PUERTO RICO INSURANCE SUMMIT

Observations of the Bermuda

Insurance and Reinsurance Market

April 25, 2012

Agenda

Bermuda Market: Key Facts & Statistics

History of the Bermuda Insurance and Reinsurance Market

Regulation

– Role of the Bermuda Monetary Authority

– The Multi-License System

Captives

Collateralized Market Sector

Keys to Bermuda’s success

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Bermuda Market: Key Facts

The Bermuda insurance and reinsurance market comprises

– total assets of $525B

– capital of $185B

– gross premium of $108B

Employee count of 32,000 worldwide with 1,700 located in Bermuda

– most companies have significant global infrastructure

24 Global & independent brokers have offices on island

US-Bermuda Tax Convention Act: provides tax relief for Bermuda’s International

Business sector

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Bermuda Market: Key Facts

All lines of insurance & reinsurance are transacted in Bermuda, with large

amounts of capacity available

Bermuda carriers write 40% of the US property cat capacity

– 60% of the hurricane reinsurance in Florida and Texas

– 30% of US crop reinsurance

25% of the US medical liability insurance and reinsurance market

For International business, it is estimated that Bermuda reinsurers have:

– 37% of reported claims from Europe’s 2010 Windstorm Xynthia

– 38% of reported claims from Chile’s 2010 earthquake

– 51% of reported claims from New Zealand’s 2010 earthquake

– 14% of reported claims from the Japan 2011 earthquake and tsunami

4

Bermuda Market: Key Facts

2011 has seen an increased number of ‘sidecars’ & Special Purpose Insurers,

including Cat Bonds

– Special Purpose Vehicles offer reinsurance for a limited timeframe

– Largely funded by hedge funds

– Sidecars assume ‘side-by-side’ position with traditional reinsurer in risk

selection

– 23 SPI’s registered in 2011 versus 8 in 2010

– Some examples of new and re-issued sidecars include:

New Point IV (Alterra) - $200M capitalization

Accordion Re (Lancashire) - $250M capitalization

Alpha Cat 2011 (Validus) - $130M capitalization

DaVinci Re (Ren Re) – additional $100M capital

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How does Bermuda compare?

Bermuda Total GWP Munich Re GWP

$107,7m $31,280m

Bermuda 2010 GWP Europe 2010 GWP

$107,7m $96,606m

Bermudian Top Three Lloyd's Total

GWP GWP

$13,215m $12,977m

Bermuda Market: History

1947: AIG founder CV Starr selects Bermuda as the location for American

International

1960’s: Fred Reiss creates the concept of a captive insurer and chooses

Bermuda as the most suitable domicile

1985/6: Ace & XL formed during the US Liability insurance crisis

1988: Centre Re (now Centre Solutions) formed with $250M of capital,

provided mainly by Zurich Insurance Group

– made Bermuda the focus for structured products

1992: following Hurricane Andrew the Bermuda reinsurance market was

formed

– 7 property cat reinsurers founded following influx of $4B of capital

including Mid Ocean, Tempest Re and Ren Re

7

Bermuda Market: History

Late 1990’s: Arrow Re and Lehman Re were formed to be transformer

companies as insurance and financial markets converged

2001: $10B+ of capital raised post 9/11

– S&P reported 50% of capital raised post 9/11 came to Bermuda

– new carriers included Arch Re, Allied World, Axis, Endurance and

Montpelier Re

2005: $18B of capital raised following damage from Hurricanes Katrina, Rita &

Wilma

– new carriers included Ariel Re, Flagstone Re, Harbor Point Re,

Lancashire and Validus Re

– sidecars created by Arch Re, Montpelier Re, Ren Re, XL Re and others

2011: Bermuda largely withstands the test of $115B of insured natural

catastrophe losses. Recent start-ups include Third Point Re and Pac Re

which highlights the continued convergence with the capital markets 8

Regulation: Bermuda Monetary Authority (BMA)

Established under the Bermuda Monetary Authority Act 1969

– supervises, regulates and inspects financial institutions operating in or from

within its jurisdiction

– issues national currency

– assists with detection and prevention of financial crime

– advises the government on banking and other financial matters

It has regulatory responsibility for a market that comprises of:

– banking sector with total assets of $23B

– the Bermuda Stock Exchange with total market capitalization of over $319B

– 1,200 companies in the Insurance market and total assets in excess of $525B

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Regulation: The Multi-License System

Class 1

– Single Parent Captive insuring the risks of its owner

– Minimum capital & surplus of $120K

Class 2

– Multi Owner Captive insuring the risks of its owners

– Also applies to a single parent or multi owner captive writing less than 20% of net

premium from risks not related to the business of their owners

– Minimum capital & surplus of $250K

Class 3

– Includes structured reinsurers writing 3rd party business or insurers writing direct

policies with 3rd party individuals

– Also applies to a single parent group, association or agency where more than 20%

and less than 50% of net premium is from risks unrelated to the business of their

owners

– Minimum capital and surplus of $1M

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Regulation: The Multi-License System (cont.)

Class 4

– Insurers and reinsurers writing direct excess liability insurance and/or property Cat

reinsurance risks

– Minimum capital and surplus of $100M

Special Purpose Insurers

– Carrying on business in the area of insurance-linked securitizations

– Insurer is established to enter a single transaction or a single set of transactions

– Their obligations are fully collateralized

Long Term

– Insurers writing life business

Composite / Dual License

– Insurers and reinsurers who carry on both general and long-term business

– Composite companies are required to maintain minimum capital and surplus the sum of

both general and the long-term business class

Intermediaries

– Insurance managers, brokers and agents

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Captives

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Bermuda is viewed as a global leader in the Captives market worldwide

Captive premiums currently estimated at $20B

Largest proportion of Bermuda’s captives are US owned entities

Classes of business include:

– General Liability

– Auto Liability

– Workers Compensation

– Property

– Marine

– Healthcare / Medical Malpractice

Global Captive Domiciles

Bermuda 845

Cayman 738

Vermont 572

Guernsey 341

Anguilla 252

Luxembourg 244

Barbados 242

BVI 219

Turks & Caicos 211

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Industry of Parent Company

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Trends in Company Domicile

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Captives contd.

Rent-a-Captive (RAC)

– An insurance or reinsurance company organized to insure / reinsure risks of

unrelated shareholders

– Participants pay a fee to ‘rent’ the insurance company license to insured’s

– Each insured’s results and funds are kept separate and the RAC retains no risk

– Bermuda is the leading domicile for RAC’s

– 25 current providers on island for RAC’s including:

ACE Bermuda

Alternative Re

American Physicians Capital

Capital Management Services

Cedar Management Limited

Insurance Company of the West

Liberty Mutual Management

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Bermuda Collateralized Markets

Significant market presence in Bermuda with $10B+ of capital offering a non-

traditional collateral product

Collateral posted by way of Trust Agreement or Letter of Credit

Strengths

No credit risk rather than a promise to pay

Able to provide meaningful capacity with some offering lines of $100M+

Willing to look at products that some rated markets are reluctant to provide, eg. Cat

Bonds, Retro, Multi-Line

Weaknesses

Many funds need to generate high teens ROL to ensure they meet their requisite

ROE targets

Cannot provide a reinstatement, with the occasional exception

Focused on short tail Cat business only

Some carriers have concerns about final commutation of collateral, particularly on

high layers which can be effected by loss development

What’s So Special About Bermuda?

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‘Bermuda holds a position

within the global reinsurance

and insurance industry that is

the envy of domiciles such as

Zurich and Singapore and I do

not see that changing in the

next 10 years’

David Cash, CEO Endurance

Specialty

Source: Bermuda Insurance Update Vol. 3&4, 2011, Bermuda Gazette, GR Market Report Feb 2012

‘I really don’t think many of

us fully appreciated the

power of the brand until we

saw how well it withstood

the economic setbacks

that have rocked the world’

Paula Cox, Premier of

Bermuda

‘One thing I can say for

certain is that as long as

Bermuda remains an

important center for

insurance and reinsurance,

we intend to play a leading

role’

Mike McGavick, CEO XL Group

‘Bermuda's been very good

for us, we moved here for

strategic, regulatory and

tax reasons and all have

worked out fine for us’

Bronek Masojada, CEO Hiscox

‘This is all about taking a

long-term view and again,

nobody does that better

than Bermuda’

Joe Plumeri, Chairman Willis

Keys to Bermuda’s Success

Reputation: ‘Blue chip offshore financial center’ with a critical mass of capacity

Competitive Prices: Contrary to belief, Bermuda is no more expensive for the establishment

and management of a company than any other major offshore jurisdiction

Regulatory Flexibility: Sound but flexible regulation – sufficient oversight to ensure probity

and solvency, but willingness to embrace new capital

Tax Assurance: No income or capital taxes until at least 2016

– lack of personal income tax an additional factor for non-US employees

Privacy: Maintain confidentiality regarding sponsors of commercial transactions

Speed: Due to the partnership of Government and industry, commercial objectives can be

achieved quickly

Professional Expertise: A core of excellent professionals wok and live in Bermuda

Cutting-Edge Telecoms: The island is fully Web-wired with first rate satellite and fixed-link

communications

Quality of Living: a domicile with a high standard of living including schools, transport, and

access to the US and Europe

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Summary

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Significant financial and intellectual capital, with a track record of success

in the US and International insurance and reinsurance markets

Last decade has cemented position as a major market player

Bermuda has shown its resilience in the face of a number of major events

2011 catastrophe losses were an income event rather than a balance

sheet event

Bermuda continues to diversify its capacity, with the capital markets and

special purpose vehicles increasing their presence

The threat of other low tax jurisdictions are being addressed by the

Bermudian government

Quality of living is a key factor to the continued success of Bermuda

Appendix

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Bermuda Insurance Markets

ACE LIMITED ANEMOS INSURANCE MANAGEMENT IRON-STARR

ALLIED WORLD ASSURANCE CAT EXCESS LIABILITY

LANCASHIRE INSURANCE

ALTERRA CAPITAL CHARTIS LEXINGTON INSURANCE

ARCH INSURANCE (BERMUDA) CHUBB ATLANTIC INDEMNITY MONTPELIER

ARGO COLONIAL OIL

ARIEL RE CORPORATE OFFICERS & DIRECTORS

ASSURANCE (CODA)

OCIL

ASPEN INSURANCE ENDURANCE SPECIALTY SOVEREIGN RISK

AXIS INSURNACE EVEREST STEAMSHIP MUTUAL

BF&M HARDY BERMUDA TORUS

CANOPIUS

HISCOX INSURANCE XL INSURANCE

ATTORNEY LIABILITY

ASSURANCE SOCIETY (ALAS)

IRONSHORE INSURANCE ZURICH INTERNATIONAL

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Bermuda Reinsurance Markets

Bold = Traditional Rated Markets

Non-Bold = Non-Traditional and/or Collateralized Markets

ACE TEMPEST RE AXIS IAT RE PLATINUM RE

AQR Re CANOPIUS IRIS RE RENAISSANCE RE

AEOLUS RE CATLIN JRG RE SIRIUS AMERICA

ALLIANZ RISK TRANSFER CATCO JUNIPERUS RE THIRD POINT RE

ALLIED WORLD DAVINCI RE LANCASHIRE TOKIO MILLENNIUM RE

ALPHA CAT RE DE SHAW MERCURY CAPITAL TOP LAYER RE

ALTERRA RE ELEMENTUM MONTPELIER RE TRANSATLANTIC RE

AMERICAN SAFETY RE ENDURANCE MS FRONTIER RE VALIDUS RE

AMLIN EVEREST RE NEON WIND RIVER RE

ARCH RE FLAGSTONE RE NEPHILA XL RE

ARGO RE HANNOVER RE NEW POINT RE

ARIEL RE HARDY PARTNER RE

ASPEN HISCOX PENTELIA

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Company 2011 Capital

(estimated)

Lead Investors

Advent Re $48m Advent Syndicate

Aeolus Re $1,500m Multiple Investors

Alpha Cat $130m Validus

Arrow Capital $100m Goldman Sachs

Catco $500m QIC

DE Shaw Re $1,000m Shaw Capital

Elementum $500m Elementum, Stark

Iris Re $100m Cartesian, Aspen

Juniperus Re $300m Aquiline Capital

Nephila $6,000m Multiple Investors

Neon TBA TBA

New Point Re $200m Alterra, Stone Point Capital

Pentelia Capital $150m Natixis, Mitsubishi

2011 Collateralized Markets