Proprietary and Confidential Aon’s Reinsurance Aggregate Results for the Year to December 31, 2020 Contents Executive Summary 1 Global Reinsurer Capital 2 ARA Capital 3 Capital Development 4 New Capital Formation 5 Capital Repatriation 5 Premium Income 7 P&C Gross Premium Development 8 P&C Net Premium Development 9 Earnings 12 P&C Underwriting Performance 13 Investment Results 16 Net Income 17 Return on Equity 18 Valuation 20 Financial Strength Ratings 22 Appendix: ARA Data 23 Aon’s Reinsurance Aggregate Executive Summary Welcome to the latest edition of our report series tracking the financial performance of leading reinsurance carriers in the global market, also known as Aon’s Reinsurance Aggregate (‘the ARA’). The ARA underwrites just over 50% of the world’s life and non-life reinsurance premiums and is therefore a reasonable proxy for the sector as a whole. The 23 companies included in the study are Alleghany, Arch, Argo, Aspen, AXIS, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, PartnerRe, QBE, Qatar Insurance, RenRe, SCOR, Sirius*, Swiss Re, Third Point Re* and W.R. Berkley. Timely availability of relatively consistent financial data is a major factor in constituent selection. COVID-19 dominated the headlines in 2020, creating unprecedented and unexpected challenges for reinsurers on both sides of the balance sheet. The year also featured a record number of named storm formations in the Atlantic hurricane season, as well as a continued high frequency of losses from less well modelled secondary perils, again focusing attention on the impact of climate change. Not for the first time, the difficult environment provided reinsurers with an opportunity to demonstrate their resilience. Despite the combined effects of around $25bn of pandemic and natural catastrophe related losses and a compromised investment return, the ARA was able to report positive earnings for the year and an increased capital base, aided by demonstrated access to new funding. The key highlights of the ARA’s financial performance in 2020 were as follows: . Total gross premiums written (GPW) rose by 6% to $294bn. Property and casualty (P&C) premiums rose by 7% to $223bn, split primary insurance $107bn (+6%) and assumed reinsurance $116bn (+7%). The net P&C combined ratio stood at 103.4%, with COVID-19 losses of $14.0bn contributing 8.0 percentage points (pp) and natural catastrophe losses of $8.7bn adding another 5.0pp. Life and health reinsurance GPW stood at $54bn. This segment generated additional COVID-19 related losses of $2.4bn. The ordinary investment yield fell to a new low of 2.3%, driven by the capital market volatility associated with COVID-19 and the impact of emergency cuts in interest rates. The capital market recovery subsequent to the first quarter was nevertheless sufficient to drive the ARA to an overall net profit of $5.4bn, representing a return on equity of 2.3%. Total capital rose by 6% to $270bn, split equity $211bn (+4%) and debt $59bn (+16%). The stock market value of the listed ARA companies at April 16, 2021 remained 6% below the level seen at the beginning of 2020. Demonstrated resilience in 2020 cannot hide the fact that recent reinsurance sector results have been poor. Over the last four years, the ARA combined ratio averages 102.3% and return on equity averages 4.8%, representing a significant shortfall relative to the cost of capital. COVID-19 will continue to be a headwind to earnings in 2021 and uncertainty over the ultimate extent and distribution of related losses will be a factor in maintaining underwriting discipline, alongside deteriorating trends in casualty reserving, the impact of climate change and low interest rates. Note: * On February 26, 2021, Sirius and Third Point Re merged to form SiriusPoint Aon’s Reinsurance Aggregate 1 Global Reinsurer Capital Aon estimates that global reinsurer capital increased to a new high of $650bn at the end of 2020, driven by strong capital market recovery from the COVID-19 ‘shock’ in the first quarter, new equity issuance and US dollar depreciation. This calculation is a broad measure of the capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurer capital. Exhibit 1: Global Reinsurer Capital Alternative capital Traditional capital Global reinsurer capital 700 650 625 595 605 575 585 600 565 4% 540 2% -3% 7% 5% 505 -2% 470 6% 500 455 7% 410 11% 385 400 -3% 400 340 18% 6% 530 556 -17% 18% 514 516 488 511 493 300 490 461 USD (billions) USD 447 428 200 368 388 378 321 100 81 89 97 95 94 44 50 64 72 0 17 22 19 22 24 28 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Aon / company reports Retained earnings in the reinsurance sector were generally weak in 2020, driven by the impact of COVID-19 on both sides of the balance sheet, coupled with continued high frequency of natural catastrophe activity. However, traditional equity capital had already recovered to pre-pandemic levels by the end of September, before pushing on to a new peak of $556bn at the year-end. The year-on-year increase of 4% was heavily influenced by depreciation of the US dollar in the fourth quarter, particularly against the Euro (the reporting currency of several large reinsurers). At constant exchange rates, underlying growth was around 1%, driven by unrealized gains on bonds (relating to reductions in interest rates), a decline in the amount of capital returned to investors (due to the uncertainty caused by the pandemic) and around $15bn of new equity issuance. Assets under management in the alternative capital sector are estimated to have fallen by 2% to $94bn during 2020. Funds actually available for deployment are somewhat lower than the headline figure would suggest, due to the retention of collateral in the wake of recent major loss events. Aon’s Reinsurance Aggregate 2 ARA Capital The ARA reported total capital of $270bn at the end of 2020. Total equity rose by 4% to $211bn, of which $199bn was attributable to common shareholders, $5bn to preferred shareholders and $7bn to minority interests. Total debt rose by 16% to $59bn, generating a debt to total capital ratio of 21.9%, up from 20.1% at the end of 2019. Exhibit 2: ARA Total Capital Total equity Debt Total capital 300 270 254 246 237 243 250 228 230 234 232 59 51 44 46 198 198 41 42 200 181 185 44 44 48 161 157 40 37 35 33 150 31 35 USD (billions) USD 100 199 200 203 211 184 186 195 192 184 146 152 157 161 130 122 50 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Aon / company reports The total capital positions of the 23 ARA constituents at December 31, 2020 are shown in Exhibit 3. The three largest companies represented 50% of the total, while the median size was $11bn. Exhibit 3: Total Capital at December 31, 2020 Total equity Debt 45 40 35 30 25 20 15 USD (billions) USD 10 5 0 Source: Aon / company reports Aon’s Reinsurance Aggregate 3 Capital Development The main drivers of the change in total equity in 2020 are shown in the top half of Exhibit 4. Net new equity issuance of $4.6bn, net income of $5.4bn, foreign exchange gains of $2.4bn and unrealized capital gains of $5.8bn were partly offset by share buybacks of $2.3bn, dividend payments of $6.3bn and other adjustments of $1.8bn. Exhibit 4: Evolution of ARA Total Equity 240 5.8 -2.3 5.4 2.4 -6.3 211.1 220 203.3 4.6 -1.8 200 180 USD (billions) USD 160 140 FY 2019 Additional Net Foreign Unrealized Share Dividends Other FY 2020 equity capital income exchange capital gains buybacks equity 240 220 11.8 -2.1 -7.0 18.2 -1.4 203.3 200 183.9 180 USD (billions) USD 160 140 FY 2018 Additional Net Foreign Unrealized Share Dividends Other FY 2019 equity capital income exchange capital gains buybacks equity Source: Aon / company reports Most ARA constituents reported increases in total equity in 2020, supported in some cases by the commitment of new funds, notably at Argo, Aspen, Beazley, Hiscox, Lancashire, Markel, QBE and RenRe. Nine companies reported reductions in total equity. The decline at Swiss Re partly reflected the sale of its Reassure subsidiary (impact: $2.1bn). Exhibit 5: 2020 Changes in Total Equity (Original Reporting Currency) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Source: Aon / company reports Aon’s Reinsurance Aggregate 4 New Capital Formation In total, ARA constituents raised around $4.2bn of new equity during 2020. The key elements of this activity are summarized in Exhibit 6. Exhibit 6: Equity Raising in 2020 Issuer Date Type Amount $m Comment Beazley May Common 295 Share count expanded by ~15% at a ~5% discount Hiscox May Common 446 Share count expanded by ~20% at a ~6% discount Markel May Preferred 592 Fixed rate 6.00% QBE May Common 813 Share count expanded by ~11% at a~9% discount Lancashire June Common 341 Share count expanded by ~20% at a~4% discount RenRe June Common 1,117 Share count expanded by ~14% at a~0% discount Argo July Preferred 144 Fixed rate 7.00% Aspen Oct -- 268 Capital contribution from immediate parent Source: Aon / company reports Many ARA constituents were also active in the debt markets during 2020. Between them, Alleghany, Arch, Everest Re, Fairfax, Lancashire, Munich Re, PartnerRe, Qatar Insurance and QBE raised around $6.7bn of incremental capital from this source.