline the main drivers for and alternative capital. Property casualty reinsurance prices further consolidation among reinsurance, the insurance, and have been hardening during the 2019 renewals, giving them insurance-linked security markets, and the potential credit some positive momentum heading into 2020. The fundamental impact of further consolidation. secular competitive trends have not changed, however. Global Reinsurance Highlights 2019 again includes a peer In our lead article, 2020 Reinsurance Sector Outlook: Secular comparison supplement that exhibits some of the important Headwinds Continue Despite Positive Pricing Momentum, we data points and trends that we’ve identified from our analysis of discuss why we continue to have a stable outlook for the the sector. This year’s publication captures the key issues facing global reinsurance sector. The article also discusses the reinsurance management, investors, and other stakeholders. main challenges and opportunities for the sector, the main We hope that you will enjoy the 2019 edition and welcome your competitive dynamics with regard to alternative capital, pricing, feedback on possible enhancements for future years. n and mergers and acquisitions, as well as our earnings forecast for the sector versus its cost of capital. Johannes Bender In Global Reinsurers Aim To Rebalance Their Natural Frankfurt, (49) 69-33-999-196 Catastrophe Exposure, we take a closer look at global reinsurers’ [email protected] exposure to 2018 and 2017 natural catastrophe losses. We also examine how reinsurers’ appetite for tail risk has changed Taoufik Gharib following rate increases, and how the sector is equipped for New York, (1) 212-438-7253 future natural catastrophe losses. [email protected] The California wildfires of 2017-2018 surprised re/insurers by generating insured losses of about $33 billion, beyond the David Masters market’s understanding of the risk. In Jolted By California London, (44) 20-7176-7047 Wildfires, Re/Insurers Recalibrate Their Risk Appetite, we discuss [email protected] how re/insurers were hit and how the market may react in terms of pricing and risk assessment for California wildfires. Economic and insured cyber losses are mounting for insurers and reinsurers. In Global Reinsurers Face The Iceberg Threat Of Cyber Risk, we have a look at the cyber insurance market and at the main challenges and opportunities re/insurers are facing to leverage that fast growing risk. The article Convergence Capital Will Remain Key For Reinsurers Despite Recent Losses discusses how investors in insurance-linked securities reacted to negative returns over the past two and a half years, as well as how convergence capital will affect competitive dynamics in the global reinsurance sector. In Re/insurers Seek Structured Solutions For Their Legacy Business, we explain how re/insurers are using structured solutions such as loss portfolio transfers and adverse development covers to optimize their portfolios and achieve better risk-adjusted returns. Reinsurers’ merger and acquisition activity remains a hot topic, particularly because some players are posting

Global Reinsurance Highlights | 2019 7 Soundbites

Reinsurance Outlook Taoufik Gharib, Johannes Bender, Hardeep Manku, David Masters, Ali Karakuyu • Robust capitalization, sophisticated enterprise risk management practices, and still-rational underwriting continue to underpin our stable outlook on the global reinsurance sector. • The sector continues to battle secular headwinds, as the influx of alternative capital challenges reinsurers’ business models, despite its recent slowdown, and we expect its growth to pick up once the latest bumps are smoothed over. • Property and casualty reinsurance prices have been hardening during the 2019 renewals in reaction to record back-to-back catastrophe years in 2017-2018 and the resulting loss creep, with positive momentum heading into 2020. • We’ve revised our 2019-2020 earnings forecast slightly upward following hardening reinsurance prices, with an expected combined ratio of 95%-98% and a return on equity of 7%-9%. • The reinsurance sector didn’t earn its cost of capital in 2017 and 2018, but 2019 looks somewhat more promising.

Catastrophe Risk Charles-Marie Delpuech, Johannes Bender • Global reinsurance has remained resilient, despite insured losses from natural catastrophes reaching a record back-to-back high over the past two years. • Some reinsurers have chosen to stop retrenching; instead, they are taking advantage of higher premium rates by increasing their exposure to catastrophe risk. • Although we expect risk discipline to prevail, global reinsurers’ greater exposure to catastrophe risk could heighten their earnings and capital volatility.

California Wildfires Hardeep Manku, Taoufik Gharib, Saurabh Khasnis, Brian Suozzo • The California wildfires of 2017-2018, with insured losses of about $33 billion, surprised re/insurers as the losses were outside of the market understanding of the risk, and they affected both property and casualty business lines. • These wildfires, in conjunction with other catastrophe losses, had limited impact on the creditworthiness of re/insurers. • There is no consensus among re/insurers on the price adequacy despite significant rate increases, or comfort with the risk in spite of substantial updates to wildfire risk models. • The reinsurance pricing for California wildfires could be up 30%-70% heading into the 2020 renewals; capacity will continue to be constrained as this market remains in disarray, which will fuel further rate increases.

Cyber Risk Johannes Bender, Manuel Adam, Robert Greensted, Jean Paul Huby Klein, Milan Kakkad, Tracy Dolin • Economic and insured cyber losses are mounting, and we believe considerable nonaffirmative “silent cyber” exposure is embedded in traditional re/insurance products. • If re/insurers do not start to screen their insurance portfolios for nonaffirmative cyber exposures or manage them, losses could become significant and create volatility in capital and earnings in the near future. • Underwriting cyber risks aren’t straightforward because of the potential for large accumulation risk, their human origin, uncertainties about diversification benefits, limited historical data, and still basic modelling and IT expertise. • We believe the global affirmative cyberinsurance market will continue to expand faster than the vast majority of other traditional lines and could reach $8 billion in gross written premium by 2022, compared with about $5 billion in 2018. • Reinsurers are well placed to harness this business potential, in our view, if they can develop cyber ecosystems and improve cyber modeling, while managing accumulation risk and silent cyber exposure.

8 Global Reinsurance Highlights | 2019 Soundbites

ILS Maren Josefs, David Masters, Ali Karakuyu • The amount of convergence capital being provided to reinsurers globally has fallen for the first time in ILS 10 years, reflecting two and a half years of negative returns and trapped collateral from large natural Maren Josefs, David Masters, Ali Karakuyu catastrophes. • Despite these challenges, we believe capital will continue to flow into the market, particularly to insurance- linked security funds with strong underwriting, established track records of successful capital deployment Adverse Development and transparent reporting. Covers • In our view, convergence capital will continue to play an important role in the competitive dynamics of the Taoufik Gharib, Saurabh Khasnis, Hardeep global reinsurance market and bolster capacity. Manku, David Masters • We also believe traditional reinsurers will continue to factor third-party capital into their strategies to help them respond to the ongoing challenging competitive environment. M&A Ali Karakuyu, Johannes Bender, David Adverse Development Covers Masters, Taoufik Gharib, Hardeep Manku Saurabh B Khasnis, Taoufik Gharib, Hardeep Manku, David Masters • Competitive market conditions have forced global property and casualty re/insurers to rethink their strategies and redeploy their capital toward optimal risk/reward opportunities. • As a result, re/insurers have shown growing interest in structured solutions, such as loss portfolio transfers and adverse development covers , for their legacy liabilities. • If well executed, these structured solutions can benefit cedants and reinsurers. Cedants can lower earnings and capital volatility while reducing capital requirements. Reinsurers can enhance their business profiles and earnings by leveraging their underwriting and claims expertise while strengthening their client relationships. • However, these solutions do not provide a complete legal finality, and the cedants retain the ultimate risk of policyholder claims. New Insurance Business Transfer laws in the U.S. could bridge this gap, but the laws are still in nascent stages and not yet applied consistently across states.

Reinsurance M&A Ali Karakuyu, Johannes Bender, David Masters, Taoufik Gharib, Hardeep Manku • Challenging market conditions in the global reinsurance sector and cheap financing sources will continue to drive consolidation. • Merger and acquisition activity over the past two years demonstrates the convergence of primary insurance, reinsurance, and insurance-linked securities markets, and the desire to diversify internationally. • The reinsurance sector’s M&A track record is patchy from a credit perspective, and deals are typically credit- neutral at best for the acquirer on completion.

Global Reinsurance Highlights | 2019 9 2020 Reinsurance Sector Outlook

Secular Headwinds Continue Despite Positive Pricing Momentum

By Taoufik Gharib, Johannes Bender, Hardeep Manku, David Masters, and Ali Karakuyu

Reinsurers are battling the commoditization of their business and the rise of alternative capital nibbling at their margins. In response, they could take a page from the playbook of other disrupted industries to stay relevant and become more innovative. Shutterstock / vetre / Shutterstock

10 Global Reinsurance Highlights | 2019 2020 Reinsurance Sector Outlook

Chart 1: Top 40 Global Reinsurers Rating Distribution*

re reinsurers complacent in their 16 Chart 1: Top 40 Global Reinsurers Rating Distribution* centuries-old industry and stuck 16 Ain their old ways of doing business? 14 Do reinsurance prices react only to 1412 natural catastrophe insured losses and adverse reserve developments? Are 1210 reinsurers sitting on their hands awaiting

(No.) 10 external forces of change or are they self- 8

critical enough to initiate change from (No.) 86 within? These are some of the seminal questions that reinsurers need to tackle 64 in the years to come. S&P Global Ratings has kept its 42 stable outlook on the global reinsurance 2 sector and on the majority of the 0 A- A A+ AA- AA AA+ reinsurers it rates (see Charts 1 and 2). 0 *Financial strength rating on core operating subsidiaries as of Aug. 6, 2019. This assessment is mostly based on CopyrightA- © 2019 by StandardA & Poor'sA+ Financial ServicesAA- LLC. All AArights reserved.AA+ reinsurers’ still-robust capital adequacy *Financial strength rating on core operating subsidiaries as of Aug. 6, 2019. and relatively disciplined underwriting, at Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. least so far, supported by well-developed enterprise risk management (ERM), and Chart 2: Top 40 Global Reinsurers Outlook Distribution* an overall improving reinsurance pricing Negative environment. On the other hand, the Chart 2: Top 40 Global Reinsurers Outlook Distribution* (2%) fundamental secular competitive trends Positive Negative (10%) haven’t abated, even after back-to-back Positive (2%) record catastrophe years in 2017 and 2018. (10%) Furthermore, the reinsurance industry’s cost of capital (COC) has been declining since the 2008 financial crisis, and reached a floor at year-end 2016, increasing in 2017 and 2018 due to rising interest rates and the volatility stemming from heavy catastrophe losses. However, this rising trend has reversed course in 2019 because of central banks’ interest rate cuts and their prospective dovish monetary easing stance. In addition, reinsurance pricing has been hardening through the 2019 Stable renewals, and reinsurers’ optimism for (88%) the upcoming renewals in 2020 should Stable help the sector broadly earn its COC *As of Aug. 6, 2019. (88%) in 2019 and 2020, assuming average Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. *As of Aug. 6, 2019. catastrophe years. This expected Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. improvement in the sector’s return on capital (ROC) relative to its COC is one also capitalizeChart 4: on Capital increasingly Adequacy frequent Of The Top 20So Global far, theReinsurers reinsurance By market of the key factors behind our decision opportunitiesConﬁdence (see CLevelhart (2014-2018)3). During the has been somewhat insulated, but a to maintain our stable outlook on the past coupleChart of 4: years, Capital the Adequacy rise of populism Of The Toppotential 20 Global recession Reinsurers in the By U.S. within the 80 Conﬁdence Level (2014-2018) global reinsurance sector, despite the in politics in the U.S. 2014and Europe,2016 the2018 next 12 months (S&P Global Ratings’ U.S. disappointing recent track record. trade8070 war between the2015 U.S. and2017 China, Chief Economist estimates recession 2014 2016 2018 and increased tensions in the Middle risk at 30%-35%) and these increasing 7060 2015 2017 Reinsurers Face Ups And Downs, East with the U.S. re-imposing sanctions geopolitical risks could dampen global Both Old And New on Iran6050 , have heightened geopolitical GDP growth prospects and could In its current state, the global reinsurance instability, as has the U.K.’s ongoing Brexit ultimately curb reinsurers’ top line 5040 industry battles many threats, but could negotiation with the European Union. growth. 4030 (%) 3020 Global Reinsurance Highlights | 2019 11 (%) 2010

100

(10)0

Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return On Capital (2005–2020) Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return 18 On Capital (2005–2020) WACC 10-year U.S. govt bonds 1816 WACCReturn on capital 10-year U.S. govt bonds 1614 Return on capital 1412

1210

(%) 10

86 (%)

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2019 Q1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F F:Forecasts. Source: S&P Global Ratings, Bloomberg. WACC: Weighted average2019 cost Q1 of capital Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. F:Forecasts. Source: S&P Global Ratings, Bloomberg. WACC: Weighted average cost of capital Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 6: Global Reinsurance Capital

ChartTraditional 6: Global capital Reinsurance Capital 595 605 605 575 585 Alternative capital 565 Traditional capital 540 605 605 Global reinsurance capital 595 585 505 575 565 Alternative capital 470 455 540 Global reinsurance capital 505 410 400 470 385 455 410 340 400 385

(Bil. $) 514 516 488 512 340 511 493 490

(Bil. $) 461 514 516 488 512 447 428 511 493 388 490 368 378 461 321 447 428 388 378 368 97 321 89 93 64 72 81 50 28 44 17 22 19 22 24 89 97 93 64 72 81 50 28 44 17 22 19 22 24 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Aon Securities Inc. Q1 2019 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Source: Aon Securities Inc. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: Top Global Life Reinsurers Average Return On Equity

16 Chart 7: Top Global Life Reinsurers Average Return On Equity

1614 13.6 1412 11.2 13.6 10.0 10.3 10.0 1210 11.2 10.0 10.3 9.0 10.0 108

(%) 9.0 86

(%) 5.7 64 5.7 42

20 2014 2015 2016 2017 2018 2019F 2020F 0 F=Forecast.2014 S&P2015 Global Ratings'2016 estimated2017 ﬁgures based2018 on the life reinsurance2019F 2020F book of the following companies: F=Forecast.Swiss Re, Munich S&P Global Re, Hannover Ratings' Re, estimated SCOR, China ﬁgures Re, based RGA, onKorean the life Re, reinsurance and Taiping Re. bookCopyright of the © following 2019 by Standardcompanies: & Poor's Financial Services LLC. All rights reserved. Swiss Re, Munich Re, Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 1: Top 40 Global Reinsurers Rating Distribution*

(No.) 8

20204 Reinsurance Sector Outlook

Chart 3: Threats And Opportunities For The Global Reinsurance Sector investment portfolios while maintaining

Threats Opportunities sophisticated ERM programs.

Economic conditions and global The top 20 global reinsurers’ capital Chart 2: Top 40 Global Reinsurers Outlook Distribution*Hardening reinsurance pricing geopolitical risks adequacy remained redundant by 5% Negative Human capital and talent Lower-for-longer interest rates at the ‘AA’ confidence level in 2018—a (2%) management Positive slight decrease from 2017, despite Climate change and catastrophe Alternative capital partnerships risk (10%) improving competitive positions the catastrophe losses and the stock Alternative capital threatening Technology investments, market volatility in fourth-quarter 2018 business models innovation, and insurtech (see Chart 4). This cohort of reinsurers The industry not meeting its Expense management and cost cost of capital efﬁciencies lost their capital redundancy at the

Regulations increasing cost of New products and markets (ESG, ‘AAA’ confidence level in 2017 and doing business cyber re, life re, mortgage re) 2018 because of the heavy catastrophe Alignment of compensation among Closing the protection gap stakeholders losses, adjustments to the large global reinsurers’ asset liability management and/or longevity risk capital charges, and continued buybacks and special dividends. We believe capitalization will remain a pillar of strength for the sector in the next two years. The sector’s operating performance was subpar in the past two years as the Stable industry experienced major catastrophe (88%) losses. As a result, the top 20 reinsurers *As of Aug. 6, 2019. generated underwriting losses in 2017 and Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 2018 with combined ratios of 109% and Source: S&P Global Ratings Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 101%, respectively (see Table 1). These catastrophe losses hurt the combined Chart 4: Capital Adequacy Of The Top 20 Global Reinsurers By ratios by 17 percentage points (pps) in Conﬁdence Level (2014-2018) 2017 and 9.4 pps in 2018, which also included loss creep from earlier events 80 2014 2016 2018 such as Hurricanes Irma and Maria. 70 2015 2017 Reserve releases contributed about five pps to the underwriting results in 60 the past two years at a declining rate 50 relative to the previous years, given that the sector was in a soft pricing cycle. Our 40 expectation of lower reserve releases 30 prospectively relative to the past few (%) 20 years hasn’t changed. When we strip out the effects of 10 catastrophe losses and reserve releases, 0 accident-year combined ratios have worsened during the past five years, (10) reflecting pricing pressure, albeit they (20) leveled out in 2018. The 2019 renewals AAA AA A BBB brought hardening reinsurance rates, Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. with positive momentum heading into 2020. As a result, we forecast a slight Capitalization Took A Hit Or Two, risk and long-tail reserve risk that improvement in profitability in 2019– Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return But Remains A Pillar Of Strength reinsurers assume in their underwriting 2020, with an estimated combined ratio On Capital (2005–2020) The reinsurance sector benefits from operations, as it often serves as a of 95% to 98% and an ROE of 7% to robust18 capitalization, which remains a backstop forWACC the primary insurance 9%. As interest rates are now declining, 10-year U.S. govt bonds strength for most reinsurers. This capital market. To cope with these risks, dashing hope for net investment yield 16 Return on capital strength cushions the industry from global reinsurers tend to be strongly improvement, reinsurers need to sharpen severity14 exposure, such as catastrophe capitalized with generally conservative their focus on disciplined underwriting as 12 12 Global Reinsurance Highlights | 2019 10

8 (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2019 Q1

Chart 6: Global Reinsurance Capital

Traditional capital 605 605 595 585 575 565 Alternative capital 540 Global reinsurance capital 505 470 455 410 400 385 340

(Bil. $) 514 516 488 512 511 493 490 461 447 428 388 368 378 321

89 97 93 64 72 81 50 28 44 17 22 19 22 24

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019

Chart 7: Top Global Life Reinsurers Average Return On Equity 16

14 13.6 12 11.2 10.0 10.3 10.0 10 9.0 8 (%) 6 5.7 4

0 2014 2015 2016 2017 2018 2019F 2020F

F=Forecast. S&P Global Ratings' estimated ﬁgures based on the life reinsurance book of the following companies: Swiss Re, Munich Re, Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 2020 Reinsurance Sector Outlook

Table 1: Top 20 Global Reinsurers’ Combined Ratio And ROE Performance (%) 2014 2015 2016 2017 2018 2019F 2020F

Combined ratio 89.9 90.7 95.1 109.0 101.0 95-98 95-98

(Favorable)/unfavorable reserve developments (5.4) (6.5) (6.0) (4.6) (4.7) (4)-(5) (4)-(5)

Natural catastrophe losses impact on the combined ratio 3.1 2.8 5.7 17.0 9.4 8-10 8-10

Accident-year combined ratio excluding catastrophe losses and 92.2 94.5 95.4 96.5 96.3 91-93 91-93 reserve developments Return on equity 12.5 10.4 8.4 1.6 2.9 7-9 7-9

F = Forecast. The top 20 global reinsurers are: Alleghany, Arch, Argo, Aspen, AXIS, China Re, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Lloyd’s, Markel, Munich Re, PartnerRe, Qatar Ins., RenRe, SCOR, Sirius, and Swiss Re

net investment returns would not provide regions. So, the recent underperformance the initially expected relief. “The fundamental secular of the property-catastrophe business In first-half 2019, operating competitive trends in combination with lackluster performance was strong, with combined haven’t abated, even after performance in other lines posed a threat ratios in the mid-90s reflecting a back-to-back record to the reinsurance sector’s underwriting relatively benign natural catastrophe margins, overall profitability, and ability period. However, Typhoon Jebi reserves catastrophe years in 2017 to earn its COC, thus forcing reinsurers’ continue to develop unfavorably: industry- and 2018.” hand to push for price increases. estimated insured losses more than Reinsurers’ pricing assumptions doubled and reached about $15 billion. were challenged by the loss creep from During the same period, stock Hurricane Irma because of assignment portfolios strongly recovered from the Moreover, retrocession covers of benefits issues and demand surge, December 2018 correction. Bond yields will continue to command significant significant increase in loss estimates reversed, resulting in bond portfolios’ rate increases in the double-digits. from Hurricane Michael and Typhoon unrealized capital gains boosting Higher retrocession rates and firming Jebi, and hits from California wildfires capitalization. With the recovery in the reinsurance pricing trends will gradually two years in a row and other secondary capital markets, reinsurers’ stocks are emerge through the entire re/insurance perils. Therefore, reinsurers’ models trading at a premium at about 1.25x book value chain, evidence of which we’re generally should be highlighting higher value, reflecting the improving reinsurance observing already. Furthermore, we technical pricing indications for similar pricing environment and potential future believe the rate increases will be exposures. mergers and acquisitions (M&A) activity. broad-based, especially in the U.S., Furthermore, with alternative capital with most business lines experiencing smarting from 2017–2018 losses, Reinsurance Pricing Is Gaining rate increases. Another trend that will its availability has been somewhat Momentum benefit reinsurers is the pass-through of constrained because of its cautious After modest reinsurance rate increases primary insurance rate increases through stance and because a portion of the at the start of 2019, characterized proportional business. collateralized capital was lost or trapped. by the regionalization of reinsurance The increase in primary rates, This is also causing retrocession and pricing, the positive trends picked up which can be characterized as a hard aggregate covers supply to be limited, steam throughout the year, with larger market, especially in the U.S. excess resulting in double-digit increases for rate increases during midyear renewals and surplus lines of business, is helped a few quarters now. As a result of these with tightening terms and conditions. by underwriting actions by Lloyd’s and factors, we believe the supply-demand We expect this momentum to continue, American International Group Inc. among equation remains balanced at this stage. signaling a move toward desired risk- other players, as well as by insurers adjusted pricing. However, we don’t pushing for rate increases in response to The Industry Didn’t Earn Its COC In characterize the current reinsurance higher loss experiences. 2017–2018, But 2019–2020 Looks pricing environment as a hard market, What underlies our prognosis? For More Promising but a firming one, with expected global many years, global reinsurers relied on In 2018, the reinsurance sector generated aggregate rate increases up to mid-single the profitability of the U.S. property- an ROC of only 3.0%. At 4.6% below digits over the next 12 months, assuming catastrophe market to subsidize other its 7.6% COC (defined as the weighted an average catastrophe year. underperforming lines of business and average cost of capital), this represented

Global Reinsurance Highlights | 2019 13 Chart 1: Top 40 Global Reinsurers Rating Distribution* Chart 1: Top 40 Global Reinsurers Rating Distribution* 16 16 14 14 12 12 10 10 (No.) 8

(No.) 8 6 6 4 4 2 2 0 0 A- A A+ AA- AA AA+ *FinancialA- strength ratingA on core operatingA+ subsidiariesAA- as of Aug.AA 6, 2019. AA+ *FinancialCopyright © strength 2019 by rating Standard on core & Poor's operating Financial subsidiaries Services as LLC. of Aug. All rights 6, 2019. reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Top 40 Global Reinsurers Outlook Distribution* Chart 2: Top 40 Global ReinsurersNegative Outlook Distribution* Positive Negative(2%) Positive(10%) (2%) (10%)

Stable Stable(88%) (88%) *As of Aug. 6, 2019. *AsCopyright of Aug. © 6, 2019 2019. by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 4: Capital Adequacy Of The Top 20 Global Reinsurers By ChartConﬁdence 4: Capital Level Adequacy (2014-2018) Of The Top 20 Global Reinsurers By Conﬁdence Level (2014-2018) 80 2014 2016 2018 80 70 20152014 20172016 2018 70 2015 2017 60 60 50 50 40 40 30 (%) 30 20 (%) 20 10 10 0 2020 Reinsurance Sector Outlook 0 (10) (10) (20) (20) AAA AA A BBB

CopyrightAAA © 2019 by Standard &AA Poor's Financial ServicesA LLC. All rights reserved.BBB Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return the second consecutive year of subpar ChartOn Capital 5: Reinsurers’ (2005–2020) Weighted-Average Cost Of Capital And Return On Capital (2005–2020) returns for the global reinsurance sector 18 WACC (see Chart 5). The impact of loss creep 18 WACC10-year U.S. govt bonds 16 from the 2017 natural catastrophes, 10-yearReturn on U.S. capital govt bonds 16 2018 catastrophe losses, and investment 14 Return on capital market volatility in fourth-quarter 2018, 14 12 all played a part in this result. 12 The improved investment climate 10 in first-half 2019, combined with the 10 8 most benign first half-year for natural (%) 8 catastrophe losses since 2006, according (%) 6 6 to Aon PLC, has helped improve the year- 4 to-date 2019 returns. This has meant 4 that the gap between the sector’s actual 2 2 ROC and COC shrunk to negative 2.7% 0 as of March 31, 2019, compared with 0 negative 4.6% at the end of 2018, and 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2019 Q1 is likely to have further improved at the 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2019 Q1 half-year mark. In addition to improved F:Forecasts. Source: S&P Global Ratings, Bloomberg. WACC: Weighted average cost of capital earnings in first-half 2019, the below- F:CopyrightForecasts. © 2019 Source: by StandardS&P Global & Poor'sRatings, Financial Bloomberg. Services WACC: LLC. Weighted All rights average reserved. cost of capital average catastrophe losses year-to-date Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. and the reemergence of lower-for-longer interest rate environment have exerted Chart 6: Global Reinsurance Capital downward pressure on the sector’s COC. Chart 6: Global Reinsurance Capital Traditional capital 605 605 595 585 Furthermore, as 2019 rate increases 575 565 TraditionalAlternative capital 595 605 605 are booked, and earned, through income 540 575 585 Global reinsurance capital 565 Alternative capital 505 540 statements over the upcoming quarters, 470 Global reinsurance capital 455 505 this should further improve the picture. 470 410 400 455 Indeed, assuming a normal catastrophe 385 410 400 load of about 8 to 10 pps on the combined 385 340

(Bil. $) 340 514 516 488 512 ratio, we forecast that reinsurers’ returns 511 493

(Bil. $) 490 514 516 488 512 for 2019 and 2020 will broadly cover 461 511 493 their COC. Specifically, we forecast the 447 428 490 388 378 461 reinsurance sector’s ROC will be between 368 447 428 388 321 368 378 6% and 8% compared with its COC 321 89 97 93 64 72 81 between 6.5% and 7.5% in each of 2019 50 97 28 44 89 93 22 19 22 24 64 72 81 and 2020. 17 50 28 44 The anticipated improvement in the 17 22 19 22 24 industry’s ROC relative to its COC is one 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 of the key factors that led us to keep our Q1 2019 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 stable outlook on the global reinsurance Source: Aon Securities Inc. Q1 2019 sector. Source:Copyright Aon © Securities2019 by Standard Inc. & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Alternative Capital Growth 30% of the insured losses from the 2017 includes about $15 billion of collateral Recently Paused, But Its Influx Will North Atlantic hurricane season. still trapped because of recent natural Chart 7: Top Global Life Reinsurers Average Return On Equity Likely Resume Based on Aon, alternative capital catastrophe events. Chart 7: Top Global Life Reinsurers Average Return On Equity Alternative capital, which includes declined16 4% or $4 billion to $93 billion This has caused a flight to quality, as 16 collateralized reinsurance funds, in first-quarter14 2019 relative to year-end investors have become more selective 13.6 insurance-linked securities (ILS), 2019.14 The decline was mostly caused and have shifted their attention to well- sidecars, and industry loss warranties, has by dismal12 returns in the past couple of established13.6 sponsors/managers with a 11.2 10.0 become an integral part of the property- years,12 loss payments, and loss10.3 creep better track record while simultaneously10.0 10 11.2 10.0 catastrophe market. According to Swiss from earlier events, exacerbated10.3 by asking for higher returns. Indeed,10.0 in 10 9.0 Re latest estimates, it represented about governance8 issues at certain funds, which December 2018, Bermuda-based 9.0 25% of total property-catastrophe risk triggered(%) 8 investors’ redemptions. The RenaissanceRe Holdings Ltd. (RenRe)

(%) 6 supply in 2018 and accounted for 25% to $93 billion5.7 of assets under management and Dutch pension fund manager 6 4 5.7 14 Global Reinsurance Highlights | 2019 4 2 2 0 02014 2015 2016 2017 2018 2019F 2020F F=Forecast.2014 S&P2015 Global Ratings'2016 estimated2017 ﬁgures based2018 on the life reinsurance2019F 2020F book of the following companies: F=Forecast. S&P Global Ratings' estimated ﬁgures based on the life reinsurance Swissbook of Re, the Munich following Re, companies: Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Swiss Re, Munich Re, Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 2020 Reinsurance Sector Outlook

PGGM announced the creation of a A well-executed deal can enhance the Class 3B Bermudian reinsurer, Vermeer “We don’t characterize the consolidated entities’ creditworthiness Reinsurance Ltd., to provide capacity current reinsurance pricing and improve their shareholders’ value. focused on risk remote layers in the U.S. environment as a hard Unfortunately, the industry doesn’t have property-catastrophe market. market, but a firming one.” a stellar track record when it comes Vermeer was initially capitalized with to M&A deals, as they inherently come $600 million of equity from PGGM, with with elevated execution risk, cultural up to a further $400 million available to clash, overpromising cost synergies, and pursue growth opportunities in 2019, for overlapping businesses. However, there a total of $1 billion of capital. Moreover, are a few success stories. RenRe raised an additional $700 million in third-party capital in June 2019 in returns due to cost inefficiency, margin Life Reinsurance Provides A Calm its various ventures including DaVinci, pressure, and still-excess reinsurance Harbor In A Volatile P/C World Vermeer, Upsilon, and Medici. capacity. Furthermore, organic growth While business conditions have been Earlier this year, the giant fixed- opportunities are somewhat limited and challenging for P/C reinsurance, life income manager PIMCO entered the the fact that some cedants prefer to deal reinsurance has had a relatively strong ILS market. In May 2019, SCOR SE with fewer and larger global reinsurers is performance, offsetting some of the announced its acquisition of Coriolis further increasing the pressure on small property-catastrophe volatility generated Capital Ltd., an ILS fund manager players with less diversified product in the past couple of years for those expanding its ILS capacity to $2.1 offerings and dragged by higher cost reinsurers with meaningful life reinsurance billion. In June 2019, White Mountains structures. In particular, those players exposure. In fact, in the past two years, Insurance Group Ltd. acquired a minority with narrower business profiles and a the life reinsurance segment contributed interest stake in Elementum Advisors limited geographic footprint will likely materially to these groups’ bottom lines. LLC with over $4 billion of assets under either consider M&A or become targets The global life reinsurance industry management. Lastly, in July 2019, themselves. has well-developed underwriting Markel Corp. announced the creation It seems that the acquisition of expertise that enables it to perform well. of its new retrocessional ILS fund alternative capital managers is also Access to global exposure and key data platform, complementing its Nephila heating up as alternative capital has for underwriting allow global players Capital Ltd. acquired in 2018, while grown in importance, following the motto: to develop and maintain longstanding, placing its wounded CATCo Investment “if you can’t beat them, join them”. In trusting relationships with primary life Management Ltd. into run-off. recognition, reinsurers and some primary insurers. Therefore, they experience less This recent high activity highlights insurers have built their alternative margin compression relative to capacity- that alternative capital is still vibrant capital strategies to harness this capital driven P/C reinsurers. (see chart 6) and that long-term investors either through building from scratch or We believe that life reinsurance’s have enjoyed good uncorrelated returns through acquisitions. Overall, we foresee business conditions will remain sound over a longer time. It also highlights further convergence in the insurance, during the next two years with a strong that there’s increasing alignment reinsurance, and ILS markets in the next ROE of 10% in 2019–2020. However, some between the reinsurance sector and few years as structural changes in the earnings volatility could occur if material alternative capital. In addition, the industry continue to place pressure on changes in key actuarial assumptions case for investing in insurance risk for reinsurers, especially considering that for calculating premium rates (that is, diversification purposes in a low interest capital is still relatively cheap. mortality, morbidity, and longevity) were rate environment remains valid. As a From a credit perspective, we to occur. For example, in 2012–2014, result, we believe alternative capital tend to view M&A transactions most reinsurers with exposure to the backed by long-term investors remains slightly negatively at the outset, Australian disability business were facing committed to property-catastrophe risk given the associated execution risk. adverse developments, and the industry and is here to stay. We expect, once the Establishing clear execution objectives suffered a loss of about $1 billion. recent bumps are smoothed over and the is vital for a successful M&A transaction. We estimated that the life reinsurance recent losses are fully digested, growth Consolidation could create growth sector’s ROE slightly declined to about 9% will resume. opportunities through combined in 2018, from 13.6% in 2017 (see Chart 7). platforms, a stronger competitive However, in 2017 the sector benefitted Mergers And Acquisitions Remain position in chosen products and regions, from significant tax gains from the U.S. In Vogue increased diversification benefits, and tax reform. Excluding this exceptional Mergers and acquisitions remain a potential expense synergies that could effect, we estimated the sector’s ROE hot topic for the reinsurance sector, improve earnings and strengthen the would have been 10.2% in 2017. The as some players are posting subpar financial profile. moderate decline in ROE in 2018 reflects

Global Reinsurance Highlights | 2019 15 Chart 1: Top 40 Global Reinsurers Rating Distribution*

(No.) 8

Chart 2: Top 40 Global Reinsurers Outlook Distribution* Negative (2%) Positive (10%)

Stable (88%)

Chart 4: Capital Adequacy Of The Top 20 Global Reinsurers By Conﬁdence Level (2014-2018)

80 2014 2016 2018 70 2015 2017

30 (%) 20

(10)

(20) AAA AA A BBB

Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return On Capital (2005–2020)

18 WACC 10-year U.S. govt bonds 16 Return on capital 14

8 (%)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2019 Q1

Chart 6: Global Reinsurance Capital

Traditional capital 605 605 595 585 575 565 Alternative capital 540 Global reinsurance capital 505 470 455 410 400 385 340

(Bil. $) 514 516 488 512 511 493 490 461 447 428 388 368 378 321

89 97 93 64 72 81 44 50 22 19 22 24 28 2020 Reinsurance Sector Outlook 17

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019

some volatility in U.S. mortality business Chart 7: Top Global Life Reinsurers Average Return On Equity and a decline in investment results 16 underscoring the potential volatility the sector is exposed to. 14 13.6 Life reinsurance benefits from high 12 barriers to entry on a global basis 11.2 10.0 10.3 10.0 because of large market shares of a 10 few competitors. It would be difficult 9.0 8 for new entrants to quickly enter the (%) market, reach critical mass, build 6 sustainable customer relationships, 5.7 and establish underwriting expertise. 4 Such a scale of competitive advantage 2 would be difficult to replicate in the short-to-medium term. 0 Nevertheless, the market doesn’t 2014 2015 2016 2017 2018 2019F 2020F stand still, and during the past few years F=Forecast. S&P Global Ratings' estimated ﬁgures based on the life reinsurance the industry saw some M&A activity book of the following companies: Swiss Re, Munich Re, Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re. and even the emergence of alternative Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. capital (see Table 2). One recent example is Langhorne Reinsurance (Bermuda) Ltd., a reinsurer sponsored Table 2: Top 10 Life Reinsurers Ranked By 2018 Gross Premiums Written by two major players, Reinsurance 2018 2017 Group of America Inc. and RenRe. In 2017, PartnerRe Ltd. acquired Aurigen FSR*/Outlook (Bil. $) Change (%) Capital Ltd., signaling its growth focus Swiss Re AA-/Stable 14.53 13.31 9.1 for this business line and boosting its Munich Re AA-/Stable 12.44 16.47 (24.4) premiums by about 20%. We don’t believe that sizable M&A Reinsurance Group of America AA-/Stable 11.40 10.70 6.5 transactions are likely to change the SCOR AA-/Stable 10.42 10.52 (0.9) global life reinsurers competitive landscape, owing to a lack of large Hannover Re AA-/Stable 8.26 8.49 (2.8) targets. Yet, small-to-midsize portfolio China Re A/Stable 7.63 6.81 12.0 transfers remain likely. North America Berkshire Hathaway Re AA+/Stable 5.45 4.85 12.4 continues to be the sector’s bread and butter business, with stable and slightly PartnerRe A+/Stable 1.24 0.98 25.6 increasing cession rates in the past few Korean Re A/Stable 1.18 1.06 10.8 years. The U.K. longevity reinsurance market Taiping Re A/Stable 0.60 0.55 9.6 doesn’t show any signs of slowing. Top 10 global life reinsurance total GPW 73.14 73.75 (0.8) However, more promising growth prospects will continue to emanate from *FSR: Financial strength rating as of Aug. 6, 2019. Asia as the region develops its primary life insurance markets. Indeed, Asia-based catastrophe space, the events of the past adequate pricing, prudent reserving, and life reinsurers such as China Re, Taiping two years have shifted the sentiment, tight exposure management. Re, and Korean Re have generated placing reinsurers in a slightly better It appears that the alternative capital stronger growth rates than their global position. Reinsurers are finally gaining sector is adopting these lessons, as the competitors in recent years, highlighting on pricing, and terms and conditions, capacity within that market looks to that Asia is the next frontier for growth. with the capital demand-supply reassess and align behind strong risk equation fairly balanced. 2017’s and managers. As a result, we’re now observing Is The Pricing Momentum Masking 2018’s catastrophes jogged reinsurers’ a higher degree of cautiousness within The Sector Secular Headwinds? memories, sending a reminder that there both the insurance (at least in the U.S.) After years of reinsurers battling pricing are inherent uncertainties in the nature and the global reinsurance sectors. This declines and losing ground to alternative of this business and that there are no sentiment will help continue the positive capital at least within the property- substitutes for underwriting discipline, rate momentum heading into 2020.

16 Global Reinsurance Highlights | 2019 2020 Reinsurance Sector Outlook

Although the current environment gives reinsurers some breathing room, the underlying factors spurring secular changes within the sector remain intact. Despite the losses and disciplined stance, there isn’t a scarcity of capacity—neither of traditional nor of alternative capital. Product commoditization will advance, especially within the property- catastrophe market, centralization and optimization of reinsurance purchasing will continue, consolidation of brokers will further entrench the intermediaries, and growth opportunities remain limited except for a few pockets. Despite M&A activity in the past few years, the global P/C reinsurance market remains very fragmented and highly competitive. S&P Global Ratings believes that these factors will continue to push the sector to evolve, forcing market consolidation, product and service innovation, expansion of product offerings, and reimagining of the re/ insurance value chain. Indeed the market may look different, but it could be a long time before the competitive landscape changes. For now, reinsurers are optimistic about the pricing environment, but a long road to ensure continued relevance lies ahead. n

This report does not constitute a rating action.

Taoufik Gharib New York, (1) 212-438-7253 [email protected]

Johannes Bender Frankfurt, (49) 69-33-999-196 [email protected]

Hardeep Manku Toronto, (1) 416-507-2547 [email protected]

David Masters London, (44) 20-7176-7047 [email protected]

Ali Karakuyu London, (44) 20-7176-7301 [email protected]

Global Reinsurance Highlights | 2019 17 Catastrophe Risk

Global Reinsurers Aim To Rebalance Their Natural Catastrophe Exposure

By Charles-Marie Delpuech and Johannes Bender

Global reinsurers’ very strong capital adequacy continues to provide the industry with a cushion against catastrophe risk exposure, despite insured losses from natural catastrophes being the highest on record in 2017, and fourth-highest on record in 2018, according to Swiss Re’s Sigma. Shutterstock / Trong Nguyen Trong / Shutterstock

18 Global Reinsurance Highlights | 2019 Catastrophe Risk

Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-Year Level

he magnitude of the 2018 losses— 1,000Chart 1: 2018 Catastrophe Losses Were Below The about 50% higher than reinsurers 1-In-10-Year Level Twould expect in an average year— 1,000 also helped push up prices at the 2019

April and June/July renewals. Property 100 catastrophe rates increased by 15% to Natural catastrophe net exposure estimate 25% on loss-affected accounts. 100 2011 NaturalActual annualcatastrophe aggregate net S&P Global Ratings has noted that 2017 exposurenet catastrophe estimate loss reinsurers’ strategic reaction to the price 2011 (restated for premium 10 Actualgrowth) annual aggregate 2017 uptick, amid heightened catastrophe 2018 net catastrophe loss 2010 (restatedAnnual expected for premium net activities, has diverged. Most of the top loss 10 2016 2012 growth) 20 reinsurers chose to increase their Return period in year (log scale) 2018 2010 2014 2013 Annual expected net exposure relative to capital, to benefit loss 1 20152016 2012

from the slightly improved conditions. Return period in year (log scale) 20140 201310 20 30 40 50 60 70 80 A few stuck with defensive measures, 1 2015 Modeled net loss (bil. $) allowing their exposure to contract 0Source: S&P10 Global 20Ratings estimates30 for40 the top 2050 global reinsurers.60 70 80 further, as they had in 2018. Copyright © 2019 by StandardModeled & Poor's net Financial loss (bil. Services $) LLC. All rights reserved. On average, reinsurers’ property- Source: S&P Global Ratings estimates for the top 20 global reinsurers. catastrophe risk appetite at a 1-in-250-year Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. return period rose to 29% of shareholder Chart 2: The Top 20 Global Reinsurers Typically Take 20% equity, but some reinsurers saw reductions Of Total Industry Losses of more than five percentage points. Chart 2: The Top 20 Global Reinsurers Typically Take 20% 34 Meanwhile, alternative capital 35 Of Total Industry LossesTop 20 loss market share 35 growth seems to have paused, at least Actual annual aggregate net 34 catastrophe loss (restated for 3530 Top 20 loss market share 28 3530 temporarily. This did not materially shift premium growth) reinsurer’s retrocession strategies. Actual annual aggregate net Top 20 loss market share (%) 3025 catastrophe loss (restated for 28 3025 premium growth) Top 20 loss market share (%) 2520 2520 “Although global reinsurers’ 16 15 have maintained their 2015 12 2015 16 underwriting discipline, we 9 15 10 10 expect earnings volatility Actual net loss (mil. $) 15 12 8 15 5 5 9 could be higher than 105 105 Actual net loss (mil. $) 8 historically observed, where 5 5 exposure has increased.” 50 50 2010 2011 2012 2013 2014 2015 2016 2017 2018 0 Source: Swiss Re Sigma, S&P Global Ratings. 0 Copyright2010 2011© 2019 by2012 Standard 2013 & Poor's 2014 Financial 2015 Services 2016 LLC. All2017 rights reserved.2018 Source: Swiss Re Sigma, S&P Global Ratings. CopyrightChart 3: © Aggregate2019 by Standard Net &Losses Poor's Financial From Typhoon Services LLC. Jebi All Are rights Beyond reserved. Table 1: Top 20 Global Reinsurers The 1-In-40-Year Level Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond Group 1: Large global reinsurers Group 1002: Midsize global reinsurers Group 3: Other re/insurance group The 1-In-40-Year Level Hannover Rück SE Alleghany90 Corp. Arch Capital Group Ltd. 100 80 Lloyd’s AXIS Capital90 Holdings Ltd. Argo Group International Holdings Ltd. 70 80 Munich Reinsurance Co. Everest Re60 Group Ltd. Aspen Insurance Holdings Ltd. 70 SCOR SE Fairfax Financial50 Holdings Ltd. China Reinsurance (Group) Corp. 60 40 Swiss Reinsurance Co. Ltd. PartnerRe50 Ltd. Hiscox Insurance Co. Ltd. 30 40 RenaissanceRe20 Holdings Ltd. Lancashire Holdings Ltd. 30 10 Markel Corp.

Estimated return periods (years) 20 0 10 Qatar Insurance Co. S.A.Q. Estimated return periods (years) 0 Sirius International Group Ltd. ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 Source: S&P Global Ratings. ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Copyright © 2019 by Standard & Poor's Financial ServicesGlobalReinsurer Reinsurance ReinsurerLLC. 10 AllReinsurer 11 rights ReinsurerHighlights 12 reserved. 13 | 2019 19 Source: S&P Global Ratings. CopyrightChart ©4: 2019 Loss by Estimates Standard & Poor's In 2017 Financial Showed Services Signiﬁcant LLC. All rights Disparities reserved. From The Average 40 Chart 4: Loss Estimates In 2017Average ShowedMin Signiﬁcant Max Disparities 30 From The Average 40 Average Min Max 20 30 10 20 0 10 (10) 0 (20) (10) (30) (20) (40) (30) (50) (40)

Net incurred development at year-end 2018 (60) (as percentage of year-end 2017 net incurred) (50) Hurricane Harvey Hurricane Irma Hurricane Maria California Wildﬁres (August 2017) (September 2017) (September 2017) (2017)

Net incurred development at year-end 2018 (60) (as percentage of year-end 2017 net incurred) CopyrightHurricane © Harvey2019 by StandardHurricane & Poor's Irma FinancialHurricane Services Maria LLC. California All rights Wildﬁres reserved. (August 2017) (September 2017) (September 2017) (2017)

CopyrightChart © 5: 2019 Large by Standard Reinsurers & Poor's Allow Financial More Services Of Their LLC. AllEarnings rights reserved. And Capital To Be At Risk Chart 5: Large Reinsurers Allow More Of Their Earnings 1.4 Individual reinsurer And Capital To Be At Risk Peer group 1.2 1.4 Individual reinsurer Peer group 1.21.0

1.00.8 Other Large global reinsurers reinsurers 0.80.6 OtherMidsize globalLarge global reinsurersreinsurers reinsurers 0.60.4 Midsize global 0.40.2 reinsurers 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (x) 0.20.0 0 10 20 30 40 50 60 70 80 90 1-in-10-year net catastrophe loss versus

expected PBT excluding catastrophe loss (x) 0.0 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) 0As of Jan.10 1, 2019.20 PBT: Proﬁt30 before40 tax. Source:50 S&P Global60 Ratings.70 80 90 1-in-250Copyright year © net2019 catastrophe by Standard loss & relativePoor's Financialto reported Services shareholders' LLC. All equity rights (%) reserved. As of Jan. 1, 2019. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 6: Risk Positions Have Shifted As Larger Reinsurers Take On More Exposure Chart 6: Risk Positions Have Shifted As20 Larger Reinsurers Take On More Exposure Individual reinsurer 15 20 Peer group Midsize 10 global Individual reinsurer 15 reinsurers 5 Peer group Midsize 10 global Other 0 reinsurers reinsurers 5 Large (5) global reinsurers Other 0 reinsurers (10) Large (5) global (15) reinsurers (10) (20) (15) (25) (15) (10) (5) (20) 0 5 10 Change 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus(25) reported shareholders’ equity (% point) (15) (10) (5) 0 5 10

Change 1-in-10-year net catastrophe loss versus Since Jan. 1, 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings. expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark Performed Well In 2018 Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark 18 Performed Well In 2018 Everest Re Lancashire 16 18 Lancashire 14 Everest Re equity (%) 16 Aspen Lloyd’s 12 14 Hannover Re SCOR equity (%) AXIS Aspen 10 Lloyd’s 12 Alleghany Hannover Re SCOR 8 AXIS 10 Hiscox Sirius Alleghany 6 Fairfax RenaissanceRe 8 Markel Munich Re 4 Hiscox Sirius 6 Fairfax PartnerRe Swiss Re RenaissanceRe 2 Markel Munich Re 4 Argo Arch Qatar Re Swiss Re

2017 total reported shareholders ’ 0 PartnerRe 2 0 1 2 3 4 5Argo 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end Arch Qatar Re

2017 total reported shareholders ’ 0 S&P Global relative catastrophe benchmark 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end (ranking from least to most exposed left to right)

Bubble size showsS& 2018P Global annual relative net catastrophe catastrophe loss benchmark against 2018 actual proﬁt before tax(ranking (excluding from cat). least to most exposed left to right) BubbleSource: size S&P shows Global 2018 Ratings. annual net catastrophe loss against 2018 actual proﬁtCopyright before © tax 2019 (excluding by Standard cat). & Poor's Financial Services LLC. All rights reserved. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 8: Property Catastrophe Reinsurance Utilization At A 1-In-250-Year Level Is Broadly Flat 90 Chart 8: Property Catastrophe Reinsurance Utilization At A 1-In-250-YearIndividual reinsurer Level Is Broadly Flat 80 90 Peer group 70 IndividualPeer average reinsurer 80 Peer group 60 Other reinsurers 70 Peer average Midsize global reinsurers 50 60 Peer average Other reinsurers Midsize global reinsurers 40 50 Peer average 30 40 Large global reinsurers 20

1-in-250-year gross exposure) 30

2019 (recoveries as percentage of Large global reinsurers 10 20 1-in-250-year gross exposure)

2019 (recoveries as percentage of 0 10 0 10 20 30 40 50 60 70 80 90 2018 (recoveries as percentage of 1-in-250-year gross exposure) 0 0 From Jan.10 1, 201820 to Jan. 1,30 2019. 40 50 60 70 80 90 Copyright2018 © 2019 (recoveries by Standard as percentage & Poor's Financial of 1-in-250-year Services gross LLC. All exposure) rights reserved.

From Jan. 1, 2018 to Jan. 1, 2019. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 9: The Industry’s Capital Surplus Suggests It Would Be Resilient To Stress Scenarios

120 Chart 9: The Industry’s Capital Surplus Suggests It Would Be Resilient To Stress Scenarios 11.3 (19.7) (35.7) (44.1) (58.1) 120 100 22.0 (16.2) 11.3 (19.7) (35.7) (44.1) (58.1) 100 80 22.0 71.6 30.0 11.4 (16.2)

80 60

Bil. $ 71.6 30.0 11.4

60 Bil. $ 40 Capital buffers Capital deficit 40 20 CapitalExpected buffers profit and cat budget CapitalCat losses deficit 20 Expected profit and cat budget 0 Cat losses AA AAA 2019 0 Surplus A Surplus Deficit Surplus BBB AA AAA 20192019 cat budget1-in-10-year 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss Surplus A Expected PBT Surplus Deficit Surplus BBB 2019 cat budget1-in-10-year 1-in-50-year loss loss Aggregate figures for the top 20 reinsurers at year-end 2018. PBT:1-in-100-year Profit before1-in-250-year loss tax. loss Source: S&P Global Ratings Expectedestimates. PBT AggregateCopyright figures © 2019 for by the Standard top 20 &reinsurers Poor’s Financial at year-end Services 2018. LLC. PBT: All Profit rights before reserved. tax. Source: S&P Global Ratings estimates. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Chart 10: Strong Profits Offer Resilience, Even If The Industry Lost $100 Billion* Chart 10: Strong Profits Offer Resilience, Even If The Industry 1.5 Lost $100 Billion* 1.0 1.5 0.5 1.0 0.0 0.5 (0.5) 0.0 Expected PBT 2019 (1.0) (0.5) PBT post $100 billion aggregate loss (1.5) ExpectedPBT post PB$150T 2019 billion aggregate loss (1.0) (2.0) PBT post $100 billion aggregate loss Relative to expected 2019 PBT (x) (1.5) (2.5) PBT post $150 billion aggregate loss (2.0)

Relative to expected 2019 PBT (x) (3.0) (2.5) s

AXIS Argo Arch Sirius (3.0) Lloyd’ Aspen SCOR HiscoxFairfax RenReMarkel SwissRe Alleghany Qatar Re Lancashires Everest Re Munich Re PartnerRe Hannover Re AXIS Argo Arch Sirius Lloyd’ Aspen SCOR HiscoxFairfax RenReMarkel SwissRe *Future experienceAlleghany may differ, becauseQatar Re some reinsurers adjusted their catastrophe Lancashire Everest Re Munich Re PartnerRe exposures after the 2017-2018 events. Hannover Re *FuturePBT: Proﬁt experience before tax. may Impact differ, estimatebecause somebased reinsurers on 2017-2018 adjusted average their loss catastrophe market exposuresshares for after the top-20 the 2017-2018 global reinsurers. events.

PBT:Source: Proﬁt S&P before Global tax. Ratings. Impact estimate based on 2017-2018 average loss market sharesCopyright for the © 2019 top-20 by globalStandard reinsurers. & Poor's Financial Services LLC. All rights reserved. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios

Companies that would lose notches / Companies that would retain their current capital adequacy Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios 20 Companies that would lose notches / Companies that would retain their current capital adequacy After a 1-in-10-year scenario No notch 20 1 notch 2 notches After a 1-in-10-year scenario 14 4 No3 notches notch After a 1-in-50-year scenario 1 1 notch 1 4 notches 14 2 notches 4 3 notches After a 1-in-50-year scenario 1 12 4 4 notches After a 1-in-100-year scenario 3 1 1 12 4 6 After a 1-in-100-year scenario8 3 After a 1-in-250-year scenario 21 3 1 6 8 After a 1-in-250-year scenario(10) (5) 2 0 5 10 15 20 25 3 1 Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2018.(10) (5) 0 5 10 15 20 25

Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-YearChart 1: 2018 LevelCatastrophe Losses Were Below The 1-In-10-Year Level 1,0001,000 1,000

100 100 Natural catastrophe net 100 Natural catastrophe net Naturalexposureexposure catastrophe estimateestimate net 2011 exposure estimate 2011 Actual annual aggregate 2017 2011 Actual annual aggregate 2017 Actualnetnet catastrophecatastrophe annual aggregate lossloss 2017 net(restated(restated catastrophe forfor premiumpremium loss 1010 (restatedgrowth)growth) for premium 10 growth) 20182018 2010 2010 AnnualAnnual expectedexpected netnet 2018 loss 2016 20122010 Annualloss expected net 2016 2012 loss Return period in year (log scale) 2016 2012 Return period in year (log scale) 2014 2014 20132013 Return period in year (log scale) 20142015 11 20152013 2015 10 0 1010 2020 3030 4040 5050 6060 7070 8080 0 10 20 30 40 50 60 70 80 Modeled net loss (bil. $) Modeled net loss (bil. $) Source:Source: S&PS&P GlobalGlobal RatingsRatings estimatesestimates forfor thethe toptop 2020 globalglobal reinsurers.reinsurers. Source: S&P Global Ratings estimates for the top 20 global reinsurers. CopyrightCopyright ©© 20192019 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: The Top 20 Global Reinsurers Typically Take 20% OfChart Total 2: IndustryThe Top 20Losses Global Reinsurers Typically Take 20% Of Total Industry Losses 34 35 34 TopTop 2020 lossloss marketmarket shareshare 35 35 34 35 35 Top 20 loss market share 35 ActualActual annualannual aggregateaggregate netnet 30 Actualcatastrophecatastrophe annual lossloss aggregate (restated(restated net forfor 28 30 30 premium growth) 28 30 30 catastrophepremium growth) loss (restated for 28 30 Top 20 loss market share (%)

premium growth) Top 20 loss market share (%)

2525 2525 Top 20 loss market share (%) 25 25

2020 2020 16 20 16 15 20 16 15 15 15 15 15 1212 15 15 12 15 99 Catastrophe Risk 10 10 Actual net loss (mil. $) 10 8 9 10 Actual net loss (mil. $) 8 10 10 Actual net loss (mil. $) 8 5 5 55 55 5 5 55 5 5

00 00 0 20102010 20112011 20122012 20132013 20142014 20152015 20162016 20172017 20182018 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source:Source: SwissSwiss ReRe Sigma,Sigma, S&PS&P GlobalGlobal Ratings.Ratings. Source:CopyrightCopyright Swiss ©© 20192019 Re Sigma, byby StandardStandard S&P Global && Poor'sPoor's Ratings. FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond “On average, reinsurers’ Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond The 1-In-40-Year Level property-catastrophe risk The 1-In-40-Year Level 100100 appetite at a 1-in-250- 100 9090 year return period rose to 90 8080 80 29% of shareholder equity, 7070 70 but some reinsurers saw 6060 60 reductions of more than 5 5050 50 percentage points.” 4040 40 3030 30 2020 20 1010 Estimated return periods (years)

Estimated return periods (years) 10 00 Estimated return periods (years) 0 The top 20 global reinsurers, which ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 Reinsurer 9 Reinsurer 10 Reinsurer 11 Reinsurer 12 13 are listed in Table 1, picked up about ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Source: S&P Global Ratings. ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 20% of the total insured industry losses Source: S&P Global Ratings. Source:CopyrightCopyright S&P ©© 20192019Global byby Ratings. StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. in 2018. We estimate aggregate losses Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. in 2018 represent a level seen less than Chart 4: Loss Estimates In 2017 Showed Signiﬁcant Disparities once in every 10 years (a 1-in-10-year FromChart The4: Loss Average Estimates In 2017 Showed Signiﬁcant Disparities Average Min Max loss) for the peer group. In aggregate, this 4040 From The Average Average Min Max 40 Average Min Max peer group has budgeted catastrophe 3030 30 losses in 2019 of about $11 billion, or 2020 20 seven percentage points of the combined 1010 10 (loss and expense) ratio. At this level, 00 we forecast that this group would report 0 (10)(10) pretax profits of about $22 billion in 2019, (10) (20)(20) reflecting a consolidated buffer of about (20) (30)(30) $33 billion before capital would be hit (30) (40)(40) in a severe natural catastrophe stress (40) (50)(50) scenario (see Charts 1 and 2). (50)

Net incurred development at year-end 2018 (60)

Net incurred development at year-end 2018 (60) Although global reinsurers’ have (as percentage of year-end 2017 net incurred) (as percentage of year-end 2017 net incurred)

Net incurred development at year-end 2018 (60) Hurricane Harvey Hurricane Irma Hurricane Maria CaliforniaCalifornia WildfiresWildfires maintained their underwriting discipline, (as percentage of year-end 2017 net incurred) Hurricane(August(August 2017)2017) Harvey (September(SeptemberHurricane Irma 2017)2017) (September(SeptemberHurricane Maria 2017)2017) California(2017)(2017) Wildfires we expect earnings volatility could be (August 2017) (September 2017) (September 2017) (2017) CopyrightCopyright ©© 20192019 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. higher than historically observed, where Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. exposure has increased. The 2018 Chart 5: Large Reinsurers Allow More Of Their Earnings natural catastrophe losses were 50% AndChart Capital 5: Large To Reinsurers Be At Risk Allow More Of Their Earnings And Capital To Be At Risk above the reinsurers’ budgeted level, 1.4 1.4 IndividualIndividual reinsurerreinsurer 1.4 but slightly below the modeled annual PeerIndividual group reinsurer 1.2 Peer group loss expectation of $86 billion for the 1.2 Peer group 1.2 insurance industry reported by AIR 1.01.0 Worldwide. We note that relative loss 1.0 magnitude was closely aligned with the 0.8 0.8 Large global 0.8 Other Large global exposure riskiness ranking we developed reinsurersOther reinsurersreinsurers 0.6 Otherreinsurers Large global for the top 20 global reinsurers. 0.6 reinsurers reinsurers 0.6 Midsize global The sector remains resilient to extreme reinsurersMidsize global 0.40.4 Midsizereinsurers global events, but we expect a larger industry loss 0.4 reinsurers would hit more reinsurers. If a 1-in-100- 0.20.2

1-in-10-year net catastrophe loss versus 0.2 year event hits, causing losses well in 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (x) 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (x) 0.00.0 excess of $200 billion across the insurance expected PBT excluding catastrophe loss (x) 0.0 00 1010 2020 3030 4040 5050 6060 7070 8080 9090 industry, we expect only 12 of the 20 global 1-in-2500 10year net catastrophe20 30 loss relative40 to reported50 shareholders'60 70 equity (%)80 90 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) reinsurers would maintain their current 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) AsAs ofof Jan.Jan. 1,1, 2019.2019. PBT:PBT: ProfitProfit beforebefore tax.tax. Source:Source: S&PS&P GlobalGlobal Ratings.Ratings. S&P Global Ratings capital adequacy level, As of Jan. 1, 2019. PBT: Profit before tax. Source: S&P Global Ratings. CopyrightCopyright ©© 20192019 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. as measured by our model. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

20 Global Reinsurance Highlights | 2019

Chart 6: Risk Positions Have Shifted As Larger Reinsurers TakeChart On 6: RiskMore Positions Exposure Have Shifted As Larger Reinsurers Take On More Exposure 2020 Individual reinsurer 20 Individual reinsurer 1515 Individual reinsurer 15 PeerPeer groupgroup Midsize 1010 Midsize Peer group Midsizeglobalglobal 10 reinsurers 5 globalreinsurers 5 reinsurers 5 Other 00 reinsurersOther Large Otherreinsurers 0 Large (5) globalglobal reinsurers (5) reinsurersLarge (5) globalreinsurers (10)(10) reinsurers (10) (15)(15) (15) (20)(20) (20) (25)(25) (15)(15) (10)(10) (5)(5) (25) 00 55 1010 Change 1-in-10-year net catastrophe loss versus

Change 1-in-10-year net catastrophe loss versus (15) (10) (5) 0 5 10 expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) expected PBT excluding catastrophe loss (% point) Change 1-in-10-year net catastrophe loss versus Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) Since Jan. 1, 2018. PBT: Profit before tax. Source: S&P Global Ratings. Since Jan. 1, 2018. PBT: Profit before tax. Source: S&P Global Ratings. SinceCopyrightCopyright Jan. © ©1, 201920192018. byby PBT: StandardStandard Profit before && Poor'sPoor's tax. FinancialFinancial Source: ServicesServicesS&P Global LLC.LLC. Ratings. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark PerformedChart 7: S&P Well Global In 2018 Rating’s Relative Catastrophe Benchmark Performed Well In 2018 18 18 Lancashire 18 EverestEverest ReRe Lancashire 1616 Everest Re Lancashire 16 14 equity (%) 14 Aspen equity (%) Aspen 14 Lloyd’s equity (%) Aspen Lloyd’s 1212 Hannover Re SCOR Lloyd’s 12 AXISSCOR 10 Hannover Re AXISSCOR 10 AXIS 10 AlleghanyAlleghany 88 Alleghany Hiscox 8 Hiscox SiriusSirius 6 Hiscox 6 FairfaxFairfax SiriusRenaissanceReRenaissanceRe 6 MarkelFairfax Munich Re RenaissanceRe 44 Markel SwissMunich Re Re 4 PartnerRePartnerRe Swiss Re 2 Swiss Re 2 ArgoArgo PartnerRe 2 Qatar Re ArchArch Qatar ReArgo 2017 total reported shareholders ’ 0 2017 total reported shareholders ’ 0 Arch Qatar Re

2017 total reported shareholders ’ 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end S&S&PP GlobalGlobal relativerelative catastrophecatastrophe benchmarkbenchmark (ranking(rankingS&P Global fromfrom leastleastrelative toto mostmostcatastrophe exposedexposed benchmark leftleft toto right)right) (ranking from least to most exposed left to right) BubbleBubble sizesize showsshows 20182018 annualannual netnet catastrophecatastrophe lossloss againstagainst 20182018 actualactual Bubbleprofitprofit beforebefore size shows taxtax (excluding(excluding 2018 annual cat).cat). net catastrophe loss against 2018 actual profitSource:Source: before S&PS&P GlobaltaxGlobal (excluding Ratings.Ratings. cat). Source:CopyrightCopyright S&P ©© 20192019Global byby Ratings. StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 8: Property Catastrophe Reinsurance Utilization At AChart 1-In-250-Year 8: Property Level Catastrophe Is Broadly Reinsurance Flat Utilization At A 1-In-250-Year Level Is Broadly Flat 9090 90 Individual reinsurer 80 Individual reinsurer 80 PeerIndividual group reinsurer 80 Peer group Peer group 7070 PeerPeer averageaverage 70 Peer average 6060 OtherOther reinsurersreinsurers 60 Midsize global reinsurers 50 Other reinsurers 50 Midsize global reinsurersPeer average 50 Peer average Peer average 4040 40 30 30 Large global reinsurers 30 Large global reinsurers Large global reinsurers 2020 1-in-250-year gross exposure) 1-in-250-year gross exposure) 20 2019 (recoveries as percentage of 2019 (recoveries as percentage of 1-in-250-year gross exposure) 1010 2019 (recoveries as percentage of 10 00 0 00 1010 2020 3030 4040 5050 6060 7070 8080 9090 0 102018 (recoveries20 as30 percentage 40 of 1-in-250-year50 60 gross exposure)70 80 90 2018 (recoveries as percentage of 1-in-250-year gross exposure) 2018 (recoveries as percentage of 1-in-250-year gross exposure) FromFrom Jan.Jan. 1,1, 20182018 toto Jan.Jan. 1,1, 2019.2019. FromCopyrightCopyright Jan. ©©1, 201920182019 bytoby Jan.StandardStandard 1, 2019. && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 9: The Industry’s Capital Surplus Suggests It Would Be ResilientChart 9: The To StressIndustry’s Scenarios Capital Surplus Suggests It Would Be Resilient To Stress Scenarios 120120 120 (19.7) (35.7) (44.1) (58.1) 111.31.3 (19.7) (35.7) (44.1) (58.1) 100 11.3 (19.7) (35.7) (44.1) (58.1) 100 22.0 100 22.0 (16.2)(16.2) 22.0 (16.2) 80 80 71.6 30.0 11.4 80 71.6 30.0 11.4 71.6 30.0 11.4 60 Bil. $ 60 Bil. $ 60 Bil. $

40 40 Capital buffers 40 Capital buffers CapitalCapital deficitbuffersdeficit ExpectedCapital deficit profit and cat budget 2020 Expected profit and cat budget 20 CatExpectedCat losseslosses profit and cat budget Cat losses 0 0

0 AA AA AAA AAA 2019 AA 2019 Surplus A AAA 2019 Surplus A Surplus Deficit Surplus BBB Surplus Deficit Surplus BBB Surplus A Surplus Deficit 2019 cat budget1-in-10-year 1-in-50-year loss loss Surplus BBB 2019 cat budget1-in-10-year 1-in-50-year loss 1-in-100-year loss 1-in-250-year loss loss Expected PBT 1-in-100-year1-in-250-year loss loss Expected PBT 2019 cat budget1-in-10-year 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss Expected PBT AggregateAggregate figuresfigures forfor thethe toptop 2020 reinsurersreinsurers atat year-endyear-end 2018.2018. PBT:PBT: ProfitProfit beforebefore tax.tax. AggregateSource:Source: S&PS&P figures GlobalGlobal for RatingsRatings the top estimates.estimates. 20 reinsurers at year-end 2018. PBT: Profit before tax. Source: S&P Global Ratings estimates. CopyrightCopyright ©© 20192019 byby StandardStandard && Poor’sPoor’s FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 10: Strong Profits Offer Resilience, Even If The Industry LostChart $100 10: Strong Billion* Profits Offer Resilience, Even If The Industry Lost $100 Billion* 1.51.5 1.5 1.01.0 1.0 0.50.5 0.5 0.00.0 0.0 (0.5)(0.5) (0.5) Expected PBT 2019 (1.0) Expected PBT 2019 (1.0) Expected PBT 2019 (1.0) PBPBTT postpost $100$100 billionbillion aggregateaggregate lossloss (1.5) (1.5) PBT post $150$100 billion aggregate loss (1.5) PBT post $150 billion aggregate loss (2.0)(2.0) PBT post $150 billion aggregate loss Relative to expected 2019 PBT (x) Relative to expected 2019 PBT (x) (2.0) Relative to expected 2019 PBT (x) (2.5)(2.5) (2.5) (3.0)(3.0) s (3.0) s s AXIS Argo Arch Sirius Lloyd’ Aspen AXISSCOR HiscoxFairfax Argo Arch Sirius Aspen SCOR Hiscox RenReMarkel Lloyd’ Qatar ReSwissRe Fairfax Argo Arch RenReMarkel Alleghany AXIS Qatar ReSwissRe PartnerRe Sirius LloydLancashire’ AspenEverest ReAlleghany Munich Re SCOR HiscoxFairfax PartnerRe RenReMarkel Lancashire Everest Re Munich Re SwissRe Alleghany Qatar Re Hannover Re Lancashire Everest Re Munich Re PartnerReHannover Re Hannover Re *Future*Future experienceexperience maymay differ,differ, becausebecause somesome reinsurersreinsurers adjustedadjusted theirtheir catastrophecatastrophe *Futureexposuresexposures experience afterafter thethe may2017-20182017-2018 differ, because events.events. some reinsurers adjusted their catastrophe exposures after the 2017-2018 events. PBT:PBT: ProfitProfit beforebefore tax.tax. ImpactImpact estimateestimate basedbased onon 2017-20182017-2018 averageaverage lossloss marketmarket PBT:sharesshares Profit forfor the thebefore top-20top-20 tax. global globalImpact reinsurers.reinsurers. estimate based on 2017-2018 average loss market shares for the top-20 global reinsurers. Source:Source: S&PS&P GlobalGlobal Ratings.Ratings. Source:CopyrightCopyright S&P ©© 20192019Global byby Ratings. StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios CompaniesCompanies thatthat wouldwould loselose notchesnotches // CompaniesCompanies thatthat wouldwould retainretain theirtheir currentcurrent capitalcapital adequacyadequacy Companies that would lose notches / Companies that would retain their current capital adequacy 2020 After a 1-in-10-year scenario 20 After a 1-in-10-year scenario No notch After a 1-in-10-year scenario No11 notchnotch notch 2 notches 1414 12 notchnotches 4 3 notches After a 1-in-50-year scenario 4 1 14 23 notchesnotches After a 1-in-50-year scenario 4 11 34 notches After a 1-in-50-year scenario 11 4 notches 4 notches 1 12 4 12 After a 1-in-100-year scenario 4 3 12 After a 1-in-100-year scenario 4 3 1 After a 1-in-100-year scenario 3 1 1 6 8 6 After a 1-in-250-year scenario8 2 6 After a 1-in-250-year scenario8 3 2 After a 1-in-250-year scenario 3 2 1 3 1 1 (10)(10) (5)(5) 00 55 1010 1515 2020 2525 (10) (5) 0 5 10 15 20 25 Notch represents a capital adequacy category as per S&P Global Ratings criteria. NotchDataData asas represents ofof Dec.Dec. 31,31, a 2018. 2018.capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2018. CopyrightCopyright ©© 20192019 byby StandardStandard && Poor'sPoor's FinancialFinancial ServicesServices LLC.LLC. AllAll rightsrights reserved.reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-Year Level 1,000

Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-Year Level 1,000 100 Natural catastrophe net exposure estimate 2011 Actual annual aggregate 2017 net catastrophe loss 100 (restated for premium 10 growth)Natural catastrophe net exposure estimate 2018 2010 2011 Annual expected net lossActual annual aggregate 2016 2012 2017 net catastrophe loss

Return period in year (log scale) 2014 (restated for premium 10 2013 growth) 1 2015 2018 2010 0 10 20 30 40 50 Annual60 expected70 net 80 loss 2016 2012 Modeled net loss (bil. $)

Return period in year (log scale) 2014 Source: S&P2013 Global Ratings estimates for the top 20 global reinsurers. 2015 1Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 0 10 20 30 40 50 60 70 80 Modeled net loss (bil. $) Source: S&P Global Ratings estimates for the top 20 global reinsurers. ChartCopyright 2: The © 2019 Top by 20 Standard Global & Reinsurers Poor's Financial Typically Services Take LLC. All 20% rights reserved. Of Total Industry Losses

34 35 Top 20 loss market share 35 Chart 2: The Top 20 GlobalActual Reinsurers annual aggregate Typically net Take 20% 30 catastrophe loss (restated for 28 30 Of Total Industry Lossespremium growth) Top 20 loss market share (%) 34 2535 Top 20 loss market share 2535 Actual annual aggregate net 2030 catastrophe loss (restated for 28 2030 premium growth) 16 15 Top 20 loss market share (%) 25 25 15 12 15 9 1020 1020 Actual net loss (mil. $) 8 16 5 5 15 155 12 515 9 100 010 Actual net loss (mil. $) 8 2010 2011 2012 2013 2014 2015 2016 2017 2018 5 5 5 Source: Swiss Re Sigma, S&P Global Ratings. 5 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 0 0 Chart2010 3: 2011Aggregate 2012 Net 2013 Losses 2014 From Typhoon2015 2016 Jebi Are2017 Beyond 2018 Source:The 1-In-40-Year Swiss Re Sigma, Level S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 100 90 Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond 80 The 1-In-40-Year Level 70 100 60 90 50 80 40 70 30 60 20 50 10 40 Estimated return periods (years) 0 30 20

Reinsurer10 Reinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 Estimated return periods (years) 0 Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 Chart 4: Loss Estimates In 2017 Showed ReinsurerSigniﬁcantReinsurer 10 Reinsurer 11 Disparities Reinsurer 12 13 Source:From S&P The Global Average Ratings. 40 Average Min Max Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 30 20 Chart 4: Loss Estimates In 2017 Showed Signiﬁcant Disparities From The Average 4010 Average Min Max 300 (10)20 (20)10 (30)0 (10)(40) (20)(50)

Net incurred development at year-end 2018 (30)(60) (as percentage of year-end 2017 net incurred) Hurricane Harvey Hurricane Irma Hurricane Maria California Wildﬁres (40) (August 2017) (September 2017) (September 2017) (2017) (50) Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Net incurred development at year-end 2018 (60) (as percentage of year-end 2017 net incurred) ChartHurricane 5: LargeHarvey ReinsurersHurricane Irma Allow HurricaneMore Of Maria Their CaliforniaEarnings Wildﬁres And(August Capital 2017) To Be(September At Risk 2017) (September 2017) (2017) Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 1.4 Individual reinsurer Peer group 1.2 Chart 5: Large Reinsurers Allow More Of Their Earnings And Capital To Be At Risk 1.0 1.4 Individual reinsurer Peer group 1.20.8 Other Large global reinsurers reinsurers 1.00.6 Midsize global reinsurers 0.40.8 Other Large global reinsurers reinsurers 0.60.2 1-in-10-year net catastrophe loss versus Midsize global expected PBT excluding catastrophe loss (x) 0.40.0 reinsurers 0 10 20 30 40 50 60 70 80 90

0.2 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%)

1-in-10-year net catastrophe loss versus As of Jan. 1, 2019. PBT: Proﬁt before tax. Source: S&P Global Ratings. expected PBT excluding catastrophe loss (x) 0.0 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 0 10 20 30 40 50 60 70 80 90

1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) As of Jan. 1, 2019. PBT: Proﬁt before tax. Source: S&P Global Ratings. Catastrophe Risk Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 6: Risk Positions Have Shifted As Larger Reinsurers Take On More Exposure 20 Individual reinsurer Chart 6: Risk Positions Have Shifted As15 Larger Reinsurers Take OnPeer More group Exposure Midsize “In a severe stress scenario, 10 global reinsurers the sector has a buffer 205 Individual reinsurer 15 of about $33 billion before Other 0 Peer group reinsurers Midsize Large its capital would be (5)10 global global reinsurersreinsurers depleted.” (10)5

Other (15)0 reinsurers Large global (20)(5) reinsurers If the industry were to experience a mega (10) (25) event, beyond $50 billion loss, the risk and (15) (10) (5) 0 5 10 (15)

Change 1-in-10-year net catastrophe loss versus uncertainty stemming from substantial expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) (20) loss creep could be significant. A risk

Since Jan. 1, 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings. (25) that we think the industry should better (15)Copyright © 2019(10) by Standard & Poor's(5) Financial Services0 LLC. All rights5 reserved. 10 prepare for post an event. Change 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) Appetite For Catastrophe Risk Is Since Jan. 1, 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Rising More than half of the top 20 reinsurers Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark are more exposed to property catastrophe Performed Well In 2018 risk than last year, partly because of

18 exposure growth and partly through Everest Re Lancashire capital deterioration (see Charts 5 and 16 Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark 6). Although some individual reinsurers Performed Well In 2018 14 made material exposure changes, across equity (%)

’ Aspen 18 Lloyd’s 12 Lancashire the peer group, we estimate that capital- Hannover Re SCOREverest Re 16 AXIS at-risk exposure rose to 29% of total 10 Alleghany shareholders’ equity exposed in January 14 equity (%) 8 Aspen 2019 from 27% in the same period in 2018. Lloyd’s 12 Hiscox Sirius 6 Hannover Re SCOR The positive price movements inspired Fairfax AXIS RenaissanceRe 10 Markel Munich Re about half of the top 20 reinsurers to 4 Alleghany Swiss Re increase their absolute net exposure 8 PartnerRe 2 Hiscox Argo Sirius to a 1-in-250-year aggregate loss by Qatar Re 6 Arch Fairfax RenaissanceRe more than 10%. Meanwhile, as in 2018, 2017 total reported shareholders 0 0 Markel1 2 3 4 5 6 7 8 9 10 11 12 13Munich 14 15 Re 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end 4 some reinsurers chose to reduce their Swiss Re PartnerRe exposure to extreme events by more than 2 S&P Global relative catastrophe benchmark (rankingArgo from least to most exposed left to right) Arch Qatar Re five percentage points.

2017 total reported shareholders ’ 0 Bubble0 1 size2 3shows 4 20185 6 annual 7 8 net 9 catastrophe 10 11 12 loss13 14against 15 162018 17 actual 18 19 20 21 22 2018 annual net catastrophe loss against year-end proﬁt before tax (excluding cat). Loss Volatility In 2018 Matched Our Source: S&P GlobalS& Ratings.P Global relative catastrophe benchmark Expectations Copyright © 2019(ranking by Standard from least & Poor's to most Financial exposed Services left to LLC.right) All rights reserved. Industrywide, 2018 losses averaged Bubble size shows 2018 annual net catastrophe loss against 2018 actual about 0.8x of the annual normalized proﬁt before tax (excluding cat). 2018 Event Losses Could Creep will likely be able to manage Jebi’s loss earnings and affected about 7 percent ChartSource: 8: S&P Property Global Ratings. Catastrophe Reinsurance Utilization At Into 2019 creep, further material developments could of shareholders’ equity at year-end ACopyright 1-In-250-Year © 2019 by LevelStandard Is &Broadly Poor's Financial Flat Services LLC. All rights reserved. Claims following the costliest event yet occur. We already expect it to represent 2017. Reinsurers’ individual experiences in 2018—Typhoon90 Jebi—have seen more than 15% of their catastrophe budget align well with our expectations, which Individual reinsurer significant80 Chart unfavorable 8: Property developments Catastrophe Reinsuranceand estimate aUtilization return period At of more than we derive from our annually updated Peer group in 2019, whichA 1-In-250-Year have affected Level reinsurers’ Is Broadly 1-in-40-years Flat for the event (see Chart 3). catastrophe exposure metrics. The most- 70 Peer average earnings90 for this year. At the end of 2018, Jebi is an important reminder of the exposed reinsurers in 2018, in terms of 60 the industry hadIndividual estimated reinsurer losses from significant uncertaintyOther reinsurers associated with both earnings and capital, appear on the 80 Midsize global reinsurers Jebi at50 $6 billion;Peer by groupthe first half of 2019, early loss estimates. Although initial right-hand side in Chart 7. Peer average losses 70had beenPeer revised average up to about $15 loss estimates for some large events in Earnings-at-risk exposure remains 40 billion, making it the costliest Japanese 2017 (such as Hurricane Harvey) proved flat, at 0.55x profit before tax in 2019 60 Other reinsurers typhoon30 on record, by insuredMidsize losses. global reinsurersconservative, other claims developed (0.56x in 2018). We estimate that a 50 Large global reinsurers Although the top 20 global reinsurersPeer negatively average (Hurricane Irma) (see Chart 4). 1-in-10-year aggregate loss would be 20 1-in-250-year gross exposure) 40 2019 (recoveries as percentage of 10 Global Reinsurance Highlights | 2019 21 30 0 Large global reinsurers 20 0 10 20 30 40 50 60 70 80 90 1-in-250-year gross exposure) 2018 (recoveries as percentage of 1-in-250-year gross exposure) 2019 (recoveries as percentage of 10 From Jan. 1, 2018 to Jan. 1, 2019. 0 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 0 10 20 30 40 50 60 70 80 90 2018 (recoveries as percentage of 1-in-250-year gross exposure)

ChartFrom 9: Jan. The 1, 2018 Industry’s to Jan. 1, Capital2019. Surplus Suggests It Would Be ResilientCopyright To © 2019 Stress by Standard Scenarios & Poor's Financial Services LLC. All rights reserved. 120

Chart 9: The Industry’s Capital Surplus11.3 Suggests (19.7) It(35.7) Would(44.1) Be (58.1) 100 Resilient To Stress Scenarios 22.0 120 (16.2) 80 71.6 30.0 11.4 11.3 (19.7) (35.7) (44.1) (58.1) 100 22.0 60

Bil. $ (16.2)

80 71.6 30.0 11.4 40 Capital buffers 60 Capital deficit Bil. $ 20 Expected profit and cat budget Cat losses 40 Capital buffers 0 Capital deficit AA 20 AAA 2019 Expected profit and cat budget Surplus A Cat losses Surplus Deficit Surplus BBB 2019 cat budget1-in-10-year 1-in-50-year loss loss 0 1-in-100-year1-in-250-year loss loss Expected PBT AA AAA 2019 Aggregate figures for the top 20 reinsurers at year-end 2018. PBT: Profit before tax. Surplus A Surplus Deficit SurplusSource: BBB S&P Global Ratings estimates. Copyright © 2019 by Standard & Poor’s Financial2019 cat budget 1-in-10-yearServices 1-in-50-year LLC.loss All rights loss reserved. 1-in-100-year1-in-250-year loss loss Expected PBT

Aggregate figures for the top 20 reinsurers at year-end 2018. PBT: Profit before tax. Source:Chart S&P 10: Global Strong Ratings Profits estimates. Offer Resilience, Even If The Industry CopyrightLost $100 © 2019 Billion* by Standard & Poor’s Financial Services LLC. All rights reserved.

1.5 1.0 Chart 10: Strong Proﬁts Offer Resilience, Even If The Industry 0.5 Lost $100 Billion*

1.50.0 (0.5)1.0 Expected PBT 2019 (1.0)0.5 PBT post $100 billion aggregate loss (1.5) 0.0 PBT post $150 billion aggregate loss (0.5)(2.0) Relative to expected 2019 PBT (x) Expected PBT 2019 (1.0)(2.5) PBT post $100 billion aggregate loss (1.5)(3.0) PBT post $150 billion aggregate loss s (2.0) AXIS Argo Arch Relative to expected 2019 PBT (x) Sirius Lloyd’ Aspen SCOR HiscoxFairfax RenReMarkel SwissRe (2.5) Alleghany Qatar Re Lancashire Everest Re Munich Re PartnerRe Hannover Re (3.0) *Futures experience may differ, because some reinsurers adjusted their catastrophe exposures after the 2017-2018 events. AXIS Argo Arch Sirius Lloyd’ Aspen SCOR HiscoxFairfax RenReMarkel SwissRe Alleghany Qatar Re PBT:Lancashire Proﬁt Everest before Re tax.Munich Impact Re estimate based on 2017-2018 averagePartnerRe loss market shares for the top-20 global reinsurers. Hannover Re

Source:*Future S&Pexperience Global mayRatings. differ, because some reinsurers adjusted their catastrophe Copyrightexposures © after 2019 the by 2017-2018 Standard & events. Poor's Financial Services LLC. All rights reserved. PBT: Proﬁt before tax. Impact estimate based on 2017-2018 average loss market shares for the top-20 global reinsurers.

Chart 11:Source: Reinsurer’s S&P Global Capital Ratings. Adequacy Could Slip Under Extreme Scenarios CompaniesCopyright that would © 2019 lose by notches Standard / Companies & Poor's Financial that would Services retain their LLC. currentAll rights capital reserved. adequacy

20 AfterChart a 1-in-10-year 11: Reinsurer’s scenario Capital Adequacy Could Slip Under Extreme ScenariosNo notch 1 notch Companies that would lose notches / Companies that would retain their current14 capital adequacy2 notches 4 3 notches After a 1-in-50-year scenario 1 20 1 4 notches After a 1-in-10-year scenario No notch 12 1 notch 4 After a 1-in-100-year scenario 3 14 2 notches 4 1 3 notches After a 1-in-50-year scenario 1 1 6 4 notches 8 After a 1-in-250-year scenario 2 12 4 3 After a 1-in-100-year scenario 3 1 1 (10) (5) 0 5 10 15 20 25 6 Notch represents a capital adequacy8 category as per S&P Global Ratings criteria. After a 1-in-250-year scenario 2 Data as of Dec. 31, 2018. 3 1 Copyright © 2019 by Standard(10) & Poor's(5) Financial0 Services5 LLC.10 All rights15 reserved.20 25

Notch represents a capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2018.

Chart 1: 2018 Catastrophe Losses Were Below The Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-Year Level 1-In-10-Year Level 1,000 1,000

100 100 Natural catastrophe net exposureNatural catastrophe estimate net 2011 exposure estimate 2011 Actual annual aggregate 2017 netActual catastrophe annual aggregate loss 2017 (restatednet catastrophe for premium loss 10 growth)(restated for premium 10 growth) 2018 2010 2018 2010 Annual expected net lossAnnual expected net 2016 2012 loss 2016 2012 Return period in year (log scale) 2014

Return period in year (log scale) 2013 2014 2013 1 2015 1 2015 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 Modeled net loss (bil. $) Modeled net loss (bil. $) Source: S&P Global Ratings estimates for the top 20 global reinsurers. Source: S&P Global Ratings estimates for the top 20 global reinsurers. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: The Top 20 Global Reinsurers Typically Take 20% Chart 2: The Top 20 Global Reinsurers Typically Take 20% Of Total Industry Losses Of Total Industry Losses 34 Top 20 loss market share 35 34 35 35 Top 20 loss market share 35 Actual annual aggregate net Actual annual aggregate net 30 catastrophe loss (restated for 28 30 30 premiumcatastrophe growth) loss (restated for 28 30 premium growth) Top 20 loss market share (%)

25 25 Top 20 loss market share (%) 25 25

20 20 20 16 20 16 15 15 15 12 15 15 12 15 9 10 9 10 Actual net loss (mil. $) 10 8 10 Actual net loss (mil. $) 8 5 5 5 5 5 5 5 5

0 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Swiss Re Sigma, S&P Global Ratings. Source: Swiss Re Sigma, S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond The 1-In-40-Year Level The 1-In-40-Year Level 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 Estimated return periods (years)

Estimated return periods (years) 0 0

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 4: Loss Estimates In 2017 Showed Signiﬁcant Disparities Chart 4: Loss Estimates In 2017 Showed Signiﬁcant Disparities From The Average 40 From The Average Average Min Max 40 Average Min Max 30 30 20 20 10 10 0 0 (10) (10) (20) (20) (30) (30) (40) (40) (50) (50)

Net incurred development at year-end 2018 (60) (as percentage of year-end 2017 net incurred)

Net incurred development at year-end 2018 (60)

(as percentage of year-end 2017 net incurred) Hurricane Harvey Hurricane Irma Hurricane Maria California Wildfires Hurricane(August 2017) Harvey (SeptemberHurricane Irma2017) (SeptemberHurricane Maria 2017) California(2017) Wildfires (August 2017) (September 2017) (September 2017) (2017) Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 5: Large Reinsurers Allow More Of Their Earnings Chart 5: Large Reinsurers Allow More Of Their Earnings And Capital To Be At Risk And Capital To Be At Risk 1.4 Individual reinsurer 1.4 Individual reinsurer Peer group 1.2 Peer group 1.2 1.0 1.0 0.8 0.8 Other Large global reinsurersOther reinsurersLarge global 0.6 reinsurers reinsurers 0.6 Midsize global 0.4 reinsurersMidsize global 0.4 reinsurers 0.2 0.2 1-in-10-year net catastrophe loss versus 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (x) 0.0 expected PBT excluding catastrophe loss (x) 0.0 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) 1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) As of Jan. 1, 2019. PBT: Profit before tax. Source: S&P Global Ratings. As of Jan. 1, 2019. PBT: Profit before tax. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 6: Risk Positions Have Shifted As Larger Reinsurers Chart 6: Risk Positions Have Shifted As Larger Reinsurers Take On More Exposure Take On More Exposure 20 20 Individual reinsurer 15 Individual reinsurer 15 Peer group Midsize Peer group 10 10 globalMidsize reinsurersglobal 5 reinsurers 5 0 Other 0 reinsurersOther Large reinsurers (5) globalLarge (5) reinsurersglobal reinsurers (10) (10) (15) (15) (20) (20) (25) (15) (10) (5) (25) 0 5 10 (15) (10) (5) 0 5 10 Change 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (% point) Change 1-in-10-year net catastrophe loss versus Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point) expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point)

Since Jan. 1, 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings. Since Jan. 1, 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark Performed Well In 2018 Performed Well In 2018 18 18 Everest Re Lancashire Lancashire 16 Everest Re 16 14 equity (%) 14 Aspen equity (%) Aspen Lloyd’s 12 Lloyd’s 12 Hannover Re SCOR Hannover Re AXISSCOR 10 AXIS 10 Alleghany 8 Alleghany 8 Hiscox Sirius 6 Hiscox Sirius 6 Fairfax RenaissanceRe MarkelFairfax Munich Re RenaissanceRe 4 Markel Munich Re 4 PartnerRe Swiss Re 2 PartnerRe Swiss Re 2 Argo Arch Qatar ReArgo

2017 total reported shareholders ’ 0 Arch Qatar Re 2017 total reported shareholders ’ 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end Catastrophe Risk S&P Global relative catastrophe benchmark (rankingS&P Global from least relative to most catastrophe exposed benchmark left to right) (ranking from least to most exposed left to right) Bubble size shows 2018 annual net catastrophe loss against 2018 actual proﬁtBubble before size shows tax (excluding 2018 annual cat). net catastrophe loss against 2018 actual proﬁt before tax (excluding cat). Source: S&P Global Ratings. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 8: Property Catastrophe Reinsurance Utilization At equivalent to global insured losses of Chart 8: Property Catastrophe Reinsurance Utilization At A 1-In-250-Year Level Is Broadly Flat about $100 billion. Although the industry A 1-In-250-Year Level Is Broadly Flat 90 would likely report profitable results 90 Individual reinsurer under this stress level, an aggregate loss 80 Individual reinsurer 80 Peer group of this magnitude would be a capital event Peer group 70 Peer average for a few of the global reinsurers. This was 70 Peer average 60 demonstrated in 2018, when aggregate 60 Other reinsurers Midsize global reinsurers Other reinsurers losses were less severe. Losses from 50 Midsize global reinsurers 50 Peer average natural catastrophes wiped out earnings Peer average 40 for five of the top 20 reinsurers last year. 40 30 30 Large global reinsurers Retrocession Retains A Vital Role Large global reinsurers 20

Retrocession remains a flexible way 1-in-250-year gross exposure) 20 1-in-250-year gross exposure) 2019 (recoveries as percentage of

2019 (recoveries as percentage of 10 to shift exposure quickly. Although the 10 market for retrocession has also shown 0 signs of price hardening with significant 0 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 2018 (recoveries as percentage of 1-in-250-year gross exposure) rate increases, reinsurance utilization by 2018 (recoveries as percentage of 1-in-250-year gross exposure) primary reinsurers has been flat. From Jan. 1, 2018 to Jan. 1, 2019. CopyrightFrom Jan. © 1, 20192018 byto StandardJan. 1, 2019. & Poor's Financial Services LLC. All rights reserved. As of January 1, 2019, insurers were Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. choosing to reinsure about half of their 1-in-250 exposure, on average. We think Chart 9: The Industry’s Capital Surplus Suggests It Would Be Chart 9: The Industry’s Capital Surplus Suggests It Would Be reinsurers typically take a strategic Resilient To Stress Scenarios Resilient To Stress Scenarios view of cover over the medium term. 120 Nonetheless, we now see less arbitrage 120 11.3 (19.7) (35.7) (44.1) (58.1) opportunity in buying retrocession than 11.3 (19.7) (35.7) (44.1) (58.1) 100 two or three years ago. At that time, 100 22.0 (16.2) 22.0 reinsurers were seizing the opportunity (16.2) to access alternative capital, which 80 80 71.6 30.0 11.4 offered a good spread against the inward 71.6 30.0 11.4 exposure. 60 Bil. $ 60 Consequently, further rate hardening Bil. $ could lead global reinsurers to gradually 40 40 Capital buffers cede less of their exposure in the future. Capital buffers Capital deficit The average utilization conceals a wide Capital deficit 20 Expected profit and cat budget 20 Expected profit and cat budget spectrum of coverage (see Chart 8). Cat losses Buffers Remain Sufficient, For Cat losses 0 Normal Years 0 AA AAA Given the catastrophe losses of the past AA 2019 AAA 2019 Surplus A two years, we examined the sector’s Surplus Deficit Surplus BBB Surplus A Surplus Deficit Surplus BBB 2019 cat budget1-in-10-year 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss 2019 cat budget1-in-10-year 1-in-50-year loss loss Expected PBT 1-in-100-year1-in-250-year loss loss Expected PBT Definitions Used Aggregate figures for the top 20 reinsurers at year-end 2018. PBT: Profit before tax. Source:Aggregate S&P figures Global for Ratings the top estimates. 20 reinsurers at year-end 2018. PBT: Profit before tax. Earnings-at-risk exposure is defined Source: S&P Global Ratings estimates. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. as a 1-in-10-year modeled annual Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. aggregate net loss compared with expected profits before taxes and earnings andChart capital 10: Strong resilience Profits to assess Offer Resilience,In a severe Even If stress The Industry scenario, this Chart 10: Strong Profits Offer Resilience, Even If The Industry net catastrophe claims. what effectLost further $100 losses Billion* might have, at implies that the sector has a buffer Lost $100 Billion* an aggregate level. Based on data from of about $33 billion ($22 billion plus 1.5 Capital-at-risk exposure is defined the top1.5 20 reinsurers, we estimate that $11 billion) before its capital would be 1.0 as a 1-in-250-year modeled the sector1.0 would post profits before tax depleted, assuming no dividends or other 0.5 annual aggregate net loss against of about0.5 $22 billion in 2019 if natural shareholder returns. shareholders’ equity as reported catastrophe0.0 losses were at the budgeted For reference, the top 20 companies 0.0 (including preference shares). level (0.5)of about $11 billion. This represents paid out about $9 billion in dividends and (0.5) about seven percentage points of theExpected share PB buybacksT 2019 in 2018. An earnings or (1.0) Expected PBT 2019 sector’s(1.0) combined ratio for 2019. PBT capitalpost $100 event billion aggregateat an individual loss company (1.5) PBT post $100 billion aggregate loss (1.5) PBT post $150 billion aggregate loss PBT post $150 billion aggregate loss (2.0) 22 Global Reinsurance Highlights | 2019 Relative to expected 2019 PBT (x) (2.0) Relative to expected 2019 PBT (x) (2.5) (2.5) (3.0) (3.0) s s AXIS Argo Arch Aspen SCOR Sirius Lloyd’ AXIS HiscoxFairfax Argo Arch RenReMarkel SwissRe Sirius Lloyd’ Aspen Alleghany SCORQatar Re HiscoxFairfax RenReMarkel Lancashire Everest Re Munich Re SwissRe PartnerRe Alleghany Qatar Re Lancashire Everest Re Munich Re PartnerReHannover Re Hannover Re *Future experience may differ, because some reinsurers adjusted their catastrophe exposures*Future experience after the 2017-2018may differ, becauseevents. some reinsurers adjusted their catastrophe exposures after the 2017-2018 events. PBT: Profit before tax. Impact estimate based on 2017-2018 average loss market sharesPBT: Profit for the before top-20 tax. global Impact reinsurers. estimate based on 2017-2018 average loss market shares for the top-20 global reinsurers. Source: S&P Global Ratings. CopyrightSource: S&P © 2019 Global by Ratings. Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios Companies that would lose notches / Companies that would retain their current capital adequacy Companies that would lose notches / Companies that would retain their current capital adequacy 20 20 After a 1-in-10-year scenario No notch After a 1-in-10-year scenario 1No notch notch 1 notch 14 2 notches 4 14 32 notches After a 1-in-50-year scenario 4 1 3 notches After a 1-in-50-year scenario 1 4 notches 1 4 notches 12 4 12 After a 1-in-100-year scenario 4 3 After a 1-in-100-year scenario 3 1 1 6 8 6 After a 1-in-250-year scenario8 2 After a 1-in-250-year scenario 3 2 3 1 1 (10) (5) 0 5 10 15 20 25 (10) (5) 0 5 10 15 20 25 Notch represents a capital adequacy category as per S&P Global Ratings criteria. DataNotch as represents of Dec. 31, a 2018. capital adequacy category as per S&P Global Ratings criteria. Data as of Dec. 31, 2018. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 1: 2018 Catastrophe Losses Were Below The 1-In-10-Year Level 1,000

100 Natural catastrophe net exposure estimate 2011 Actual annual aggregate 2017 net catastrophe loss (restated for premium 10 growth) 2018 2010 Annual expected net loss 2016 2012

Return period in year (log scale) 2014 2013 1 2015 0 10 20 30 40 50 60 70 80 Modeled net loss (bil. $) Source: S&P Global Ratings estimates for the top 20 global reinsurers. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: The Top 20 Global Reinsurers Typically Take 20% Of Total Industry Losses

34 35 Top 20 loss market share 35 Actual annual aggregate net 30 catastrophe loss (restated for 28 30 premium growth) Top 20 loss market share (%) 25 25

20 20 16 15 15 12 15 9 10 10 Actual net loss (mil. $) 8 5 5 5 5

Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond The 1-In-40-Year Level

100 90 80 70 60 50 40 30 20 10

Estimated return periods (years) 0

ReinsurerReinsurer 1 Reinsurer 2 Reinsurer 3 Reinsurer 4 Reinsurer 5 Reinsurer 6 Reinsurer 7 Reinsurer 8 9 ReinsurerReinsurer 10 Reinsurer 11 Reinsurer 12 13 Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 4: Loss Estimates In 2017 Showed Signiﬁcant Disparities From The Average 40 Average Min Max 30 20 10 0 (10) (20) (30) (40) (50)

Net incurred development at year-end 2018 (60) (as percentage of year-end 2017 net incurred) Hurricane Harvey Hurricane Irma Hurricane Maria California Wildﬁres (August 2017) (September 2017) (September 2017) (2017)

Chart 5: Large Reinsurers Allow More Of Their Earnings And Capital To Be At Risk

1.4 Individual reinsurer Peer group 1.2

1.0

0.8 Other Large global reinsurers reinsurers 0.6 Midsize global 0.4 reinsurers

0.2 1-in-10-year net catastrophe loss versus

expected PBT excluding catastrophe loss (x) 0.0 0 10 20 30 40 50 60 70 80 90

1-in-250 year net catastrophe loss relative to reported shareholders' equity (%) As of Jan. 1, 2019. PBT: Proﬁt before tax. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 6: Risk Positions Have Shifted As Larger Reinsurers Take On More Exposure 20

Individual reinsurer 15 Peer group Midsize 10 global reinsurers 5

Other 0 reinsurers Large (5) global reinsurers (10)

(15)

(20)

(25) (15) (10) (5) 0 5 10 Change 1-in-10-year net catastrophe loss versus expected PBT excluding catastrophe loss (% point) Change 1-in-250-year net catastrophe loss versus reported shareholders’ equity (% point)

Chart 7: S&P Global Rating’s Relative Catastrophe Benchmark Performed Well In 2018

18 Everest Re Lancashire 16

14 equity (%) Aspen Lloyd’s 12 Hannover Re SCOR AXIS 10 Alleghany 8 Hiscox Sirius 6 Fairfax RenaissanceRe Markel Munich Re 4 PartnerRe Swiss Re 2 Argo Arch Qatar Re

2017 total reported shareholders ’ 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 annual net catastrophe loss against year-end

S&P Global relative catastrophe benchmark (ranking from least to most exposed left to right)

Bubble size shows 2018 annual net catastrophe loss against 2018 actual proﬁt before tax (excluding cat). Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 8: Property Catastrophe Reinsurance Utilization At A 1-In-250-Year Level Is Broadly Flat 90 Individual reinsurer 80 Peer group 70 Peer average

60 Other reinsurers Midsize global reinsurers 50 Peer average 40

30 Large global reinsurers 20 1-in-250-year gross exposure) 2019 (recoveries as percentage of 10

0 0 10 20 30 40 50 60 70 80 90 2018 (recoveries as percentage of 1-in-250-year gross exposure)

Chart 9: The Industry’s Capital Surplus Suggests It Would Be Resilient To Stress Scenarios

120

11.3 (19.7) (35.7) (44.1) (58.1) 100 22.0 (16.2)

80 71.6 30.0 11.4

60 Bil. $

40 Capital buffers Capital deﬁcit 20 Expected proﬁt and cat budget Cat losses

AA AAA 2019 Catastrophe Risk Surplus A Surplus Deﬁcit Surplus BBB 2019 cat budget1-in-10-year 1-in-50-year loss loss 1-in-100-year1-in-250-year loss loss Expected PBT

Aggregate ﬁgures for the top 20 reinsurers at year-end 2018. PBT: Proﬁt before tax. Source: S&P Global Ratings estimates. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 10: Strong Proﬁts Offer Resilience, Even If The Industry (see Chart 10). That said, reinsurers Lost $100 Billion* with higher risk appetites and subdued returns would likely see their profit 1.5 before tax depleted more quickly than 1.0 their peers, although future experience 0.5 may be different as some reinsurers have 0.0 adjusted their catastrophe exposures (0.5) after the 2017/2018 events. Expected PBT 2019 (1.0) Capital levels at individual reinsurers PBT post $100 billion aggregate loss (1.5) also vary. In line with our aggregate PBT post $150 billion aggregate loss view for the sector, we expect more (2.0) Relative to expected 2019 PBT (x) than half of reinsurers to sustain their (2.5) S&P Global Ratings capital adequacy (3.0) in a 1-in-100-year aggregate loss. That s said, eight reinsurers could experience a AXIS Argo Arch Sirius Lloyd’ Aspen SCOR HiscoxFairfax RenReMarkel SwissRe Alleghany Qatar Re deterioration in their S&P Global Ratings Lancashire Everest Re Munich Re PartnerRe Hannover Re capital adequacy in such a scenario, *Future experience may differ, because some reinsurers adjusted their catastrophe unless they took action to manage capital exposures after the 2017-2018 events. levels (see Chart 11). PBT: Proﬁt before tax. Impact estimate based on 2017-2018 average loss market shares for the top-20 global reinsurers. What If The Market Turns? Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. If reinsurance markets get firmer, the temptation to expand exposure will strengthen. Reinsurers’ attitudes to Chart 11: Reinsurer’s Capital Adequacy Could Slip Under Extreme Scenarios catastrophe risk are already diverging. Companies that would lose notches / Companies that would retain their current capital adequacy Some reinsurers have reacted to the

20 improved premium rates by taking on increased catastrophe risk, while others After a 1-in-10-year scenario No notch 1 notch appear to be more defensive. Combined 14 2 notches back-to-back record years for natural 4 3 notches After a 1-in-50-year scenario 1 catastrophe losses may have caught 1 4 notches them off-guard. We expect this divide 12 4 could widen if rates harden. After a 1-in-100-year scenario 3 1 Although indications that reinsurers 6 are relaxing their underwriting discipline 8 After a 1-in-250-year scenario 2 remain weak, reinsurers will face 3 1 difficult strategic decisions if the cycle (10) (5) 0 5 10 15 20 25 starts to turn. Overexposure is a risk Notch represents a capital adequacy category as per S&P Global Ratings criteria. to their balance sheet and earnings, Data as of Dec. 31, 2018. but underexposure will cause them to Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. miss out on the higher returns that the property catastrophe space might offer. Reinsurers will need to find the right could be triggered earlier, depending on years, implying losses of around $35 balance. n its relative exposures. billion, would probably imply a capital An aggregated loss experience hit. It would exceed both the annual This report does not constitute a rating equivalent to 1-in-10 years is likely to catastrophe budget and the assumed action. be about $20 billion for the peer group. earnings for 2019 (see Chart 9). This is well above the $11 billion natural Based on their average loss market Charles-Marie Delpuech catastrophe budget for the year, and shares for the past two years, we London, (44) 20-7176-7967 so would hit the sector’s earnings. That expect profit before tax, including the [email protected] said, most insurers would not see this as catastrophe budget, at most reinsurers a capital event. would be sufficient to absorb industry Johannes Bender By contrast, an aggregated loss losses up to an aggregate of $150 billion, Frankfurt, (49) 69-33-999-196 experience equivalent to 1-in-50 or roughly 1-in-30 to 1-in-40 years loss [email protected]

Global Reinsurance Highlights | 2019 23 California Wildfires

Jolted By California Wildfires, Re/Insurers Recalibrate Their Risk Appetite

By Hardeep Manku, Taoufik Gharib, Saurabh Khasnis, and Brian Suozzo

The back-to-back devastating California wildfires of 2017–2018 caught the property-casualty re/insurance sector by surprise with the intensity and frequency of the losses and challenging the sector’s understanding of this hazard. Nevertheless, in view of most re/insurers’ robust capitalization, these wildfires in conjunction with other catastrophe losses had limited impact on their creditworthiness. Shutterstock / Mikhail Roop Mikhail / Shutterstock

24 Global Reinsurance Highlights | 2019 California Wildfires

Table 1: California 2017–2018 Notable Wildfire Catastrophe Events Date California wildfire Affected area Overall economic Insured losses event losses (mil. $, (mil. $, original original values) values)

Nov. 8-25, 2018 Camp Fire Paradise, Chico 16,500 12,500

Oct. 8-20, 2017 Central and Southern Napa County, Santa Rosa, Caligosta, Sonoma 14,800 11,400 LNU Complex Fires County, Solano County Nov. 8-22, 2018 Woolsey Fire Thousand Oaks, Oak Park, Westlake Village, Agoura 5,200 4,000 Hills, West Hills, Simi Valley, Chatsworth, Bell Canyon, Hidden Hills, Malibu, Calabasas Dec. 4, 2017-Jan. Thomas Fire Ventura County, Santa Paula, Ventura, Santa 2,900 2,200 12, 2018 Barbara, Los Padres National Forest July 23-Aug. 30, Carr Fire Shasta County, Redding, Keswick, Trinity County, 1,700 1,200 2018 French Gulch, Shasta Lake City, Igo, Ono, Summit City Oct. 8-28, 2017 Mendocino Lake Mendocino County 890 670 Complex Fire Dec. 5-17, 2017 Creek Fire Los Angeles County, San Fernando, Kagel Canyon 490 380

July 27- Sept. 19, Mendocino Complex Mendocino County, Ukiah, Lake County, Colusa 270 200 2018 Fire County, Glenn County Dec. 7-17, 2017 Lilac Fire San Diego County, Bonsall, Fallbrook 190 160

Total 42,940 32,710

Source: Munich Re NatCatSERVICE

istorically, the re/insurance sector droughts heightening the risk of wildfires. with many curtailing or stopping their has mostly focused on the primary In addition, the level of urbanization, underwriting. This has constrained the Hperils such as U.S. hurricanes, and population and economic asset available capacity for this risk. tornadoes, and earthquakes, which in the density, which are close to or encroaching Furthermore, retrocession capacity, past have been major causes of property- on the wildlands (commonly referred to which in the past provided a cheaper catastrophe risk and losses. The events as the wildland-urban interface [WUI]), form of capital and enabled the players to of 2017–2018 highlighted the increasing have been growing, which makes for a pass on the property-catastrophe risk in risk from secondary perils such as catastrophic event when these high- general, is constrained as well. Whatever California wildfires, which have increased density areas, potentially with expensive capacity is available is much more in frequency and severity (Table 1). properties, are hit. expensive after two subsequent years of Eight of the most destructive fires The recent updates to the models double-digit rate increases. occurred in the past two years, and five targeted a higher level of sophistication S&P Global Ratings expects significant of the seven largest fires and 10 of the for the primary causes of wildfires, rate increases for wildfire reinsurance top 20 most destructive fires occurred resulting in higher frequency and severity between now and next year’s renewal after 2009. However, it took the events of estimated losses. However, challenges seasons. This may not be as apparent of 2017–2018 for the industry to start persist in understanding this type of peril. because this peril is usually combined paying the kind of attention this peril With back-to-back above-average with the other reinsurance coverage for deserves. catastrophe years, reinsurance and primary perils; hence, the impact of pricing The modeling for California wildfires alternate capital are smarting from changes for wildfires gets somewhat lost has been challenged by a number of the losses—especially those from in the aggregated pricing. factors. Climate change is one, but not the the California wildfires. Several re/ We expect this dynamic to influence only, factor contributing to the increase insurers are not comfortable with their the primary pricing as well, although in risk, with increasing frequency and understanding of the risk, which has led more so in commercial lines than in severity of dry weather and extended to the sector taking a cautious approach, personal lines.

Global Reinsurance Highlights | 2019 25 California Wildfires

2017’s Losses Were Significant And loss events provided some important Widespread “S&P Global Ratings lessons necessitating a revamp of the The resultant losses from two years expects significant pre-existing models. of back-to-back wildfires were widely rate increases for wildfire Wildfire models typically involve four spread across the re/insurance sector. reinsurance factors: ignition, spread, suppression, Most of the insured losses were paid by and damage. All of these factors were between now and next five to six large national primary insurance revised to take into account the recent companies with substantial homeowners year’s renewal lessons, human activity, community business. This risk was well-insured on seasons.” influence, and additional forces for the the personal and commercial sides, with spread of wildfire footprint. the majority of homeowners covered by Although vendor models differ in terms their insurance policies. of event frequency, size, severity, and other Insurers in turn used reinsurance to be found negligent to be held liable factors, the outcome of these updated and capital markets to mitigate the risk, for the losses. With aging infrastructure models is ultimately higher estimated which ended up propagating the losses and increasingly hot and dry weather, losses (both frequency and severity) than throughout the value chain. As the the risks have grown significantly in predicted by the pre-existing ones. severity of events became clearer and recent years. A recent example is Pacific as the losses spread beyond property- Gas and Electric Co., which had to file Reinsurance Pricing: Renewal catastrophe, they caused turmoil in the for bankruptcy because of the extent of Timing Was Off broader re/insurance market and not just liabilities from the wildfires. According Reinsurance pricing for wildfire risk did in the alternative capital space. to the utility company, its liabilities could move in the past six to 12 months, but The 2017 California wildfires were a exceed $30 billion. not as forcefully, as the sector appeared major event and although hits to insurers to assume 2017 was a one-off event. In and reinsurers were expected given loss Models Let Re/Insurers Down addition, this risk is not priced on a stand- levels, they also affected alternative The first generation of California wildfire alone basis for the most part; rather, it is capital providing retrocession covers. models came out in the early 2000s and combined with other treaties including Although wildfires are considered a were refined over the years; however, property-catastrophe and aggregate secondary peril and modeling is not as they fell well short of the loss experience covers. Reinsurance pricing for wildfire developed as that for, say, U.S. hurricane in 2017–2018. risk moved by double digits in 2018, and tornado exposures, the property- A 30 to 40-year historical dataset more so for commercial lines business, catastrophe funds were taking a lot more suggests increasing trendlines for primarily utility companies. wildfire risk than perhaps they realized wildfires and weather data, particularly 2019 reinsurance renewals for or priced for, likely because wildfire for large fires. The scale of wildfires treaties covering California wildfires exposures are usually part of the property- continues to expand, with an increase didn’t provide any encouraging news catastrophe or aggregate covers. in WUI interface and density, natural from a pricing perspective, despite the The losses from 2017 events were drought cycles, climate change, forest second year of extensive wildfire insured deep in the tail based on the market management, and ignition sources all losses. This is because many insurers understanding of the risk at that time, contributing to increased wildfire risk. buy multiyear treaties, so not all coverage so the sector largely considered it a low- The 2017–2018 wildfires didn’t is renewed at the same time. probability occurrence. happen in the main fire season for either Furthermore, a few of these treaties Northern or Southern California. The are renewed about six months in advance And In 2018, They Were Even More So notable high-damage fires happened of the January renewal season, which However, after the 2018 wildfires, not outside of the peak fire count or area for 2018 also pre-dated the California only alternative capital but traditional burned periods, when winds are usually wildfires in the second half of that year. re/insurers started questioning the subdued. Recent extended drought As a result, despite the 2017–2018 understanding of this peril and their conditions have reduced the wet season, losses, 2019 reinsurance coverage was ability to appropriately price it. The losses extending the dry period into periods with already in place, and hence, the pricing stemmed not just from the property- higher wind. These conditions exposed for this risk didn’t move as much in catastrophe risk business but also from unrecognized risks and higher severity January renewals of this year. the casualty lines, including utilities, which for fires, with wind being recognized as a went counter to re/insurers’ expectations. major hazard for severity. The Insurability Of Risk Is Being In California, a utility company is According to a Swiss Re Sigma report, Questioned responsible for paying property damages 2018 was the most deadly and destructive There is no consensus in the re/insurance from wildfires linked to the company’s wildfire season in California, with record sector on the insurability of wildfire equipment, and does not necessarily have insurance losses, followed by 2017. The risk. Reinsurers’ comfort level with the

26 Global Reinsurance Highlights | 2019 California Wildfires

updated models for this hazard is not a healthy risk margin to be built into those indeterminate given the nature of the that high and not consistent. While some rate increases, given the uncertainties business. Nevertheless, we expect reinsurers have become comfortable involved. re/insurers to take a disciplined and with the updated view of the risk and are We also expect tightening terms and measured approach considering the risk- willing to underwrite it—albeit at higher conditions, with reinsurers pushing to reward trade-offs and to use their well- prices, others have either withdrawn make the definitions for loss occurrence developed risk management practices to from the risk entirely or have cut back narrower; currently loss occurrence can mitigate the risk, including development significantly. have different insurer interpretations. of risk measurement techniques, In addition, the retrocession capacity With California approving a $21 billion models, and tools to manage risk from is just not available to the same extent fund to cover the cost of wildfires for secondary perils from both a frequency as in previous years, more so for the the utilities, reinsurers may see a piece and a severity perspective. aggregate covers, and whatever capacity of that business, although details aren’t The past two years have clearly is available is at much higher prices. clear yet. highlighted that these secondary risks This dynamic extends beyond We expect primary insurance rates are not to be taken lightly. Indeed, reinsurers; primary insurance companies will rise as well. For the most part, the reinsurers have reassessed their risk are struggling not just with understanding California market is served by large appetites in view of recent experiences. the risk but also with their ability to raise carriers, mostly nationals. Considering Considering the limitations of the wildfire rates, especially on personal lines. their large, and diversified, books, the catastrophe models, if re/insurers were Proposition 103, passed by California impact from wildfires on the national to underestimate this risk, they may end voters in 1988, mandates insurance business was not as severe. While up taking outsize exposures that could companies to require “prior approval” primary carriers would like to take result in a capital event and ultimately from the California Department of higher rates, considering the importance hurt their credit worthiness. n Insurance before implementing property- of the California market, insurers will casualty insurance rates. Any proposed keep writing the risk, although they will This report does not constitute a rating increase of 7% or greater, regardless be more selective in certain fire lines, action. of rate indication, must go through a leverage the residual market to maintain resource-draining process that many a presence in the state, and work on the Hardeep Manku insurers try to avoid. rates over time. Toronto, (1) 416-507-2547 Furthermore, the Department of At the same time, primary insurers [email protected] Insurance does not permit the use of will raise rates as much as they can in catastrophe modeling in premium rate the commercial lines market or for high- Taoufik Gharib filings. This frustrates the primary value homes, constrain their capacity if New York, (1) 212-438-7253 insurers in achieving the level of rates they can’t get the rates, or withdraw from [email protected] they want, as the pricing wasn’t adequate the risk entirely. High-risk policies either to begin with, considering modeling end up with California Fair Plan Property Saurabh Khasnis deficiencies. In addition, the transfer of Insurance (FAIR Plan; association Centennial, (1) 303-721-4554 risk to reinsurers and capital markets of property insurers underwriting in [email protected] (through insurance-linked notes), which California) or potentially make their way to had helped in the past, won’t be cheap. the excess and surplus (E&S) lines market. Brian Suozzo Stuck between limited flexibility However, there are disadvantages New York, (1) 212-438-0525 on primary rates and the rising cost of to both: the FAIR Plan can constrain an [email protected] reinsurance, insurers are increasingly open insurance market and it’s unclear staying clear of this risk wherever how much volume it can handle, and the feasible. E&S market is pushing back as it is not set up to deal with this type of business A Hefty Rate Increase Is In The Offing or policies through the wholesale With reinsurers in slight disarray and distribution channel. In addition, Lloyd’s given their lack of comfort with the is an E&S player in California, but is California wildfire risk, pricing will reducing its capacity due to the loss inevitably increase. Reinsurance pricing experience. could rise 30% to 70% between now and the January 2020 renewals in Re/Insurers Tread Carefully As view of higher expected losses under They Reassess Their Risk Appetite the updated models. Given inherent Re/insurers are in the business of difficulties with the modeling, we expect risk-taking and these risks can be

Global Reinsurance Highlights | 2019 27 Cyber Risk

Global Reinsurers Face The Iceberg Threat Of Cyber Risk

By Johannes Bender, Manuel Adam, Robert J Greensted, Jean Paul Huby Klein, Milan Kakkad, and Tracy Dolin

Digitalization, interconnectivity, and innovation are already reshaping our lives, and there is much more to come with the internet of things, Industry 4.0, artificial intelligence, and simply the increase in access to the web globally.

ith these developments come economic losses of about $600 billion Although some re/insurers started risk. People and business are in 2017, up from about $100 billion in underwriting cyber risks more than 20 Wincreasingly prone to cyber 2014. This rapidly emerging risk has led years ago, at least in the U.S., S&P Global risks, as demonstrated by ransomware to a fast-growing cyberinsurance market. Ratings believes the global market is attacks WannaCry and NotPetya in 2017, Nevertheless, at this point the insured still in an early stage. For reinsurers, whose economic losses ranged from $4 losses from these events are minuscule cyber is an opportunity for growth— billion to $10 billion each. The Center compared with the economic losses, and with the potential for building long-term for Strategic and International Studies we expect this gap to narrow slightly but relationships with customers. It’s also says cybercrime resulted in global not change fundamentally. a threat, with a number of challenges, Shutterstock / solarseven / Shutterstock

28 Global Reinsurance Highlights | 2019 Cyber Risk

limitations, and the possibility of large billion of economic losses in 2018. At accumulation risk—and, if not handled “ If re/insurers do not start the same time, global affirmative cyber properly, the potential for large claims to screen their insurance premiums remain low at about $5 billion that could cause earnings or capital portfolios for nonaffirmative in 2018, which indicates a large protection volatility for re/insurers (see Table 1). gap. In comparison, global economic losses cyber exposures or manage from natural catastrophes in 2018 were Affirmative: A Rapidly Growing them, losses could become about $155 billion and insured losses were Dedicated Cyberinsurance Market significant and create about $76 billion, according to Swiss Re. Unsurprisingly, demand for volatility in capital and We believe the lack of global standards, cyberinsurance continues to expand after earnings in the near future.” including a homogenous definition of strong growth in recent years because cyber events, liberal exclusions and of the spike in frequency and severity of relatively low sums at risk offered by economic cyber losses. According to “The re/insurers for now are keeping the market Global Risks Report 2019” by the World in its infancy. However, we estimate that Economic Forum, although the top three first-party cyber liabilities (for example, the market has been very profitable, risks by likelihood of occurrence remain malware or ransomware attacks, illustrating the lack of large insured cyber environmental factors such as climate business interruption, online fraud, or losses. According to Aon, the combined change and natural catastrophe, cyber identity theft) and third-party cyber ratio for U.S. cyberinsurance averaged risks and data theft have moved up to liability (for example, data breach and about 70% in 2015-2017. We expect nos. four and five. potential legal fines). returns will start to diminish as insurance Moreover, prominent cyber incidents Targeted customer segments range providers currently benefit from an have increased awareness among from multinationals to microbusinesses uncertainty premium. individuals and businesses, such as and private households. Demand for The global cyberinsurance market the ransomware attacks WannaCry cyberinsurance not only stems from today is dominated by the U.S., which and NotPetya in 2017, and the targeted the need to cover financial losses represented about 70% of 2018 global theft of personal data of about 500 from cyberattacks, but also comes premiums. Demand is mostly coming from million guests from international hotel from ancillary services offered with various data protection regulations in group Marriot in 2018. At the same time, cyber policies, such as immediate IT several states where nonadherence to data global policymakers have introduced support, data recovery, and forensic security could lead to significant fines. several regulatory requirements for data services as well as reputation and loss In July 2019, Equifax settled with the protection and are creating new standards. prevention management. Therefore, the U.S. Federal Trade Commission over its In particular, the U.S. has several data cyberinsurance market extensively uses 2017 data breach, which affected 147 protection acts that have increased the third-party services from cybersecurity million Americans. The settlement of up costs of data breaches. According to “The companies that most insurers cannot to $700 million includes as much as $425 Hiscox Cyber Readiness Report 2019” the offer in-house. Some larger insurance million for individual compensation. mean loss from global cyber incidents for companies have started to build up Another example is Facebook’s companies increased 61% to $369,000, in-house expertise and have hired IT record-breaking $5 billion settlement while the frequency of recorded company professionals such as cybercrime experts. with the commission announced in attacks also rose 61%, up from 45% the Insured cyber losses remain a fraction July 2019 for violating consumers’ year before. of total economic cyber losses caused privacy rights. However, we believe that Cyberinsurance is offered either as by cybercrime, with about $6 billion of cyberinsurance outside the U.S. will grow a separate product or as an additional insured losses in total (affirmative and at a faster pace and could take about a peril for existing insurance policies for nonaffirmative cyber losses), versus $600 40% share of the global market in 2021.

Table 1: Cyber Risks—The Main Challenges And Opportunities For Reinsurers Main challenges Main opportunities Large accumulation risk Strong growth potential

Nonaffirmative ‘silent’ cyber exposure Long-term partnerships with clients

Potentially lower relevance of historical data because of the Potential collaboration with governments and insurance-linked constantly evolving nature of the risks securities markets

Limited diversification benefits by regions, customers Strong operating margins backed by uncertainty premiums

Still basic model capabilities with limited track record Adding value and relevance for clients

Global Reinsurance Highlights | 2019 29 Chart 1: Global Cyberinsurance Premiums 12

6 Premium (bil. $) 4

Chart 2: Criminal Involvement In Insured Data Breach Losses Noncriminal Criminal 100 8 18 90 24 31 29 80

50 % 92 82 40 76 69 71 30

20 Cyber Risk 10

Europe will take the lead following Chart 1: Global Cyberinsurance Premiums implementation of General Data 9 Protection Regulation in the EU in 2018. The regulation has a provision to 8 levy fines of up to €20 million or 4% of 7 global revenues. British Airways’ owner International Airlines Group, for example, 6 is facing a fine of $230 million from 5 customer data theft from its website, 4 and Google is looking at a $50 million fine Premium (bil. $) from France. 3 Asian markets recently entered the 2 cyber insurance market and we believe this region will witness growth too, as 1 awareness about cyberrisk is also rising. 0 We believe Asian markets will also 2016 2017 2018 2019e 2020e 2021e witness growth, as awareness about cyber risk is rising there. The Singaporean e-Estimated. Sources: Munich Re, S&P Global Ratings. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. government has announced plans to introduce a commercial cyberinsurance pool. As a result of rising cyber losses, 2019, the U.K.’s Prudential Regulation This makes it much more difficult increasing awareness, and growing Authority called on U.K. insurers to to model losses based on historic demand for cyber products, outside actively manage nonaffirmative cyber experience because it may not be a the U.S., we believe the global market risk and clearly define cyber strategies relevant indicator of the future. will grow to $8 billion in gross written and risk appetites. In July 2019, Lloyd’s of While diversification by geography, premiums by 2022 (see Chart 1). London announced that its underwriters business line, or customer base lessens will have to clarify whether standard natural catastrophe risk, the same Underwriting Cyber Risks Means policies include or exclude cyber risks, cannot be said for cyber, where we believe Looking At The Whole Iceberg starting next year. diversification benefits are more limited. Before discussing the underwriting S&P Global Ratings believes The cyberattacks WannaCry and NotPetya features of affirmative cyber polices, it is that a proactive strategy to address were global incidents encompassing important to review the cyber exposure nonaffirmative cyber exposure can help many industries and geographies, that already exists in traditional products. to further develop the cyberinsurance demonstrating the enormous potential Most of the risks are an iceberg threat, market by clarifying coverage for insureds, accumulation risk of cyber events. lurking below the surface for both non- insurers, and brokers. We closely monitor The sector is also still in its infancy life and life insurers. This nonaffirmative, re/insurance initiatives for addressing and has limited data on losses. Modeling or silent, cyber exposure can be plentiful. silent cyber exposures since we believe capabilities are improving but are still Any policy that has no explicit exclusion those companies that do not act to more basic than for more traditional for cyber incidents could be exposed, generate dedicated insurance premiums risks. What’s more, underwriting still including products such as business for the risk may experience earnings and relies highly on qualitative judgement interruption, marine, aviation, or transport. capital volatility from cyber exposure. and scenario-testing. According to the U.S.-based Property Claim For those wishing to underwrite for Services, the insured global cyber loss of affirmative cyber risk, the path is not Reinsurers Are Well Placed To Help the NotPetya attack was over $3 billion, straightforward. Compared with insuring To Develop The Cyber Market with 90% covered in traditional policies natural catastrophes, the most obvious In our view, reinsurers have been cautious such as business interruption. difference with cyber risk is the human about writing cyber reinsurance. Business As a result, insurers have started to origin of the peril and in particular appears to be still written mainly on a address these “silent” exposures through the criminal element. According to quota share basis, although we observe explicit exclusions or by offering insureds NetDiligence, 92% of insured data breach some increase in excess of loss and affirmative cover. For example, Allianz losses had a criminal origin in 2017 (see aggregate stop loss covers. We believe has announced a group and worldwide Chart 2). Cybercriminals are becoming that the number of reinsurers and insurers cyber underwriting strategy to update and more professional, aiming to develop that are offering cyber cover is rising. clarify all non-life policies for cyber risks. more complex ransomware more quickly In our view, even the market leaders Regulators too have become more than protection technologies are created are only cautiously increasing their vocal about silent cyber risk. In January to block them. exposures compared to other lines of

30 Global Reinsurance Highlights | 2019 Chart 1: Global Cyberinsurance Premiums 12

6 Premium (bil. $) 4 Cyber Risk 2

Chart 2: Criminal Involvement In Insured Data Breach Losses investing in natural catastrophe ILS is Noncriminal Criminal also less clear for cyber risks. 100 Lastly, the losses from cyber incidents 8 18 90 24 can be physical, similar to losses from 31 29 80 fires, which shows another correlation of cyberrisk to catastrophes of human 70 origin. While technically a government 60 backstop program like TRIA (Terrorism 50 % 92 Risk Insurance Act in the U.S.) can cover 82 40 76 cyberrisk, a key concern is that attribution 69 71 30 will be difficult to determine.

20 The cyber re/insurance market is largely fluid as demand is increasing, 10 newer entrants are scratching the 0 2013 2014 2015 2016 2017 surface, and the risk itself is evolving. Source: NetDiligence. Although the market is immature at Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. the moment, there is still value to be found if re/insurers properly underwrite business, showing that affirmative cyber through services and relationships with risk. If reinsurers are able to improve remains a niche specialty. One of the cybersecurity companies, specialized quantitative modeling and data quality, largest Chartglobal 1: reinsurers, Global Cyberinsurance Munich Re, Premiumsmanaging general agents, or insurtech this may allow for more capacity in the reported9 affirmative global cyber re/ companies. This in our view will create fast-growing business of cyberrisk. n insurance premiums of $473 million in attractive long-term partnerships, unlike 8 2018, which is less than 1% of the group’s the more commoditized capacity in the This report does not constitute a rating total 7gross written premiums of $49.1 pure natural catastrophe business. action. billion in 2018. The reinsurance sector, in 6 Given the uncertainties about cyber cooperation with insurers, regulators, Johannes Bender risks,5 we believe this cautious approach and governments, can also continue Frankfurt, (49) 69-33-999-196 is appropriate and a reflection of to play a vital role in helping to define [email protected] 4 sophisticatedPremium (bil. $) risk management in the affirmative cyber products and global global3 reinsurance sector. standards such as event definitions or Manuel Adam In general, we believe reinsurers more standardized terms and conditions. Frankfurt, (49) 69-33-999-199 2 are well placed to enable further Due to the enormous potential size of [email protected] development1 of the cyberinsurance economic cyber losses, combined with market. In particular, outside of global the limitations on traditional re/insurance Robert Greensted 0 multiline insurers,2016 which2017 usually have2018 capacity,2019e we believe2020e re/insurers2021e will partner London, (44) 20-7176-7095 in-house expertise, some midsize and with governments and the capital markets [email protected] e-Estimated. Sources: Munich Re, S&P Global Ratings. more regionally focused insurers do to increase capacity in the global market. We Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. not have the resources to significantly observed such behaviors in the catastrophe Jean Paul Huby Klein increase their cyber expertise and are risk market following Hurricane Andrew Frankfurt, (49) 69-33-999-198 therefore more reliant on external know- in 1992, when state funds for catastrophe [email protected] how and reinsurance. risks and catastrophe bonds for capital In this regard, reinsurers can market investors brought more capacity to Milan Kakkad help to develop products and share the sector. Mumbai, (91) 22-3342-8336 underwriting know-how, including The Singaporean government’s plans [email protected] modeling experience, in exchange for a to introduce a commercial cyber pool fee or classic reinsurance protection. with re/insurers and insurance-linked Tracy Dolin We also expect reinsurers will be able security (ILS) backing capacity is a recent New York (1) 212-438-1325 to help customers understand their example. However, before ILS investors [email protected] nonaffirmative cyber exposure and will accept cyber risk as a potential offer solutions to help transfer that into investment opportunity, the market affirmative cover. will need to enhance its ability to model Reinsurers can also play a role this risk as well as have a longer track in establishing cyber ecosystems record. The noncorrelation benefit that by offering holistic cyber solutions ILS catastrophe investors enjoy when

Global Reinsurance Highlights | 2019 31 ILS

Convergence Capital Will Remain Key For Reinsurers Despite Recent Losses

By Maren Josefs, David Masters, and Ali Karakuyu

In the past 12 months, the flow of the so-called convergence capital—funds from non- traditional, third-party sources—into the global reinsurance industry has decreased for the first time in 10 years. The reinsurance industry’s record back-to-back catastrophe loss years have affected all insurance-linked securities (ILS) funds, although the precise impact has varied.

epending on their overall returns have seen, and continue to see, or reloading. This is not surprising given performance, some funds inflows. it follows the two worst-performing years Dwith large losses have had In total, according to global broker Aon (2017 was the worst) since the inception redemptions—even to the extent that PLC, assets under management in the of the Eurekahedge ILS Advisers index they are being wound down following alternative capital sector fell by 4% to $93 (see Chart 2). Despite a benign period of several unfavourable loss-reserve billion as of March 31, 2019, compared catastrophe-insured losses so far in 2019, developments, such as with the Markel with year-end 2018 (see Chart 1). this year also hasn’t started well for the Corp.’s CATCo Reinsurance Fund Ltd. So far this year, it appears that investors index constituents. Further loss creep and By contrast, others with more positive have been cautious in entering the market mark-to-market catastrophe bond losses Shutterstock / DroneX / Shutterstock

32 Global Reinsurance Highlights | 2019 ILS

Chart 1: Global Reinsurance Capital due to higher prices for new issuance have ChartTraditional 1: Global capital ReinsuranceConvergence Capital capital Total capital been the main culprits. 700 Traditional capital Convergence capital Total capital The premium increases investors 700 575 565 595 605 585 605 hoped for when reloading after the 600 605 605 540 575 565 595 585 2017 losses didn’t materialize at the 600 470 455 505 540 2018 renewals. Instead, funds have 500 470 455 505 500 410 400 experienced an increase in existing 2017 385 340 400 410 400 losses and new 2018 accident-year 385 340 400 514 516 488 512 losses. According to Aon’s estimates, 300 511 493 (Bil. $) 461 490 514 516 488 512 about $15 billion of collateral is still 300 511 493 (Bil. $) 447 428 490 200 388 378 461 trapped in contracts affected by losses 368 321 447 428 200 368 388 378 from recent natural catastrophe events 321 97 93 100 72 81 89 that could take another two years to 44 50 64 97 93 100 17 22 19 22 24 28 72 81 89 settle, putting continued downward 44 50 64 0 22 24 28 pressure on investors’ returns. 17 22 19 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Even in 2019, several losses continue 2019 Source:2006 2007Aon Securities2008 2009 Inc.2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 to develop adversely across the whole 2019 industry, such as in the case of Typhoon Jebi, CopyrightSource: Aon © Securities2019 by Standard Inc. & Poor's Financial Services LLC. All rights reserved. which increased from an initial estimate of Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. between $3 billion and $7 billion to currently about $15 billion. During the April 1, 2019 Chart 2: Performance Of Eurekahedge ILS Advisers Index Japanese renewals, reinsurance prices Chart 2: Performance Of Eurekahedge ILS Advisers Index 15 were up 15% to 25%, a somewhat subdued 15 figure given the magnitude of the losses and the associated loss creep. 10 Despite these challenges, new capital 10 has entered the market—albeit at a slower rate. We saw a flight to quality as new 5 commitments have tended to favor ILS 5 fund managers with strong underwriting, established track records of successful 0 capital deployment and transparent

(% change) 0 reporting. It’s fair to say that the recent losses have put investors’ focus on seeking (% change) (5) out the best available returns. Indeed, the (5) retrocession market has already hardened in 2019 and could further do so at the (10) January 2020 renewals. (10) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Ongoing enhancements in models and 2019 adjustments in contract language (such 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Source: Eurekahedge. 2019 as certain peril exclusions) are expected Source:Copyright Eurekahedge. © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. to encourage further growth once recent Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. losses have been fully settled. Many diversifier, is still ongoing. All players As stated earlier, some collateral third-party capital investors have made continue Chartto innovate 3: Breakdown and explore Of different Alternative is Capitalstill trapped By Source following the losses good returns over the long term, and the routes andChart solutions 3: Breakdown to gain accessOf Alternative to of Capital2017 and By 2018Source and might not have 120 argument for investing in insurance risk to capital or insurance risk in the most been reloaded. At the same time, some 120 achieve portfolio diversification remains cost-effective manner.Collateralized Collateralized reinsurance ILS funds have set up their own rated 100 valid. For cedants, this means that there is reinsurance has beenILWsCollateralized the key avenue reinsurance of reinsurers. For example, Humboldt Re 100 capacity for the right risks at the right price growth over the pastSidecarsILWs 10 years (see Chart and Kelvin Re are backed by Credit Suisse 80 . 3), as from the cedants’CatastropheSidecars perspective, bonds Asset Managers’ ILS investor mandates, 80 Convergence Is Truly Underway In it operates similarlyCatastrophe to traditional bonds and Lumen Re is backed by LGT ILS 60 The Collateral Reinsurance Segment reinsurance. However, at the beginning of funds. All of these vehicles have been

(Bil. $) 60 Convergence between the traditional 2019, collateral reinsurance had its first successful in transferring collateralized

(Bil. $) 40 markets and third-party capital, which major dip in a decade. The reasons for this reinsurance onto rated paper, and we 40 views insurance risk as a portfolio decrease are varied. expect more funds to explore this route, 20 20 Global Reinsurance Highlights | 2019 33 0 02007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Q1 Source: Aon Securities Inc. 2019 CopyrightSource: Aon © Securities2019 by Standard Inc. & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 4: Average Collateralized Tail Protection Purchased By ChartTop 20 4: Reinsurers Average Collateralized Tail Protection Purchased By 30 Top 20 Reinsurers Dec. 31, 2015 30 Dec. 31, 20152017 25 Dec. 31, 20172018 25 Dec. 31, 2018 20 20 15

(%) 15

(%) 10 10 5 5 0 0 Large global Midsize global Other (re)insurance Total Largereinsurers global Midsizereinsurers global Other group(re)insurance Total reinsurers reinsurers group Percentage of collateralized recoveries -at a 1-in-a-250 year return period Source:Percentage S&P of Global collateralized Ratings. recoveries -at a 1-in-a-250 year return period CopyrightSource: S&P © 2019 Global by Ratings. Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 5: Catastrophe Bond Issuance 12,000 Chart 5: Catastrophe Bond Issuance 12,000 H2 H1 10,000 H2 H1 10,000 8,000 8,000 6,000

(Mil. $) 6,000

(Mil. $) 4,000 4,000 2,000 2,000 0 0 2016 2017 2018 2019 Source: 2016Trading Risk. 2017 2018 2019

Chart 6: Average Expected Loss And Coupon For Catastrophe ChartBonds 6: And Average ILS Expected Loss And Coupon For Catastrophe 14 Bonds And ILS 14 Average expected loss Average expected coupon Multiple 12 Average expected loss Average expected coupon Multiple 12 10 10 8 8 (%) 6 (%) 6 4 4 2 2 0 01997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* *As of July 19, 2019. *AsSource: of July www.artemis.bm. 19, 2019. CopyrightSource: www.artemis.bm. © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: Catastrophe Bond And ILS Market Developments Chart 7: Catastrophe Bond And ILS Market Developments 18 45 Mortgage ILS (left scale) 1618 4045 CatMortgage bond and ILS (leftother scale) ILS (left scale) 16 40 14 TotalCat bond outstanding and other (right ILS (left scale) scale) 35 1214 Total outstanding (right scale) 3035 (Bil. $) 1012 2530 (Bil. $) 108 2025 (Bil. $) 8 20

(Bil. $) 6 15 46 1015 24 510 2 5 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD2019 Source: www.artemis.bm. New issuance and total outstanding by year YTD CopyrightSource: www.artemis.bm. © 2019 by Standard New & issuance Poor's Financial and total Services outstanding LLC. byAll year rights reserved. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 1: Global Reinsurance Capital Traditional capital Convergence capital Total capital 700 Chart 1: Global Reinsurance Capital Traditional capital Convergence capital575 565 595Total605 capital585 605 700600 540 470 455 505 575 565 595 605 585 605 600500 540 410 400 505 385 340 470 455 500400 385 410 400 514 516 488 512 300 340 511 493 (Bil. $) 400 461 490 447 428 514 516 488 512 300200 388 378 511 493 (Bil. $) 368 321 461 490 447 428 97 93 200100 368 388 378 72 81 89 321 44 50 64 17 22 19 22 24 28 97 93 1000 72 81 89 44 50 64 200617 200722 200819 200922 201024 201128 2012 2013 2014 2015 2016 2017 2018 Q1 0 2019 Source: Aon Securities Inc. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 2019 Source: Aon Securities Inc. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Performance Of Eurekahedge ILS Advisers Index

15 Chart 2: Performance Of Eurekahedge ILS Advisers Index

15 10

10 5

5 0 (% change) 0

(% change) (5)

(5) ILS (10) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD (10) 2019 Source:2006 2007 Eurekahedge.2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.2019 Source: Eurekahedge. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 3: Breakdown Of Alternative Capital By Source

120 making the line between traditional Chart 3: Breakdown Of Alternative Capital By Source reinsurance and alternative capital more Collateralized reinsurance 100120 blurred than ever. ILWs ILS funds have various reasons SidecarsCollateralized reinsurance 10080 for setting up their own rated carrier. CatastropheILWs bonds Collateralized reinsurance involves a Sidecars 6080 great deal of back-office administration, Catastrophe bonds such as engaging managers to set (Bil. $) 60 up segregated accounts and trust 40 agreements for individual transactions. (Bil. $) 40 In addition, traditional reinsurance 20 contracts offer a structural feature that reinstates coverage at a pre-agreed 200 price following a major loss event, which 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 has been a major challenge for the 0 2019 Source: Aon Securities Inc. collateralized reinsurance market. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. To offer this reinstatement feature 2019 Source: Aon Securities Inc. to a cedant, an ILS investor would have Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. had to put up two limits at the inception of a policy, which would have rendered Chart 4: Average Collateralized Tail Protection Purchased By any transaction economically unviable. Top 20 Reinsurers However, ILS funds have been able Chart 4: Average Collateralized Tail Protection Purchased By 30 Dec. 31, 2015 to offer such reinstatements through Top 20 Reinsurers Dec. 31, 2017 collaboration with a fronting partner. 2530 Dec. 31, 20152018 Due to the discontinuation of Tokio Dec. 31, 2017 Millennium Re’s fronting business 2025 Dec. 31, 2018 following its acquisition by Renaissance Re Holdings Ltd., the market’s 1520

dependence on a few players—such (%) as Hannover Rück SE and Allianz Risk 1015

Transfer AG—has increased. Using (%) a fronting arrangement also means 105 additional cost to the ILS fund, and it adds another party to the relationship 05 with the cedant. With a rated carrier, Large global Midsize global Other (re)insurance Total the ILS fund still incurs costs in running 0 reinsurers reinsurers group its own carrier, but at the same time the Large global Midsize global Other (re)insurance Total Percentagereinsurers of collateralized recoveriesreinsurers at a 1-in-a-250group year return period fund operates more independently and - Source: S&P Global Ratings. is able to establish a direct relationship Percentage of collateralized recoveries -at a 1-in-a-250 year return period with its cedants/brokers. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Source: S&P Global Ratings. In the traditional market, some insurers Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. and reinsurers have set up, expanded, or In our view, in recent years traditional In the past, traditional reinsurers acquired their own third-party capital- reinsurersChart have 5:successfully Catastrophe leveraged Bond Issuance arguably viewed third-party capital as management capabilities (see “More capacity from third-party capital. This a nice to have. Now, it has become the 12,000 Consolidation To Come For Global is partly Chartreflected 5: Catastrophe in the increase Bond inIssuance new norm, with established players H2 H1 Reinsurers”) and they could use more quota collateralized retro utilization for the top 20 incorporating third-party capital into 12,000 share-type agreements to share their reinsurers10,000 on tail protection for a 1-in-250- their operations to stay competitive. A H2 H1 exposures with investors. These platforms year catastrophe event to about 20% as of major component of our rating analysis is 10,000 help insurance and reinsurance companies Dec.8,000 31, 2018, from about 13% as of Dec. our assessment of a re/insurer’s business attain greater scale and relevance as well 31, 2015 (see Chart 4). Compared to Dec 31, risk profile, with a particular focus on its 8,000 as target lines of business where the 2017,6,000 we observed the biggest increase in competitive position compared to peers’. returns might not support their own cost collateralized retro utilization in our group We generally expect an insurer with (Mil. $) 6,000 of capital adequately, which would allow of other4,000 re/insurers. In the past two years, a stronger overall competitive position

them to provide more complete solutions the(Mil. $) highest collateralized retro utilization to exhibit consistently higher and more to their clients. was 4,000among midsize global reinsurers. stable profitability metrics than its 2,000

34 Global Reinsurance Highlights | 2019 2,000 0 2016 2017 2018 2019 0 Source: Trading Risk. 2016 2017 2018 2019 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Source: Trading Risk.

Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 6: Average Expected Loss And Coupon For Catastrophe Bonds And ILS 14 Chart 6: Average Expected Loss And Coupon For Catastrophe BondsAverage And ILS expected loss Average expected coupon Multiple 1412 Average expected loss Average expected coupon Multiple 1012

108 (%) 86 (%) 46

20 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* 0 1997*As of July1999 19, 2019.2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* Source: www.artemis.bm. Copyright*As of July © 19, 2019 2019. by Standard & Poor's Financial Services LLC. All rights reserved. Source: www.artemis.bm. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 7: Catastrophe Bond And ILS Market Developments

18 45 Chart 7: CatastropheMortgage ILS Bond (left scale)And ILS Market Developments 16 40 18 Cat bond and other ILS (left scale) 45 14 Mortgage ILS (left scale) 35 16 Total outstanding (right scale) 40 12 Cat bond and other ILS (left scale) 30 14 Total outstanding (right scale) 35 (Bil. $) 10 25 12 30

8 20 (Bil. $)

(Bil. $) 10 25 6 15 8 20 (Bil. $) 4 10 6 15 2 5 4 10 0 0 2 5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 YTD 0 Source: www.artemis.bm. New issuance and total outstanding by year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.YTD Source: www.artemis.bm. New issuance and total outstanding by year Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 1: Global Reinsurance Capital Traditional capital Convergence capital Total capital 700 575 565 595 605 585 605 600 540 470 455 505 500 410 400 385 340 400 514 516 488 512 300 511 493 (Bil. $) 461 490 447 428 200 388 378 368 321 97 93 100 72 81 89 44 50 64 17 22 19 22 24 28 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019 Source: Aon Securities Inc. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Performance Of Eurekahedge ILS Advisers Index

0 (% change)

(5)

Chart 3: Breakdown Of Alternative Capital By Source

120

Collateralized reinsurance 100 ILWs Sidecars 80 Catastrophe bonds

60 (Bil. $) 40

Chart 4: Average Collateralized Tail Protection Purchased By Top 20 Reinsurers 30 Dec. 31, 2015 Dec. 31, 2017 25 Dec. 31, 2018

15 (%) 10

0 Large global Midsize global Other (re)insurance Total ILS reinsurers reinsurers group

Chart 5: Catastrophe Bond Issuance “All players continue to 12,000 innovate and explore H2 H1 10,000 different routes and solutions to gain access to 8,000 capital or insurance risk in the most cost-effective 6,000 manner.” (Mil. $) 4,000

from a loss payment from their respective 2,000 issues Loma Reinsurance (Bermuda) Ltd. (Series 2013-1) Class C and Atlas IX Capital 0 Limited (Series 2015-1). We did not take 2016 2017 2018 2019 any rating actions on cat bonds we rate Source: Trading Risk. following the 2018 events. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Depending on which reporting source one refers to, as some include and others competitors. Using third-party capital to demonstrates that the issues in the table exclude mortgage ILS, mortgage ILS has profitablyChart grow 6: the Average top and Expected bottom line Loss Andwere Coupon well received For Catastrophe by investors, as all but been a driving force in ILS issuance in should, inBonds general, And reflectILS positively on one achieved multiples below the current 2018 and 2019 (see Chart 7). According to this assessment.14 average for 2019. Artemis, mortgage ILS deals contributed Average expected loss AverageFrom expected the coupon first issuanceMultiple in 1997 to an additional $2.9 billion and $3.6 Catastrophe12 Bond Issuance Has 2016, only 13 cat bonds out of roughly $80 billion in new ILS issuance, respectively, Slowed, Mortgage ILS A Main Driver billion of total issuance defaulted, which bringing total mortgage issuance since 10 Behind New Issuance we define as having incurred a reduction 2015 to $7.8 billion. In the8 first half of 2019, natural in principal after making loss payments The expectation is for U.S. private catastrophe bond issuance was subdued to the cedant (see “Catastrophe Bonds mortgage insurers such as Arch Capital (%) compared6 with recent years. According Have A Short, But Strong Track Record On Group Ltd., Essent Group Ltd., Radian to Trading Risk, it dropped by nearly Claims Payments,” Aug. 31, 2016). Up to Group Inc., NMI Holdings Inc., and 57%, 4to $3.5 billion compared with $8.2 this point, market critics argued that the MGIC Investment Corp. to continue to billion in the first half of 2018 (see Chart cat bond market had not been put to the seek similar levels of protection on an 5). It cited2 pricing disparities between test despite surviving heavy cat loss years annual basis from the capital markets. the catastrophe bond market and the such as 2004, 2005, and 2011 without Transferring the mortgage risk through 0 traditional market as a possible cause. any major defaults. This was all to change an instrument similar to a cat bond allows 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* During the 2019 renewals, risk-adjusted from the following year onwards. these issuers to manage their capital, returns*As were of July said 19, to 2019. be more attractive According to the Artemis Catastrophe diversify their sources of reinsurance, and for cedantsSource: in thewww.artemis.bm. traditional market than Bond Default Directory, as of Aug 1, 2019, access capital with lower return hurdles. in the catastropheCopyright © 2019 bond by market.Standard & Poor's Financial18 cat Services bonds LLC. were All rights at risk reserved. of default after Mortgage ILS also helps drive top-line Nevertheless, four of the top 20 the 2017 events, eight are at risk of default underwriting growth while maintaining reinsurers we rate decided to seek retro due to the 2018 events, and 10 more could issuers’ exposures within their risk limits. capacity from the cat bond market (see be affected by an accumulation of losses Although mortgage ILS are structurally Table 1). OfChart note 7: was Catastrophe Swiss Re’s Bond return And ILSfrom Market events Developmentsin 2017 and 2018 combined. very similar to cat bonds, investors are to the cat bond market after a four-year In total, this represents $3.2 billion of exposed not only to the risk of the natural 18 45 absence. Mortgage ILS (left scale)principal at risk, with the expectation that cat event but also to default and credit 16 40 The average level ofCat risk bond assumed and other by ILS (leftabout scale) 50% of this amount will eventually risk on the pool of mortgage insurance investors (the expected loss) continues be paid out to cedants. policies being securitized. As a result, 14 Total outstanding (right scale) 35 to decrease, while the average coupon The majority of the bonds affected mortgage ILS are more correlated to the 12 30 continues to increase (see Chart 6). The provided protection on an aggregate basis(Bil. $) financial markets than cat bonds. 10 25 average multiple (the coupon divided (losses from a number of different events This explains why ILS funds have by the expected8 loss) has been trending are added to calculate total losses20 over a not been major buyers of these issues, (Bil. $) upward—to6 2.91x at end of July 2019 certain period). Argo and SCOR appear15 to be though their end investors might be. The from 2.01x in 2018. In our view, this the two reinsurers in our top 20 benefitting end investors could allocate a portion of 4 10 2 5 Global Reinsurance Highlights | 2019 35 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Source: www.artemis.bm. New issuance and total outstanding by year Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Chart 1: Global Reinsurance Capital Traditional capital Convergence capital Total capital 700 575 565 595 605 585 605 600 540 470 455 505 500 410 400 385 340 400 514 516 488 512 300 511 493 (Bil. $) 461 490 447 428 200 388 378 368 321 97 93 100 72 81 89 44 50 64 17 22 19 22 24 28 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019 Source: Aon Securities Inc. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Performance Of Eurekahedge ILS Advisers Index

0 (% change)

(5)

Chart 3: Breakdown Of Alternative Capital By Source

120

Collateralized reinsurance 100 ILWs Sidecars 80 Catastrophe bonds

60 (Bil. $) 40

Chart 4: Average Collateralized Tail Protection Purchased By Top 20 Reinsurers 30 Dec. 31, 2015 Dec. 31, 2017 25 Dec. 31, 2018

15 (%) 10

0 Large global Midsize global Other (re)insurance Total reinsurers reinsurers group

Chart 5: Catastrophe Bond Issuance 12,000 H2 H1 10,000

8,000

6,000 (Mil. $) 4,000

ILS 2,000

0 2016 2017 2018 2019 Source: Trading Risk.

Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. their assets to ILS funds, cat bonds, or Chart 6: Average Expected Loss And Coupon For Catastrophe other types of collateralized reinsurance Bonds And ILS and simultaneously another portion 14 directly into mortgage ILS. Due to the Average expected loss Average expected coupon Multiple unique characteristics of this asset class, 12 we’d argue that mortgage ILS should be monitored on a stand-alone basis and 10 not to be co-mingled with other ILS cat 8 bonds issuance. (%) 6 Sidecars Remain An Attractive Play For Sponsors And Investors Alike 4 Despite two heavy cat loss years that didn’t leave sidecar investors unscathed, 2 our cohort of the top 20 reinsurers were able to attract capital to their existing 0 sidecar strategies or even set up new 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* vehicles, such as AXIS Capital with its *As of July 19, 2019. Altura Re sidecar issues. Sidecars are Source: www.artemis.bm. a form of reinsurance managed by the Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. cedant/sponsor but largely funded by third-party investors. A sidecar gives sponsors greater control of the investors. We expect sidecars to continue catastrophes. Examples include quota share cessions to investors and to play anChart important 7: Catastrophe part in reinsurers’ Bond And ILSwildfires, Market Developmentsdroughts, and tornadoes allows them to earn fee income for the strategies. as well as the secondary effects of a 18 45 business ceded to the sidecar. This way, Mortgage ILS (left scale)primary peril, such as a tsunami from sponsors can significantly increase their Climate16 Change, Model an earthquake or precipitation40 from a Cat bond and other ILS (left scale) underwriting capacity while effectively Development, And The cyclone. 14 Total outstanding (right scale) 35 maintaining exposures within their risk Protection Gap Continue To Offer In the past, these perils have often not 12 30

limits. Opportunities been appropriately modelled or received(Bil. $) A sidecar can sit alongside other third- Investors10 are increasingly voicing much attention from the industry.25 This party arrangements, and a sponsor can concerns8 about climate change and inattention has resulted in the unexpected20 have a number of sidecars. For example, model(Bil. $) credibility. According to Swiss accumulation of losses in the past two 6 15 the Dutch pension fund PGGM is the sole Re’s sigma report, more than 50% of years, which hit alternative capital investors investor in Munich Re’s Leo Re sidecar. the $2194 billion in 2017 and 2018 global providing aggregate protection the10 hardest. Through this private arrangement, PGGM insured2 natural catastrophe losses As a consequence, the availability5 of can have increased influence on the resulted0 from so-called secondary perils. aggregate capacity has declined. 0 terms and scale of the sidecar rather Secondary2006 perils2007 2008can 2009be independent2010 2011 2012 2013 2014With2015 the2016 growth2017 2018 in population2019 in than allocating to Munich Re’s Eden Re small to midsized events that occur urban and other exposedYTD areas across sidecar, which is backed by various other more frequentlySource: www.artemis.bm. than major New natural issuance andthe total globe outstanding coupled by with year projected climate Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. Table 1: Reinsurers Obtaining Retro Capacity Issuer Sponsor Perils covered Trigger type Size (mil. $) Expected loss (%) Coupon (%) Multiple (x) Bowline Re Ltd. (Series 2019-1) Class A Transatlantic Reinsurance Co. U.S. and Canada named storms, earthquake, Industry loss index, annual aggregate 100 1.36 4.75 3.49 and severe thunderstorm Bowline Re Ltd. (Series 2019-1) Class B Transatlantic Reinsurance Co. U.S. and Canada named storms, earthquake, Industry loss index, annual aggregate 150 3.69 8.50 2.30 and severe thunderstorm Atlas Capital UK 2019 PLC (Series 2019-1) SCOR Global P&C SE U.S. named storm, U.S. and Canada Industry loss index, annual aggregate 250 5.46 11.75 2.15 earthquake, and European windstorm Matterhorn Re Ltd. (Series 2019-1) Swiss Re Northeast U.S. named storm Industry loss index, per occurrence 250 3.81 8.50 2.23

Northshore Re II Ltd. (Series 2019-1) AXIS Capital Holdings Ltd. subsidiaries U.S. named storms, U.S. and Canada Industry loss index, annual aggregate 165 2.84 7.50 2.64 earthquake, and European windstorm Source: artemis.bm.

36 Global Reinsurance Highlights | 2019 Chart 1: Global Reinsurance Capital Traditional capital Convergence capital Total capital 700 575 565 595 605 585 605 600 540 470 455 505 500 410 400 385 340 400 514 516 488 512 300 511 493 (Bil. $) 461 490 447 428 200 368 388 378 321 97 93 100 72 81 89 44 50 64 17 22 19 22 24 28 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019 Source: Aon Securities Inc. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 2: Performance Of Eurekahedge ILS Advisers Index

0 (% change)

(5)

Chart 3: Breakdown Of Alternative Capital By Source

120

Collateralized reinsurance 100 ILWs Sidecars 80 Catastrophe bonds

60 (Bil. $) 40

Chart 4: Average Collateralized Tail Protection Purchased By Top 20 Reinsurers 30 Dec. 31, 2015 Dec. 31, 2017 25 Dec. 31, 2018

15 (%) 10

0 Large global Midsize global Other (re)insurance Total reinsurers reinsurers group

Chart 5: Catastrophe Bond Issuance 12,000 H2 H1 10,000

8,000

6,000 (Mil. $) 4,000

2,000

0 2016 2017 2018 2019 Source: Trading Risk.

Chart 6: Average Expected Loss And Coupon For Catastrophe Bonds And ILS 14 Average expected loss Average expected coupon Multiple 12

8 (%) 6

0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* ILS

Chart 7: Catastrophe Bond And ILS Market Developments might lead to further opportunities to transfer risk into the capital markets. 18 45 Mortgage ILS (left scale) Globally, efforts are underway to close 16 40 Cat bond and other ILS (left scale) the current protection gap. The payouts from insurers following the two costliest 14 Total outstanding (right scale) 35 back-to-back years of losses on record only 12 30

(Bil. $) represent about 35% of total economic 10 25 losses, according to Swiss Re. While new 8 20 insurance schemes and pools in developing (Bil. $) 6 15 countries allow individuals and businesses to access insurance and hence increase 4 10 opportunities for the market, a 2018 report 2 5 by the California Earthquake Authority 0 0 noted that the protection gap is even 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 closer to home. Nearly 90% of residents or YTD commercial structures in California did not Source: www.artemis.bm. New issuance and total outstanding by year have earthquake coverage. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. This highlights the significant gap still present in developed markets and the change, the frequency and severity Another good example of a secondary significant opportunities where insurance of these secondary peril events are peril is flood following a major storm. risk seeking capital offered by investors expected to increase. The Camp Fire in In April of this year, the U.S. Federal can be deployed in collaboration with California—with insured losses of US$12 Emergency Management Agency’s (FEMA) established insurance and reinsurance billion—is proof that an event caused by expanded its flood reinsurance program players to make insurance more a secondary peril can become one of the for the National Flood Insurance Program accessible and affordable. n costliest of the year. (NFIP) through the second placement The experience from recent years has of the $300 million FloodSmart Re Ltd. This report does not constitute a rating led to the major modelling companies (Series 2019-1) cat bond and the issuance action. to release updated models that capture of its first bond of $500 million in July wildfire as a modelled peril. Albeit still 2018. With advances in technology, the Maren Josefs relatively new, this allows the industry— expectation is for exposure data and London, (44) 20-7176-7050 and hence investors—to separately models to continue to improve. [email protected] charge for this peril. In the past, if an Although neither will ever be perfect, event definition included wildfire, the risk new models and better exposure data David Masters analysis presented to investors did not. provide underwriters—and ultimately London, (44) 20-7176-7047 Hence, going forward we expect investors investors—with better tools to [email protected] to ask for exclusions for secondary perils understand the insurance risk they are not included in the risk analysis. We also exposed to. Models are also being built to Ali Karakuyu would not be surprised to see wildfire as a better understand longer-tail risks, such London, (44) 20-7176-7301 stand-alone modelled peril for a cat bond. as certain casualty/liability lines, which [email protected]

Table 1: Reinsurers Obtaining Retro Capacity Issuer Sponsor Perils covered Trigger type Size (mil. $) Expected loss (%) Coupon (%) Multiple (x) Bowline Re Ltd. (Series 2019-1) Class A Transatlantic Reinsurance Co. U.S. and Canada named storms, earthquake, Industry loss index, annual aggregate 100 1.36 4.75 3.49 and severe thunderstorm Bowline Re Ltd. (Series 2019-1) Class B Transatlantic Reinsurance Co. U.S. and Canada named storms, earthquake, Industry loss index, annual aggregate 150 3.69 8.50 2.30 and severe thunderstorm Atlas Capital UK 2019 PLC (Series 2019-1) SCOR Global P&C SE U.S. named storm, U.S. and Canada Industry loss index, annual aggregate 250 5.46 11.75 2.15 earthquake, and European windstorm Matterhorn Re Ltd. (Series 2019-1) Swiss Re Northeast U.S. named storm Industry loss index, per occurrence 250 3.81 8.50 2.23

Global Reinsurance Highlights | 2019 37 Adverse Development Covers

Re/Insurers Seek Structured Solutions For Their Legacy Business

By Saurabh Khasnis, Taoufik Gharib, Hardeep Manku, and David Masters

As competition in the re/insurance market remains heightened, global property and casualty (P/C) re/insurers are rethinking their business strategies and how best to deploy capital resources. Consequently, they’re increasingly using loss portfolio transfers (LPTs) and adverse development covers (ADCs) to de-emphasize their non-core legacy businesses that no longer offer optimal risk- return opportunities. Shutterstock / Aris Suwanmalee Aris / Shutterstock

38 Global Reinsurance Highlights | 2019 Adverse Development Covers

e/insurers have relied on these Exiting Business Through LPTs For instance, novation typically risk management tools to Today, to exit a line of business, re/insurers involves a rather cumbersome process Rexit lines of business, reduce have limited restructuring options. They because of the consent required from regulatory capital burdens, minimize can novate their business, put their the policyholders and various regulatory earnings volatility, enhance liquidity, business in a run-off and manage it authorities. Thus, in most cases, novating shore up their balance sheets, and themselves, or use LPT. Over the past few a block of business is less cost-efficient optimize their administrative resources. years, re/insurers have shown increasing than an LPT. These structured solutions go beyond interest in using LPT as a means to The increased interest in LPTs largely traditional risk transfer covers and restructure their portfolios (Table 1). This stems from the capital relief for the combine risk transfer with balance-sheet is primarily due to the ease of executing cedant as the economic reserve risk is management considerations. such transactions or transfers compared transferred to the reinsurer, offset by While LPTs and ADCs remain the with the other options. potential counterparty credit risk and lost preferred options, the introduction of investment income from the assets backing Insurance Business Transfer (IBT) laws the subject reserves. Given the differing in some states in the U.S. expands the Loss Portfolio Transfer treatment under various accounting solutions available to re/insurers and An LPT is a form of retrospective standards, we consider the economics of could serve as a comprehensive tool in reinsurance wherein the insurer these transactions to evaluate whether the future. typically transfers a certain portion true risk transfer has taken place. S&P Global Ratings believes that of outstanding loss liabilities to the Additional benefits to the cedants effectively executed LPT and ADC reinsurers. In general, the pricing may include: transactions could enhance cedants’ of the LPT is based on the net • Potential financial benefits if the overall credit profiles. While the benefits present value of the outstanding carried loss reserves are adequate, would primarily be in terms of capital loss liabilities transferred plus a thus helping the cedant negotiate a relief and improved risk profiles, they loading for expenses related to better pricing for ceded risk; would vary depending on the risk transfer claims handling, administrative • Operating efficiencies from resultant dynamics on an economic basis, terms cost, and a reinsurer’s risk (i.e., savings of claims management and and conditions, and materiality of such profit) margin. other administrative expenses on the transactions. associated portfolio; and

Table 1: Notable Loss Portfolio Transfers Date Ceding company Reinsurance company Liabilities Nature of liabilities covered acquired (mil. $) Jul-19 Northern California Regional Randall & Quilter Investment 113 Liabilities underwritten by the cedants Liability Excess Fund (NCR) Holdings Ltd. and Statewide Association of Community Colleges (SWACC) Apr-19 Zurich Insurance Group Ltd. Enstar Group Ltd. 500 U.S. asbestos and environmental liabilities

Dec-18 Zurich Insurance Group Ltd. Catalina Holdings (Bermuda) 2,000 U.K. employers liability Ltd. Nov-18 Brit Ltd. RiverStone Managing Agency -- Non-U.S. professional indemnity, employers Ltd. liability U.K./professional liability U.K. and legacy books of business Apr-18 Arch Capital Group Ltd. Catalina Holdings (Bermuda) 410 U.S. program business and construction Ltd. defect Feb-18 Zurich Insurance Group Ltd. Enstar Group Ltd. 275 New South Wales (Australia) motor vehicle compulsory third party insurance business Dec-17 Assicurazioni Generali S.p.A. Compre Group* 354 Asbestos, pollution and health hazard, and U.K. employers liability Nov-17 Zurich Insurance Group Ltd. Catalina Holdings (Bermuda) 450 German medical malpractice liabilities Ltd. Note: Liabilities acquired is approximate dollar-denominated value. Some transactions noted in the table are not yet closed. *Transaction structured upfront as LPT.

Global Reinsurance Highlights | 2019 39 Adverse Development Covers

• The potential for better capital expected claim payments. They could Over the past few years, we have seen allocation and redeployment also face lower investment income from re/insurers purchase ADCs, particularly opportunities. shortened reserve duration due to faster- for some of their commercial liability than-expected claim payouts. lines. The landmark ADC bought by In most cases, we have observed In our assessment of the reinsurers American International Group Inc. (AIG) that LPTs involve long-tail commercial underwriting such transactions, we also from National Indemnity Co. (NICO, a liability lines such as asbestos and factor in management’s expertise and subsidiary of Berkshire Hathaway Inc.) environmental, workers’ compensation, experience in handling LPTs, adequacy provides 80% coverage of $25 billion and professional liability. The higher of reserves assumed, and claims in excess of the first $25 billion of uncertainty around the actual amount management, among other things. We subject reserves (U.S. casualty reserves and the timing of claim payments prompts also consider the potential risks from the for accident years 2015 and prior). cedants to undertake LPTs. Reinsurers concentration or diversification benefits Underpinning AIG’s, as well as most of typically underwrite such covers on these of long-tail liabilities in the reinsurers’ the other re/insurers’, purchase of ADC long-tail liabilities as they price these overall underwriting portfolio. is the intention of curtailing earnings LPT contracts on a discounted cash and capital volatility amid weakened flow basis. So, the longer the duration Mitigating Earnings And Capital operating results. of the contract, the more opportunities Volatility Through ADCs Apart from stabilizing earnings, ADCs reinsurers have to generate investment In light of challenging market conditions, also help facilitate smoother mergers income from the assets received under generating underwriting profits and acquisitions, wherein the acquirer is the transaction. In addition, reinsurers while maintaining rate adequacy and less concerned about potential volatility leverage their expertise in claims minimizing earnings volatility remains from reserve adequacy of the target handling to enhance the positive payoffs a key focus for re/insurers. As such, re/ company’s legacy portfolio. This reduces from such transactions. insurers have increasingly used ADCs to the need for in-depth actuarial due On the flipside, cedants could face mitigate earnings volatility (Table 2). diligence or additional capital infusion credit and reputational risks in the requirements. event of non-payment or inadequate As an example, in May 2019, The claims handling by the reinsurers. Also, Adverse Development Cover Hartford Financial Services Group Inc. differences in the actuarial opinion on An ADC is similar to a limited stop purchased a $300 million ADC from NICO the transferred loss liabilities between loss reinsurance treaty providing during its acquisition of Navigators Group the cedant and the reinsurer may coverage against adverse reserve Inc. As part of the ADC, NICO covers any increase reinsurance costs for the development over and above adverse reserve developments in excess cedants. Similarly, reinsurers failing to the loss reserves agreed in the of $100 million above Navigators’ loss price the transactions adequately may contract. reserves as of Dec. 31, 2018. face negative returns from larger-than- ADCs relieve cedants of the

Table 2: Notable Adverse Development Covers Year Ceding company Reinsurance Liabilities Nature of liabilities covered company covered (mil. $) Aug-19 Maiden Holdings Ltd. Enstar Group Ltd. 600 Losses incurred on or prior to Dec. 31, 2018, in excess of retention May-19 The Hartford Financial Services Group Inc. National Indemnity Co. 300 The Navigators Group Inc. reserves as of Dec. 31, 2018, in excess of retention Jul-17 AmTrust Financial Services Inc. Premia Holdings Ltd. 1,025 All liabilities underwritten by cedant Jan-17 American International Group Inc. National Indemnity Co. 20,000 U.S. commercial long-tail exposures Jan-17 The Hartford Financial Services Group Inc. National Indemnity Co. 1,500 Asbestos and environmental reserves Jul-14 Liberty Mutual Group Inc. National Indemnity Co. 6,500 U.S. asbestos and environmental liabilities and workers’ compensation

Note: Liabilities covered is approximate dollar-denominated value. Some transactions noted in the table are not yet closed. Transactions include liabilities ceded under retroactive reinsurance agreement.

40 Global Reinsurance Highlights | 2019 Adverse Development Covers

uncertainty and potential earnings and capital impact of reserve strengthening. Background On Insurance Business Transfer For reinsurers, the benefits and risks of IBT is a restructuring solution in the U.S. that offers complete economic, writing ADCs are similar to those of LPTs. operational, and legal finality on business transferred to a reinsurer. It is similar For instance, reinsurers underwriting to the Part VII transfer legislation of the U.K. Financial Services and Markets Act these covers are exposed to pricing 2000. The business transferred under IBT typically requires regulatory and court risk in case of an unexpected or sudden approvals (they differ by state legislations). deterioration in loss reserves trends for In the U.S., Rhode Island, in 2015, was the first jurisdiction to introduce this law, the covered lines of business. which is applicable only to Rhode Island commercial P&C domiciliary. Vermont, The impact may be exacerbated if the Illinois, Connecticut, Michigan, and Oklahoma are the other states that have reinsurer has multiple ADC contracts adopted their versions of the law. covering the particular lines of business. Nonetheless, similar to LPTs, cedants release of liability, and the ultimate U.S. states have since followed suit. But, retain the risk of default of their policyholder claims obligation remains there have been inconsistencies in the reinsurance counterparties. with the cedants. Increasing demand for laws these states have adopted. restructuring legacy liabilities has also The inconsistencies are typically in Insurance Business Transfer, An led to the introduction of IBT laws, which terms of the types of business/liabilities Emerging Restructuring Option provide a more comprehensive solution that are eligible to be transferred, nature Although LPTs and ADCs are the two to the cedants. of business (active or run-off), and other most well-established restructuring However, these laws are still in the requirements around court approvals and solutions available to re/insurers, they nascent stages. Rhode Island was the disclosure provisions for policyholders. do not provide a complete finality or first state to adopt this law, and multiple Considering these disparities, the

Table 3: Example–ADC Treatment Under S&P Global Ratings’ Capital Model Book of business XYZ Insurance Co. workers’ compensation net undiscounted reserves (mil. $) (a) 1,000 Adverse development cover (ADC) transaction terms and conditions: ADC on XYZ Insurance Co. workers’ compensation book of business (mil. $) Attachment Limit Percentage point placed ADC - 1 1,000 400 100

ADC - 2 1,100 400 100

ADC - 3 1,200 400 100 Table 2: Notable Adverse Development Covers S&P Global Ratings’ capital model treatment: Year Ceding company Reinsurance Liabilities Nature of liabilities covered S&P Global Ratings’ risk-adjusted capital model: reserve charge at AAA AA A BBB company covered (mil. $) various confidence levels (‘AAA’–‘BBB’) Aug-19 Maiden Holdings Ltd. Enstar Group Ltd. 600 Losses incurred on or prior to Dec. U.S. workers’ compensation reserve charge (%) (b) 29.2 26.0 23.8 18.0 31, 2018, in excess of retention U.S. workers’ compensation reserve charge ($) (c = a x b) 292 260 238 180 May-19 The Hartford Financial Services Group Inc. National Indemnity Co. 300 The Navigators Group Inc. reserves as of Dec. 31, 2018, in excess of Reduction in reserve risk charge under S&P Global Ratings’ capital model (mil. $)* AAA AA A BBB retention ADC - 1 292 260 238 180 Jul-17 AmTrust Financial Services Inc. Premia Holdings Ltd. 1,025 All liabilities underwritten by cedant ADC - 2 192 160 138 80

Jan-17 American International Group Inc. National Indemnity Co. 20,000 U.S. commercial long-tail ADC - 3 92 60 38 - exposures Net reserve risk charge under S&P Global Ratings’ capital model post ADC benefit (mil. $)* AAA AA A BBB Jan-17 The Hartford Financial Services Group Inc. National Indemnity Co. 1,500 Asbestos and environmental reserves ADC - 1 - - - -

Jul-14 Liberty Mutual Group Inc. National Indemnity Co. 6,500 U.S. asbestos and environmental ADC - 2 100 100 100 100 liabilities and workers’ compensation ADC - 3 200 200 200 180

Note: Liabilities covered is approximate dollar-denominated value. Some transactions noted in the table are not yet closed. Transactions *Reduction in reserve risk charge declines in subsequent years as the covered reserves come down or limits are utilized; does not include liabilities ceded under retroactive reinsurance agreement. reflect any adjustments for counterparty risk

Global Reinsurance Highlights | 2019 41 National Association of Insurance We assume that XYZ Insurance Co. has prospect is the IBT laws introduced in Commissioners (NAIC) has formed a purchased a $400 million ADC above its some states in the U.S., but a consistent Restructuring Mechanisms Working current loss reserves for its U.S. workers’ application of the laws across states Group and a Restructuring Mechanisms compensation line of business. Under could take a while, so we may have to wait Subgroup to oversee various legal and the three scenarios, we have assumed to see a more widespread use of IBT as a financial issues related to IBT and district different attachment points. As the strategic tool. n laws. attachment points are further away from So far, we have not seen any re/ the covered reserves, the probability of This report does not constitute a rating insurer undertake an IBT transaction. them triggering becomes remote. action. We believe that a wider and more Thus, the quantitative benefits under consistent adoption of IBT law across our capital model (relief on reserve risk Saurabh Khasnis all states in the U.S. will take a while. charge) are lower. This is reflected in our Centennial, (1) 303-721-4554 Nevertheless, if adopted, IBT could act example. ADC-1 gets full capital relief [email protected] as a comprehensive restructuring tool of $292 million of reserve charge, while for re/insurers in the U.S. and can be ADC-3 gets only up to $92 million. This is Taoufik Gharib a successful equivalent to the Part VII because the ADC-1 attachment is “at the New York, (1) 212-438-7253 transfers in the U.K. money”, while ADC-3 attachment is “out [email protected] of the money”. Offsetting reserve capital LPTs And ADCs Could Be Credit- relief is an increase in counterparty risk. Hardeep Manku Positive For Cedants Toronto, (1) 416-507-2547 We believe that effectively executed LPT Substantial Opportunities Lie [email protected] and ADC transactions could enhance Ahead cedants’ financial risk profiles and We believe re/insurers will continue to David Masters overall creditworthiness. For this to be strive to achieve better risk-adjusted London, (44) 20-7176-7047 the case, the transaction has to be a true returns by redeploying capital to focus [email protected] risk transfer, with explicit attachment on their bread-and-butter business. As or trigger points (the point at which re/insurers contemplate mergers and reinsurance limits apply) and clear terms acquisitions, management teams could and conditions. seek structured solutions to mitigate As a result, the capital requirements their exposure to legacy business. In on the subject reserves could be reduced. addition, re/insurers may need to prune Thus, our quantitative capital and unprofitable non-core products as the earnings assessment of a cedant could sector is coming out of a soft pricing improve, depending on the structure of cycle. As a result, we expect re/insurers the transaction and remoteness of the to increasingly use LPTs and ADCs. attachment point being triggered. (The In our view, by offering structured associated increase in counterparty risk solutions, reinsurers have the potential slightly offsets these benefits.) to form long-term partnerships with Furthermore, these transactions cedants with more tailor-made pricing, could enhance our view of overall risk compared with traditional risk transfer exposure, to the extent they mitigate products. But they also require intense prospective reserves and earnings underwriting and claim expertise for the volatility. acquired lines of business, and scale depending on the size of the transaction— An Example Of Potential ADC for example, the ADC bought by AIG Treatment Under Our Capital Model from NICO. However, if these structured Here we provide an example of the solutions aren’t properly managed, they potential quantitative benefits of an ADC can weaken reinsurers’ creditworthiness. transaction to the cedants under our risk- We could assess ADCs and LPTs as adjusted capital adequacy model (Table a credit-positive for cedants if they are 3). Given that each ADC transaction is well executed and we view them as true unique and the terms and conditions risk transfers. However, these may not may vary, our assessment may differ on be comprehensive solutions, and the a case-by-case basis, so this example ultimate risk of claim payment would should not be viewed as guidance. still lie with the cedants. A promising

42 Global Reinsurance Highlights | 2019 2019 European Insurance Conference: Will Insurers Survive the Low Rate False Dawn?

S&P Global Ratings and S&P Global Market 2019 European Intelligence are looking forward to hosting their Insurance Conference 2019 European Insurance Conference. Following November 6, 2019 recent dovish tones and accommodative actions from major global central banks, the industry’s Leonardo Royal Hotel familiar foe - low, or even negative interest London Tower Bridge rates - looks to have regained the top spot as a 45 Prescot Street key concern for insurers’ earnings and balance sheets in the coming years. The industry is on the London cusp of a fundamental change to the insurance E1 8GP business model as technology and evolving consumer behaviours demand a re-think of the insurance value proposition, whilst the evolution Visit spratings.com/events of accounting and regulation add further demand to register, view the agenda on the industry. and get up-to-date Join us in London as insurance thought leaders information. and industry executives discuss these trends For questions, email: and their implications for the future of the sector, and network with industry peers and [email protected] S&P Global representatives.

Global Reinsurance Highlights | 2019 43 Reinsurance M&A

More Consolidation To Come For Global Reinsurers

By Ali Karakuyu, Johannes Bender, David Masters, Taoufik Gharib, and Hardeep Manku

The global reinsurance sector continues to face challenging business conditions, although the sector managed to benefit from modest rate increases in 2018 and in the first half of 2019, after record back-to-back catastrophe losses in 2017 and 2018. However, pressure on the sector’s earnings continues, with plentiful traditional and alternative capacity, changing cedants’ demand, and the commoditization of property risks. Shutterstock / NESPIX / Shutterstock

44 Global Reinsurance Highlights | 2019 Reinsurance M&A

einsurers want to strengthen Figure 1: The Top Catalysts For Consolidation In their relevance and improve the The Global Reinsurance Sector Outweigh Inhibitors Rresilience of their business and financial positions. To achieve this, the industry has employed various strategies, including highly tailored reinsurance solutions, pairing up with alternative capital providers, enhancing digital capabilities, and exploring opportunities to close the protection gap.

Mergers And Acquisitions Will Likely Continue In Earnest Reinsurers’ merger and acquisition (M&A) activity is still a hot topic, particularly because some players are posting subpar shareholder returns due to cost inefficiency, margin pressure, and still-excess capacity. Through the first half of 2019, the deal value of M&A activity in the insurance world totaled more than $20 billion (see Chart 1). While this is below the average of recent years (compared to same periods in prior years) we think this represents a temporary lull rather than the end of the M&A dance. Continued challenging business Source: S&P Global Ratings conditions, coupled with cheap financing Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. in the debt market, will continue to fuel M&A activity for the next few years. Chart 1: Insurance Dealmaking Continues In particular, those competitors with a more narrow business profile or 140 limited geographic footprint will likely 120 either consider M&A or become targets themselves (see Figure 1). 100 Further the ongoing convergence of the insurance, reinsurance, and 80 insurance-linked securities (ILS) markets 60 through M&A will continue. We therefore Deal value (bil. $) anticipate more deals similar to the 40 merger of AXA and XL, and Markel and Nephila (one of the largest alternative 20 capital managers). Geographic diversification will also 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 continue to drive deals, as demonstrated Source: SNL Data by China Re’s acquisition of The Hanover Insurance International Holdings and Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. RenRe’s acquisition of Tokio Millennium Chart 2: Top 25 Reinsurers In 2018 Re. If executed well, such strategic deals the total net reinsurance premium (about cedants, and thereby could lead to a can improve prospects for the combined $210 billion) emanating from theNet top reinsurance 25 substantial premium overlap written and the resulting loss group through a better competitive reinsurers (see ChartSwiss 2). Reinsurance Furthermore, Co.* of business for the consolidated group. position built on scale, expertise, diversity, many of them haveMunich a material Reinsurance amount Co. Hannover Rück SE and profitability. of direct insurance Berkshirebusiness. Hathaway A merger Re Pressure Is On The Less-Diversified That said, we do not expect among these reinsurers would bringSCOR SEnot And Higher-Expense-Base Players consolidation among the top 10 reinsurers only significantChina execution Reinsurance risk, (Group) but Corp also The reinsurance sector’s earnings Reinsurance Group of America, Inc. as they already account for about 70% of counterparty concentration risk Lloyd’sfor the prospects are slightly better given it Everest Re Group Ltd. PartnerRe Ltd. Global Reinsurance Highlights | 2019 45 General Insurance Corporation of India MS&AD Insurance Group Holdings, Inc. Korean Reinsurance Co. Transatlantic Holdings Inc Sompo Holdings, Inc. Mapfre Re R+V Versicherung AG Fairfax Financial Holdings Ltd. Tokio Marine & Nichido Fire Insurance Co. Ltd. AXIS Capital Holdings Ltd. Toa Re Co Ltd. RenaissanceRe Holdings Ltd. Validus Reinsurance Ltd. Caisse Centrale de Reassurance Arch Capital Group Ltd.

5,000 10,000 15,000 20,000 25,000 30,000 35,000 Mil. $ *Figures represent the group as a whole, including primary business. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 3: Global Reinsurers’ Return On Capital And Price To Book Value Return on capital (left scale) Price to book ratio (right scale) 18 1.6

16 1.4

14 1.2 12 1.0 10 0.8 (X)

(%) 8 0.6 6 0.4 4 2 0.2 0 0.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chart 4: Global Equity Valuations Trend–Insurers Trade At Lower Multiples MSCI World Insurance Index (MXWO0IS): price to book ratio MSCI World Index (MXWO): price to book ratio 3.0

2.5

2.0

(x) 1.5

1.0

0.5

0.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chart 5: Outlook On Acquirers Upon Announcement Of Acquisition 3% 7%

27%

63%

Stable Positive Negative Watch Neg

Chart 6: Outlook On Acquirees Upon Announcement Of Acquisition

4% 9%

32%

14%

18%

23%

Stable Watch Neg Positive Negative Watch Pos Developing

140 Chart 1: Insurance Dealmaking Continues 120 140 100 120 80 100 60 Deal value (bil. $) 80 40 60 Deal value (bil. $) 20 Reinsurance M&A 40 0 20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: SNL Data 0 Copyright2009 © 20192010 by Standard2011 2012 & Poor’s 2013 Financial 2014 Services2015 LLC.2016 All rights2017 reserved.2018 2019 Source: SNL Data CopyrightChart © 2019 2: Top by Standard25 Reinsurers & Poor’s In Financial 2018 Services LLC. All rights reserved. Net reinsurance premium written managed to stop the pricing decline in Chart 2: TopSwiss 25 ReinsuranceReinsurers Co.* In 2018 2018 and achieved a slight increase in 2019 Munich ReinsuranceNet reinsurance Co. premium written after heavy catastrophe losses in 2018 Hannover Rück SE SwissBerkshire Reinsurance Hathaway Co.* Re and 2017. However, conditions remain Munich ReinsuranceSCOR Co.SE somewhat difficult. We do not foresee a China ReinsuranceHannover (Group) Rück Corp SE significant change in these underlying ReinsuranceBerkshire Group of HathawayAmerica, Inc. Re SCOR SE conditions because there is enough capital Lloyd’s China ReinsuranceEverest Re (Group) Group Corp Ltd. on the sidelines waiting to join the sector. Reinsurance Group ofPartnerRe America, Ltd.Inc. Competitive pressure, in our view, General Insurance Corporation of Lloyd’s India is more intense for reinsurers that are MS&AD InsuranceEverest Group ReHoldings, Group Ltd.Inc. Korean ReinsurancePartnerRe Ltd. Co. less diversified or suffer from higher General InsuranceTransatlantic Corporation Holdings of India Inc expense ratios relative to peers. Many of MS&AD InsuranceSompo Group Holdings, Inc. the reinsurers continue to focus on cost Korean ReinsuranceMapfre Co.Re Transatlantic Holdings Inc efficiencies to mitigate margin pressure. R+V Versicherung AG Fairfax FinancialSompo Holdings,Holdings Ltd.Inc. This is not a surprise, bearing in mind Tokio Marine & Nichido Fire InsuranceMapfre Co. Ltd. Re that the average expense ratio for the top AXIS R+VCapital Versicherung Holdings Ltd. AG 20 rated reinsurers is about 36% (and the Fairfax FinancialToa Holdings Re Co Ltd. Tokio Marine & NichidoRenaissanceRe Fire Insurance Holdings Co. Ltd. average acquisition ratio at about 23%), AXISValidus Capital Reinsurance Holdings Ltd. with a few above 40%. Caisse Centrale deToa Reassurance Re Co Ltd. While we recognize that part of the RenaissanceReArch Capital Holdings Group Ltd. Validus Reinsurance Ltd. 0 high expense ratio is due to offering value- Caisse Centrale de Reassurance 5,000 added services, expense management Arch Capital Group Ltd. 10,000 15,000 20,000 25,000 30,000 35,000 Mil. $ is on the agenda for most reinsurers in 0 order to stay competitive. For example, *Figures represent the group as a whole, 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Lloyd’s expense ratio is significantly including primary business. Mil. $ higher than that of peers (39.2% in 2018). Copyright*Figures represent © 2019 by the Standard group as & aPoor's whole, Financial Services LLC. All rights reserved. This is due, in part, to high acquisition including primary business. costs, but also to Lloyd’s dependence on Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. coverholders who produce close to 30% of its premium. Lloyd’s management is Chart 3: Global Reinsurers’ Return On Capital And Price To Book Value working to change its operating model Return on capital (left scale) Price to book ratio (right scale) to address this issue by introducing 18Chart 3: Global Reinsurers’ Return On Capital And Price To Book Value1.6 initiatives such as electronic placement Return on capital (left scale) Price to book ratio (right scale) and simplifying claims handling. 16 1.4 18 1.6 Diversified players with scale, breadth, 14 1.2 16 and depth of products, sophisticated 12 1.4 1.0 underwriting capabilities, and the ability to 14 10 1.2 build long-term partnerships with cedants 0.8 12 (X) are better positioned, in our view, to (%) 8 1.0 0.6 navigate the difficult business conditions. 10 6 0.8 (X)

These factors provide reinsurers with (%) 8 0.4 4 0.6 greater flexibility to change the portfolio mix 6 2 0.2 by dynamically increasing or decreasing 0.4 4 the line size across products and markets 0 0.0 as pricing/conditions change. 2 0.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Further, cedants’ expectations have 0 0.0 evolved. In recognition, some global Source: S&P Global Ratings. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 reinsurers have upped their game by Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. offering tailored reinsurance and capital Source: S&P Global Ratings. market solutions that help with the risk Good targets are increasingly harder diversification. However, the number of Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. management and capital strategies of to find Chart 4: Global Equity Valuations Trend–Insurerspotential targets Trade within At this space has clients. Such product offerings mitigate Small-to-midsizeLower Multiples specialty reinsurers or shrunk, reflecting the significant number the risk of being marginalized because insurersChart with a 4: nicheMSCI Global sectorWorld Equity Insurancefocus Valuations that Indexhave (MXWO0IS): Trend–Insurersof M&A deals price over to bookTrade the past ratio At decade. clients are more likely to stick to reinsurers good underwritingLower MultiplesMSCI books World Indexare appealing (MXWO): price toDespite book ratio lower returns on capital in that offer long-term partnerships. targets3.0 for playersMSCI that World seek Insurance growth Index and (MXWO0IS):recent years, price toprice-to-book book ratio valuations MSCI World Index (MXWO): price to book ratio 46 Global Reinsurance Highlights | 2019 2.5 3.0

2.0 2.5

(x) 1.5 2.0

1.0

(x) 1.5

0.5 1.0

0.0 0.5

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.0 Source: Bloomberg. 2009 2010 2011 2012 2013 2014 2016 2017 2018 Copyright © 2019 by Standard & Poor’s Financial Services2015 LLC. All rights reserved. Source: Bloomberg. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 5: Outlook On Acquirers Upon Announcement Of Acquisition Chart 5: Outlook3% On Acquirers 7% Upon Announcement Of Acquisition 3% 7%

27%

63% 27% 63%

Stable Positive Negative Watch Neg

Copyright © 2019 by StandardStable & Poor’sPositive Financial Services LLC. NegativeAll rights reserved.Watch Neg Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings.

Chart 6: Outlook On Acquirees Upon Announcement Of Acquisition

Chart 6: Outlook4% On Acquirees Upon 9%Announcement Of Acquisition

4% 9% 32%

14% 32%

14%

18%

23% 18% Stable Watch Neg Positive 23% Negative Watch Pos Developing

CopyrightStable © 2019 by StandardWatch & Poor’sNeg FinancialPositive Services LLC. Negative All rightsWatch reserved. Pos Developing Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings. Chart 1: Insurance Dealmaking Continues

140 Chart 1: Insurance Dealmaking Continues

120140

100120

10080

6080 Deal value (bil. $)

Deal value (bil. $) 40

2040

200 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source:0 SNL Data 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: SNL Data CopyrightChart © 2019 2: Top by Standard25 Reinsurers & Poor’s In Financial 2018 Services LLC. All rights reserved. Net reinsurance premium written Chart 2: Top 25 Reinsurers In 2018 Swiss Reinsurance Co.* Net reinsurance premium written Munich Reinsurance Co. SwissHannover Reinsurance Rück Co.* SE MunichBerkshire Reinsurance Hathaway Co. Re HannoverSCOR Rück SE China ReinsuranceBerkshire Hathaway (Group) Corp Re Reinsurance Group of America,SCOR Inc. SE China Reinsurance (Group) Lloyd’s Corp Reinsurance GroupEverest of Re America, Group Ltd.Inc. PartnerRe Lloyd’s Ltd. General InsuranceEverest Corporation Re Group of India Ltd. MS&AD Insurance GroupPartnerRe Holdings, Ltd.Inc. General InsuranceKorean Corporation Reinsurance of India Co. MS&AD InsuranceTransatlantic Group Holdings, Holdings Inc. Inc KoreanSompo Reinsurance Holdings, Inc.Co. Transatlantic HoldingsMapfre IncRe R+VSompo Versicherung Holdings, Inc. AG Fairfax Financial HoldingsMapfre Ltd. Re Tokio Marine & Nichido FireR+V Insurance Versicherung Co. Ltd. AG FairfaxAXIS Financial Capital Holdings Ltd. Tokio Marine & Nichido Fire InsuranceToa Re Co. Co Ltd. RenaissanceReAXIS Capital Holdings Ltd. Validus ReinsuranceToa Re Co Ltd. CaisseRenaissanceRe Centrale de HoldingsReassurance Ltd. ValidusArch Capital Reinsurance Group Ltd.

Caisse Centrale de Reassurance 0 Arch Capital Group Ltd. 5,000 10,000 15,000 20,000 25,000 30,000 35,000 0 Mil. $ 5,000 10,000 15,000 20,000 25,000 30,000 35,000 *Figures represent the group as a whole, Mil. $ including primary business. *Figures represent the group as a whole, Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. including primary business. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.

Chart 3: Global Reinsurers’ Return On Capital And Price To Book Value

Chart 3: ReturnGlobal on Reinsurers’ capital (left Returnscale) On CapitalPrice And to book Price ratio To (right Book scale) Value 18 1.6 Return on capital (left scale) Price to book ratio (right scale) 1816 1.61.4 14 16 1.41.2 12 14 1.21.0 10 12 0.8 1.0 (X)

(%) 108 0.80.6 6 (X)

(%) 8 0.60.4 64 0.40.2 42 0 0.20.0 2 Reinsurance M&A 20050 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180.0

2005Source: 2006 S&P 2007 Global 2008 Ratings. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: S&P Global Ratings. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved.

Chart 4: Global Equity Valuations Trend–Insurers Trade At Lower Multiples Chart 4: Global Equity Valuations Trend–Insurers Trade At MSCI World Insurance Index (MXWO0IS): price to book ratio Lower Multiples “Competitive pressure is MSCI World Index (MXWO): price to book ratio MSCI World Insurance Index (MXWO0IS): price to book ratio more intense for reinsurers 3.0 MSCI World Index (MXWO): price to book ratio that are less diversified or 2.53.0 suffer from higher expense ratios relative to peers.” 2.02.5

2.0

(x) 1.5 Recent M&A highlights in the

(x) 1.5 1.0 reinsurance space include the following: • Apollo Global Management’s new private 0.51.0 equity fund completed its acquisition of Aspen, with a view toward strengthening 0.00.5 the majority of its existing business,

0.02009 2010 2011 2012 2013 2014 2015 2016 2017 2018 jettisoning unprofitable business, and building on the operational efficiency Source: Bloomberg. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 program that Aspen had launched. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Source: Bloomberg. • RenRe acquired Tokio Millennium Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. Re. The transaction is sizable, providing RenRe with greater access to risk, increasing its scale, raising its Chart 5: Outlook On Acquirers Upon Announcement Of Acquisition relative importance to its clients and Chart 5: Outlook On Acquirers brokers, and broadening its footprint 3% Upon Announcement7% Of Acquisition geographically and in the casualty 3% business, which it has been ramping up. 7% • China Re acquired The Hanover Insurance International Holdings Ltd., including its flagship Lloyd’s Syndicate 1084. We expect this acquisition to 27% help strengthen China Re’s existing 27% 63% presence (including Syndicate 2088) within the Lloyd’s market and to further 63% geographical diversification outside

the domestic Chinese market.

Acquisitions of alternative capital managers is also heating up Stable Positive Alternative capital has grown in importance Negative Watch Neg Stable Positive (making up 15% of total reinsurance Copyright © 2019 by NegativeStandard & Poor’sWatch Financial Neg Services LLC. capital, which stood at $605 billion at All rights reserved. the end of March 2019 according to Copyright © 2019Source: by Standard S&P Global & Poor’s Ratings. Financial Services LLC. All rights reserved. Aon). In recognition, reinsurers and some Source: S&P Global Ratings. insurers continue to build their strategies have steadily increased (see Chart 3). profit on the life insurance side) were around alternative capital to harness the Equity valuation multiples, however, are included. Nonetheless, with the increased opportunities pertaining to this area. lower when compared to all corporations valuations, the argument for acquisition In 2018, Markel Corp. acquired Chart 6: Outlook On Acquirees Upon (see Chart 4), mostly because of the is harder to justify to shareholders as the Nephila Holdings Ltd. (with assets Announcement Of Acquisition capital intensity of the insurance sector sector continues to struggle to meet its under management over $10 billion), Chart 6: Outlook On Acquirees Upon (some of the M&A deals orAnnouncement divestments4% cost Of Acquisition of capital. specializing in reinsurance product 9% in the insurance sector have been driven4% Ultimately, the attractiveness of the offering a broad range of reinsurance by increasing capital demands from target’s business model and its ability products, including ILS and catastrophe 9% regulators). These multiples would be to generate acceptable32% returns relative bonds. SCOR is acquiring Coriolis Capital even lower if off-balance soft forms to yields available elsewhere continue to (about $800 million of assets) to boost 32% capital (i.e., present14% value of future motivate the deals. its alternative asset management

14% Global Reinsurance Highlights | 2019 47

18%

18% 23%

Stable Watch Neg 23%Positive Negative Watch Pos Developing Stable Watch Neg Positive CopyrightNegative © 2019 by StandardWatch & Poor’sPos FinancialDeveloping Services LLC. All rights reserved. Copyright © 2019Source: by Standard S&P Global & Poor’s Ratings. Financial Services LLC. All rights reserved. Source: S&P Global Ratings. Reinsurance M&A

Table 1: Major Merger And Acquisition Deals In Reinsurance Announced Closed Acquirer Acquiree Purchase Terms of the transaction Deal price to price (bil. $) book value (x) Aug-13 Nov-13 Lancashire Holdings Limited Cathedral Capital Limited 0.41 All cash N.A. Feb-14 Jun-14 Qatar Insurance Company S.A.Q. Antares Holdings Limited 0.30 N.A. N.A. Nov-14 Mar-15 RenaissanceRe Holdings Ltd. Platinum Underwriters Holdings Ltd. 1.90 Cash and stock 1.13 Jan-15 May-15 XL Group Ltd. Catlin Group Ltd. 4.10 Cash, stock, and debt 1.21 Feb-15 Jul-15 Fairfax Financial Holdings Ltd. Brit Insurance Holdings PLC 1.88 All cash 1.63 Mar-15 Jul-15 Endurance Specialty Holdings Ltd. Montpelier Re Holdings Ltd. 1.83 Cash and stock 1.21 May-15 Nov-15 Fosun International Ltd. Ironshore Inc. 2.30 All cash 1.12 Jun-15 Oct-15 Tokio Marine & Nichido Fire Insurance Co. Ltd. HCC Insurance Holdings Inc. 7.53 Cash and debt 1.9 Jul-15 Jan-16 ACE Ltd. Chubb Corp. 28.30 Cash, stock, and debt 1.7 Jul-15 Mar-16 Meiji Yasuda Life Insurance Co. StanCorp Financial Group Inc. 4.95 All cash 2.21 Jul-15 Apr-16 China Minsheng Banking Corp. Ltd. Sirius International Insurance Group 2.60 All cash 1.43 Aug-15 Mar-16 EXOR SpA PartnerRe Ltd. 6.90 All cash 1.11 Aug-15 Jan-16 Sumitomo Life Insurance Co. Symetra Financial Corp. 3.80 All cash 1.2 Sep-15 Feb-16 Mitsui Sumitomo Insurance Co. Ltd. Amlin plc 5.30 All cash 1.93 Apr-16 Nov-16 AmTrust Financial Services Inc. ANV Holdings B.V. 0.20 All cash N.M. Aug-16 Jan-17 Arch Capital Group Ltd. United Guaranty Corp. 3.40 Cash and stock 1.01 Sep-16 Dec-16 Canada Pension Plan Investment Board Ascot Underwriting Ltd. 1.10 All cash N.M. Oct-16 Mar-17 Sompo Holdings Inc. Endurance Specialty Holdings Ltd. 6.30 All cash 1.36 Oct-16 Apr-17 PartnerRe Ltd. Aurigen Capital Ltd. 0.29 All cash N.A. Nov-16 Feb-17 Argo Group US Inc. Ariel Re Holdings Ltd. 0.24 Cash and debt 1.45 Nov-16 Apr-17 AXIS Capital Holdings Ltd. Aviabel Cie. Belge d'Assurances Aviation S.A. N.A. N.A. N.A. Dec-16 May-17 Liberty Mutual Group Inc. Ironshore Inc. 2.94 All cash 1.45 Dec-16 Jul-17 Fairfax Financial Holdings Ltd. Allied World Assurance Co. Holdings AG 4.90 Stock and cash 1.36 May-17 Sep-17 Intact Financial Corp. OneBeacon Insurance Group Ltd. 1.70 All cash 1.66 Jul-17 Oct-17 AXIS Capital Holdings Ltd. Novae Group plc 0.60 All cash 1.53 Feb-18 May-18 Enstar Group Limited KaylaRe Ltd. 0.40 Stock exchange N.A. Jan-18 Jul-18 American International Group, Inc. Validus Holdings, Ltd. 5.56 All Cash 1.53 Mar-18 Sep-18 AXA Insurance Group XL Group Ltd 15.35 Cash 1.5 Jun-18 Ongoing Reliance Life Limited Equitable Life Assurance Society 2.41 Unclassified N.A. Aug-18 Ongoing Cinven Limited AXA Life Europe DAC 1.08 Cash 1 Aug-18 Dec-18 Group of Investors esure Group Plc 1.51 Cash 4.07 Aug-18 Ongoing Group of Investors Star Health and Allied Insurance Company Limited 0.92 Cash N.A. Aug-18 Feb-19 Apollo Global Management, LLC Aspen Insurance Holdings Limited 2.60 Cash 1.1 Aug-18 Apr-19 China Reinsurance (Group) Corporation Chaucer Holdings 0.95 Cash 1.66 Aug-18 Dec-18 Enstar Holdings (US) LLC Maiden Reinsurance North America, Inc. 0.32 Cash N.A. Oct-18 Ongoing Life Resolutions Australia Pty Ltd. Australian and New Zealand wealth protection and mature businesses 2.34 Cash, Common Stock, Unclassified N.A. Oct-18 Mar-19 RenaissanceRe Specialty Holdings (UK) Limited Tokio Millennium Re AG/Tokio Millennium Re (UK) Ltd. 1.47 Cash, Common Stock, Dividend to Seller 1.02 Dec-18 Ongoing Earning Star Limited FTLife Insurance Company Ltd. 2.75 Cash 1.4 Apr-19 Ongoing American Family Insurance Mutual Holding Company IDS Property Casualty Insurance Company 1.05 Cash 1.25 May-19 Ongoing Allianz (UK) Ltd. Liverpool Victoria General Insurance Group Ltd. 0.73 Unclassified N.A. Total 133.20 Median 1.415 N.A.: Not available N.M.: Not meaningful

48 Global Reinsurance Highlights | 2019 Reinsurance M&A

Table 1: Major Merger And Acquisition Deals In Reinsurance capabilities. White Mountains is buying Announced Closed Acquirer Acquiree Purchase Terms of the transaction Deal price to a 30% stake in Elementum Advisors (with price (bil. $) book value (x) over $4 billion of assets). Aug-13 Nov-13 Lancashire Holdings Limited Cathedral Capital Limited 0.41 All cash N.A. We foresee further convergence in the Feb-14 Jun-14 Qatar Insurance Company S.A.Q. Antares Holdings Limited 0.30 N.A. N.A. insurance, reinsurance, and ILS markets in the next few years as structural Nov-14 Mar-15 RenaissanceRe Holdings Ltd. Platinum Underwriters Holdings Ltd. 1.90 Cash and stock 1.13 changes in the industry continue to Jan-15 May-15 XL Group Ltd. Catlin Group Ltd. 4.10 Cash, stock, and debt 1.21 place pressure on reinsurers, especially Feb-15 Jul-15 Fairfax Financial Holdings Ltd. Brit Insurance Holdings PLC 1.88 All cash 1.63 considering that capital is still relatively Mar-15 Jul-15 Endurance Specialty Holdings Ltd. Montpelier Re Holdings Ltd. 1.83 Cash and stock 1.21 cheap. A mega deal involving large players that shakes up the market order May-15 Nov-15 Fosun International Ltd. Ironshore Inc. 2.30 All cash 1.12 would be a surprise, but is not totally out Jun-15 Oct-15 Tokio Marine & Nichido Fire Insurance Co. Ltd. HCC Insurance Holdings Inc. 7.53 Cash and debt 1.9 of the question. Jul-15 Jan-16 ACE Ltd. Chubb Corp. 28.30 Cash, stock, and debt 1.7 For example, towards the end of Jul-15 Mar-16 Meiji Yasuda Life Insurance Co. StanCorp Financial Group Inc. 4.95 All cash 2.21 2018, we saw primary insurer Covea’s unsuccessful bid for SCOR. Other examples Jul-15 Apr-16 China Minsheng Banking Corp. Ltd. Sirius International Insurance Group 2.60 All cash 1.43 include Japan-based Softbank’s failed plan Aug-15 Mar-16 EXOR SpA PartnerRe Ltd. 6.90 All cash 1.11 to buy a minority stake in Swiss Re. Such a Aug-15 Jan-16 Sumitomo Life Insurance Co. Symetra Financial Corp. 3.80 All cash 1.2 move could have potentially accelerated the Sep-15 Feb-16 Mitsui Sumitomo Insurance Co. Ltd. Amlin plc 5.30 All cash 1.93 role of technology in the reinsurance space, Apr-16 Nov-16 AmTrust Financial Services Inc. ANV Holdings B.V. 0.20 All cash N.M. bearing in mind SoftBank’s domestic and overseas technology companies, such as Aug-16 Jan-17 Arch Capital Group Ltd. United Guaranty Corp. 3.40 Cash and stock 1.01 its e-commerce platform in China and its Sep-16 Dec-16 Canada Pension Plan Investment Board Ascot Underwriting Ltd. 1.10 All cash N.M. telecommunications businesses in Japan Oct-16 Mar-17 Sompo Holdings Inc. Endurance Specialty Holdings Ltd. 6.30 All cash 1.36 and the U.S., not to mention its large balance Oct-16 Apr-17 PartnerRe Ltd. Aurigen Capital Ltd. 0.29 All cash N.A. sheet, with assets exceeding $260 billion. Nov-16 Feb-17 Argo Group US Inc. Ariel Re Holdings Ltd. 0.24 Cash and debt 1.45 M&A Is Typically Ratings-Neutral Nov-16 Apr-17 AXIS Capital Holdings Ltd. Aviabel Cie. Belge d'Assurances Aviation S.A. N.A. N.A. N.A. At Best Dec-16 May-17 Liberty Mutual Group Inc. Ironshore Inc. 2.94 All cash 1.45 Multiple forces drive consolidation Dec-16 Jul-17 Fairfax Financial Holdings Ltd. Allied World Assurance Co. Holdings AG 4.90 Stock and cash 1.36 and, therefore, the establishment of a clear objective is vital for a successful May-17 Sep-17 Intact Financial Corp. OneBeacon Insurance Group Ltd. 1.70 All cash 1.66 M&A transaction. Consolidation could Jul-17 Oct-17 AXIS Capital Holdings Ltd. Novae Group plc 0.60 All cash 1.53 be used to create growth opportunities Feb-18 May-18 Enstar Group Limited KaylaRe Ltd. 0.40 Stock exchange N.A. through combined platforms, a stronger Jan-18 Jul-18 American International Group, Inc. Validus Holdings, Ltd. 5.56 All Cash 1.53 position in chosen products and regions, increased diversification, and potential Mar-18 Sep-18 AXA Insurance Group XL Group Ltd 15.35 Cash 1.5 expense synergies that could improve Jun-18 Ongoing Reliance Life Limited Equitable Life Assurance Society 2.41 Unclassified N.A. the earnings profile. A well-executed Aug-18 Ongoing Cinven Limited AXA Life Europe DAC 1.08 Cash 1 deal can protect creditworthiness and Aug-18 Dec-18 Group of Investors esure Group Plc 1.51 Cash 4.07 improve shareholder value. However, M&A deals come with inherent execution Aug-18 Ongoing Group of Investors Star Health and Allied Insurance Company Limited 0.92 Cash N.A. risks and, in particular, can dilute capital Aug-18 Feb-19 Apollo Global Management, LLC Aspen Insurance Holdings Limited 2.60 Cash 1.1 adequacy, depending on the chosen Aug-18 Apr-19 China Reinsurance (Group) Corporation Chaucer Holdings 0.95 Cash 1.66 financing structure. Aug-18 Dec-18 Enstar Holdings (US) LLC Maiden Reinsurance North America, Inc. 0.32 Cash N.A. From a credit perspective, M&A transactions are usually slightly negative Oct-18 Ongoing Life Resolutions Australia Pty Ltd. Australian and New Zealand wealth protection and mature businesses 2.34 Cash, Common Stock, Unclassified N.A. when first completed in view of the Oct-18 Mar-19 RenaissanceRe Specialty Holdings (UK) Limited Tokio Millennium Re AG/Tokio Millennium Re (UK) Ltd. 1.47 Cash, Common Stock, Dividend to Seller 1.02 execution risk and given that stronger Dec-18 Ongoing Earning Star Limited FTLife Insurance Company Ltd. 2.75 Cash 1.4 players often take over weaker rivals, Apr-19 Ongoing American Family Insurance Mutual Holding Company IDS Property Casualty Insurance Company 1.05 Cash 1.25 except if it’s a merger of equals with minimal overlap. Furthermore, private May-19 Ongoing Allianz (UK) Ltd. Liverpool Victoria General Insurance Group Ltd. 0.73 Unclassified N.A. equity or investment holding companies Total 133.20 Median 1.415 generally acquire re/insurers to enhance N.A.: Not available N.M.: Not meaningful returns through transformational changes

Global Reinsurance Highlights | 2019 49 Chart 1: Insurance Dealmaking Continues

140

120

100

60 Deal value (bil. $)

Chart 2: Top 25 Reinsurers In 2018 Net reinsurance premium written Swiss Reinsurance Co.* Munich Reinsurance Co. Hannover Rück SE Berkshire Hathaway Re SCOR SE China Reinsurance (Group) Corp Reinsurance Group of America, Inc. Lloyd’s Everest Re Group Ltd. PartnerRe Ltd. General Insurance Corporation of India MS&AD Insurance Group Holdings, Inc. Korean Reinsurance Co. Transatlantic Holdings Inc Sompo Holdings, Inc. Mapfre Re R+V Versicherung AG Fairfax Financial Holdings Ltd. Tokio Marine & Nichido Fire Insurance Co. Ltd. AXIS Capital Holdings Ltd. Toa Re Co Ltd. RenaissanceRe Holdings Ltd. Validus Reinsurance Ltd. Caisse Centrale de Reassurance Arch Capital Group Ltd.

Chart 3: Global Reinsurers’ Return On Capital And Price To Book Value Return on capital (left scale) Price to book ratio (right scale) 18 1.6

16 1.4

14 1.2 12 1.0 10 0.8 (X)

(%) 8 0.6 6 0.4 4 2 0.2 0 0.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chart 4: Global Equity Valuations Trend–Insurers Trade At Lower Multiples MSCI World Insurance Index (MXWO0IS): price to book ratio MSCI World Index (MXWO): price to book ratio 3.0

2.5

2.0

(x) 1.5

1.0

0.5

0.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chart 5: Outlook On Acquirers Upon Announcement Of Acquisition 3% 7%

27%

63%

Chart 6: Outlook On Acquirees Upon Announcement Of Acquisition “The reinsurance sector’s

4% M&A track record is patchy 9% from a credit perspective, and deals are typically 32% credit-neutral at best for the acquirer on completion.” 14%

higher expense base will continue to find it difficult to compete with players with larger diversification and scale. We also believe that reinsurers, insurers, and alternative 18% capital providers will continue their path 23% of convergence, with the potential for more deals among these sectors. Stable Watch Neg Positive A well-executed M&A that has a sound Negative Watch Pos Developing rationale can improve the competitive standing of the combined entity. Copyright © 2019 by Standard & Poor’s Financial Services LLC. All rights reserved. However, from a credit perspective, M&A Source: S&P Global Ratings. transactions are usually slightly negative when first completed in view of the execution risk. n (expense reduction, capital optimization, combined group’s creditworthiness, we etc.) or to diversify their source of earnings. tend to revert to a stable view. This report does not constitute a rating In our view, these types of investors action. generally appreciate the potential credit The target perspective rating sensitivities of overleveraging the Our assessment of acquired companies Ali Karakuyu balance sheet and disrupting the business. reflects any upside or downside potential, London, (44) 20-7176-7301 As such, we typically do not see material based on our view of the combined [email protected] changes in the financial or business risk entity. Typically, we limit the ratings on profiles of the reinsurers. The risk of a a subsidiary to its parent rating level or Johannes Bender downgrade could raise significant concerns lower, unless there is strong evidence Frankfurt, (49) 69-33-999-196 from both policyholders and investors. that the parent is unlikely to negatively [email protected] affect the subsidiary’s business and The acquirer perspective financial profiles. David Masters We have typically kept our ratings on the The ratings impact following an London, (44) 20-7176-7047 buyers at the same level as pre-M&A. Of the acquisition is generally mixed (see [email protected] rated entities listed in Table 1 (on previous Chart 6). Some entities may cease to page), we placed 30% on CreditWatch exist following optimization of legal and Taoufik Gharib negative or revised the rating outlook to organization structures (in which case, New York, (1) 212-438-7253 negative upon the announcement of an we would withdraw the ratings). The [email protected] acquisition (see Chart 5). surviving entities may see a change in We eventually affirmed the ratings their relative importance to the combined Hardeep Manku on almost all of these companies group (in which case, we would take a Toronto, (1) 416-507-2547 during the subsequent two years. This positive or negative rating action, or none [email protected] demonstrates our conservative view of at all, as appropriate). M&A at the initial stage, when we place more weight on some of the execution The M&A Dance Will Continue risks, despite potential upside from the Challenging operating conditions may strategic rationale underlying the deal. push a few insurers to pair up to mitigate As we see evidence that the transaction competitive pressures. In particular, has helped (or is unlikely to reduce) the those that are less diversified or have a

50 Global Reinsurance Highlights | 2019 Global GlobalReinsurance GlobalReinsurance ReinsurancePeer Review UnlessPeer otherwise stated, tReviewhe following peer review includes data from ourPeer top 20 global reinsurance Review cohort, including: Group 1 Group 2 Group 3 Unless otherwise stated, the following peer review includes data from Large global reinsurers Midsize global reinsurers Other re/insurance group ourUnless top otherwise20 global r steinsuranceated, the f coollowinghort, including: peer revie w includes data from Hannover Rück SE Alleghany Corp. Arch Capital Group Ltd. ourUnless top otherwise20 global r steinsuranceated, the f coollowinghort, including: peer revie w includes data from Lloyd’s AXIS Capital Holdings Ltd. Argo Group International Holdings Ltd. Groourup top 1 20 global reinsurance cohort,Group including: 2 Group 3 Munich Reinsurance Co. Everest Re Group Ltd. Aspen Insurance Holdings Ltd. Large global reinsurers Midsize global reinsurers Other re/insurance group GroSCORup S 1E FairfaxGroup 2Financial Holdings Ltd. ChinaGroup Reinsurance 3 (Group) Corp. LGroSwissHannoverargeup Reinsurance gl1 obal Rück re SinsurersE Co. Ltd . MidsizeAlleghanyPartnerReGroup 2 global Corp.Ltd. reinsurers HiscoxOtheArchGroup Cr apital re/ I3nsurance insurance Group C o.Ltd. L grouptd. LLloyd’sarge global reinsurers AXISMidsizeRenaissanceRe Capital global Holdings Holdings reinsurers Ltd. Ltd. LancashireOtheArgo Groupr re/insurance HInternationaloldings Ltd. group Holdings Ltd. Hannover Rück SE Alleghany Corp. Arch Capital Group Ltd. Munich Reinsurance Co. Everest Re Group Ltd. MarkelAspen Insurance Corp. Holdings Ltd. Lloyd’sHannover Rück SE AXISAlleghany Capital Corp. Holdings Ltd. ArchArgo GroupCapital International Group Ltd. Holdings Ltd. SCOR SE Fairfax Financial Holdings Ltd. QatarChina IReinsurancensurance Co. ( Group)S.A.Q. Corp. MunichLloyd’s Reinsurance Co. EverestAXIS Capital Re Group Holdings Ltd. Ltd. AspenArgo Group Insurance International Holdings H Ltd.oldings Ltd. Swiss Reinsurance Co. Ltd. PartnerRe Ltd. SiriusHiscox I nternationalInsurance Co. G roupLtd. Ltd. SCORMunich S EReinsurance Co. FairfaxEverest Financial Re Group Holdings Ltd. Ltd. ChinaAspen ReinsuranceInsurance Holdings (Group) Ltd. Corp. RenaissanceRe Holdings Ltd. Lancashire Holdings Ltd. SCORSwiss SReinsuranceE Co. Ltd. PartnerReFairfax Financial Ltd. Holdings Ltd. HiscoxChina Reinsurance Insurance C o.(Group) Ltd. Corp. Markel Corp. Swiss Reinsurance Co. Ltd. RenaissanceRePartnerRe Ltd. Holdings Ltd. LancashireHiscox Insurance Holdings Co. Ltd.Ltd. Qatar Insurance Co. S.A.Q. RenaissanceRe Holdings Ltd. LancashireMarkel Corp. H oldings Ltd. Sirius International Group Ltd. QatarMarkel Insurance Corp. Co. S.A.Q. SiriusQatar IInsurancenternational Co. GSroup.A.Q. Ltd. Sirius International Group Ltd.

Global Reinsurance Peer Review

Global Reinsurance Peer Review Global Reinsurance Peer Review Peer Review

Competitivee P Positionosition The ggloballobal rreinsurance iindustry has, ffor eeach ofof tthe lalast ttwo years, rreported combined ratios iin The global reinsurance industry has, for each of the last two years, reported combined ratios in excess of 100% following record back-to-back catastrophe loss years. Challenging business Competitivexcessexcess of of 1 100%00% fo fllowingollowing record recorde b ackP back-ositionto--backto-back catas catastrophe trophe loss years. loss Cyears.hallenging Challenging business b usiness cconditions ha hahaveve d ampddampenedened performanc performance, me,aking mmaking for a difforfficult a didifficult fficultindustry industryindustry landscap llandscape. However,e. However, The2019 global priceprice r increasesein increasessurance offer ioondufferffer somestry ssome has,respite, respite, for ewachith w w exofithith pectedthe exex lapectedst c ombinedtwo years, ccombined ratios reported o rrfatios 95-9 combined 8% ooff 9 9f5-9or 2019 ratios8% fandfor in 2019 and excess2020, assuming assumingof 100% f noo llowingnormalizrmaliz edrecord edca tastrophe caca backtastrophe-to- lbackosses. llo catassses. trophe loss years. Challenging business conditions have dampened performance, making for a difficult industry landscape. However, 2019 price increases offer some respite, with expected combined ratios of 95-98% for 2019 and Top 2020 G Globallobal R einsurers’Reinsurers’ Combined Combined Ratio R atioand RaOEnd PerformanceROE Performance Top2020, 20 assuming Global no Rrmalizeinsurers’ed catastrophe Combined losses. R atio and ROE Performance 14% 115% Return on equity 14% 115% Return on equity (ROE) (left scale) (ROE)(ROE) (left(left sscale) Top12% 20 Global Reinsurers’ Combined Ratio and ROE Performance 110% 12% 110% Average ROE 14% 115% Return(2014-2018) on equity (leftAverage scale) RROE 10% 105% (ROE) (left scale)((2014-2018) (left(left sscale)

12%10% 110% ratio Combined 105% Combined ratio Combined ratio ratio Combined Combined ratio ratio Combined Average(2014-2018) ROE Combined ratioratio 8% 100% (2014-2018) (left scale) (right scale) ((2014-2018) 10%8% 105% 100%

ROE (right scale)

Combined ratio ratio Combined (right scale) 6% 95% CombinedAverage combined ratio ratio ROE ROE (2014-2018) 8% 100% (2014-2018) 6% 95% (right(right sscale)cale) Average combined ratioratio 4% 90% ((2014-2018) ROE 6% 95% Average combined(right(right ratio sscale) 4% 90% 2% 85% (2014-2018) (right scale) 4% 90% 2% 85% 0%2% 80% 85% 2%2014 2015 2016 2017 2018 2019F 2020F85%

Source: 0%S&P Global Ratings. 80% 0% 2014 2015 2016 2017 2018 2019F 80% 2020F 2014 2015 2016 2017 2018 2019F 2020F Source: S&P Global RRatinings. Source:The g lobalS&P Global reinsurance Ratings. industry has continued to benefit from favorable, albeit declining, reserve releases. However, the elevated 2017 and 2018 net combined ratios were exacerbated by the 2017 Theand 2018ggloballobal ca rrtasteinsurancerophe losses iindustry and und hahaerlyings continued combined to bebe ratiosnefit ha frovem also ffavo beenrable, trending aalbeitlbeit up ddwardseclining, reserve Thesince global 2012, reinsurance before levelling industry off i nha 2018.s continued to benefit from favorable, albeit declining, reserve releases. However, ththe eelevatedlevated 20172017 andand 20182018 netnet combinedcombined ratiosratios wwere eexacerbated by ththe 2017 releases. However, the elevated 2017 and 2018 net combined ratios were exacerbated by the 2017 and 2018 catastrophe llosses and undunderlying ccombined rratios hahave aalsolso bbeen trending upupwards andTop 2018 20 G clobalatast ropheReinsurers’ losses andUnderwriting underlying c Pombinederformance ratios have also been trending upwards since 2012, 2012,2012, be bebeforeforefore levelling llevelling off oionffff 2018. iin 2018.2018. 110% 25% P/C: Net combined ratio

Top 20 20 G GGloballoballobal R einsurers’RReinsurers’ Underwriting UUnderwriting Performance PPerformance Reserve ( losses 105% 20% 110%110% 25% 25% P/C:Accident-year Net combined combined ratio releases a P/C: Net ccombined ratio Reserve % ratio excluding Reserve Reserve of ( losses catastrophe losses and ( losses

100% 15% ( losses

105% 20% combined 105% 20% reserved releases Accident-year combined nd c releases a

% Accident-year ccombined releases a

releases a ratio excluding of % atastrophe % catastrophe lossesratioratio anexcludingexcludingd 100%95% 15%10%

of of r combined reserved releasescatastrophe losses and 100% atio) 15% Catastrophe lcatastropheosses losses and Combined ratio

100% 15%

combined combined nd c reservereserved releasesreleases nd c nd c 95%90% 10%5% atastrophe r atastrophe atio) Catastrophe losses

atastrophe Reserved release

Combined ratio 95% 10%

r benefit r

atio) Catastrophe losses

atio) Catastrophe losses Combined ratio Combined ratio 90%85% 5%0% 2014 2015 2016 2017 2018 Reserved release 90% 5% Source: S&P Global Ratings. benefit Reserved release 85% 0% Reserved release benefit 2014 2015 2016 2017 2018 benefit 85% 0% Source: S&P Global Ratings. Global Reinsurance2014 Peer Review 2015 2016 2017 2018 2

Source: S&P Global Ratings.

Global Reinsurance Peer Review 2

52 Global Reinsurance Highlights | 2019 Peer Review Capital Adequacy Competitive Position Capital Adequacy CapitalCapital adequacy sAdequacytrength has been reducing but the sector remains capitalized above the ‘AA’ The ggloballobal rreinsurance iindustry has, ffor eeach ofof tthe lalast ttwo years, rreported combined ratios iin CapitalCapitalconfide ancdeqe level.uacy Ats trengthAdequacy the ‘AA’ h aslevel, been we reducing estimate b thutat the ca sectorpital redunda remainsncies capital of thizeed T aobovep 20 gthelobal ‘AA’ Capital adequacy strength has been reducing but the sector remains capitalized above the ‘AA’ excess ofof 1100% ffollowingllowing rrecord bback-to-back catastrophe lloss years. CChallenging bbusiness conreinsurersfidence level.at the At end the of ‘AA’ 2018 level, were w ea boutestimate 5%, dothatwn c afrompital 6 r%edunda as of thnciese end of of th 2017,e Top 2a0nd g lobalas high as confidence level. At the ‘AA’ level, we estimate that capital redundancies of the Top 20 global conditions hahave ddampened performance, mmaking ffor a didifficultfficult industryindustry llandscape. However, reinsurersCapital25% in a 201deq a4.uacyt the The setrength ndrecent of 2018 hdroas bep were inen c reducingapital about a 5%,dequacy but dothewn sector i sfrom m ostlyremains 6% due as capitalo tof th theeiz e e2017ndd a ofbove catastrophe2017, the ‘AA’and as l osses,high as reinsurers at the end of 2018 were about 5%, down from 6% as of the end of 2017, and as high as 2019 price increases oofferffer ssome respite, wwithith exexpected ccombined rratios ooff 995-98% ffor 2019 and 2cona5%djfidus inet mnc201eents level.4. The to At the r theecent la ‘rgeAA’ dro lgevel,lobalp in w cereinsurers’apital estimate adequacy th aatsset cap italilisabilit m rostlyedunday management duencies to thof eth 2017e aTond/op catastrophe20r g lonlobalgevit y lriskosses, 2reinsurers5% in 201 a4.t theThe erndecent of 2018 drop werein capital about a dequacy5%, down is fmromostly 6% due as otof ththe e2017nd of catastrophe 2017, and as losses, high a s 2020, assuming normalized cacatastrophe llosses. acdapitaljustm cehargents tos the, and la rgecontinu globaled reinsurers’ buybacks a andsset special liabilit diyvi managementdends. For bo athnd/o 2017r lon andgevit 2018y risk, a2d5%jus itnm 201ents4. tTheo the recent large droglobalp in reinsurers’capital adequacy asset li iabilits mostlyy management due to the 2017 and/o catastropher longevity risk losses, ctapitalhe Top c harge20 globals, a ndreinsurers continu edhave buybacks been deficie and specialnt at the di ‘AAA’vidends. level. For both 2017 and 2018, caapitaldjustm cehargents tos ,the and la continurge globaled buybacksreinsurers’ a ndasset special liabilit diyvi managementdends. For bo athnd/o 2017r lon andgevit 2018y risk, the Top 20 global reinsurers have been deficient at the ‘AAA’ level. Top 20 GGloballobal RReinsurers’ CCombined RRatio aand RROE Performance tchapitale Top c20harge globals, a rndeinsurers continu hedave buybacks been deficie andnt special at the di ‘AAA’vidends. level. For both 2017 and 2018, tCapitalhe Top 20 A gdequacylobal reinsurers Of T hehave Top been 20 d eficieGlobalnt a Rt teinsurershe ‘AAA’ level. O ver Time By Confidence Level 14% 115% Return on equity (ROE) (left scale) CapitalCapital AAdequacydequacy O fO Tfhe The Top Top 20 20Global Global Reinsurers Reinsurers Over TOimever ByTime Confidence By Confidence Level Level (ROE) (left scale) 80% Capital Adequacy Of The Top 20 Global Reinsurers Over Time By Confidence Level 2014 12% 110% 80% Average ROE 80%70% 2014 Average ROE 20142015 ((2014-2018) (left(left sscale) 70%80% 70%60% 20152014 10% 105% 20152016 60%70% Combined ratio ratio Combined Combined ratio ratio Combined Combined ratioratio 60%50% 20162015 ((2014-2018) 50%60% 20162017 8% 100% 20172016 (right(right sscale) 50%40% 40%50% 20172018 20182017 ROE ROE 40%30% 6% 95% Average combined ratioratio 30%40% 2018 2018 (2014-2018) (2014-2018) 30%20%30%20% (right(right sscale) 4% 90% 20%10%20%10% 10%10%0%0% 2% 85% -10%-10%0%0% -20%-10% 0% 80% -10%-20% 0% 80% AAA AA A BBB 2014 2015 2016 2017 2018 2019F 2020F -20% AAA AA A BBB 2014 2015 2016 2017 2018 2019F 2020F -20% Source: S&P Global Ratings.AAA AA A BBB Source: S&P Global Ratings. Source: S&P Global RRatinings. AAA AA A BBB Source: S&P Global Ratings. Source: S&P Global Ratings. In addition to year-on-year reductions in capital adequacy, all of our reinsurer cohort groups In addition to year-on-year reductions in capital adequacy, all of our reinsurer cohort groups The ggloballobal rreinsurance iindustry hahas continued to bebenefit from ffavorable, aalbeitlbeit ddeclining, reserve wIne ardditione deficient to year at the-on ‘AAA’-year level reductions at the e innd c apitalof 2018, adequacy, whereas a allll of remained our reinsurer redundant cohort at g roupsthe ‘A’ releases. However, ththe eelevatedlevated 20172017 andand 20182018 netnet combinedcombined ratiosratios wwere eexacerbated by ththe 2017 Inlwevel. eaerdditionree deficientWithin deficient t Go roup yearat at the 1-othe reinsurers,‘AAA’n -y‘AAA’e levelar rleveleductions a tht thee a atverage ethend iofennd dec2018,apital ficienof 2018, w hereascyadequacy, at w thehereas all ‘AAA’ remained a ll al evelllof r ouremained w redundantas re justinsurer overredundant at 1%cohort the, ‘A’ atgroups the ‘A’ and 2018 catastrophe llosses and undunderlying ccombined rratios hahave aalsolso bbeen trending upupwards wcomparedllevel.ere deficientWithin Within to Ga roupG 21% atroup the 1deficiency reinsurers, 1 ‘AAA’ reinsurers, level amongst th ae tath theveragee t hea everage ndG deroup officien 2018, de3 cficiencyohort. atw hereasthe cy ‘AAA’at the a lllevel ‘AAA’remained was level just rw overedundantas just1%, over at the1% ,‘A’ since 2012,2012, bebeforefore llevelling ooffff iin 2018.2018. lcomparedevel. Within to to aG a21%roup 21% deficiency 1 deficiencyreinsurers, amongst a mongstthe taheverage G trouphe G de 3roup ficiencohort. 3 ccy ohort. at the ‘AAA’ level was just over 1%, compared2018 Average to a Capital21% deficiency Adequacy amongst By Peer the Group Group 3 cohort. 2018018 Average Average Capital Capital Adequacy Adequacy By P Beery P Groupeer Group Top 20 GGloballobal RReinsurers’ UUnderwriting PPerformance 60% Group 1 2018 Average Capital Adequacy By Peer Group 110% 25% 50%60%60% Group 21 P/C: Net ccombined ratio Group 1 50% Group 32 Reserve 40% Reserve 60%50% GroupGroup 1 2 ( losses ( losses GlobalGroup 3 105% 20% 30%40% 105% 20% 50%40% GroupGroup 2 3 Accident-year ccombined Global releases a 30% releases a 20% GroupGlobal 3 % % ratioratio excludingexcluding 40%30% of of catastrophe losses and 10%20% 100% 15% catastrophe losses and Global

100% 15% combined combined reservereserved releasesreleases 30%20% 10%0% nd c nd c 20%10% -10%0% atastrophe 95% 10% atastrophe

r 10% r -20%-10%0%

atio) Catastrophe losses

atio) Catastrophe losses Combined ratio Combined ratio -30%-20%-10%0% 90% 5% AAA AA A BBB -10%-30%-20% Reserved releaserelease Source: S&P Global Ratings.AAA AA A BBB benefit -20%-30% Source: S&P Global Ratings. 85% 0% AAA AA A BBB -30% 2014 2015 2016 2017 2018 GlobalSource: Reinsurance S&P Global Ratings. PeerAAA Review AA A BBB 3 Source: S&P Global Ratings. Source:Global S&PReinsurance Global Ratings. Peer Review 3

Global Reinsurance Peer Review 3

Global Reinsurance Peer Review 2 Global Reinsurance Peer Review 3

Global Reinsurance Highlights | 2019 53 Peer Review

− After a 1-in-50 year catastrophe event, capital adequacy would deteriorate into the ‘BBB’ − range.After a 1-in-50 year catastrophe event, capital adequacy would deteriorate into the ‘BBB’ − After a 1-in-50 year catastrophe event, capital adequacy would deteriorate into the ‘BBB’ range. − range.If the sector’s total return on capital is one percentage point below its cost of capital for 12 −− Ifmonths,If the the sector’s sector’s capital total total adequacy return return on capitalwould on capital isremain one is percentage one in the percentage ‘AA’ point range. below point its below cost of its capital cost offor capital 12 for 12 − Aftermonths,months, a 1- capitalin capital-50 year adequacy adequacy catastrophe would would event,remain remain capital in the inadequacy‘AA’ the range. ‘AA’ would range. deteriorate into the ‘BBB’ range. 2018 Global Reinsurance Capital Stress Test − If the sector’s total return on capital is one percentage point below its cost of capital for 12 2018 Global Reinsurance Capital Stress Test 2018months, Global capital Reinsurance adequacy would Capital remain Stressin the ‘AA’ Test range. 120 ‘BBB’ excess capital 120120 ‘BBB’ excess capital 100 ‘A’‘BBB’ excess excess capital capital 2018100 Global Reinsurance Capital Stress Test ‘A’ excess capital 100 ‘AA’‘A’ excess capital 80 ‘AA’ excess capital 12080 71.6‘BBB’ excess capital‘AA’ excess capital 80 71.6 60 10060 71.6‘A’ excess capital Bil. $ Bil. $ 60 ‘AA’ excess capital

Bil. $ 804040 40 71.630.0 30.0 20 6020 30.0 Bil. $ 11.4 11.4 020 400 11.4 30.0 20 0 11.4 0 (1%) 1/10 1/10 cat yr 1/50 1/50 cat yr 1/250 1/250 cat yr 1/100 cat yr AAA) (1%) 1/10 1/10 cat yr 1/50 1/50 cat yr 35%reserve 10%reserve 1/250 1/250 cat yr 1/100 cat yr strengthening strengthening AAA) category 35%reserve 10%reserve (1%) for industry 1/10 1/10 cat yr 1/50 1/50 cat yr strengthening strengthening Roc

Source: S&P Global Ratings. (selling… exposure for industry Double BBB Double (selling Roc

Source: S&P Global Ratings. (selling… exposure Double BBB Double (selling 2002 U.S.2002 reserver/i Bond ratings down down 1 ratings Bond Cash dividends paiddividends Cash Source: S&P Global Ratings. SCaource: S&Ptastrophe Global Ratings. Risk Catastrophe Risk InCa 2019, mtastropheost of the top 20 reinsurers c hoRse toisk increase their exposure relative to capital, to Cabenefittastrophe from the slightly improved cRonditionisks. A few stuck with defensive measures, allowing Intheir 2019, exposure most toof c thonte racttop further,20 reinsurers as they c hhoadse in to2018 inc. rOnease average, their exreinsurersposure ’relative property t-o capital, to bIncInatastrophee 2019,nefit 2019, fmrom ostm ostrisk ofthe th ofa ppetitese thlight toep to20ly pa improvedrt einsurers20 a 1 r-ieinsurersn-250 cho-yoneseditionar c toho retu isencs.rnr to eA aseperio fincew theirrd estuck rosease ex ptheirto wiosure 29%th ex d relative oefensipfosure shareholderv t eorelative mcapital,easures, equity, t too capital, abullowingt to tbsheirbeomenefitenefit exposurereinsurers from from the t hetosslightaw csont lightreductionsly ractimprovedly improved further, of c monore ditiona cs thanon thditions.ey fAive h fadew percentages. instuckA f2018ew wi stuck.th Onpoints. defensi a wiverage,th v deefensi m easures,reinsurersve m aeasures,llowing’ property allowing- ctheiratastrophetheir exposure exposure risk to cto onta ppetitecontractract further, a tfurther, a 1 a-isn th-2 eya50s h th-yadeye inar h 2018 adretu in.rn On 2018 perio average,. Ond rose a rverage,einsurers to 29% reinsurers’ opfr opertyshareholder-’ property equity,- but This chart provides a ranking of reinsurers’ relative exposure to catastrophe risk against one catastrophe risk appetite at a 1-in-250-year return period rose to 29% of shareholder equity, but sanother.omecatastrophe reinsurers It is ba risksed s awonappetite blreductionsended a tranking a 1 o-ifn m -2ooref 50cat -ythan riskear mf riveetricsetu percentagern deperiovelopedd rose points. by toS&P 29% (some of sohareholderf the risk equity, but somesome reinsurers reinsurers saw s awreductions reductions of m oreof m thanore f thanive percentage five percentage points. points. Thismetrics chart used provides include eaarnings ranking a tof risk, reinsurers’ capital at rrisk,elative post e eventsxposure capital to ca atastrophedequacy a ndrisk historical against one This chart provides a ranking of reinsurers’ relative exposure to catastrophe risk against one another.expeThisri enchartc eIt) .is p rovidesbased on a rblankingended of ranking reinsurers’ of cat r elativerisk metrics exposure developed to catastrophe by S&P ( somerisk a gainstof the riskone another. It is based on blended ranking of cat risk metrics developed by S&P (some of the risk metricsanother. used It is include based on earnings blended at ranking risk, capital of cat a trisk risk, m poetricsst events developed capital by aSd&Pequacy (some a ndof thhistoricale risk metrics used include earnings at risk, capital at risk, post events capital adequacy and historical Catastrophe Exposure: Cumulative Riskiness Scoring As Of Jan. 1, 2019 expemetricsrriienencce ue).sed) . include earnings at risk, capital at risk, post events capital adequacy and historical experience). 80 Catastrophe70 E xposureExposure: Cumulative: Cumulative Riskiness Riskiness Scoring Scoring As Of Jan.As Of 1, Jan.2019 1, 2019 Catastrophe60 Exposure: Cumulative Riskiness Scoring As Of Jan. 1, 2019 805080 70407080 60 306070 50 205060 4010 4050 300 203040 102030 10020 010 Argo AXIS Arch SCOR Sirius Aspen RenRe Hiscox Lloyd’s Fairfax Source: S&P0 Global Ratings. Markel Qatar Re China Re Swiss Re Alleghany PartnerRe Munich Re Everest Re Lancashire Hannover Re

Source: S&P Global Ratings. Global Reinsurance Peer Review 4

Source: S&P Global Ratings. Source: S&P Global Ratings. Global Reinsurance Peer Review 4

Global Reinsurance Peer Review 4 Global Reinsurance Peer Review 4

54 Global Reinsurance Highlights | 2019 Peer Review

− After a 1-in-50 year catastrophe event, capital adequacy would deteriorate into the ‘BBB’ − range.After a 1-in-50 year catastrophe event, capital adequacy would deteriorate into the ‘BBB’ An aggregated 1-in-10-year loss experience, which we assume to be about $20 billion, An aggregated 1-in-10-year loss experience, which we assume to be about $20 billion, range. would exceed the annual natural catastrophe budget and hit the sector’s earnings, but would not − If the sector’s total return on capital is one percentage point below its cost of capital for 12 would exceed the annual natural catastrophe budget and hit the sector’s earnings, but would not − months,If the sector’s capital total adequacy return would on capital remain is one in the percentage ‘AA’ range. point below its cost of capital for 12 hihitt its its capital capital in inaggregate. aggregate. This T chishart c harttakes takes into a iccountnto account the natural the n caturalatastrophe catastrophe budget the bu dget the months, capital adequacy would remain in the ‘AA’ range. sAnsectorector aggregated incorporates incorporates 1-i inn-1 ain 0n ormalizeda-y neormalizedar loss year experience, yearand the and pr whtheojectedich pr ojectedwe earnings assume earnings th atto maybe tha beboutat a maychieved $20 be b illion,inachieved a in a normalizedwonormalizeduld exceed ye year. ar.the annual natural catastrophe budget and hit the sector’s earnings, but would not 2018 Global Reinsurance Capital Stress Test hit its capital in aggregate. This chart takes into account the natural catastrophe budget the 2018 Global Reinsurance Capital Stress Test Ansector aggregated incorporates 1-in-10 -yine a rn losormalizeds experience, year wh andich the we aprssumeojected to be earnings about $ 20th atbillion, may be achieved in a 120 ‘BBB’ excess capital TopTop 20 20 Global Global Reinsurers Reinsurers’ Aggregate’ Aggregate Capital Capital Surplus Surplus Resilience Resilience To Stress To A Stresst At wonormalizeduld exceed yethear. annual natural catastrophe budget and hit the sector’s earnings, but would not 120 YYearear-End-End 20 201818 100 ‘A’‘BBB’ excess excess capital capital hit its capital in aggregate. This chart takes into account the natural catastrophe budget the 120 100 ‘AA’‘A’ excess capital sector120 incorporates in a normalized year and the projected earnings that may be achieved in a 80 Top100 20 Global Reinsurers’ Aggregate Capital Surplus Resilience To Stress At Capital buffers 71.6 ‘AA’ excess capital normalized year. 11.3 (19.7) 80 100 11.3 Capital deﬁcit 60 Year-End 2018 22.0 (19.7)(35.7) (44.1) 71.6 80 (16.2) (35.7) (58.1) Bil. $ 80 22.0 (44.1) Expected proﬁt and cat budget 60 120 11.4 (16.2) (58.1) TopBil. $ 2060 Global Reinsurers’ Aggregate Capital Surplus Resilience To Stress At Cat losses Bil. $ 40 30.0 11.4 Bil. $ 60 40 30.0 Year100-End 2018 30.0 11.3 20 40 71.6 (19.7) 30.0 12040 (35.7) 11.4 20 71.6 22.0 (44.1) 20 80 (16.2) (58.1) 0 11.4 100 20 11.4 11.3 (19.7)

Bil. $ 0 0 60 30.0 (35.7) 80 22.0 (44.1) 0 (16.2) (58.1) 40 11.4

Bil. $ 71.6 60 30.0 (1%) 1/10 1/10 cat yr 1/50 1/50 cat yr 20 1/250 1/250 cat yr 1/100 cat yr AAA) 40

35%reserve 10%reserve 71.6 (1%) 1/10 1/10 cat yr 1/50 1/50 cat yr strengthening strengthening category 1/250 1/250 cat yr 1/100 cat yr AAA) 0 for industry Roc

Roc

Cash dividends paiddividends Cash Whilst 2018 natural catastrophe losses were less severe than in 2017, nat cat losses still wiped Source: S&P Global Ratings. oSource:ut earnings S&P Global for R fativeings. of the top 20 reinsurers last year. Industrywide, 2018 losses averaged about Source: S&P Global Ratings. 0.8xWhilst of th 2018e annual natural normalize catastrophed earnings losses and affected were less about severe 7% of th sanhareholders in 2017,’ nequityat cat a tlosses year-e ndstill wiped 2017.out e arningsReinsurers for’ i ndividualfive of the experiences top 20 reinsurers align well last with year. our expectations, Industrywide, which 2018 we losses derive faromveraged about Catastrophe Risk ourSource:0.8x annually o Sf&P th Gleobal aunnualpdated Ratings. n catastropheormalized earnings exposure amndetrics. affected The m aboutost-exposed 7% of reinsurers shareholders in 201’ equity8, in at year-end Source: S&P Global Ratings. termsWhilst2017. o Reinsurersf 2018 both enaturalarnings’ individual caatastrophend capital, experiences a ppearlosses o nw athereligne r ighless wtell hand s everewith side o thur oan fexpectations, th iisn 20chart.17, nat w cathich losses we de stillrive w fipedrom Catastrophe Risk Whilst 2018 natural catastrophe losses were less severe than in 2017, nat cat losses still wiped oourut eaarningsnnually uforpdated five of catastrophe the top 20 reinsurers exposure lmastetrics. year. The Industrywide, most-exposed 2018 reinsurers losses averaged in 2018, about in In 2019, most of the top 20 reinsurers chose to increase their exposure relative to capital, to out earnings for five of the top 20 reinsurers last year. Industrywide, 2018 losses averaged about S&P0.8x Goflobal the a Ratings’nnual normalize Relatived C earningsatastrophe and Benchmark affected about Performed 7% of s hareholdersWell In 2018’ equity at year-end bInenefit 2019, from most the of s thlighte tolyp improved 20 reinsurers condition choses. to A fincewr estuckase their with ex defensiposurev erelative measures, to capital, allowing to 0.8xterms of th ofe boannualth earnings normalize andd earnings capital, a andppear affected on th aboute righ 7%t hand of shareholders side of this’ equity chart. at year-end theirbenefit exposure from t heto csontlightractly improved further, a cson thditioney hads. inA f2018ew stuck. On a wiverage,th defensi reinsurersve measures,’ property allowing- 2017. Reinsurers’ individual experiences align well with our expectations, which we derive from 2017. Reinsurers18% ’ individual experiences align well with our expectations, which we derive from catastrophetheir exposure risk to a ppetitecontract a tfurther, a 1-in-2 a50s th-yeyear h adretu inrn 2018 perio. Ond rose average, to 29% reinsurers of shareholder’ property equity,- but ourour a annuallynnually updated updated catastrophe catastrophe exposure exposure metrics. metrics. The m ostThe-e mxposedost-e reinsurersxposed reinsurers in 2018, in i n 2018, in

S&Pyear - Global Ratings’ Relative Catastrophe Benchmark Performed Well In 2018 Lancashire Everest Re somecatastrophe reinsurers risk s awappetite reductions at a 1 o-ifn m-2ore50 -ythanear f riveetu percentagern period rose points. to 29% of shareholder equity, but termstermsequity o16% fo bof bothth earnings earnings and a capital,nd capital, appear appear on th eo nrigh thte hand righ tside hand of thsideis c ohart.f th is chart. some reinsurers saw reductions of more than five percentage points. This chart provides a ranking of reinsurers’ relative exposure to catastrophe risk against one 14%18% against

another.This chart It is p rovidesbased on a rblankingended of ranking reinsurers’ of cat r elativerisk metrics exposure developed to catastrophe by S&P ( somerisk a gainstof the riskone S&PS&Pyear - G Globallobal Ratings’ Ratings’ Re lativeRelative Catastrophe Catastrophe Benchmark Benchmark Performed Performed Well In 2 W018ell In 2018 Lancashire oss 12% Everest Re

equity 16% metricsanother. used It is include based on earnings blended at ranking risk, capital of cat a trisk risk, m poetricsst events developed capital by aSd&Pequacy (some a ndof thhistoricale risk SCOR shareholders’ 10%18% Hannover Re AXIS Lloyd’s expemetricsrienc uesed). include earnings at risk, capital at risk, post events capital adequacy and historical 14%18% Swiss Re against

year - Lancashire experience). year - Everest Re Lancashire

equity 16%8% Hiscox Sirius

oss Everest Re equity 12%16% eported catastrophe l Aspen RenaissanceRe Catastrophe Exposure: Cumulative Riskiness Scoring As Of Jan. 1, 2019 14%6% et Munich Re

against SCOR shareholders’ 10%14% Fairfax Hannover Re AXIS Lloyd’s Catastrophe Exposure: Cumulative Riskiness Scoring As Of Jan. 1, 2019 against Alleghany Swiss Re oss 12%4% Markel 80 PartnerRe oss 12%8%Arch

2017 total r 2017 Argo SCOR

shareholders’ Sirius 10%2% HiscoxHannover Re AXIS Lloyd’s

7080 eported catastrophe l Swiss Re SCOR Aspen RenaissanceRe shareholders’ Qatar Re end 10%6% Hannover Re AXIS Lloyd’s et 2018 n a nnual Munich Re 6070 0%8% Swiss Re FairfaxHiscox Alleghany Sirius eported 5060 catastrophe l 8%0 1Markel2 3 4 5 6 7 8 9 10 11 12 13 14Aspen15 16 17 18 19Renaissance20 21Re 22 6%4% Sirius et Hiscox PartnerRe Munich Re eported 4050 catastrophe l Arch Fairfax S&P Global Ratings relative catastrophe benchmark Aspen RenaissanceRe

2017 total r 2017 Alleghany 6% Argo 3040 et 4%2% Markel (ranking from least to most exposed left to right)Munich Re FairfaxQatar Re PartnerRe end Arch Alleghany

2017 total r 2017 Argo 2030 Bubble2018 n a nnual size 2%shows4% 2018 annualMarkel net catastrophe loss against 2018 actual profit before tax (excluding cat). Source: S&P Global Ratings. 0% PartnerRe Qatar Re 1020 end Ar0 ch 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2018 n a nnual 2017 total r 2017 Argo 0%2% 010 0 1 2 3 Qatar4 5Re 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 end S&P Global Ratings relative catastrophe benchmark 0 2018 n a nnual 0% S&P Global(ranking Ratings from relative least catastrophe to most exposed benchmark left to right) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Bubble size shows 2018 annual net catastrophe loss against(ranking 2018 actual from profit least before to most tax (excluding exposed cat). left Source: to right) S&P Global Ratings. Bubble size shows 2018 annual net catastrophe loss against 2018 actualS&P profit Globalbefore tax Ratings (excluding cat). relative Source: catastropheS&P Global Ratings. benchmark Global Reinsurance Peer Review 5 (ranking from least to most exposed left to right) Source: S&P Global Ratings. Bubble size shows 2018 annual net catastrophe loss against 2018 actual profit before tax (excluding cat). Source: S&P Global Ratings. Source: S&P Global Ratings.

Global Reinsurance Peer Review 4

Global Reinsurance Peer Review 4 GlobalGlobal Reinsurance Reinsurance Peer Peer Review Review 5 5

Global Reinsurance Highlights | 2019 55 Global Reinsurance Peer Review 5 Peer Review Investment Risk

Investment strategies for the sector remain relatively conservative. However the sector continues to respond to the ‘lower-for-longer’ interest rate environment with an increase in credit risk. AInvestmentverage credit quality remains s trRongi bskut BBB bonds have gradually increased. There was also a modest decrease in equity risk while property risk remained largely stable in 2018. Asset durationInvestme decrent strasedategi esin 2018for th eto secto arounr rdemain 4.5 years. relatively conservative. However the sector continues to respond to the ‘lower-for-longer’ interest rate environment with an increase in credit risk. Average credit quality remains strong but BBB bonds have gradually increased. There was also a Investment Portfolio Composition modest decrease in equity risk while property risk remained largely stable in 2018. Asset duration decreased in 2018 to around 4.5 years. Bonds

Cash and short-term InvestmentAverage 2017 Portfolio Composition investment EquityBonds investments

RealCash estate and short-term Average 2017 investment OtherEquity investments Average 2018 Real estate

Other Average 20180% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: S&P Global Ratings.

Net Investment0% Yield10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: 3.0%S&P Global Ratings.

Net Investment2.9% Yield

2.8%3.0%

2.7%2.9%

2.6%2.8%

Weightedaverage 2.5%2.7%

2.4%2.6% 2014 2015 2016 2017 2018 2019F 2020F

F: ForecastWeightedaverage 2.5%

Source: S&P Global Ratings. 2.4% 2014 2015 2016 2017 2018 2019F 2020F

F: Forecast

Source: S&P Global Ratings.

Global Reinsurance Peer Review 6

56 Global Reinsurance Highlights | 2019

Global Reinsurance Peer Review 6 Peer Review Economic Forecasts

S&P Global Ratings’ GDP, Inflation and Interest Rate Forecasts

2018 2019F 2020F 2021F 2022F

Real GDP (YOY % change) Eurozone 1.9 1.1 1.3 1.3 1.3 U.K. 1.4 1.2 1.4 1.3 1.8 Asia Pacific 5.5 5.1 5.3 5.2 5.3 U.S. 2.9 2.5 1.8 1.9 1.7

CPI inflation (year-on-year % change) Eurozone 1.8 1.2 1.3 1.4 1.6 U.K. 2.5 1.8 1.7 2.4 1.8 Asia Pacific 2.1 2.0 2.4 2.4 2.3 U.S. 2.4 1.8 2.4 2.2 2.2

Long-Term (10-Year) Interest Rates (%) Eurozone 1.1 0.8 1.2 1.5 1.9 U.K. 1.5 1.2 1.6 1.9 2.3 Asia Pacific 3.2 2.8 2.9 3.0 3.1 U.S. 2.9 2.4 2.6 2.6 2.7

Data as of June 2019. F: Forecast Source: S&P Global Ratings.

Global Reinsurance Peer Review 7

Global Reinsurance Highlights | 2019 57 Top 40 By Company

Top 40 Global Reinsurance Groups Ranked By Net Reinsurance Premiums Written Net Reinsurance Pre-tax Operating Income (Mil. $) Combined Ratio (%) Total Adjusted Return on Revenue (%) Premiums Written (Mil. $) Shareholders’ Funds (Mil. $)

Ranking Company Country Rating Outlook Footnote 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 1 Swiss Reinsurance Co. Switzerland AA- Stable 1 34,042.0 32,316.0 356.0 -1,202.0 106.6 115.4 28,153.0 34,428.0 0.9 -3.2 2 Munich Reinsurance Co. Germany AA- Stable 2 33,685.6 36,454.4 3,548.5 -650.7 99.4 114.0 35,397.9 37,585.3 9.0 -1.5 3 Hannover Rück SE Germany AA- Stable 19,953.2 19,321.4 1,559.3 1,052.8 96.9 100.0 10,477.7 10,803.2 7.3 5.2 4 Berkshire Hathaway Re United States AA+ Stable 16,532.0 24,212.0 N.A. N.A. 110.4 116.0 162,000.0 170,000.0 N.A. N.A. 5 SCOR SE France AA- Stable 15,803.1 16,163.5 638.8 328.9 99.3 103.7 6,652.0 7,437.1 4.0 2.0 6 China Reinsurance (Group) Corp China A Stable 10,677.8 9,970.3 1,097.7 696.8 98.8 103.9 12,685.0 11,573.9 9.4 6.1 7 Reinsurance Group of America, Inc. United States AA- Stable 10,543.8 9,841.1 1,017.9 1,038.5 N.M. N.M. 8,450.6 9,569.5 7.9 8.4 8 Lloyd’s United Kingdom A+ Stable 3 9,969.4 10,746.5 -581.9 -1,798.3 106.0 117.2 34,998.1 36,191.7 N.A. N.A. 9 Everest Re Group Ltd. Bermuda A+ Stable 4 7,414.4 6,244.7 -117.4 277.5 108.8 103.5 8,201.2 8,139.6 -1.6 4.3 10 PartnerRe Ltd. Bermuda A+ Stable 5,803.0 5,120.0 N.A. N.A. 101.8 102.3 6,516.0 6,745.0 N.A. N.A. 11 General Insurance Corporation of India India NR - 5,678.2 5,796.3 555.6 557.7 105.3 103.8 3,674.7 3,711.4 8.6 8.3 12 MS&AD Insurance Group Holdings, Inc. Japan A+ Stable 5,080.1 5,427.0 N.A. N.A. N.A. N.A. 35,576.0 38,769.9 N.A. N.A. 13 Korean Reinsurance Co. South Korea A Stable 4,772.3 4,705.9 16.2 180.9 101.6 96.5 2,030.0 2,047.6 0.3 3.9 14 Transatlantic Holdings Inc. United States A+ Stable 3,969.1 3,810.1 64.0 -13.7 105.4 106.9 4,723.5 5,217.9 1.5 -0.3 15 Sompo Holdings, Inc. Japan A+ Stable 3,900.3 3,893.0 N.A. N.A. N.A. N.A. 19,158.7 21,589.7 N.A. N.A. 16 Mapfre Re Spain A Positive 3,497.2 3,388.8 247.2 265.6 95.4 94.9 1,913.6 1,562.4 6.2 7.0 17 R+V Versicherung AG Germany AA- Stable 3,169.7 3,017.4 399.9 246.9 100.8 106.1 7,777.3 7,508.5 10.8 7.2 18 Fairfax Financial Holdings Ltd. Canada A- Positive 5 2,790.2 2,576.8 395.0 57.3 94.2 106.6 11,779.3 12,475.6 13.1 2.1 19 Tokio Marine & Nichido Fire Insurance Co. Ltd. Japan A+ Positive 6 2,692.6 2,728.8 2,845.0 3,065.9 N.A. N.A. 26,062.1 28,561.5 N.A. N.A. 20 AXIS Capital Holdings Ltd. Bermuda A+ Stable 2,334.2 1,939.4 N.A. N.A. 98.4 108.8 5,030.1 5,341.3 N.A. N.A. 21 Toa Re Co Ltd. Japan A+ Stable 2,239.8 2,238.5 -119.6 146.8 109.5 96.5 2,729.0 3,074.6 -5.2 6.3 22 RenaissanceRe Holdings Ltd. Bermuda A+ Stable 2,131.9 1,871.3 N.A. N.A. 89.3 137.9 5,045.1 4,391.4 N.A. N.A. 23 Validus Reinsurance Ltd. Bermuda A Stable 7 1,700.5 2,044.5 -91.0 54.0 108.1 99.7 3,259.0 4,248.6 -4.9 2.4 24 Caisse Centrale de Reassurance France AA Stable 1,439.3 1,416.5 133.2 -1,101.3 100.7 197.4 5,882.9 6,267.8 8.7 -72.4 25 Arch Capital Group Ltd. Bermuda A+ Stable 1,372.6 1,174.5 519.5 203.4 94.5 99.9 6,032.7 6,148.8 33.9 14.7 26 Sirius Group Bermuda A- Stable 1,357.1 1,090.2 21.8 -68.1 103.1 107.6 1,706.2 1,917.2 1.5 -5.9 27 IRB-Brasil Resseguros S.A. Brazil NR - 1,312.2 1,223.0 376.6 399.6 69.5 81.5 1,030.6 1,081.2 26.9 28.2 28 Taiping Reinsurance Co., Ltd. Hong Kong A Stable 1,257.2 1,501.4 37.0 11.0 98.6 96.4 1,032.0 1,049.8 3.4 0.8 29 Aspen Insurance Holdings Ltd. Bermuda A Negative 8 1,182.9 1,250.0 61.3 -203.3 104.0 125.1 2,656.0 2,928.5 4.5 -15.6 30 Peak Reinsurance Co. Ltd. Hong Kong NR - 1,056.5 928.8 17.2 35.3 98.3 105.1 965.5 911.6 1.7 3.9 31 Qatar Reinsurance Co. Ltd. Bermuda A Stable 971.0 712.6 21.2 -66.8 103.9 122.0 1,109.7 1,148.7 2.0 -11.1 32 Allianz SE Germany AA Stable 9 931.9 788.8 27.0 72.7 99.8 92.6 N.A. N.A. 3.0 9.9 33 QBE Insurance Group Ltd. Australia A+ Stable 920.0 837.3 123.0 73.7 62.2 108.4 8,400.0 8,901.0 13.2 8.4 34 Markel Corporation United States A Stable 882.3 978.2 -118.3 -299.2 112.7 132.0 N.A. N.A. -12.7 -32.0 35 Chubb Tempest Reinsurance Ltd. Bermuda AA Stable 857.9 880.2 294.3 222.3 101.8 111.2 N.A. N.A. 24.5 18.0 36 Deutsche Rückversicherung AG Germany A+ Stable 841.3 851.2 70.0 54.8 95.2 98.0 917.9 881.1 8.0 6.2 37 African Reinsurance Corp. Nigeria A- Stable 681.3 625.7 30.6 87.4 97.9 95.9 917.1 902.0 4.4 13.0 38 PICC Reinsurance Co. Ltd. China NR - 634.2 482.5 -34.6 -37.5 106.5 114.7 394.6 426.5 -5.3 -13.5 39 Nacional de Reaseguros S.A. Spain A Stable 516.5 532.6 50.4 33.9 92.9 96.1 423.0 466.2 9.6 5.8 40 Atradius Reinsurance DAC Ireland NR - 502.9 507.4 24.9 53.9 95.7 89.3 727.5 752.7 4.9 10.5 Total: 225,097.8 229,608.1 13,486.3 3,776.6 102.0 109.9 474,485.4 504,756.5 5.7 1.3

Rating = Financial strength ratings of core operating entities of the groups as of 02.08.2019 4. Everest Re Group Ltd.: 2017 Adjusted Shareholders’ Funds have been restated to reflect Average Adjusted Shareholders’ Equity. N.A. = Not available 5. Fairfax Financial Holdings Ltd.: Pretax Operating Income is from reinsurance operations only. Total Adjusted Shareholders’ Funds are the totals N.M. = Not meaningful from all operations; as reported. NR = Not rated 6. Tokio Marine & Nichido Fire Insurance Co. Ltd.: Figures represent Tokio Marine & Nichido Fire Insurance Co.,Ltd. and exclude the group’s other Note: Exchange rates may slightly differ from previous years’ GRH data due to alignment of foreign exchange rates with other S&P Global surveys reinsurance subsidiaries. 1. Swiss Reinsurance Co.: Figures represent the group as a whole including primary business. 7. Validus Reinsurance Ltd.: Information provided previously came from the reinsurance segment of the former Validus Holdings, Ltd. Balances 2. Munich Reinsurance Co.: Total Adjusted Shareholders’ Funds for the group includes ERGO. above are taken from the GAAP financial statements for Validus Reinsurance, Ltd. 3. Lloyd’s: The figures in the Pretax Operating Income column reflect the underwriting result. Net Premium Written, underwriting result and the 8. Aspen Insurance Holdings Ltd.: 2018 and 2017 numbers have been reported as a mixture of the reinsurance segment and whole company. combined ratio relate to reinsurance business only; all other items include direct business. The data presented is based on the published pro Where available numbers relate to reinsurance segment, and where unavailable the group results are shown. forma accounts for the Market, which represents an aggregation of all syndicates participating at Lloyd’s. As such, some premium included for 9. Allianz SE: Figures are based on IFRS results (only external business). Pretax Operating Income excludes administrative expenses Lloyd’s may also be included by other groups that consolidate their Lloyd’s operations. Adjusted Shareholders’ Funds are members’ funds for the Market as a whole.

58 Global Reinsurance Highlights | 2019 Top 40 By Company

Global Reinsurance Highlights | 2019 59 Global Reinsurers By Country

Global Reinsurers By Country

o bring you the 2019 edition of Our ongoing aim in producing this data premiums written but, in some cases, Global Reinsurance Highlights, is to provide market participants with an other metrics will include both primary TS&P Global Ratings sought indication of the ongoing reinsurance and reinsurance business. These cases data on around 170 reinsurance capacity available in each market. Hence, can be identified through the footnotes to organizations from over 32 countries. we try to exclude intragroup reinsurances the tables, although if we do not consider As in previous years, the data is based as far as possible. Companies that have that the metrics provided by the company on survey responses from reinsurance not been able to exclude intragroup are representative of the company’s organizations worldwide. reinsurance are highlighted in the reinsurance operations, we have marked To ensure consistency, we requested footnotes on pages 70 and 71. the metric as not applicable (N.A.). that respondents complied with clear One of the challenges has been to For companies that report in guidelines on the definition of the separate reinsurance from primary currencies other than the U.S. dollar, we financial items required. In addition, insurance business, especially when have converted the reported data at year- S&P Global Ratings attempted to verify reinsurance operation is a division within end exchange rates. the veracity of the data submitted with a company and not a distinct operation. We have endeavored to collect the reference to publicly available data Generally speaking, the premium data data underlying each group or entity’s sources, insofar as this was possible. relates to a company’s reinsurance combined ratio in order to calculate this

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Australia A+ Stable QBE Insurance Group Ltd.* 920.0 837.3 9.9 123.0 73.7 62.2 108.4 8,400.0 8,901.0 -5.6 13.2 8.4 AA- Stable Swiss Re Life & Health Australia Ltd. 796.1 -360.7 N.M. 34.6 233.0 N.M. N.M. 909.4 1,251.5 -27.3 2.0 -73.1 AA- Stable Munich Reinsurance Co. of Australasia Ltd. 484.2 518.4 -6.6 -150.0 -31.7 N.M. N.M. 854.2 1,020.6 -16.3 -27.1 -5.3 AA- Stable Hannover Life Re of Australasia Ltd. 343.3 317.3 8.2 -11.7 16.0 N.M. N.M. 331.4 387.6 -14.5 -2.9 4.2 AA+ Stable General Reinsurance Life Australia Ltd. 222.1 207.9 6.9 -148.8 23.3 N.M. N.M. 59.1 131.7 -55.1 -331.2 4.0 AA- Stable SCOR Global Life Australia 99.7 93.9 6.2 0.9 5.3 N.M. N.M. 102.2 113.0 -9.5 0.9 5.2 AA+ Stable General Reinsurance Australia Ltd. 71.6 53.3 34.4 0.2 20.6 120.6 72.4 242.0 319.8 -24.3 0.3 38.6 Total: 2,937.0 1,667.2 76.2 -151.7 340.3 66.0 106.7 10,898.4 12,125.2 -10.1 -4.0 15.0 Bahrain A+ Stable Hannover Re Takaful 148.5 164.1 -9.5 3.4 19.6 89.0 95.4 167.5 169.9 -1.4 2.2 10.3 Total: 148.5 164.1 -9.5 3.4 19.6 89.0 95.4 167.5 169.9 -1.4 2.2 10.3

60 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

metric in a comparable manner. The that group or company’s total reinsurance Jean Paul Huby Klein combined ratios presented in our Global business written, whether it be life, non- Frankfurt, (+49) 69-33-999-198 Reinsurance Highlights report have been life, or a combination of both. n [email protected] calculated as: (net losses incurred + net underwriting expenses)/net premiums Samantha Byrne earned. The combined (loss and expense) London, (+44) 20-7176-7065 ratio of any entity that writes purely life [email protected] reinsurance has been marked as not meaningful (NM), as we do not consider Antun Zvonar this to be an accurate measure of a life New York, (1) 212-438-7338 reinsurer’s profitability. For these groups [email protected] or entities writing both non-life and life reinsurance business, the combined Johannes Bender ratio reflects non-life business only. Frankfurt, (+49) 69-33-999-196 The main group and country listing for [email protected] each entity surveyed is representative of

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Global Reinsurance Highlights | 2019 61 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Bermuda A+ Stable Partner Reinsurance Company Ltd 2,917.7 2,919.7 -0.1 101.9 -81.4 103.8 107.6 3,319.6 3,319.6 0.0 3.4 -2.7 A Stable Validus Reinsurance Ltd. 1 1,700.5 2,044.5 -16.8 -91.0 54.0 108.1 99.7 3,259.0 4,248.6 -23.3 -4.9 2.4 A+ Stable Everest Reinsurance (Bermuda) Ltd. 2 1,581.7 3,092.2 -48.8 907.0 563.8 49.0 89.2 3,146.5 2,991.3 5.2 53.8 15.0 A+ Stable Sompo International Holdings Ltd.* 1,573.0 1,380.3 14.0 N.A. N.A. N.A. N.A. 6,846.9 7,036.3 -2.7 N.A. N.A. A+ Stable Renaissance Reinsurance Ltd. 1,186.0 1,139.3 4.1 N.A. N.A. 77.0 134.4 2,000.0 2,000.0 0.0 N.A. N.A. A+ Stable Arch Reinsurance Ltd. 1,140.9 919.2 24.1 499.9 189.0 96.1 101.8 4,478.1 4,677.3 -4.3 36.2 17.0 A Stable Qatar Reinsurance Co. Ltd. 971.0 712.6 36.3 21.2 -66.8 103.9 122.0 1,109.7 1,148.7 -3.4 2.0 -11.1 AA Stable Chubb Tempest Reinsurance Ltd. 670.5 685.0 -2.1 247.1 179.6 101.8 111.2 N.A. N.A. N.A. 25.8 18.3 AA- Stable Hannover Re Bermuda Ltd. 476.4 389.6 22.3 168.3 125.2 75.6 81.8 1,234.9 1,210.7 2.0 33.2 28.9 A+ Stable DaVinci Reinsurance Ltd. 317.2 281.5 12.7 N.A. N.A. 92.7 169.9 1,477.4 1,447.7 2.0 N.A. N.A. A+ Stable AXIS Specialty Limited 305.4 56.3 442.0 N.A. N.A. 137.9 282.4 3,470.8 3,762.4 -7.8 N.A. N.A. A- Stable International General Insurance Co. Ltd. 3 202.2 168.8 19.7 22.7 -3.3 87.3 101.2 331.0 316.1 4.7 12.1 -2.0 AA Stable Chubb Tempest Life Reinsurance, Ltd. 187.5 195.3 -4.0 47.2 42.7 N.M. N.M. N.A. N.A. N.A. 19.5 16.6 A Stable Markel Bermuda Ltd. 170.8 217.3 -21.4 -46.5 -68.7 127.0 136.0 N.A. N.A. N.A. -27.0 -36.0 A Negative Aspen Bermuda Ltd. 97.2 159.6 -39.1 -44.6 -122.1 136.5 175.3 1,565.5 1,857.8 -15.7 -18.8 -43.3 A- Stable Lancashire Insurance Co. Ltd. 84.6 85.5 -1.1 79.1 -56.9 69.2 169.0 869.5 931.3 -6.6 34.0 -24.3 A Stable Hiscox Insurance Co. (Bermuda) Ltd. 4 81.2 72.4 12.2 -16.6 9.2 116.9 88.3 613.8 864.8 -29.0 -17.1 8.5 AA Stable Top Layer Reinsurance Ltd. 21.9 22.5 -2.4 N.A. N.A. N.A. N.A. 93.1 100.4 -7.3 N.A. N.A. BBB Stable Somerset Reinsurance Ltd. 0.2 N.A. N.A. 24.3 N.A. N.A. N.A. 415.0 N.A. N.A. 60.4 N.A. Total: 13,685.7 14,541.7 -5.9 1,919.9 764.2 93.3 107.2 34,230.9 35,913.0 -4.7 16.5 5.7 Bosnia & Herzegovina NR - Bosna Re 13.7 14.8 -7.0 1.1 8.4 84.5 90.2 19.7 23.7 -17.0 7.5 35.8 Total: 13.7 14.8 -7.0 1.1 8.4 84.5 90.2 19.7 23.7 -17.0 7.5 35.8 Brazil NR - IRB-Brasil Resseguros S.A. 1,312.2 1,223.0 7.3 376.6 399.6 69.5 81.5 1,030.6 1,081.2 -4.7 26.9 28.2 brAAA Stable Austral Resseguradora S.A. 71.7 122.1 -41.3 0.1 10.8 87.9 98.5 73.0 85.1 -14.2 0.1 8.7 brAA+ Stable Terra Brasis Resseguros 26.3 23.3 13.2 -0.9 -3.6 N.A. N.A. 26.9 31.4 -14.3 -3.3 -12.2 NR - Markel Resseguradora do Brasil 13.3 11.4 16.8 3.7 -2.8 69.7 119.5 N.A. N.A. N.A. 30.3 -19.5 Total: 1,423.5 1,379.8 3.2 379.5 404.0 70.5 83.4 1,130.5 1,197.7 -5.6 25.0 25.5 Canada A+ Stable Temple Insurance Company 131.7 100.3 31.3 -4.1 4.9 115.1 103.9 153.8 147.1 4.6 -3.6 4.1 AA- Stable Munich Reinsurance Co. of Canada 126.3 175.6 -28.1 37.2 54.8 84.4 76.6 192.0 226.7 -15.3 23.6 29.8 AA- Stable SCOR Canada Reinsurance Co. 119.1 129.2 -7.8 5.2 14.8 101.2 93.8 104.6 113.3 -7.7 4.0 11.4 Total: 377.0 405.0 -6.9 38.4 74.6 98.6 89.4 450.4 487.1 -7.5 9.5 17.2 China A Stable China Property & Casualty Reinsurance Co. Ltd. 3,719.2 3,448.8 7.8 158.4 121.8 100.3 103.6 2,714.0 2,768.9 -2.0 4.3 3.4 NR - PICC Reinsurance Co. Ltd. 634.2 482.5 31.5 -34.6 -37.5 106.5 114.7 394.6 426.5 -7.5 -5.3 -13.5 Total: 4,353.5 3,931.3 10.7 123.9 84.3 101.2 104.4 3,108.6 3,195.4 -2.7 2.9 2.2 Czech Rep. A+ Stable VIG Re 259.5 308.7 -15.9 17.2 12.0 90.3 93.1 194.4 204.2 -4.8 6.2 3.7 Total: 259.5 308.7 -15.9 17.2 12.0 90.3 93.1 194.4 204.2 -4.8 6.2 3.7

62 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Global Reinsurance Highlights | 2019 63 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

France AA- Stable SCOR Global Life SE 3,140.2 2,835.6 10.7 141.1 96.0 106.6 101.7 976.0 990.4 -1.5 4.3 3.2 AA- Stable SCOR SE 2,126.4 2,141.7 -0.7 649.1 -61.2 119.1 119.9 4,128.8 4,128.5 0.0 23.3 -2.8 AA- Stable SCOR Global P&C SE 1,445.1 1,467.0 -1.5 367.0 162.1 96.4 105.0 2,675.7 2,721.5 -1.7 22.4 9.6 AA Stable Caisse Centrale de Reassurance 931.2 963.9 -3.4 89.6 -1,104.1 101.3 227.1 5,510.2 5,740.0 -4.0 8.8 -104.2 A- Positive CCR RE 508.1 452.6 12.3 29.7 4.6 96.2 105.4 697.4 780.3 -10.6 5.9 1.0 Total: 8,150.9 7,860.8 3.7 1,276.5 -902.5 106.7 122.8 13,988.2 14,360.8 -2.6 13.8 -10.7 Germany AA- Stable Munich Reinsurance Co. 19,769.1 24,489.0 -19.3 2,226.1 182.5 95.5 113.7 37,806.4 35,336.7 7.0 10.6 0.6 AA- Stable Hannover Rück SE 12,058.7 12,507.9 -3.6 906.9 693.3 100.6 100.2 9,199.8 9,596.9 -4.1 6.8 5.2 AA+ Stable General Reinsurance AG 3,565.6 2,973.2 19.9 565.6 404.8 80.8 94.6 4,263.2 5,183.6 -17.8 16.2 13.1 AA- Stable R+V Versicherung AG 3,169.7 3,017.4 5.0 399.9 246.9 100.8 106.1 7,777.3 7,508.5 3.6 10.8 7.2 AA- Stable E+S Rückversicherung AG 2,095.2 2,264.3 -7.5 128.8 279.8 103.7 95.8 2,411.5 2,715.9 -11.2 5.5 11.4 AA Stable Allianz SE 5 931.9 788.8 18.1 27.0 72.7 99.8 92.6 N.A. N.A. N.A. 3.0 9.9 A+ Stable Deutsche Rückversicherung AG 551.8 564.0 -2.2 46.5 63.5 94.4 91.1 793.8 793.9 0.0 8.1 11.2 A+ Stable DEVK Re 486.3 448.6 8.4 148.1 114.2 95.1 96.7 1,374.1 1,403.5 -2.1 21.6 17.6 Total: 42,628.2 47,053.3 -9.4 4,448.9 2,057.7 96.7 106.8 63,626.0 62,539.0 1.7 9.7 3.9 Hong Kong A Stable Taiping Reinsurance Co., Ltd. 1,257.2 1,501.4 -16.3 37.0 11.0 98.6 96.4 1,032.0 1,049.8 -1.7 3.4 0.8 NR - Peak Reinsurance Co. Ltd. 1,056.5 928.8 13.8 17.2 35.3 98.3 105.1 965.5 911.6 5.9 1.7 3.9 AA- Stable SCOR Reinsurance Company (Asia) Limited 146.1 118.7 23.0 -16.6 18.9 105.6 73.8 213.3 247.3 -13.7 -11.2 15.7 Total: 2,459.8 2,548.8 -3.5 37.7 65.2 98.9 98.4 2,210.8 2,208.7 0.1 1.7 2.8 India NR - General Insurance Corporation of India 5,678.2 5,796.3 -2.0 555.6 557.7 105.3 103.8 3,674.7 3,711.4 -1.0 8.6 8.3 Total: 5,678.2 5,796.3 -2.0 555.6 557.7 105.3 103.8 3,674.7 3,711.4 -1.0 8.6 8.3 Iran NR - Iranian Reinsurance Company 16.7 18.2 -8.1 32.7 17.4 100.9 96.7 88.9 97.1 -8.5 64.3 51.9 Total: 16.7 18.2 -8.1 32.7 17.4 100.9 96.7 88.9 97.1 -8.5 64.3 51.9 Ireland AA- Stable SCOR Life Ireland DAC. 2,947.0 N.A. N.A. 215.7 N.A. N.M. N.M. 2,335.0 N.A. N.A. 7.2 N.A. AA- Stable Hannover Reinsurance (Ireland) DAC 2,909.1 2,878.1 1.1 90.5 -320.9 102.0 99.5 857.3 1,479.9 -42.1 2.9 -10.0 A+ Stable Partner Reinsurance Europe SE 2,148.1 1,926.2 11.5 130.6 81.4 68.8 71.2 2,657.5 2,603.3 2.1 11.7 6.9 AA- Stable SCOR Global Life Reinsurance Ireland DAC 1,442.7 4,388.1 -67.1 830.2 463.8 N.M. N.M. 1,611.9 911.2 76.9 54.7 10.4 A+ Stable AXIS Re SE 764.9 839.8 -8.9 N.A. N.A. 91.6 96.5 1,439.2 736.0 95.5 N.A. N.A. NR - Atradius Reinsurance DAC 502.9 507.4 -0.9 24.9 53.9 95.7 89.3 727.5 752.7 -3.3 4.9 10.5 A+ Stable Arch Re Europe 64.6 64.5 0.2 N.A. N.A. 60.0 73.6 N.A. N.A. N.A. N.A. N.A. Total: 10,779.2 10,604.0 1.7 1,291.9 278.1 93.1 92.3 9,628.3 6,483.1 48.5 14.0 3.0 Japan A+ Positive Tokio Marine & Nichido Fire Insurance Co. Ltd. 6 2,692.6 2,728.8 -1.3 2,845.0 3,065.9 N.A. N.A. 26,062.1 28,561.5 -8.8 N.A. N.A. A+ Stable Sompo Japan Nipponkoa Insurance Inc. 2,259.1 2,356.3 -4.1 N.A. N.A. N.A. N.A. 16,992.9 19,040.9 -10.8 N.A. N.A. A+ Stable Aioi Nissay Dowa Insurance Co. Ltd. 1,957.0 2,038.2 -4.0 N.A. N.A. N.A. N.A. 9,326.1 10,587.4 -11.9 N.A. N.A. A+ Stable Toa Reinsurance Co. 1,758.7 1,746.0 0.7 9.9 125.8 102.2 95.0 2,256.6 2,400.8 -6.0 0.6 7.0 A+ Stable Mitsui Sumitomo Insurance Co. Ltd. 1,677.5 1,793.9 -6.5 N.A. N.A. N.A. N.A. 21,931.2 N.A. N.A. N.A. N.A. Total: 10,344.9 10,663.2 -3.0 2,854.9 3,191.7 102.2 95.0 76,568.9 60,590.5 26.4 0.6 7.0 Kazakhstan BBB- Stable Eurasia Insurance Co. 64.9 67.3 -3.6 -14.5 -15.9 124.2 126.6 367.3 328.3 11.9 -10.3 -16.5 Total: 64.9 67.3 -3.6 -14.5 -15.9 124.2 126.6 367.3 328.3 11.9 -10.3 -16.5

64 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Global Reinsurance Highlights | 2019 65 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Kuwait NR - Kuwait Reinsurance Co. K.S.C.P 143.9 114.2 26.0 12.2 11.1 92.1 95.1 160.5 151.5 5.9 9.0 10.6 Total: 143.9 114.2 26.0 12.2 11.1 92.1 95.1 160.5 151.5 5.9 9.0 10.6 Luxembourg AA- Stable Swiss Re Europe S.A. 6,947.8 7,385.3 -5.9 492.9 358.3 82.0 94.8 1,174.5 1,272.1 -7.7 17.1 11.7 Total: 6,947.8 7,385.3 -5.9 492.9 358.3 82.0 94.8 1,174.5 1,272.1 -7.7 17.1 11.7 Nigeria A- Stable African Reinsurance Corp. 468.9 425.9 10.1 34.3 85.9 87.9 79.6 875.9 840.2 4.3 7.1 18.9 Total: 468.9 425.9 10.1 34.3 85.9 87.9 79.6 875.9 840.2 4.3 7.1 18.9 Poland NR - Polskie Towarzystwo Reasekuracji S.A. 63.2 60.6 4.3 2.1 4.0 98.2 91.8 72.5 74.7 -3.0 2.8 6.3 Total: 63.2 60.6 4.3 2.1 4.0 98.2 91.8 72.5 74.7 -3.0 2.8 6.3 Russia NR - Russian National Reinsurance Company 175.9 133.6 31.6 -11.6 -36.0 107.2 152.5 336.2 381.7 -11.9 -5.7 -34.5 BBB Stable SOGAZ 102.2 99.3 2.9 15.9 61.0 82.3 41.7 2,194.3 1,900.1 15.5 4.7 15.8 BBB- Stable Ingosstrakh Insurance Co. 48.5 53.2 -8.7 12.1 31.0 71.9 40.3 989.5 1,075.1 -8.0 28.0 54.6 NR - Russian Re Co. Ltd. 13.4 12.8 4.4 1.6 1.2 87.7 88.6 13.8 13.1 5.6 10.4 10.1 Total: 340.0 298.9 13.7 18.1 57.2 94.1 75.7 3,533.8 3,370.0 4.9 3.0 10.2 Singapore A- Stable Asia Capital Reinsurance Group Pte Ltd. 478.9 446.0 7.4 -17.6 39.3 112.9 107.1 763.2 811.4 -5.9 -3.7 8.3 AA- Stable SCOR Reinsurance Asia-Pacific 442.2 399.9 10.6 35.6 10.8 92.4 100.9 165.6 145.5 13.8 8.0 2.3 NR - Singapore Reinsurance Corporation Ltd. 37.4 38.1 -1.9 -3.7 0.7 N.A. N.A. 193.0 193.7 -0.4 -7.4 1.6 Total: 958.5 884.0 8.4 14.4 50.9 102.8 103.7 1,121.7 1,150.6 -2.5 1.5 5.1 Slovenia A Stable Pozavarovalnica Sava, d.d. 98.1 111.1 -11.7 51.6 41.7 91.0 91.5 366.3 349.3 4.9 27.2 22.3 A Stable Triglav Re 92.4 89.2 3.5 3.5 5.4 97.5 93.8 91.7 99.3 -7.6 3.7 6.1 Total: 190.5 200.3 -4.9 55.1 47.2 93.4 92.3 458.0 448.6 2.1 19.4 17.0 South Africa AA- Stable Munich Reinsurance Co. of Africa Ltd. 321.1 319.0 0.7 18.0 -1.0 100.6 115.9 221.7 232.5 -4.7 3.8 -0.2 AA- Stable Swiss Re Africa Ltd. 214.8 203.2 5.7 5.2 -2.7 110.0 115.4 51.1 48.9 4.4 2.3 -1.2 A- Stable General Reinsurance Africa Ltd. 211.2 184.2 14.6 35.9 13.7 N.M. N.M. 151.5 123.8 22.4 14.7 6.4 AA- Stable Hannover Life Reassurance Africa Ltd. 139.6 152.6 -8.5 2.6 4.3 N.M. N.M. 39.4 43.2 -8.8 1.7 2.6 AA- Stable Hannover Reinsurance Africa Ltd. 62.9 58.3 7.9 7.4 2.3 91.0 93.9 61.5 61.8 -0.4 8.4 3.6 A- Stable African Re Corp. (South Africa) Ltd. 58.4 60.9 -4.0 -3.8 1.5 78.1 122.7 41.4 61.9 -33.2 -6.3 1.9 BB+ Stable GIC Re South Africa Ltd. 56.2 31.5 78.3 21.3 -6.4 84.6 127.5 9.0 N.A. N.A. 31.8 -29.7 AA- Stable SCOR Africa Ltd. 31.1 49.7 -37.4 4.8 -10.1 78.3 130.0 23.8 20.5 16.0 14.3 -21.2 Total: 1,095.3 1,059.4 3.4 91.6 1.6 98.2 115.8 599.3 592.6 1.1 6.8 0.1 South Korea A Stable Korean Reinsurance Co. 4,769.1 4,687.0 1.8 13.1 182.6 101.6 96.5 2,011.1 2,030.8 -1.0 0.3 3.9 Total: 4,769.1 4,687.0 1.8 13.1 182.6 101.6 96.5 2,011.1 2,030.8 -1.0 0.3 3.9 Spain A Positive Mapfre Re, Compania de Reaseguros, S.A. 3,435.2 3,310.4 3.8 245.0 255.8 95.7 94.2 1,834.9 1,499.3 22.4 6.2 6.9 A Stable Nacional de Reaseguros S.A. 516.5 532.6 -3.0 50.4 33.9 92.9 96.1 423.0 466.2 -9.3 9.6 5.8 Total: 3,951.7 3,843.0 2.8 295.3 289.7 95.3 94.5 2,257.9 1,965.5 14.9 6.6 6.7

66 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Global Reinsurance Highlights | 2019 67 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Switzerland AA- Stable Swiss Reinsurance Co. Ltd. 11,851.5 11,875.1 -0.2 1,122.5 1,924.9 104.5 109.4 10,771.7 13,504.3 -20.2 8.8 14.0 AA- Stable New Reinsurance Co. 5,399.0 4,436.6 21.7 -118.5 67.1 93.4 100.7 1,507.4 1,320.9 14.1 -2.1 1.5 AA- Stable Swiss Re Asia Ltd (SRAL) 2,246.5 -2.8 N.M. -329.3 -19.5 181.0 152.0 1,368.7 1,420.8 -3.7 -17.0 -5.5 AA- Stable SCOR Switzerland AG 1,382.3 1,653.6 -16.4 127.2 -17.9 88.1 98.9 1,382.2 1,537.0 -10.1 9.4 -1.1 A+ Stable Tokio Millennium Re AG 1,179.3 1,301.6 -9.4 51.9 -217.7 95.9 116.2 1,257.2 1,190.6 5.6 3.8 -15.5 A Stable MS Amlin AG 1,129.2 1,322.4 -14.6 -100.1 -376.9 107.8 129.0 N.A. N.A. N.A. -8.5 -26.1 A- Positive Allied World Assurance Co. Ltd. 649.3 679.2 -4.4 87.4 -131.7 94.1 129.4 N.A. N.A. N.A. 12.1 -18.5 A+ Stable Deutsche Rückversicherung Schweiz AG 297.1 273.0 8.8 17.6 -12.8 98.0 107.8 203.5 215.3 -5.5 5.8 -4.5 NR - SIGNAL IDUNA Reinsurance Ltd. 159.5 162.9 -2.0 10.9 9.0 97.4 97.9 204.3 228.2 -10.5 6.3 5.1 A- Stable Echo Rückversicherungs-AG 123.2 115.2 7.0 -2.7 -5.8 97.0 101.2 93.8 97.4 -3.7 -2.3 -5.0 A+ Stable TransRe Zurich 97.0 89.9 7.8 -1.5 -3.3 104.5 104.7 274.5 271.0 1.3 -1.6 -3.2 Total: 24,513.9 21,906.7 11.9 865.3 1,215.4 106.4 108.8 17,063.4 19,785.5 -13.8 3.4 5.0 Taiwan A Stable Central Reinsurance Corp. 468.8 460.3 1.8 39.9 49.5 95.9 91.2 495.5 519.1 -4.6 8.3 10.5 Total: 468.8 460.3 1.8 39.9 49.5 95.9 91.2 495.5 519.1 -4.6 8.3 10.5 Turkey trA+ - Milli Reasurans T.A.S. 7 218.4 251.2 -13.1 19.0 16.6 136.1 113.6 328.3 417.1 -21.3 8.2 6.0 Total: 218.4 251.2 -13.1 19.0 16.6 136.1 113.6 328.3 417.1 -21.3 8.2 6.0 United Kingdom A+ Stable Lloyd's 8 9,969.4 10,746.5 -7.2 -581.9 -1,798.3 106.0 117.2 34,998.1 36,191.7 -3.3 N.A. N.A. NR - MS Amlin Plc 9 1,489.5 1,594.8 -6.6 -156.1 -523.0 111.7 133.9 N.A. N.A. N.A. -10.3 -29.7 A Negative Aspen Insurance U.K. Ltd. 1,052.0 1,043.7 0.8 2.1 -163.9 99.8 116.4 842.5 888.5 -5.2 0.2 -15.6 NR - Brit Limited 342.8 291.0 17.8 -30.0 49.6 111.8 86.9 N.A. N.A. N.A. -8.8 16.1 A+ Stable TransRe London Ltd. 219.4 220.8 -0.6 10.3 -5.6 101.2 111.3 520.6 519.1 0.3 4.5 -2.3 A Stable Markel International Insurance Co. Ltd. 152.0 65.6 131.8 -1.4 -65.6 100.9 212.4 N.A. N.A. N.A. -0.9 -112.4 AA- Stable SCOR U.K. Co. Ltd. 146.5 137.1 6.9 -1.2 -16.3 107.0 115.3 159.5 176.5 -9.7 -0.9 -11.4 NR - Cathedral Capital Holdings Ltd 72.1 69.8 3.3 -0.2 6.7 99.5 123.2 43.3 45.4 -4.6 -0.1 3.2 A- Stable Lancashire Insurance Co. (UK) Ltd. 7.6 20.1 -62.2 -5.9 1.2 63.2 74.1 170.0 176.2 -3.5 -22.3 2.9 NR - Korean Re Underwriting Ltd. 3.2 18.9 -82.8 3.2 -1.8 75.6 105.4 18.9 16.8 12.3 28.1 -10.2 Total: 13,454.5 14,208.1 -5.3 -761.1 -2,517.0 106.0 118.7 36,752.9 38,014.2 -3.3 -4.8 -18.8

68 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

Global Reinsurance Highlights | 2019 69 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

United States AA+ Stable National Indemnity Co. 25,986.0 21,432.0 21.2 682.0 -894.0 92.6 103.7 121,739.0 127,777.0 -4.7 2.0 -4.5 A+ Stable Everest Reinsurance Co. 2 5,052.3 1,741.2 190.2 -1,326.3 -577.8 130.4 183.6 3,468.2 3,486.8 -0.5 -26.5 -48.1 AA- Stable Swiss Reinsurance America Corp. 4,099.9 4,594.5 -10.8 -198.1 130.7 109.5 107.5 3,312.4 3,238.0 2.3 -4.7 6.1 AA- Stable Munich Reinsurance America, Inc. 4,083.4 2,985.0 36.8 -406.9 -663.0 113.9 124.7 3,718.7 4,019.2 -7.5 -7.6 -17.9 A+ Stable Transatlantic Reinsurance Co. 3,579.8 3,479.3 2.9 48.2 20.2 107.2 108.1 4,614.1 4,992.9 -7.6 1.2 0.5 AA- Stable Swiss Re Life & Health America Inc. 2,219.8 4,034.2 -45.0 -1,199.6 51.9 N.M. N.M. 2,035.8 1,157.4 75.9 -23.2 1.8 AA+ Stable General Reinsurance Corp. 2,216.0 1,428.0 55.2 241.0 -83.0 113.9 128.6 10,550.0 11,393.0 -7.4 8.5 -4.4 A- Positive Odyssey Re Holdings Corp.* 1,595.3 1,411.0 13.1 324.7 117.0 89.9 101.9 N.A. N.A. N.A. 18.9 7.9 AA+ Stable Berkshire Hathaway Life Insurance Co. of NE 1,461.0 -604.0 N.M. -386.0 126.0 N.M. N.M. 5,414.0 4,816.0 12.4 -18.9 -101.6 AA+ Stable General Re Life Corp. 1,418.4 1,093.4 29.7 35.3 -570.7 N.M. N.M. 972.4 746.8 30.2 2.3 -46.5 AA- Stable SCOR Reinsurance Co. 1,324.9 1,158.0 14.4 -158.7 -220.9 117.5 124.8 903.5 820.1 10.2 -12.0 -20.3 A+ Stable Partner Reinsurance Co. of U.S. 1,306.4 929.3 40.6 -161.3 7.2 122.8 107.3 1,094.3 1,335.7 -18.1 -14.0 0.7 AA- Stable Munich American Reassurance Co. 1,111.4 849.3 30.9 40.3 -77.5 N.M. N.M. 638.6 718.5 -11.1 2.9 -6.7 A+ Stable AXIS Reinsurance Company 588.3 1,005.3 -41.5 N.A. N.A. 92.4 103.5 987.3 966.8 2.1 N.A. N.A. A Stable Markel Global Reinsurance Company 542.9 559.7 -3.0 -80.6 -103.0 113.8 119.3 N.A. N.A. N.A. -13.8 -19.3 A+ Stable W.R. Berkley Corporation* 480.4 544.6 -11.8 62.1 -15.3 106.4 117.6 N.A. N.A. N.A. 10.3 -2.2 AA- Stable Hannover Life Reassurance Co. of America 410.6 232.7 76.4 67.0 55.9 N.M. N.M. 349.9 211.2 65.7 17.0 23.5 A+ Stable Renaissance Reinsurance U.S. Inc. 359.9 351.8 2.3 N.A. N.A. 97.0 108.2 506.9 660.0 -23.2 N.A. N.A. A Stable The Navigators Group, Inc.* 287.7 214.2 34.3 9.8 -14.8 96.1 108.6 1,186.9 1,226.0 -3.2 2.8 -5.5 AA- Stable SCOR Global Life USA Reinsurance Company 232.8 133.8 74.0 15.6 -31.8 N.M. N.M. 264.4 277.1 -4.6 6.1 -21.8 AA- Stable SCOR Global Life Americas 196.5 130.5 50.6 -57.6 9.4 N.M. N.M. 208.0 208.0 0.0 -26.9 6.2 A+ Stable Arch Reinsurance Co. 167.1 190.8 -12.4 19.6 14.4 99.8 99.3 1,554.6 1,471.5 5.6 22.3 6.7 AA- Stable SCOR GLOBAL LIFE Reinsurance Company of Delaware 103.7 75.9 36.6 45.3 -2.1 N.M. N.M. 127.1 97.3 30.6 41.0 -2.5 Total: 58,824.5 47,970.5 22.6 -2,384.3 -2,721.2 103.0 110.3 163,645.8 169,619.1 -3.5 -3.3 -6.2 Vietnam NR - PVI Reinsurance Company 15.1 16.9 -10.3 2.4 3.4 82.1 76.4 36.3 33.8 7.5 11.9 17.1 Total: 15.1 16.9 -10.3 2.4 3.4 82.1 76.4 36.3 33.8 7.5 11.9 17.1

GRAND TOTAL: 219,745.3 210,796.7 4.2 11,625.7 4,092.0 100.4 107.5 450,940.7 443,920.4 1.6 4.3 1.5

* Rating = Financial strength ratings of core operating entities of the groups N.A. = Not available N.M. = Not meaningful NR = Not rated Note: Exchange rates may slightly differ from previous years’ GRH data due to alignment of foreign exchange rates with other S&P Global surveys 1. Validus Reinsurance Ltd.: Information provided previously came from the reinsurance segment of the former Validus Holdings, Ltd. Balances above are taken from the GAAP financial statements for Validus Reinsurance, Ltd. 2. Everest Reinsurance (Bermuda) Ltd. & Everest Reinsurance Co.: 2017 Adjusted Shareholders’ Funds have been restated to reflect Average Adjusted Shareholders’ Equity. 3. International General Insurance Co. Ltd.: Pretax Operating Income 2017 has been restated. 4. Hiscox Insurance Co. (Bermuda) Ltd.: Premium shown relates directly to property business and the total adjusted shareholder fund is shown at a total Hiscox Insurance Company (Bermuda) level. 5. Allianz SE: Figures are based on IFRS results (only external business). Pretax Operating Income excludes administrative expenses.

70 Global Reinsurance Highlights | 2019 Global Reinsurers By Country

Net Reinsurance Premiums Pretax Operating Combined Total Adjusted Shareholders’ Return on Written (Mil. $) Income (Mil. $) Ratio (%) Funds (Mil. $) Revenue (%)

Rating as of Footnotes 2018 2017 Change % 2018 2017 2018 2017 2018 2017 Change % 2018 2017 02 August, 2019

GRAND TOTAL: 219,745.3 210,796.7 4.2 11,625.7 4,092.0 100.4 107.5 450,940.7 443,920.4 1.6 4.3 1.5

6. Tokio Marine & Nichido Fire Insurance Co. Ltd.: Figures represent Tokio Marine & Nichido Fire Insurance Co.,Ltd. and exclude the group’s other reinsurance subsidiaries. 7. Milli Reasurans T.A.S.: 2017 financials have been restated. 8. Lloyd’s: The figures in the Pretax Operating Income column reflect the underwriting result. Net Premium Written, underwriting result and the combined ratio relate to reinsurance business only; all other items include direct business. The data presented is based on the published pro forma accounts for the Market, which represents an aggregation of all syndicates participating at Lloyd’s. As such, some premium included for Lloyd’s may also be included by other groups that consolidate their Lloyd’s operations. Adjusted Shareholders’ Funds are members’ funds for the Market as a whole. 9. MS Amlin Plc: Figures for MS Amlin Plc also include the figures for MS Amlin AG.

Global Reinsurance Highlights | 2019 71 Ratings Definitions

Insurer Financial Strength Ratings

An S&P Global Ratings insurer financial This opinion is not specific to any Assignment of ratings to debt issued by strength rating is a forward-looking particular policy or contract, nor does insurers or to debt issues that are fully or opinion about the financial security it address the suitability of a particular partially supported by insurance policies, characteristics of an insurance policy or contract for a specific purpose contracts, or guarantees is a separate organization with respect to its ability or purchaser. Furthermore, the opinion process from the determination of to pay under its insurance policies and does not take into account deductibles, insurer financial strength ratings, and it contracts in accordance with their terms. surrender or cancellation penalties, follows procedures consistent with those Insurer financial strength ratings are timeliness of payment, nor the likelihood used to assign an issue credit rating. also assigned to health maintenance of the use of a defense such as fraud to An insurer financial strength rating is organizations and similar health plans deny claims. not a recommendation to purchase or with respect to their ability to pay under Insurer financial strength ratings do discontinue any policy or contract issued their policies and contracts in accordance not refer to an organization’s ability to by an insurer. with their terms. meet nonpolicy (i.e., debt) obligations.

Category Definition*

AAA An insurer rated ‘AAA’ has extremely strong financial security characteristics. ‘AAA’ is the highest insurer financial strength rating assigned by S&P Global Ratings.

AA An insurer rated ‘AA’ has very strong financial security characteristics, differing only slightly from those rated higher.

A An insurer rated ‘A’ has strong financial security characteristics but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.

BBB An insurer rated ‘BBB’ has good financial security characteristics but is more likely to be affected by adverse business conditions than are higher-rated insurers.

BB, B, CCC, and CC An insurer rated ‘BB’ or lower is regarded as having vulnerable characteristics that may outweigh its strengths. ‘BB’ indicates the least degree of vulnerability within the range and ‘CC’ the highest.

BB An insurer rated ‘BB’ has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.

B An insurer rated ‘B’ has weak financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments.

CCC An insurer rated ‘CCC’ has very weak financial security characteristics and is dependent on favorable business conditions to meet financial commitments.

CC An insurer rated ‘CC’ has extremely weak financial security characteristics and is likely not to meet some of its financial commitments.

SD and D An insurer rated ‘SD’ (selective default) or ‘D’ is in default on one or more of its insurance policy obligations. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on a policy obligation are at risk. A ‘D’ rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay substantially all of its obligations in full in accordance with the policy terms.

*Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

72 Global Reinsurance Highlights | 2019 Ratings Definitions

Insurer Financial Enhancement Ratings

An S&P Global Ratings insurer financial Insurer financial enhancement ratings obligation in the event of a bankruptcy, enhancement rating is a forward-looking are based, in varying degrees, on S&P reorganization, or other arrangement opinion about the creditworthiness of Global Ratings’ analysis of the following under the laws of bankruptcy and an insurer with respect to insurance considerations: other laws affecting creditors’ rights. policies or other financial obligations • The likelihood of payment: capacity that are predominantly used as credit and willingness of the insurer to enhancement and/or financial guarantees. meet its financial commitments on When assigning an insurer financial an obligation in accordance with the enhancement rating, S&P Global Ratings’ terms of the obligation; analysis focuses on capital, liquidity, • The nature and provisions of the and company commitment necessary to financial obligation; and support a credit enhancement or financial • The protection afforded by, and guaranty business. relative position of, the financial

Category Definition*

An insurer rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest insurer AAA financial enhancement rating assigned by S&P Global Ratings.

An insurer rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated AA insurers to only a small degree.

An insurer rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to A the adverse effects of changes in circumstances and economic conditions than insurers in higher-rated categories.

An insurer rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic BBB conditions or changing circumstances are more likely to weaken the insurer’s capacity to meet its financial commitments.

Insurers rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative characteristics. ‘BB’ indicates BB, B, CCC, and CC the least degree of speculation and ‘CC’ the highest. While such insurers will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.

An insurer rated ‘BB’ is less vulnerable in the near term than other lower-rated insurers. However, it faces major BB ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the insurer’s inadequate capacity to meet its financial commitments.

An insurer rated ‘B’ is more vulnerable than the insurers rated ‘BB’, but the insurer currently has the capacity to B meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the insurer’s capacity or willingness to meet its financial commitments.

An insurer rated ‘CCC’ is currently vulnerable and is dependent upon favorable business, financial, and economic CCC conditions to meet its financial commitments.

CC An insurer rated ‘CC’ is currently highly vulnerable.

An insurer rated ‘SD’ (selective default) or ‘D’ has failed to pay one or more of its financial obligations when it came due. A ‘D’ rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P SD and D Global Ratings believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations. An ‘SD’ or ‘D’ rating can include the completion of a distressed exchange offer.

*Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.

Global Reinsurance Highlights | 2019 73 Addresses

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74 Global Reinsurance Highlights | 2019

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