reinsurance market report – half year...

Reinsurance Market Report – Half Year 2016

Table of Contents

Introduction and Key Findings ...................................................................................................................... 2

Summary ....................................................................................................................................................... 3

Capital ....................................................................................................................................................... 3

Return of Capital ........................................................................................................................................ 4

Return on Equity ........................................................................................................................................ 4

Underwriting .............................................................................................................................................. 5

Catastrophe Loss ...................................................................................................................................... 6

Capital ........................................................................................................................................................... 7

Highlights for the INDEX............................................................................................................................ 7

Active Capital Management ...................................................................................................................... 8

Summary and Outlook ............................................................................................................................... 9

Earnings ...................................................................................................................................................... 10

Underwriting Performance .......................................................................................................................... 11

Premium Volumes ................................................................................................................................... 11

Combined Ratios ..................................................................................................................................... 12

Prior Year Loss Development .............................................................................................................. 13

Catastrophe Losses ............................................................................................................................. 14

Accident Year Performance, ex Catastrophe ...................................................................................... 16

Expense Ratios for the SUBSET ............................................................................................................. 16

Modest Investment Returns .................................................................................................................... 17

Appendices ................................................................................................................................................. 19


2 September 2016

Introduction and Key Findings For the Willis Reinsurance Index* (INDEX):

■ Shareholders’ funds increased to USD 338.3B at H1 2016, an increase of 2.6% from USD 329.7B at year-end 2015 (5.1% on a like for like basis**).

■ Majority of USD 14.5B of net income generated since our last report offset by USD 10.6B of buybacks and dividends.

■ Net income has been supported by significant realised gains. Furthermore, USD 9.6B of additional unrealised gains which are not reported within net income are a major contributor to the growth in shareholders’ funds.

■ Reported return on equity (RoE) of 8.3% for the INDEX, down from 10.4% at H1 2015. ■ The reported combined ratio for the INDEX increased to 94.1% (H1 2015: 91.5%).

For the SUBSET*** within the INDEX that breaks out the relevant disclosure:

■ Reported return on equity (RoE) of 8.9% for the SUBSET, down from 11.0% at H1 2015. ■ Underlying RoE for the SUBSET of 4.5%, down from 4.9% at H1 2015. ■ The reported combined ratio for the SUBSET increased to 93.7% (H1 2015: 90.0%), driven

largely by an additional 3.3 percentage point impact from Natural Catastrophe losses. ■ Results continue to be flattered by releases of prior year reserves which represent around

one third of net income. However, on further detailed analysis, some evidence exists of slowdown in this area.

Alternative capital increased to USD 70B**** from USD 65B at H1 2015.

Brexit will likely impact year-end results more materially. *- INDEX relates to those companies listed within Appendix 1 of this report. Merger and acquisition activity has resulted in the exclusion of a number of reinsurers from the INDEX compared to H1 2015. We have also observed some distortions occurring within our industry-wide performance indicators due to the lack of relevant financial disclosure for the groups involved in these deals. **Due to a change in the composition of the INDEX owing to M&A activity. ***- SUBSET is defined as those companies that make the relevant disclosure in relation to cat losses and prior year reserve releases. All constituents of the SUBSET are publicly listed groups that compose 58% of the aggregate capital INDEX ****- Capital Markets commentary provided by Willis Capital Markets & Advisory http://www.willis.com/client_solutions/services/wcma/


3 September 2016

Summary Capital For the INDEX:

■ Aggregate shareholders’ funds totalled USD 338.3B at H1 2016, a 2.6% increase since our 2015 year-end summary.

■ Growth in shareholders’ funds was provided by continued robust net income of USD 14.5B

(H1 2015: 17.3B*). ■ Active capital management continues with USD 10.6B being returned through share

buybacks and dividends (H1 2015: 15.3B*). ■ Shareholders’ funds were increased by significant levels of unrealised investment gains

during H1 2016 which were not reported within net income. ■ A USD 7.8B adjustment is made to eliminate the capital of White Mountains and HCC

Insurance groups from the INDEX. ■ Including other major regional and local reinsurers, and a pro-rated portion of capital within

major groups whose reinsurance portfolio is <10% of their total premium, we derive an estimate of USD 368B of aggregate shareholders’ equity for the traditional reinsurance market.

■ If 100% of the capital within these major groups is included the figure is estimated at USD 591B.

■ Including capital from alternative markets the figure of USD 368B increases by USD 70B to approximately USD 438B (Year-end 2015: 427B).

■ Including capital from alternative markets the figure of USD 591B increases by USD 70B to approximately USD 661B (Year-end 2015: USD 623B). * Net income and capital return figures reflect a change in the composition of the INDEX owing to M&A activity and

include reporting from companies previously unavailable at the time of our half year 2015 report.

329.7

338.3

(7.8)

+14.5

(10.6)

+9.6

+2.9

300

305

310

315

320

325

330

335

340

345

ShareholdersEquity

brought forward*

Adjustment ** Net income*** Buy backs /Dividends

Unrealisedinvestment

appreciation****

Other (includingFX movement)

ShareholdersEquity

carried forward*****

* = As per latest financial statements issued sincedate of previous Willis Re report, generally as at half year ending Jun 30, 2016** = Removal of White Mountains and HCC from INDEX*** = Net income of USD 14.5B includes a significant level of realised investment gains (USD 3.8B)**** = Unrealised appreciation that is not included within net income.***** = As per latest financial statements issued by Aug 18, 2016, 2016 generally as at half year ending Jun 30, 2016


4 September 2016

Return of Capital For the INDEX:

■ Share buybacks returned USD 3.1B of capital, equivalent to 1.0% of aggregate opening shareholders’ equity (H1 2015: USD 2.2B, 1.1%).

■ USD 7.5B returned through ordinary or special dividends, or 2.3% of aggregate opening shareholders’ funds (H1 2015: USD 13.1B, 4.0%).

■ A total of USD 10.6B was returned to shareholders’, accounting for approximately 84% of net income (H1 2015: 15.3B, 88%).

■ Reinsurers within the INDEX continue to actively manage their capital, including through new share buyback authorisations in H1 2016.

For the SUBSET: ■ Share buybacks returned USD 3.2B of capital, equivalent to 1.7% of aggregate opening

shareholders’ equity (H1 2015: USD 2.2B, 1.2%). ■ USD 5.2B returned through ordinary or special dividends, or 2.9% of aggregate opening

shareholders’ funds (H1 2015, USD 6.0B, 3.2%). ■ A total of USD 8.4B was returned to shareholders’, accounting for 98% of H1 net income (H1

2015, USD 8.2B, 80%).

Return on Equity For the INDEX:

■ Aggregate RoE of 8.3% for the INDEX, down from 10.4% at H1 2015. ■ Reported RoEs weakened, primarily due to higher incidence of Natural Catastrophe losses

and due to investment yields which were around 0.2 percentage points lower. For the SUBSET:

■ As the RoE analysis for the SUBSET shows, the reported RoE was 8.9% (H1 2015: 11.0%*). ■ Excluding prior year reserve releases, the RoE has decreased by 2.0 percentage points in the

aggregate to 6.3% (H1 2015: 8.3%). ■ If we normalise for a more typical catastrophe load (equivalent to a c. 4% impact on RoE) and

exclude the benefit provided by reserve releases, underlying profitability continues to decline to 4.5% from 4.9% at H1 2015.


5 September 2016

RoE analysis for the SUBSET

*Recalibrated due to adjustment of methodology and composition of the INDEX.

Underwriting For the INDEX:

■ The aggregate reported half year NWP rose by 2.2% to USD 117.1B (H1 2015: USD 115B). ■ Due to ongoing rate weakening, the constituents of the INDEX continue to invest in

broadening their underwriting platforms, including for specialty business. ■ The reported combined ratio for the INDEX increased to 94.1% (H1 2015: 91.5%).

For the SUBSET:

■ The reported combined ratio for the SUBSET increased to 93.7% (H1 2015: 90.0%), driven largely by an additional 3.3 percentage point impact from Natural Catastrophe losses.

■ The benefit provided by substantial reserve releases decreased only slightly to 5.2 percentage points (H1 2015: 5.5 percentage points).

■ Excluding Natural Catastrophe losses and prior year reserve releases for H1 2016, the Ex-Cat Accident Year Combined Ratio would be approximately 0.1 percentage points higher than the 94.2% reported at H1 2015.

Combined Ratio analysis for the SUBSET

Weighted Average

SUBSET HY 2016 HY 2015

Reported Combined Ratio 93.7% 90.0%

Favourable Development of Prior Years 5.2% 5.5%

Accident Year Combined Ratio 98.9% 95.5%

Catastrophe Loss 4.6% 1.3%

Ex‐Cat Accident Year Combined Ratio 94.3% 94.2%


6 September 2016

Catastrophe Loss ■ There was a marked increase in global insured catastrophe losses to USD 31B (H1 2015:

USD 21B), largely driven by a 75% increase in Natural Catastrophe losses of USD 28B (H1 2015: USD 16B). (Swiss Re Sigma figures).

■ Following a sharp increase in losses from Q2 events, Global insured Natural Catastrophe losses slightly exceeded the 10 year average of USD 26B.

■ Natural Catastrophe losses for the SUBSET increased by 284% to USD 2.7B. ■ This equates to 4.6% of aggregate net earned premium (NEP) (H1 2015: 1.3%) or

approximately a 2.2 percentage point impact after tax on the aggregate annualised RoE (H1 2015: 0.6 percentage points).

Note: For the purposes of this report the term catastrophe loss reflects generally large single event claims as reported by the companies themselves. A catastrophe related loss may therefore not appear in our numbers as ‘Cat Loss’ unless it reaches a value that exceeds the company’s own threshold for disclosure.


7 September 2016

Capital Highlights for the INDEX

■ Supported by robust net income and significant unrealised investment gains, shareholders’ equity increased to USD 338.3B, a 2.6% increase from USD 329.7B at year-end 2015.

■ Reinsurers continue to manage capital levels, returning USD 10.6B to shareholders through buy-backs and dividends.

■ Shareholders’ funds of the INDEX were reduced by USD 7.8B to reflect the sale of White Mountains and HCC. The former sold its reinsurance business to China Minsheng while the latter was sold to Tokio Marine.

■ The INDEX reported Return on Equity has decreased to 8.3% compared to 10.4% at H1 2015.

As Chart 1 shows for the INDEX, we continue to see considerable variation in shareholders’ equity movements on a company by company basis.

Chart 1: Movement in consolidated shareholders’ equity, reported as at H1 2016 for the INDEX

Net income of USD 14.5B, albeit reduced from USD 17.3B at H1 2015 due to higher Natural Catastrophe losses, supported an increase of 2.6% in aggregate shareholders’ funds. We would note that this profitability remains heavily reliant on substantial reserve releases. Aggregate shareholders’ funds also benefited from high unrealised investment gains of USD 9.6B which are driven mainly by an increase in the value of reinsurers’ bond portfolios due to declining interest rates. These positive contributions more than compensated for the adjustment made this period to remove the USD 7.8B of capital in respect of HCC and White Mountains groups. Additionally, reinsurers returned USD 10.6B of capital through share buybacks and dividends, a decrease from USD 15.3B in the same period last year. However, this decrease is attributable to a one-off intragroup dividend paid by National Indemnity Co to its parent in H1 2015.


8 September 2016

Active Capital Management Ongoing pressure on reinsurance pricing has resulted in many groups continuing to invest in building out their underwriting platforms in order to be able to allocate capital to classes of business which they expect to deliver more attractive near-term returns. This has resulted in reinsurers further cutting their exposure to Catastrophe exposed business and increasing capital allocation both to primary business and to non-Catastrophe reinsurance lines. Some reinsurers have also reported continued development of their life and health businesses. Despite this broadening in underwriting, many reinsurers continue to actively manage their aggregate capital levels due to the ongoing challenge of significant excess capacity.

Chart 2: Capital returned through share buybacks and ordinary and special dividends in H1 for the INDEX

Share buybacks and dividends by the constituents of our INDEX returned USD 10.6B of capital compared to USD 15.3B at H1 2015. Table 1 shows that H1 2016 saw further new authorisations for substantial share buyback programs. In the remainder of 2016 and further ahead, we expect share buybacks to continue to play an important role in reinsurers’ capital management strategies, providing the flexibility to return capital which can’t be deployed at acceptable levels of profitability.


9 September 2016

Table 1: Recent announcements of share repurchase programs for the INDEX

Company Date Action

Capacity outstanding as % of Shareholders' Equity, Dec 31, 2015

Allied World May 1, 2014 Approved a new repurchase program for up to USD 500M. Buybacks were suspended in Q3 2014, but repurchases resumed late in Q4 2014 (USD 327M utilised).

4.9%

Everest Re Nov 19, 2014 Approved an increase in the share repurchase authorization by a further 5 million shares (1 million utilised). 9.9%

Validus Feb 3, 2015 Announced a USD 750M repurchase authorization (USD 493M utilised). 7.1%

Aspen Feb 5, 2015 Announced a new repurchase authorisation of USD 500M (USD 84M utilised). 12.2%

SCOR Apr 30, 2015 6,661,000 treasury shares held as at Dec 31, 2015 = 3.46% of outstanding 6.5%

Lancashire Apr 30, 2015 Approved the renewal of the Repurchase Programme authorising the repurchase of a maximum of 20 million shares, to expire no later than 2016 AGM (none utilised).

15.3%

WR Berkley Jun 2, 2015 Increased its share repurchase authorization to 10 million shares (0.75 million utilised). 11.0%

XL Catlin Aug 6, 2015 Announced a new USD 1B share buyback programme (USD 297M utilised). 6.0%

Alleghany Nov 2015 Board of Directors authorised the repurchase of an additional USD 400M in shares. 5.3%

Axis Capital Dec 7, 2015 Announced a new USD 750M share repurchase programme (USD 96M utilised). 11.1%

RGA Re Jan 28, 2016 Announced a new share repurchase programme of USD 400M. 6.5%

White Mountains

Feb 2016 Board of Directors authorised the repurchase of an additional 1 million shares. 18.6%

RenaissanceRe Feb 19, 2016 Renewed its USD 500M share repurchase programme. 10.6%

Endurance Feb 25, 2016 Announced a new share repurchase programme of up to 5 million shares. 6.6%

Munich Re Mar 16, 2016 Announced a resolution to buy back an additional EUR 1B in shares by the 2017 AGM.

3.3%

Swiss Re Mar 16, 2016 Announced proposal to return up to CHF 1B to shareholders in a share buy-back programme. 3.0%

Note: A number of other reinsurers have significant authorisations with capacity still remaining including: Arch (USD 447M, 6.7%) and Markel (USD 248M, 2.9%)

Summary and Outlook Ongoing significant excess capital makes the outlook for the remainder of 2016 challenging. The balance sheet strength of the INDEX remains robust despite the impact of higher catastrophe losses during H1 2016. Already weakened RoEs have come under further pressure through an uptick in Natural Catastrophe losses and remain heavily reliant on substantial reserve releases and active capital management. We would also note that RoEs benefited from a reduction in Man-made Catastrophe losses from USD 5B at H1 2015 to USD 3B (Swiss Re Sigma figures). An increase in Man-made losses may further compress RoEs going forward.


10 September 2016

Earnings For the INDEX:

■ Largely due to an increase in Natural Catastrophe losses, underlying RoEs came under greater pressure despite continued active capital management and substantial reserve releases.

■ Investment yields (excluding capital gains) for the INDEX declined to an annualised aggregate of 3.1% (H1 2015: 3.3%) which is bolstered by the large life portfolios of Mapfre and RGA. Excluding these two groups reduces the yield to 2.7% (H1 2015: 3.0%).

■ The aggregate yields noted above are nevertheless unattainable for almost all of the smaller and Non-Life focused members of the INDEX, for whom, as in H1 2015, the average is 2.0%.

■ The aggregate reported combined ratio for the INDEX increased to 94.1% (H1 2015: 91.5%). ■ Some reinsurers benefited from significant unrealised investment gains, largely due to

declining interest rates. However, this decline in yield will further limit investment returns going forward.

For the SUBSET: ■ Higher Natural Catastrophe losses led to a decline in the reported RoE of the SUBSET to

8.9% (H1 2015: 11.0%).

■ RoE continues to be reliant on significant reserve releases. Reserve releases provided a 2.6 percentage point uplift to RoE (H1 2015: 2.7 percentage points).

■ Reported RoEs have benefited from realised investment gains due to falling interest rates. However, this places even greater pressure on prospective RoEs, particularly for reinsurers with longer tail portfolios.

■ While Natural Catastrophe losses increased significantly from the extraordinarily low levels of 2015, we believe they remain well within the aggregate budgeted Natural Catastrophe loss for the first half of the year.

Due to ongoing pressure to maintain relevance and diversification, fronting third party capacity through sidecars and managed ILS funds remained a well-established source of revenue for many reinsurers. As shown in Chart 3, the reported RoE for the INDEX reduced to 8.3% compared to 10.4% at H1 2015.

Chart 3: H1 2016 net income as % of average shareholders’ equity (RoE) for the INDEX


11 September 2016

Underwriting Performance For the INDEX:

■ Opportunities for profitable growth remained limited due to ongoing rate pressure. Many reinsurers continued to report reductions in net catastrophe exposure and re-allocation of capital to primary as well as to specialty, life and health business.

■ Premium levels for some of the constituents of the INDEX benefited from significant individual transactions, including for casualty lines of business, and by acquisitions made since or during H1 2015.

■ Combined ratios increased primarily as a result of higher Natural Catastrophe losses in addition to a slight reduction in reserve releases which exists despite increased and sizeable releases by the large German reinsurers.

■ Many reinsurers further cut back on Catastrophe exposed business, including for their U.S. business.

■ As noted in our year-end 2015 report, reinsurers also continue to face the challenge of increasing expense bases.

■ Nevertheless, profitability benefited from reduced levels of large man-made losses compared to H1 2015.

For the SUBSET:

■ Excluding Natural Catastrophe losses and prior year reserve releases, the accident year combined ratio increased slightly to 94.3% (H1 2015: 94.2%).

Weighted Average

SUBSET HY 2016 HY 2015

Reported Combined Ratio 93.7% 90.0%

Favourable Development of Prior Years 5.2% 5.5%

Accident Year Combined Ratio 98.9% 95.5%

Catastrophe Loss 4.6% 1.3%

Ex‐Cat Accident Year Combined Ratio 94.3% 94.2%

Premium Volumes As detailed in Chart 4, H1 2016 net written premium (NWP) for the INDEX increased by approximately 2.2% from H1 2015. Significant variance exists between the constituents of the INDEX. Factors influencing this growth include:

■ A number of the INDEX constituents have reported significant growth as a result of mergers or acquisitions over the year, including XL Catlin (acquired Catlin), Endurance (Montpelier Re), Fairfax (Brit) and Renaissance Re (Platinum).

■ Some significant individual transactions, including whole account quota shares and transactions for certain casualty lines of business, were reported by some of the larger constituents of the INDEX, including National Indemnity Co and Swiss Re. This continues the trend previously noted of large reinsurers being able to achieve growth through such deals.

■ A number of reinsurers pared back their top line as further pressure on pricing terms and conditions restricted opportunities to achieve profitable growth. A number of reinsurers have continued to reduce their net exposure to US catastrophe business.


12 September 2016

■ Portfolio re-allocation continues as a number of constituents of the INDEX continue to invest in underwriting platforms to support selective growth in primary lines and in life and health business.

■ A number of reinsurers announced declines in premium volumes including Munich Re, Everest Re, Partner Re and Allied World.

Chart 4: H1 2016 movement in net written premium for the INDEX

Combined Ratios Despite the impact of higher Natural Catastrophe losses, reported combined ratios remained solid in the aggregate, due to continued support from significant reserve releases. For the INDEX:

■ The reported combined ratio increased to 94.1% (H1 2015: 91.5%) due to higher Natural Catastrophe losses.

■ Profitability continues to be supported by substantial reserve releases, but increased evidence of slowdown exists in more areas than before.

For the SUBSET:

■ Although supported by continued significant reserve releases from previous accident years, the reported combined ratio increased to 93.7% (H1 2015: 90.0%). This increase in the combined ratio is due to 4.6 percentage points from Natural Catastrophe losses which increased from 1.3 percentage points at H1 2015.

■ Reserve releases benefited the combined ratio by 5.2 percentage points which is slightly reduced from 5.5 percentage points of benefit in H1 2015.

■ Excluding Natural Catastrophe losses and prior year reserve releases for H1 2016, the Ex-Cat Accident Year Combined Ratio would be 94.3% (H1 2015: 94.2%).

■ A number of reinsurers continued to report some pockets of adverse reserve development including for US asbestos and certain other casualty lines of business.

■ We expect the remainder of 2016 to be challenging due to continued weak pricing and upwards pressure on expenses. Reinsurers which have reserved prudently remain best positioned to maintain profitability.

■ Evidence from data within the SUBSET indicates continuing uptick in underlying accident year combined ratios, excluding the effect of Natural catastrophes and prior year reserve development.


13 September 2016

Chart 5 shows the reported combined ratio for the INDEX constituents in H1 2016 compared to H1 2015. The aggregate combined ratio increased to 94.1% (H1 2015: 91.5%), due to larger Natural Catastrophe losses. We would caution that this profitability continues to be driven by substantial reserve releases and underlying profitability is significantly weaker.

Chart 5: H1 2016 reported combined ratios for the INDEX

In the subsections below we discuss the key components of the combined ratio for the SUBSET: i. Impact of prior year loss reserve development ii. Catastrophe loss component iii. Underlying accident year combined ratio (i.e. excluding the above two components).

Prior Year Loss Development At H1 2016 the aggregate combined ratio for the SUBSET benefited by 5.2 percentage points through continued substantial reserve releases (H1 2015: 5.5 percentage points). Chart 6 shows the effect of reserve releases on the SUBSET:

Chart 6: Prior year reserve development as % NEP for the SUBSET


14 September 2016

Although overall reserve releases remained significant, we see some reinsurers reporting an increasing number of isolated incidences of adverse development. This included prior year strengthening for asbestos reserves and certain other liability exposures. We would note that the H1 2016 results do not show any evidence of widespread reserve weakness. Significant reserve releases from Munich Re and Hannover Re (owing to specific local requirements) made a significant contribution to total reserve releases for the SUBSET. The SUBSET constituents have generated around a third of net income through reserve releases. We will continue to monitor this trend in our year-end 2016 report.

Chart 7: Reserve Release Development across the SUBSET

Note: Aggregate reserve release calculated before tax. (H1 2016 reserve release estimate is 29.0% of aggregate net income on an after-tax basis).

Catastrophe Losses

Global insured catastrophe losses increased to USD 31B (H1 2015: USD 21B) which is largely driven by a 75% increase in Natural Catastrophe losses of USD 28B (H1 2015: USD 16B). (Swiss Re Sigma figures). Following a sharp increase in losses from Q2 events, global insured Natural Catastrophe losses exceeded the 10 year average of USD 26B. We also note that Man-made Catastrophe losses reduced to USD 3B from USD 5B at H1 2015. Although Natural Catastrophe losses increased from H1 2015 they remained below the half year load budgeted by many large reinsurers.

As shown in Table 2, the costliest events included the Fort McMurray fires in Canada, Kumamoto earthquake in Japan, and flooding in Belgium, France and Germany.

4,357

5,303

6,853 6,861

7,631

6,837

7,885

3,042

23%

32%

125%

33% 36% 32%42% 36%

0%

40%

80%

120%

160%

200%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 2010 2011 2012 2013 2014 2015 H1 2016

AggregateAmount(USDM)

% AggregateNet Income


15 September 2016

Table 2: Major Losses H1 2016

(Insured loss estimate USD millions) Natural Catastrophe Losses

Date Description Estimate 1-26 May Canada forest fires – Fort McMurray and surrounding areas 3,520 10-12 April Hail storms – U.S. Southern stats (Texas worst affected) 2,600 – 2,700 28 May – 3 June Floods – France, Belgium, Germany 2,100 – 2,600 15 April Japan Earthquake – Kumamoto Prefecture 800 – 1,200 16 April Ecuador Earthquake – Esmeraldas province 325 – 850 23-24 February Tornadoes – U.S. Southern & Mid-Atlantic states 767 29 April – 3 May Thunderstorms – U.S. Texas, Louisiana, Arkansas, Oklahoma and Mississippi 753 13-18 March Hail Storms – U.S. Southern, Central & European states 692 7-14 March U.S. Floods – Louisiana, Texas, Arkansas and Mississippi 295 23-24 January Winter storm Jonas – U.S. Mid-Atlantic states 235

Large Man-Made Losses Date Description Estimate 20 Apr. 2016 Pemex – Mexico petrochemical plant explosion 386 13 May 2016 Tullow’s Jubilee Oil field technical fault 345 08 Mar. 2016 Stena Drilling incident from the coast of Nova Scotia 225 03 Aug. 2016 Emirates Flight 521 crash-landed at Dubai International Airport 96 22 Apr. 2016 The RoomPlace's warehouse fire in Chicago 70 19 Mar. 2016 FlyDubai Flight 981 crash over Russia 49 Loss estimates shown are taken from public sources and should not be taken as confirmation by Willis Towers Watson of reported losses.

As shown in Chart 8, the weighted average combined ratio of the SUBSET included 4.6 percentage points due to catastrophe losses (H1 2015: 1.3 percentage points).

Chart 8: Catastrophe loss component of combined ratio as % NEP for the SUBSET


16 September 2016

Accident Year Performance, ex Catastrophe Excluding Natural Catastrophe losses and prior year reserve releases, the accident year combined ratio increased slightly to 94.3% (H1 2015: 94.2%). This slight deterioration is somewhat misleading given that H1 2015 was also impacted by a higher level of large man-made losses.

Chart 9: Ex Catastrophe accident year combined ratios for the SUBSET

Expense Ratios for the SUBSET As noted in our year-end 2015 report, the aggregate expense ratio for the SUBSET has risen by c.4 percentage points during 2007-15 reaching 33.1% in FY 2015. Chart 10: Weighted Average Expense Ratio for the SUBSET

Source: SNL Financial and Willis Towers Watson Market Security Our initial review of expense ratios for H1 2016 indicates an increase of 0.6 percentage points for H1 2016 compared to 33.1% at year-end 2015; the factors outlined in our year-end 2015 report remain relevant with overall expense ratios increasing based upon the upward pressure in expenses and the continued reduction in reinsurance premiums.

29.2%29.6%

29.9%

30.7% 30.7% 30.8%31.2%

32.1%

33.1%

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015


17 September 2016

Our review at year-end 2015 of expense ratios revealed that if each of the constituents of the SUBSET had been able to maintain an expense ratio at their respective 2007 levels, the aggregate RoE of 10.2% reported in 2015 would have been approximately 2.4 percentage points higher. Chart 11: Impact of Expense Ratio Movement on RoE (Base Year – 2007) for the SUBSET

Source: SNL Financial and Willis Towers Watson Market Security We continue to monitor this trend. A further review of the expense ratio will be undertaken in our year-end 2016 report.

Modest Investment Returns As shown in Chart 12, weighted average investment returns for the INDEX, excluding realised and unrealised gains, remained modest at 3.1% (H1 2015: 3.3%). However the above yield benefits from higher than average returns from RGA and Mapfre whose investment portfolios reflect their significant Life business. Exclusion of these two reinsurers reduces the overall yield to 2.7% for H1 2016 (H1 2016: 3.0%). Nevertheless, this level of yield is unattainable for those reinsurers with smaller and shorter tail portfolios which would achieve a stable yield of approximately 2.0%. We note that it is those reinsurers with longer tail investment portfolios whose yields continue to fall. This is due to replacement of maturing investments with lower yielding bonds. The ongoing accommodative monetary policy by central banks continues to have a significant effect on bond prices. Some reinsurers reported significant unrealised gains on their bond portfolios due to the decline in bond yields. Continued low interest rates maintain downward pressure on investment income for the remainder of 2016 and further ahead. In the near-term reinsurers remain cautious with little apparent appetite to materially increase investment risk.

16.2%

1.6%

13.3%

10.0%

3.4%

11.7% 11.8% 11.5%10.2%

0.2%

0.3%

0.8%

0.8%

1.0% 1.2% 1.7%2.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2007 2008 2009 2010 2011 2012 2013 2014 2015

ExpenseRatioImpactReportedRoE


18 September 2016

Chart 12: Investment yield (net investment income as % of cash and invested assets) for the INDEX


19 September 2016

Appendices 1. Full Year 2015 results summary for the Willis Reinsurance Index

Jun-30 Dec-31 Dec-31 Dec-31 ∆ HY HY FY FY FY ∆ HY HY FY FY FY ∆ HY HY FY FY FY ∆

2016 2015 2014 2013 HY 2016 2015 2015 2014 2013 HY 2016 2015 2015 2014 2013 HY / HY HY 2016 HY 2015 2016 2015 2015 2014 2013 HY / HY

African Re USD 780 737 678 593 624 569 - - 104 119 85 86.9% 88.8% 92.6%

Alleghany USD 7,918 7,555 7,473 6,924 4.8% 2,657 2,237 4,489 4,498 4,287 18.7% 232 308 560 679 628 -24.7% 6.0% 6.0% 92.4% 88.4% 89.0% 88.8% 90.1% +4.5%

Allied World USD 3,584 3,533 3,778 3,520 1.5% 1,282 1,376 2,448 2,322 2,120 -6.8% 228 134 84 490 418 70.0% 12.8% 12.8% 94.3% 94.0% 95.1% 85.2% 86.2% +0.3%

Amlin GBP 1,846 1,783 1,678 1,670 2,445 2,296 2,126 133 237 237 299 - 91.0% 89.0% 89.0% 86.0%

Arch Capital USD 6,704 6,205 6,130 5,647 8.0% 2,145 2,011 3,818 3,892 3,351 6.7% 366 399 538 834 710 -8.3% 11.4% 11.4% 90.2% 89.2% 89.5% 87.2% 85.9% +1.1%

ARGO USD 1,740 1,668 1,647 1,563 4.3% 691 708 1,402 1,368 1,351 -2.3% 59 87 163 183 143 -32.4% 6.9% 6.9% 94.8% 94.5% 95.2% 96.2% 97.5% +0.3%

Asia Capital Re (2) USD 791 844 819 124 373 490 0 0 -38 20 24 112.0% 108.0% 96.0%

Aspen USD 3,615 3,419 3,419 3,300 5.8% 1,525 1,408 2,646 2,515 2,300 8.3% 179 177 323 356 329 1.3% 10.2% 10.2% 96.2% 91.2% 91.9% 91.7% 92.6% +5.5%

Axis Capital USD 5,964 5,867 5,821 5,818 1.7% 2,693 2,402 3,675 3,907 3,928 12.1% 178 239 642 811 727 -25.6% 6.0% 6.0% 97.2% 95.3% 94.7% 91.6% 91.0% +2.0%

Beazley USD 1,379 1,441 1,343 1,339 -4.3% 930 879 1,713 1,733 1,677 5.8% 129 133 249 218 264 -3.2% 18.3% 18.3% 90.0% 86.0% 87.0% 89.0% 84.0% +4.7%

CCR, France (1)(4) EUR 2,085 1,969 1,875 1,287 1,323 1,256 0 0 216 193 210 76.8% 82.6% 78.3%

China Re (1)(6) CNY 70,187 53,893 45,294 74,679 69,561 63,818 0 0 7,579 5,404 3,396 102.4% 99.0% 100.7%

Endurance USD 4,845 4,856 3,185 2,887 -0.2% 1,657 1,324 1,950 1,934 2,049 25.1% 199 193 344 348 312 3.5% 8.2% 8.2% 85.5% 84.1% 82.9% 86.0% 90.2% +1.7%

Everest Re USD 7,985 7,609 7,451 6,968 5.0% 2,336 2,639 5,378 5,257 5,005 -11.5% 327 532 978 1,199 1,259 -38.5% 8.4% 8.4% 90.7% 84.1% 83.4% 82.8% 84.5% +7.8%

Fairfax USD 10,754 10,287 9,526 8,353 4.5% 4,169 3,586 7,521 6,302 6,036 16.2% 188 40 568 1,633 -573 375.2% 3.6% 3.6% 94.5% 91.6% 89.9% 90.8% 92.7% +3.2%

General Reinsurance** USD 11,105 11,051 11,707 11,562 0.5% 260 277 548 593 543 -6.1% 609 189 571 538 931 221.7% 11.0% 11.0% 84.6% 96.1% 95.5% 86.5% 75.9% -12.0%

GIC India (1) INR 392,826 419,405 323,821 163,748 138,570 132,126 0 0 28,485 26,938 22,532 107.4% 109.0% 108.9%

Hannover Re (1) EUR 8,421 8,068 7,551 5,888 4.4% 7,435 7,582 14,850 12,581 12,420 -1.9% 486 532 1,151 986 895 -8.6% 11.7% 11.7% 95.4% 95.4% 94.4% 94.7% 94.9% 0.0%

Hiscox GBP 1,667 1,528 1,453 1,409 9.1% 889 860 1,572 1,343 1,371 3.4% 198 129 210 216 238 52.7% 24.7% 24.7% 80.7% 82.5% 85.0% 83.9% 83.0% -2.2%

IRB, Brazil (3)(6) BRL 3,046 3,175 2,954 2,668 -4.0% 2,173 1,760 2,457 1,946 1,508 23.4% 414 342 764 602 349 21.0% 26.6% 26.6% 82.5% 87.6% 83.8% 88.8% 89.2% -5.8%

Korean Re (1)(7) KRWbn 2,147 2,015 1,839 1,451 6.5% 2,356 2,123 4,369 3,929 2,897 10.9% 108 141 186 116 129 -23.6% 10.3% 10.3% 96.6% 93.9% 97.3% 99.4% 98.4% +2.9%

Lancashire USD 1,289 1,220 1,357 1,460 5.6% 279 284 482 743 558 -2.0% 60 93 181 229 223 -35.4% 9.6% 9.6% 76.2% 75.1% 72.1% 68.7% 70.2% +1.5%

Mapfre (3) EUR 8,946 8,574 9,153 7,834 4.3% 9,487 9,226 17,988 18,458 18,002 2.8% 380 316 709 845 791 20.5% 8.8% 8.8% 97.5% 99.1% 98.6% 95.7% 96.1% -1.6%

Markel USD 8,438 7,834 7,595 6,674 7.7% 2,233 2,070 3,819 3,917 3,237 7.9% 239 282 583 321 281 -15.3% 5.9% 5.9% 90.0% 90.0% 89.0% 95.0% 97.0% 0.0%

Munich Re (1)(8) EUR 31,729 30,668 30,033 25,983 3.5% 23,640 24,692 48,505 47,225 49,404 -4.3% 1,404 1,860 3,107 3,153 3,313 -24.5% 9.0% 9.0% 94.3% 92.8% 89.7% 94.5% 94.5% +1.6%

National Indemnity** USD 90,368 89,829 93,998 97,226 0.6% 10,167 8,706 18,457 26,655 5,650 16.8% 2,805 4,748 7,271 12,007 8,391 -40.9% 6.2% 6.2% 94.3% 93.8% 93.2% 92.5% 75.5% +0.5%

Navigators USD 1,182 1,096 1,027 902 7.8% 626 547 1,044 1,000 888 14.5% 39 45 81 95 63 -13.3% 6.9% 6.9% 97.4% 92.8% 94.1% 92.6% 94.8% +5.0%

Novae GBP 371 350 336 313 5.8% 354 354 638 528 497 0.1% 57 16 52 50 32 249.1% 31.6% 31.6% 96.1% 89.8% 90.8% 91.0% 90.3% +7.0%

Partner Re USD 7,023 6,901 7,049 6,710 1.8% 2,755 2,976 5,230 5,720 5,397 -7.4% 367 157 104 1,055 664 133.5% 10.6% 10.6% 101.7% 86.7% 85.6% 86.2% 85.3% +17.3%

Renaissance Re USD 4,703 4,732 3,866 3,904 -0.6% 1,032 913 1,416 1,068 1,204 13.0% 276 252 431 533 691 9.2% 11.6% 11.6% 76.1% 66.7% 64.7% 50.2% 43.8% +14.1%

RGA Re (1)(3) USD 7,581 6,135 7,023 5,936 23.6% 4,504 4,153 8,571 8,670 8,254 8.5% 313 256 502 684 419 22.3% 9.2% 9.2%

SCOR EUR 6,252 6,330 5,694 4,940 -1.2% 6,138 5,825 12,077 10,138 9,130 5.4% 275 327 642 512 549 -15.9% 8.7% 8.7% 93.8% 90.9% 91.1% 91.4% 93.9% +3.2%

Sw iss Re (9) USD 36,913 33,517 35,930 32,952 10.1% 18,681 16,499 30,442 31,640 30,478 13.2% 1,866 2,260 4,597 3,500 4,444 -17.4% 10.5% 10.5% 97.2% 88.3% 87.4% 85.4% 85.3% +10.1%

Toa Re (2)(6) JPYbn 181 199 160 224 209 201 0 0 6 6 9 96.5% 94.0% 97.7%

Validus USD 3,866 3,639 3,588 3,704 6.2% 1,733 1,601 2,229 2,054 2,029 8.2% 262 237 375 481 533 10.3% 14.0% 14.0% 82.5% 77.9% 79.7% 73.7% 71.2% +5.9%

WR Berkley USD 4,903 4,600 4,590 4,336 6.6% 3,306 3,119 6,190 5,997 5,500 6.0% 228 241 504 649 500 -5.3% 9.6% 9.6% 94.2% 94.0% 93.7% 93.8% 95.1% +0.2%

XL Catlin USD 11,685 11,677 10,034 9,998 0.1% 5,791 3,970 7,951 5,945 6,199 45.9% 66 951 1,207 188 1,060 -93.1% 1.1% 1.1% 94.3% 89.5% 92.0% 88.2% 92.5% +5.4%

USD 338,208 325,834 330,376 319,866 3.8% 127,751 128,652 237,534 265,419 254,095 -0.7% 27,912 33,750 28,270 36,849 32,694 -17.3% 16.8% 94.1% 91.4% 91.4% 90.6% 90.3% +2.9%Aggregate***

Combined Ratio

Notes% Sh Equity*

WILLIS TOWERS WATSON - MARKET SECURITY GROUPGroup Consolidated Half Year 2016 Results Table

Consolidated Data (Millions)

Ccy

Shareholders' Equity Net Written Premium Net Income


20 September 2016

Key Notes:

* Annualised Net Income as % of Average Shareholders Equity.

** General Reinsurance and National Indemnity Co: Numbers are sourced from unconsolidated financial statements *** Aggregate = Total of numbers reported, converted to USD at exchange rates prevailing at end of reporting period.

(1) NWP includes both Life and Non-Life business.

(2) Asia Capital Re, GIC India, Toa Re: Each has a March 31 financial year-end. Data for year-end March 31, 2015 is included in the column headed Dec 31, 2014 (and similar for prior years).

(3) Figures for net premiums are Net Earned Premium, not Net Written Premiums.

(4) CCR: Figures for net premiums are Gross Written Premiums, not Net Written Premiums.

(5) GIC India: Shareholders Equity is subject to reserve adjustment by Willis Market Security, as opposed to stated figure reported by the company.

(6) Combined ratios are Willis Towers Watson Market Security Calculations.

(7) Korean Re: During 2013 the company changed year-end from Apr 30 to Dec 31. The 9 month period to Dec 31, 2013 is included in our 2013 columns. (8) Munich Re: Combined Ratios are in respect of the P&C Reinsurance division only. Shareholders' Equity at Dec 31, 2013 and Dec 31, 2014 are as originally reported.

(19) Swiss Re: Combined Ratios are in respect of the P&C Reinsurance division only.

2. Investment leverage: cash & invested assets / shareholders’ equity

3a. Share price development - YTD 2016- Jan 1, 2016 to August 23, 2016


21 September 2016

3b. Share price development - Jun 30, 2015 to Jun 30, 2016


22 September 2016

reinsurance market report – half year...

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