AM Best September 2020 Lloyd’s

AM BestSeptember 2020Lloyd’s

Best’s Rating of Lloyd’s 2020

Lloyd’s Credit Report

Rating RationaleBalance Sheet Strength: Very Strong• Themarkethasthestrongestlevelofrisk-adjustedcapitalisation,asmeasuredbyBest’s

CapitalAdequacyRatio(BCAR).• Arobustcapital-settingregime,whichincorporatesarisk-basedapproachtosetting

member-levelcapital,helpsprotectrisk-adjustedcapitalisationfromvolatility.• Member-levelcapitalissubjecttofungibilityconstraintsasitisheldonaseveralratherthan

jointbasis.• BalancesheetstrengthisunderpinnedbyastrongCentralFundthatisavailable,atthe

discretionoftheCouncilofLloyd’s,tomeetthepolicyholderobligationsofallLloyd’smembers.

• Anoffsettingfactoristhemarket’ssignificantexposuretocatastropheriskanditsdependenceonreinsurancetomanagethisrisk.

Operating Performance: Strong• Lloyd’sisexpectedtoreportstrongoperatingperformanceacrosstheunderwritingcycle,

takingintoaccountpotentialvolatilityduetoitscatastropheexposure.• RecentunderwritingperformancehasbeenbelowAMBest’sexpectationsforastrong

assessment,demonstratedbyafive-year(2015-2019)combinedratioof102.2%.• ImprovingmarketconditionsaswellastherobustremedialactionsbytheCorporationand

individualmanagingagentsareexpectedtosupportfurtherincrementalimprovementsinattritionalaccident-yearperformanceoverthenextthreeyears.

• Themarket’sexpenseratioishighcomparedtothatofpeers.ActionsarebeingtakenthroughtheFutureatLloyd’sinitiativetoreducethecostofplacingbusinessatLloyd’s,thebenefitsofwhichshouldstarttoberealisedovertheshortterm.

Business Profile: Favorable• Lloyd’shasastrongpositionintheglobalgeneralinsuranceandreinsurancemarketsasa

leadingwriterofspecialtypropertyandcasualtyrisks.• AlthoughLloyd’ssyndicatesoperateasindividualbusinesses,thecollectivesizeofthe

marketallowsthemtocompetewithinternationalgroupsundertheLloyd’sbrand.

Best’s Credit Ratings:Rating Effective Date: July 15, 2020Best’s Financial Strength Rating: A Outlook: Stable Action: Affirmed

Best’s Issuer Credit Rating: a+ Outlook: Stable Action: Affirmed

Analytical Contacts:Jessica Botelho-Young, CASenior Financial [email protected]+44 207 397 0310

Catherine ThomasSenior [email protected]+44 207 397 0281

One Lime StreetLondon EC3M 7HAUnited Kingdom

Web: www.lloyds.comAMB#: 85202AIIN#: AA-1122000

Lloyd’s

ContentsBest Credit Report: Lloyd’s 1Best Credit Report: Society of Lloyd’s 18Rating Lloyd’s Operations 21Appendices 29

September 2020

Assessment Descriptors Balance Sheet Strength Very StrongOperating Performance StrongBusiness Profile FavorableEnterprise Risk Management Appropriate

Rating Unit - MembersRating Unit: Lloyd’s | AMB #: 085202

AMB # Rating Unit Members078649 Lloyd’s Ins Co (China) Ltd095926 Lloyd’s Insurance Co. S.A.

SINCE 1899

Copyright © 2020 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No portion of this content may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of AM Best. While the content was obtained from sources believed to be reliable, its accuracy is not guaranteed. For additional details, refer to our Terms of Use available at the AM Best website: www.ambest.com/terms.

2

Lloyd’s

2

• ThemarketsinwhichLloyd’soperatesarehighlycompetitive.Lloyd’srelianceonbrokerstounderwritespecialtyandreinsurancebusinessmakesitvulnerabletoprice-basedcompetition.

• TheportfolioiswelldiversifiedbutwithsomegeographicalbiastowardsNorthAmericaandproductbiastowardscommercialspecialtylinesproducts.

• Productriskismoderatetohigh.Higher-risklinesincludereinsurance,energy,aviation,somemarinebusinessandahighproportionofthecasualtyandpropertybusinesswritten.Themajorityofsmallcommercialandconsumerbusiness,aswellassomeofthebusinesswrittenthroughcoverholders,islowerrisk.

Enterprise Risk Management: Appropriate• Lloyd’senterpriseriskmanagementframeworkiswelldevelopedandappropriatefor

thesizeandcomplexityoftheLloyd’smarket.• Riskmanagementcapabilitiesarealignedwiththemarket’sriskprofile.• TheCorporation’sriskmanagementfunctionoffersthemarketadditionaloversight.

However,asmanagingagentsofindividualandcompetingsyndicateshavetheirownriskappetitesandstrategiestherearesomelimitationsonitsabilitytoactivelymanagethemarket’srisks.

• Aninternalcapitalmodel,inplacesince2012,isusedtocalculatethesolvencycapitalrequirementundertheSolvencyIIregimeaswellastostresstestthemarket’srisk-adjustedcapitalisation.InAMBest’sopinion,theinternalcapitalmodelstronglysupportstheCorporation’sabilitytoassessthecapitaladequacyofthemarket.

Outlook• ThestableoutlooksreflectAMBest’sexpectationthatrisk-adjustedcapitalisation

willremainatthestrongestlevel,supportedbyLloyd’scapitalmanagementstrategyandtherequirementformemberstoreplenishtheirfundsatLloyd’sfollowinglosses.Operatingperformanceisexpectedtoremainsupportiveofthestrongassessmentoverthecycle.Lloyd’sisexpectedtomaintainitsfavourablebusinessprofile,underpinnedbythestrongLloyd’sbrand,itsinternationalnetworkoflicences,andunderwritingexpertise.

Rating Drivers• Upwardratingmovementsareconsideredunlikelyintheshortterm.Longerterm,

positiveratingpressurecouldariseifLloyd’sbusinessprofilestrengthenssupportedbythesuccessfulexecutionoftheFutureatLloyd’sstrategy.

• Negativeratingactionscouldarisefollowingamaterialdeteriorationinthemarket’srisk-adjustedcapitalisation,forinstance,duetoasubstantiallosstotheCentralFundorareductioninmember-levelcapitalrequirementssetbyLloyd’s.

• NegativeratingactionscouldariseifLloyd’sunderlyingperformancedoesnotimproveinlinewithexpectations.

3

Lloyd’s

3

Credit AnalysisBalance Sheet StrengthLloyd’sbalancesheetstrengthassessmentofverystrongreflectsrisk-adjustedcapitalisationatthestrongestlevel,asmeasuredbyBest’sCapitalAdequacyRatio(BCAR),aswellasthemarket’sgoodfinancialflexibility.Themarkethassignificantexposuretocatastrophelossesandisdependentonreinsurancetomanagethisrisk.However,arobustmarket-widecapital-settingregime,whichincorporatesarisk-basedapproachtosettingmember-levelcapitalandtherequirementformemberstoreplenishtheirfundsatLloyd’safteraloss,helpsprotectrisk-adjustedcapitalisationagainstvolatility.

BalancesheetstrengthisunderpinnedbyastrongCentralFundthatisavailable,atthediscretionoftheCouncilofLloyd’s,tomeetthepolicyholderobligationsofallLloyd’smembers.Itistheexistenceofthispartiallymutualisinglinkthatisthebasisforamarket-levelrating.

Key Financial IndicatorsAM Best may recategorize company-reported data to reflect broader international reporting standards and increase global comparability.Best’s Capital Adequacy Ratio (BCAR) Scores (%)

Confidence Level 95.0 99 99.5 99.6

BCAR Score 71.7 58.1 51.6 48.8Source: Best’s Capital Adequacy Ratio Model - Universal

2019 2018 2017 2016 2015Key Financial Indicators (000)Net Premiums Written:

Non-Life 25,659,000 25,681,000 24,869,000 23,066,000 21,023,000

Composite 25,659,000 25,681,000 24,869,000 23,066,000 21,023,000

Net Income 2,532,000 -1,001,000 -2,001,000 2,107,000 2,122,000

Total Assets 119,878,000 118,008,000 108,396,000 101,602,000 83,629,000

Total Capital and Surplus 29,844,000 27,428,000 26,767,000 27,714,000 24,216,000

Source: - Best’s Financial Suite

2019 2018 2017 2016 2015

Weighted 5-Year

AverageKey Financial Indicators & Ratios (000)Profitability:

Balance on Non-Life Technical Account (GBP 000)

-538,000 -1,130,000 -3,421,000 468,000 2,047,000 ...

Net Income Return on Revenue (%) 8.9 -3.8 -7.7 8.9 10 3

Net Income Return on Capital and Surplus (%)

8.8 -3.7 -7.3 8.1 9.1 2.8

Non-Life Combined Ratio (%) 102.1 104.5 114 97.9 90 102.2

Net Investment Yield (%) 3.5 1.4 2.1 1.7 1.3 2.1

Leverage:

Net Premiums Written to Capital and Surplus (%)

86 93.6 92.9 83.2 86.8 ...


4

Lloyd’s

4

Themarket’smember-levelcapitalisheldonaseveralratherthanjointbasisandisonlyavailabletomeettheliabilitiesofthatparticularmember.Theresultingfungibilityconstraintsonavailablecapital,aswellasthesignificantproportionofmember-levelcapitalprovidedthroughlettersofcredit(LOCs),themarket’ssignificantexposuretocatastropheriskanditsdependenceonreinsurancetomanagethisrisk,arelimitingfactorsforthebalancesheetstrengthassessment.

CapitalisationTheBCARscoresshowninthisreportarebasedonthe2019figurespublishedintheLloyd’sannualreportwhichcontainsthefinancialresultsofLloyd’sanditsmembersinproformafinancialstatementsandincludesthefinancialstatementsoftheSocietyofLloyd’s(referredtointhisreportastheSocietyortheCorporation).Theproformafinancialstatementsincludetheaggregatedaccounts,whicharebasedontheaccountsofeachLloyd’ssyndicate,members’fundsatLloyd’s(FAL)andtheSociety’sfinancialstatements.

TheSocietywasformedin1871,whenthethenexistingassociationofunderwritersatLloyd’swasincorporatedbytheLloyd’sAct.TheSocietyproducesconsolidatedfinancialstatementsthatcoverLloyd’sactivitiesoutsidetheunderwritingmarketandLloyd’scentralresources(theCentralFund).

Lloyd’sbenefitsfromrisk-adjustedcapitalisationatthestrongestlevel,asmeasuredbyBCAR.Thisassessmenttakesintoaccountcapitalresourcesavailableatmemberlevel,intheformofMembers’FAL,andcentrallyintheformoftheCentralFundandnetassetsoftheCorporation.CapitalcreditisgiveninBCARforsubordinateddebtissuedbytheSociety,aswellasforFALprovidedthroughLOCsasifdrawntheseLOCswillturnintoTier1capitalforLloyd’s.Nonetheless,theextensiveuseofLOCsasFALreducesthequalityofavailablecapital.AMBestdoesnotgiveexplicitcreditforcontingentcapitalinthe‘callablelayer’whichistheabilityoftheCorporationtosupplementcentralassetsbycallingfundsfrommembersofupto3%oftheiroverallpremiumlimits.

AnyassessmentofLloyd’scapitalstrengthiscomplicatedbythecompartmentalisationofcapitalatmemberlevel.Member-levelcapitalintheformofFALandmembers’balancesareheldonaseveralratherthanjointbasis,meaningthatanymemberneedmeetonlyitsshareofclaims.However,Lloyd’scentralassetsareavailable,atthediscretionoftheCouncilofLloyd’s,tomeetpolicyholderliabilitiesthatanymemberisunabletomeetinfull.ThislinkinthechainofsecuritycomprisestheCentralFundandothercentralassets,aswellassubordinateddebt.Thesecentralassetscanbesupplementedbyfundscalledfrommembersofupto3%oftheiroverallpremiumlimits.Itistheexistenceofthispartiallymutualisingthirdlink,andtheliquidCentralFundinparticular,thatisthebasisforamarket-levelrating.

Lloyd’sInternalModel(LIM)capturesLloyd’suniquecapitalstructureandtakesintoaccountfungibilityconstraintsonmember-levelcapitalandthemutualnatureofcentralassets.Ifaseveremarketlossledtotheexhaustionofsomemembers’FAL,centralassetswouldbeexposedtoanyfurtherlossesfacedbythesemembers.Themodelcapturesthismutualisedexposure,sothat,atdifferentreturnperiods,theexposureofbothmember-levelcapitalandcentralcapitalisdemonstrated.

Lloyd’sissubjecttotheSolvencyIIregulatoryregime.AsagreedwiththeUKregulator,thePrudentialRegulationAuthority(PRA),Lloyd’scalculatestwoseparateSolvencyCapitalRequirements(SCRs)andtwoseparateSCRcoverageratios:amarket-wideSCR(MWSCR)andacentralSCR(CSCR).TheMWSCRcalculatesthetotalcapitalconsumedata99.5%valueatrisk

5

Lloyd’s

5

(VaR)confidenceleveloveraone-yearperiodfortheLloyd’smarketasawhole(includingtheexposureofbothmember-levelandcentralassets).

TheCSCRiscalculatedata99.5%VaRconfidenceleveloveraone-yearperiodinrespectofrisksfacingtheSocietyanditsCentralFund.Itcapturesexposuretolossesthatwouldnotaffectthemajorityofsyndicates(andsowouldnoterodecapitalatoverallmemberlevel)butwouldhaveanimpactoncentralassets.CalculatingaCSCRaddressesthefactthata1-in-200yearlosstocentralassetscouldbebiggerthanthelosstocentralassetsina1-in-200yearmarketlossevent.Bycalculatingbothfigures,Lloyd’shasabetterviewofthelikelihoodthatcentralandmarketlevelassetsaresufficient.

Lloyd’shasapprovalfromthePRAtouseexistingLOCs,intheformthattheyareprovidedasFAL,asTier2capitalforSolvencyIIpurposes.However,anynewLOCsprovidedasFALneedtobeindividuallyapproved.UnderSolvencyIIatleast50%ofthesolvencycapitalrequirementmustbemetbyTier1capital.

Since2018Lloyd’shasbeenimplementingaphasedreductionintheproportionofFALthatcanbeprovidedviaLOCs,and,from1December2020members’Tier2capitalshouldnotexceed50%oftheireconomiccapitalassessment(ECA)inordertominimiseassetsineligibleforregulatorycapitalcredit.ThosememberswhoseproportionofTier2capitalexceeds50%ofECAhavebeenrequiredtoreducethistonomorethan70%for2019.Consequently,asat31December2019allLloyd’sTier2assetswereeligibletomeettheMWSCR.

TheMWSCRcoverageratiostoodat156%atyear-end2019(2018:148%)andtheCSCRcoverageratioat238%(2018:250%).Lloyd’sriskappetiteforMWSCRcoverageisaminimumof125%andtheCSCRcoverageisaminimumof200%.TheMWSCRtargetrangeislowrelativetopeers,butthisshouldbeseeninlightofLloyd’sgoodfinancialflexibilityandcapital-settingprocess.Thestabilityinthemarket’sregulatorysolvencylevels,asaresultofthecapital-settingprocess,isconsideredtobeastrengthforthebalancesheetstrengthassessment.

Lloyd’semploysstrictcapital-settingcriteriabothatmemberlevelandcentrally.Member-levelcapitalisdeterminedusingsyndicates’SCRscalibratedtocorrespondtoa99.5%VaRconfidencelevel,providedonaone-yearand-to-ultimatebasisandcalculatedusingsyndicates’internalcapitalmodels.A35%upliftisappliedtotheultimateSCRtoarriveattheFALrequirement.

Lloyd’smembersarerequiredtoreplenishtheirFALtomeettheircurrentunderwritingliabilitiesaspartofthe“comingintoline”processinJuneandNovember.However,Lloyd’scanrequireamembertorecapitaliseinbetweenthesedatesifdeemednecessary.Mostmembersunderwritewithlimitedliability.However,ifFALareerodedduetounderwritinglosses,affectedmemberswillhavetoprovideadditionalfundstosupportanyoutstandingunderwritingobligationstocontinuetounderwriteatLloyd’s.Thisrequirementineffectprovidesthemarketwithaccesstofundsbeyondthosereflectedinitscapitalstructure.

MembercontributionstotheCentralFundreducedin2016to0.35%ofgrosswrittenpremiums(from0.50%ofcapacity)perannum,andremainedatthislevelin2019.ThecontributionratecanbeincreasedtostrengthentheCentralFundatanytime.

6

Lloyd’s

6

Lloyd’sgoodfinancialflexibilityisenhancedbythediversityofitscapitalproviderswhichincludecorporateandindividualinvestors.TraditionalLloyd’sbusinessesremaincommittedtothemarket.Inaddition,Lloyd’scontinuestoattractnewinvestors,althoughthishasslowedinrecentyears,drawnbyitscapitalefficientstructureandgloballicences.AsthecapitaltosupportunderwritingatLloyd’sissuppliedbymembersonanannualbasis,animportantfactorinAMBest’sanalysisofthemarketisitsabilitytoretainandattractthecapitalrequiredforcontinuedtrading.

Liquidity Analysis (%) 2019 2018 2017 2016 2015Liquid Assets to Total Liabilities 69.9 67.5 72.0 80.7 85.9

Total Investments to Total Liabilities 81.3 78.6 83.2 91.6 95.8


Asset Liability Management - InvestmentsThemajorityofLloyd’sinvestmentsaremanagedindependentlybytheindividualsyndicates’managingagents,whiletheassetsintheLloyd’sCentralFundaremanagedcentrallybytheCorporation.Althoughsyndicatesareabletodefinetheirowninvestmentstrategy,assetriskisgenerallylow,withmorethanthreequartersofthemarket’stotalinvestmentsheldinbondsandcash/depositsorrepresentedbyLOCs.

Assetsheldbyindividualmembersaregenerallyliquid,withthemajorityheldincash(whichincludesLOCs)andbonds.Equityandriskassetexposureaccountedforcirca10%ofinvestedassetsin2019.Lloyd’scapital(FALandtheCentralFund)islargelymatchedintermsofcurrencytoexposure.

InAMBest’sopinion,Lloyd’smaintainsgoodoverallliquidity.Managingagentsareresponsiblefortheinvestmentofsyndicatepremiumtrustfunds,althoughLloyd’smonitorsliquiditylevelsatindividualsyndicatesaspartofitscapitaladequacyreview.Overall,thesefundsexhibitahighlevelofliquidity,asmostsyndicateinvestmentportfoliostendtoconsistprimarilyofcashandhigh-quality,fixed-incomesecuritiesofrelativelyshortduration.Lloyd’salsomonitorsprojectedliquidityforitscentralassets,whicharetailoredtomeetthedisbursementrequirementsoftheCentralFundandtheCorporationofLloyd’s(includingitsdebtobligations).

Reserve AdequacyInAMBest’sopinion,reservingintheLloyd’smarkettendstobeprudent,withthemajorityofmarketparticipantsincorporatinganexplicitmargininreservesaboveactuarialbestestimates.

2019 2018 2017 2016 2015Composition of Cash and Invested Assets (000)Total Cash and Invested Assets (GBP 000) 73,193,000 71,240,000 67,902,000 67,646,000 56,900,000

Cash (% 13.2 15.3 17.9 18.2 19.4

Bonds (%) 60.4 58.5 54.8 56.5 58.1

Equity Securities (%) 12.4 12.0 14.0 13.5 12.1

Real Estate, Mortgages and Loans (%) 10.4 10.9 10.1 8.9 8.0

Other Invested Assets (%) 3.6 3.3 3.3 2.9 2.3

Total Cash and Unaffiliated Invested Assets (%)

100.0 100.0 100.0 100.0 100.0


7

Lloyd’s

7

RobustoversightofreservesisprovidedbytheCorporation.However,reservesurpluses,whicharenotfungibleacrossthemarket,varysignificantlybetweensyndicates.

Aggregatereserveshavedevelopedpositivelyoverallineveryyearsince2003.In2019,themarketreportedreserveredundanciesacrossalllinesofbusiness,withtheexceptionofcasualty.Totalreservereleasesduring2019werelowerrelativetoprioryears.Casualtyreserveswerestrengthenedin2019atamarket-levelinresponsetothemarket’sprudenceinrelationtosocialinflationaswellasLloyd’sincreasedoversight.ThestrengtheningofcasualtyreserveswasinlinewithLloyd’sexpectationforthisclass.Propertyreleaseswerelowerthaninprioryears.ThiswasdrivenpredominatelybytheincreasedmarketlossestimatesforTyphoonJebiinearly2019.

Syndicatesinrun-offhavehistoricallybeentheprincipalsourceofreservedeteriorationforLloyd’s.However,Lloyd’sexposuretoopenrun-offyearshassignificantlyreduced,principallyduetobettermanagementoftheseyears.In2010,afocusonpromotingefficiencyandfindingameanstoclosesyndicates(largelythroughthird-partyreinsurancetoclose)supportedafallinthenumberofsyndicateyearsofaccountinrun-offto10from22inthepreviousyear.Therewerenorun-offyearsinexistenceatthebeginningof2019,sotherewasnocontributiontothe2017resultfromrun-offyears.Atyear-end2019,threesyndicatesdidnotclosethe2017yearofaccount.

1992 and Prior Reserving: EquitasLloyd’sexposuretouncertaintyarisingfromadversedevelopmentofthe1992andprioryears’reserveswasfurtherreducedbytheHighCourtorderinJune2009approvingthestatutorytransferof1992andpriornon-lifebusinessofmembersandformermembersofLloyd’stoEquitasInsuranceLtd.,anewcompanyintheEquitasgroup.

Thistransferwasthefinalphaseofatwo-phaseprocess,andwithitscompletionpolicyholdersbenefitfromatotalofUSD7billionofreinsurancecoverfromNationalIndemnityCo.,asubsidiaryofBerkshireHathawayInc.,overandaboveEquitas’31March2006carriedreservesofUSD8.7billion.ThetransferprovidedfinalityinrespectofLloyd’smembersandformermembersfortheir1992andprioryears’non-lifeliabilitiesunderEnglishlawandthelawofeverystatewithintheEuropeanEconomicArea.However,therecontinuestobesomeuncertaintyastotherecognitionofthetransferinoverseasjurisdictions,includingtheUnitedStates.

Operating PerformanceLloyd’sisexpectedtoreportstrongoperatingperformanceacrosstheunderwritingcycle,takingintoaccountpotentialvolatilityduetoitscatastropheexposure.RecentunderwritingperformancehasbeenbelowAMBest’sexpectationsforastrongassessment,demonstratedbyafive-year(2015-2019)combinedratioof102.2%.ImprovingmarketconditionsaswellastherobustremedialactionstakenbytheCorporationandindividualmanagingagentsareexpectedtosupportfurtherincrementalimprovementsinattritionalaccident-yearperformanceoverthenextthreeyears.

Themarket’soperatingperformanceassessmentisbasedonanalysisoftheoverallconsolidatedperformanceofLloyd’s,takingintoaccountthestability,diversity,andsustainabilityofthemarket’ssourcesofearnings.Theassessmentalsoincorporatesanalysisoftheperformanceofindividualsyndicates,includingthespreadbetweenthestrongestandworstperformers,withaparticularfocusonthepotentialexposureofcentralcapitalresourcestolossesfromindividualmembers.

8

Lloyd’s

8

Performanceissubjecttovolatility,asillustratedbyastandarddeviationof8.0%and8.7%ontheten-yearROEratioandontheten-yearcombinedratio.Themarket’sperformancein2019benefitedfromareductioninlargeandcatastrophelosseswhichweremoreinlinewithatypicalcatastropheyear.Thefirsthalfof2019wasrelativelybenignalthoughthesecondhalfoftheyearsawlargenaturalcatastropheeventsincludingTyphoonsHagibisandFaxai.Smallimprovementsinthe2019accidentyearlossratioreducingto57.3%from57.6%.Thesmallimprovementcanbeattributedtobetterunderwritingdisciplineandasustainedperiodofrateincreaseonrenewalbusiness.Albeitthepositiveimpactisoffsetbyreservedeteriorationon2018YOA.Relativelysmallprioryearreservereleasesof0.9%(2018:3.9%).Thecurrentyearsawlessbenefitfromprioryearreservereleaseswithmanysyndicatesstrengtheningreserveestimatesforcasualtylines,duetosocialinflation,aswellasestimatesforTyhoonJebilosses.StronginvestmentincomeofGBP3.5billion(2018:GBP504.0million),representingareturnof4.8%,offsetthemarket’sunderwritinglossofGBP538.0million(2018:GBP1.1billion)

AMBestexpectsunderlyingperformancetocontinuetoimprovegraduallyoverthenextseveralyearssupportedbyimprovingmarketconditionsaswellasthecontinuedremedialactionsdrivenbythePerformanceManagementDirectorate(PMD).Therefore,thelong-termperformanceoftheLloyd’smarketisexpectedtoremainsupportiveofthestrongassessment.

Underwriting Performance:Underwritingperformanceissubjecttovolatilityduetothemarket’sexposuretocatastropheandothermajorlosses.2019sawanumberofnaturaldisasterswhichresultedinmeaningfullossesforthemarket,butinaggregatethesewerenotofthesamescaleasthoseexperiencedineither2017and2018.Themarket’snetultimateclaimsfrommajorlosseswereGBP1.8billion(2018:GBP2.9billion)in2019,includinglossesfromTyphoonsFaxaiandHagibis,HurricaneDorianandwildfiresinCaliforniaandAustralia.Majorlossesadded7.0pts(2018:11.6pts)tothecalendar-yearcombinedratio,comparedtothefive-yearandten-yearaveragesof9.6ptsand10.2pts,respectively.

Themarket’scombinedratioonceagainbenefitedfromfavourableprioryearreservemovementsof0.9ptsin2019-althoughatasignificantlyreducedlevelcomparedtotherecentpast.Prioryearreservemovementsimprovedthecombinedratioby3.9ptsin2018comparedto5ptsin2016andcirca8ptseachyearintheperiod2013-2015.

Themarket’sattritionalaccident-yearcombinedratio(excludingmajorclaims)improvedmarginallyfrom96.8%in2018to96.0%in2019.Althoughtheratiohasbeenimprovingsince2018,itisstillseveralpointsabovethe2016positionof93.9%.

Themarket’soperatingexpenseratioishighcomparedtopeersatcirca40points.Theratiohasbeenrelativelystableoverthelast5years,rangingbetween38.7%-40.6%.Pre-2014expenseratioswereslightlylower,rangingbetween34.2%-37.1%,albeitstillhighrelativetopeers.Anincreaseinacquisitioncostsduetoachangeinbusinessmixwithmorebusinesswrittenthroughcoverholders,aswellascostsassociatedwithSIIimplementation,partlyexplainthestepchangeintheexpenseratio.ActionsarebeingtakenthroughtheFutureatLloyd’sinitiativetoreducethecostofplacingbusinessatLloyd’s,thebenefitsofwhichshouldstarttoberealisedovertheshortterm.

Underwriting Performance by Line of Business:Accident-yearcombinedratiosforalmostalllinesofbusinesswereabove100%in2019.Forthesecondconsecutiveyear,mostlineshadcalendaryearratiosabove100%withtheexceptionofproperty(direct),energyandmotorbusiness.Inspiteofthis,therewasanoverallimprovementinthemarket’scombinedratioto102.5%in2019(2018:104.5%).

9

Lloyd’s

9

Reinsurance-Thereinsurancebookconsistsofproperty,casualtyandspecialtyreinsurance.TheperformanceofthepropertybookwasaffectedbylowerprioryearreservereleasesduetodeteriorationofTyphoonJebireserves.Thecasualtybooksawreservestrengtheningdrivenbysocialinflation,whichhasbecomemoreprevalent,particularlyintheUS.Thespecialtybookalsogeneratedanunderwritinglossasfavourablereservemovementsonthe2018Lurssenshipyardlosswereoffsetbytheincreasedfrequencyoflargelosses.TheaviationbookhasseenanincreaseinlargelossactivityinrecentyearswithmajorlossesstemmingfromthegroundingofBoeing737MAXfleet.Overall,thereinsurancebookhasreturnedanunderwritinglossofGBP768.0millionoverthe2015-2019period,stemmingfromsignificantlossesin2017and2018onthepropertybook.

Property-Thepropertybookisadiversifiedworldwidebook,madeupofpredominatelyexcessandsurpluslinesbusinesswithaweightinginfavouroftheindustrialandcommercialsectors.Lossexperiencein2019wasmorebenignthanthatinrecentyears,althoughtherewereanumberofcatastropheevents,includingHurricaneDorian,TyphoonsFaxaiandHagibis,andtheAustralianwildfires.AlthoughasmalloperatingprofitofGBP12millionwasnotedin2019,overallthisclasshasreturnedamaterialunderwritinglossofGBP2.1billionoverthe2015-2019period.

Casualty-Thecasualtybookisdominatedbygeneralliabilityandprofessionalliabilityandalsoincludesaccidentandhealth,cyberandwarrantybusiness.Reservestrengtheningadded1.8%pointstotheyear’scombinedratio.ThisrelatedtospecificcasualtylinesincludingD&O,generalliabilityandmedicalmalpractice,whichhavelongeremergenceperiodsandareexposedtosocialinflation.Overall,thisclasshasreturnedanunderwritinglossofGBP22.0millionoverthe2015-2019period.

Marine,Aviation,&Transport-Themarinebookiswelldiversifiedandincludescargo,hull,marineliability,specieandfineart.Inaviation,Lloyd’swritesacrossallmainbusinesssectorsincludingairline,aerospace,generalaviation,space,andwar.2018wasachallengingyearformarinewritersandanumberofsyndicateselectedtopartiallyorfullywithdrawfromcertainmarinelines.Thisresultedinimprovedpricingandunderwritingperformancein2019.Inthesamevein,challengingconditionsinaviationledtoasmallportionofinsurerswithdrawingorreducingtheircapacityinthesectorbuttheresultscontinuedtobeimpactedbythehighfrequencyandcostofattritionalclaims,whicherodepremiumanddeductiblelevels.Overall,thisclasshasreturnedacombinedunderwritinglossofGBP1.0billionoverthepastfiveyears.

Energy-Theenergybookconsistsofonshoreandoffshorepropertyandliabilitybusiness.Resultsinrecentyearshavebenefitedfromsomewhatbenignlargeandcatastrophiclossactivityinupstreamlines,whichisthelargestpartoftheoverallenergyaccountintermsofriskcount,writtenpremium,andexposure.Astrongcontributionfromprior-yearreservereleasesof10.2%pointsalsosupportedthepositiveunderwritingresult.Overall,thisclasshasreturnedanunderwritingprofitofGBP551.0millionoverthe2015-2019period.

Motor-MotorbusinessisfocusedonUKprivatecar,commercial,andfleetbusiness.Internationalmotor,largelyemanatingfromNorthAmerica,makesasmallercontribution.UnderwritingconditionsintheUKmotormarkethavebeenchallenginginrecentyears,particularlyduetochangestothe2019personalinjurydiscountrate(Ogdenrate),whichwassettherateat-0.25%in2019.Therateisexpectedtobestableatthislevelforfiveyears.Overall,thisclasshasreturnedanunderwritinglossofGBP285.0millionoverthe2015-2019period;albeitsmallunderwritingprofitshavebeenreportedin2018and2019.

10

Lloyd’s

10

Investment Performance:Investmentreturns(includinggains/losses)forthemarketwereonaverage2.3%intheperiod2015-2019,rangingfrom0.7%to4.9%.Themarket’sinvestmentportfolioisconsideredlowrisk,whichiscommensuratewiththerelativelymodestinvestmentreturns.

2019wasamarkedlypositiveyearforinvestments,withaninvestmentreturn(includinggains/losses)of4.9%.Equitiesgeneratedastronglevelofreturnwithotherriskassetsalsoperformingwell.Infixedinterestmarkets,theeasingofmonetarypolicydroveareductioninriskfreeyieldsresultingcapitalgainsforgovernmentbonds.Corporatebondsreturnswerefurtherenhancedbycreditspreadnarrowing,inlinewiththetrajectoryofotherriskassets.

Financialmarketssufferedmateriallossesoverthefirstquarterof2020asthepandemictookhold.ApproximatelyGBP1.0billionofinvestmentlosseswerereportedoverthequarterwiththebiggestdriverbeingthematerialfallinequityandriskassets.Strongreturnsongovernmentbonds,particularlyintheUS,offsetcorporatebondlossesfromspreadwidening.Aprilhasseenarecoveryinfinancialmarketshowevergiventheuncertaintyaroundthepandemicitisunclearwherethemarketwillsettleattheendoftheyear.TheCentralFundsportfolioisdefensivelypositionedtowithstandfurthervolatilityfollowingde-riskingactions.

Performance on a Year of Account Basis:The2017YOAclosedattheendof2019withanoveralllossofGBP2.4billion(2016:GBP855millionloss).Afteralongperiodofrelativelybenignmajorlossactivity,thecostofmajorclaimstotheLloyd’smarketin2017wasthethirdhighestsince2003.ThelargestinsuredeventwasHurricaneIrma,withothersignificantlossesbeingHurricanesHarveyandMaria.

Financial Performance Summary (000) 2019 2018 2017 2016 2015Pre-Tax Income 2,532,000 -1,001,000 -2,001,000 2,107,000 2,122,000

Net Income after Non-Controlling Interests 2,532,000 -1,001,000 -2,001,000 2,107,000 2,122,000


Operating and Performance Ratios (%) 2019 2018 2017 2016 2015Overall Performance:

Return on Assets 2.1 -0.9 -1.9 2.3 2.6

Return on Capital and Surplus 8.8 -3.7 -7.3 8.1 9.1

Non-Life Performance: Loss and LAE Ratio 63.4 65.3 74.5 57.3 49.9

Expense Ratio 38.7 39.2 39.5 40.6 40.1

Non-Life Combined Ratio 102.1 104.5 114.0 97.9 90.0


Business ProfileLloyd’sfavourablebusinessprofilereflectsitsstrongpositionintheglobalgeneralinsuranceandreinsurancemarketsasaleadingwriterofspecialtypropertyandcasualtyrisks.Itsnetworkofgloballicencesisakeycompetitivestrength.TheportfolioiswelldiversifiedbutwithsomegeographicalbiastowardsNorthAmericaandproductbiastowardscommercialspecialtylinesproducts.Productriskismoderatetohigh.Highproductrisklinesincludereinsurance,energy,aviation,somemarinebusinessandahighproportionofthecasualtyandpropertybusinesswritten.Themajorityofsmallcommercialandconsumerbusiness,aswellassomeofthebusinesswrittenthroughcoverholdersislowerrisk.ThemarketsinwhichLloyd’s

11

Lloyd’s

11

operatesarehighlycompetitive.ArelianceonbrokersmakesLloyd’sparticularlyvulnerabletoprice-basedcompetition.

Market Position:Lloyd’soccupiesanexcellentpositionintheglobalgeneralinsuranceandreinsurancemarketsasaleadingwriterofspecialtypropertyandcasualtyrisks.Themarket’spositionisparticularlystronginnon-lifereinsurance,whereLloyd’swasrankedasthe3rdlargestglobalnon-lifereinsurerbasedon2018grosswrittenpremiums(GWP).Lloyd’sisalsoamarketleaderinmarineinsurance,andhasastrongpositioninaviation,energy,andspecialtypropertyandcasualtyinsurance.

AlthoughLloyd’ssyndicatesoperateasindividualbusinesses,thecollectivesizeofthemarketallowsthemtocompetewithmajorinternationalgroupsundertheLloyd’sbrand.Themarket’scompetitivestrengthstemsfromitsstrongbrand,licences,andreputationforinnovativeandflexibleunderwriting,supportedbythepoolofunderwritingexpertiseinLondon.

WhileLloyd’spositionremainsexcellentinitscoremarkets,itshouldbenotedthatthelevelofcompetitioninthesemarketsisveryhigh.

Product Diversification and Product Risk:Lloyd’sisasignificantwriterofcatastropheandreinsurancebusinessandisalsoaleadingplayerinitscoremarine,aviation,energyandspecialtypropertyandcasualtymarkets.Insurancebusinessaccountedfor68%in2019(2018:69%),withreinsuranceaccountingforthebalance.Thissplithasbeenrelativelystableinrecentyears.

OverallGWPincreasedby1.1%in2019toGBP35.9billion(2018:GBP35.5billion),alowerlevelofgrowththanthe5.8%increaseexperiencedin2018.

Themarketiswelldiversifiedbylineofbusiness,althoughverylittlelifebusinessiswritten(<0.1%ofGWPin2019)andthereisabiastowardscommerciallinesbusinessoverpersonallines.Productriskismoderatetohigh,asthebusinessthatcomestoLloyd’sispredominantlyspecialtybusinessthatrequiresexpertunderwriting.Highproductrisklinesincludereinsurance,energy,aviation,mostmarinebusiness,andahighproportionofthecasualtyandpropertybusinesswritten(althoughsomeofthepropertyandcasualtybusinesswrittenthroughcoverholdersislowerrisk).

Reinsuranceisthemarket’slargestsegmentandaccountedfor32%ofGWPin2019.Reinsurancebusinesscomprisesproperty,casualtyandspecialtyreinsurance(primarilymarine,aviationandenergyreinsurance).Lloyd’sisaleadingplayerintheglobalreinsurancespace,rankingasthe6thlargestbyreinsuranceGWPbasedon2018premiumsandthe3rdlargestwhenlifepremiumsareexcluded.

PropertyinsurancebusinessisLloyd’ssecondlargestsegment,whichaccountedfor27%ofGWPin2019.ThepropertybookisaglobalbookbutwithsomeconcentrationtowardsUSexcessandsurpluslinesbusiness.Thereisalsoabiastowardscommercialriskswithresidentialriskswrittenbeingmainlynon-standardrisks.Thebookalsoincludesterrorism,powergeneration,engineeringandnuclearrisks.

Casualtybusinessaccountedfor26%ofGWPin2019.ThebookhasafocustowardstheUS,buttheUK,Canada,andAustraliaarealsosignificantmarkets.Themainproductswrittenaregeneralliabilityandprofessionalindemnity.Accidentandhealthbusinessisalsoaccountedforwithinthissegment.

12

Lloyd’s

12

Theremaininglinesofmarine,aviation,andtransport(8%),energy(4%),motor(3%),andlife(<0.1%)togetheraccountedfor16%ofGWPin2019.Lloyd’sisaleaderwithinthemarinemarket,writingadiversifiedmarinebook,includingcargo,hull,marineliability,specieandfineart.Theenergybookconsistsofonshoreandoffshorepropertyandliabilityrisks.ThemotorbookisfocusedontheUKcoveringcommercialandpersonalmotorbusiness(withafocusonnichepersonalrisks).Aninternationalbookisalsowritten,withafocusonNorthAmerica.Aviationbusinessincludesairlines,generalaviation,spaceandwar.

Geographical Diversification:Lloyd’swritesaglobalportfolio,albeitwithsomeconcentrationtoNorthAmerica,whichaccountedfor52%ofGWPin2019.Theremainderwassplit14%UK,14%restofEurope,10%CentralAsiaandAsiaPacific,6%OtherAmericasand4%restoftheworld.Themarket’snetworkoflicencesprovidessyndicateswithaccesstoawideinternationalclientbase,whichisofbenefitinparticulartothesyndicatesthatarenotpartofglobalinsurancegroups.

Lloyd’sUSdomiciledbusinessconsistsprimarilyofreinsuranceandsurpluslinesinsurance,whichcanbewritteninall50states.Lloyd’sparticipationinadmittedUSbusiness(i.e.insurancebusinessexcludingsurpluslines)isrelativelymodest.Lloyd’shasadmittedlicencesinIllinois,KentuckyandtheUSVirginIslandsandalsowritesnon-surplusinsurancebusinessinlinesexemptfromsurpluslineslaws(principallymarine,aviationandtransportrisks).However,inJuly2020,Lloyd’sannounceditsplanstostopacceptingadmittedmarketaccountsintheUSfromJuly2021andfocusontheUSreinsuranceandexcessandsurplus(E&S)insurancemarkets.Lloyd’siscurrentlythemarketleaderoftheUSE&Smarket.Assuch,after1July2021,nonewbusinessorprogramswillbeacceptedontheUSlicensedplatforms.Admittedbusinessrepresentsapproximately1%ofLloyd’sUSpremiumincomeandisnotconsideredmaterial.

InCanada,Lloyd’swritesprimarilyinsurancebusiness,withreinsurancebusinessaccountingforasmallershare.Inordertocomplywithlocalregulations,allCanadianbusinessiswritteninCanada.

Overthepast20years,Lloyd’shasbuiltoutitslicencenetworkconsiderably,tobeabletowriteinsuranceand/orreinsurancebusinessinBrazil,Mexico,Colombia,Dubai,China,Singapore,andIndia,aswellasanumberofsmallermarkets.Thisworkwasundertakeninresponsetothegrowthoflocalandregional(re)insurancehubsandthepreferenceofclientstoplacebusinesslocally.Morerecently,globalexpansionhasreceivedlessattention,astheCorporationhasfocusedontheremediationofperformanceandmarketmodernisation.

Inordertocontinuetoaccess,insurancebusinessintheEUandwiderEuropeanEconomicArea(EEA)afteraUKexitfromtheEUanditssinglemarket(referredtoas“Brexit”),Lloyd’shasestablishedaninsurancecompanydomiciledinBelgium.Lloyd’sInsuranceCompanyS.A.(Lloyd’sBrussels)isawhollyownedsubsidiaryofTheSocietyofLloyd’s.Theentityisincorporated,capitalisedandhasreceivedregulatoryapproval.Itstartedwritingbusinessat1January2019.Fortheyear-ended31December2019,Lloyd’sBrusselswroteEUR2.7billionofpremiums,aheadofthebusinessplan.

MembershipofthesinglemarketcurrentlyallowsUKbasedinsurancecompaniestoconductinsurancebusinessinallmemberstatesacrossborders.TheestablishmentofanEU-basedinsurancecompanyenablesthemarkettocontinuetowritebusinessinsinglemarketmemberstates.However,thesettlementofclaimsisalsoaregulatedactivityand

13

Lloyd’s

13

Lloyd’smaynotbeabletosettleandpayclaimsonEEAbusinessfromLondonattheendofthepost-Brexittransitionperiod.

Lloyd’shasstartedtheprocessforapartVIItransferwhichenablesLloyd’sEEAinsurancepoliciesunderwrittenbetween1993-2018whichmaynotbeabletobeservicedfromtheUKwithoutbreachinglegalorregulatoryrequirementstobetransferredtoLloyd’sBrussels.Lloyd’shasreceivedapprovalfromtheHighCourtofEnglandandWalesforitsPartVIIstrategyfornotifyingpolicyholdersabouttheproposedtransfer.Theproposedeffectivedateis29October2020forthetransfer.

Distribution Channels:ThedistributionofLloyd’sbusinessisdominatedbyinsurancebrokers,andinparticularbythetopthreelargestglobalbrokers.Lloyd’sbrokersplayanactivepartintheplacementofrisksandinprovidingaccesstoregionalmarkets.

Inaddition,asignificantpartofLloyd’sbusinessisdistributedviacoverholders(accountingforcirca30%ofGWP),whichwritebusinessonbehalfofsyndicatesunderthetermsofabindingauthority.CoverholdersareimportantinbringingregionalbusinesstoLloyd’sandprovidingthemarketwithaccesstosmallandmedium-sizedrisks.Thegrowthincoverholderbusinessinrecentyearshascontributedtothehigherexpenseratio.

TheLloyd’sdistributionmodelisexpensive,withbusinessoftenpassingthroughseveraldistributionlinksbeforearrivingatLloyd’s.Lloyd’srelianceonbrokersalsomakesthemarketvulnerabletoprice-basedcompetition.AlthoughLloyd’soverallisimportanttothelargeglobalbrokers(aswellastothespecialisedLondonmarketbrokers)theimportanceofindividualsyndicatesislessso.Overall,theLloyd’sdistributionmodelisconsideredtoplacetheLloyd’smarketatacompetitivedisadvantagecomparedtothelargeglobalreinsurancegroups,whichhavestrongerindividualpositionswiththebrokersaswellasbeingabletodistributesomeoftheirbusinessdirecttocedants.

Modernisation Programme:AcomprehensivemodernisationprogrammefortheLondonmarket,theLondonMarketTargetOperatingModel(TOM),waslaunchedin2015,theaimofwhichistomakeoperatingintheLondonmarket,includingatLloyd’s,moreefficientandlessexpensive.JointmarketinitiativesunderwayincludeadditionalandimprovedfunctionalityinrespectofelectronicbackofficeandclaimofficetransactionswithintheCentralServicesRefreshProgramme,furtherimplementationofe-tradingviaPlacingPlatformLimited(PPL)andon-goingimprovementstotheDelegatedAuthorityprocesses.

OffthebackoftheTOMproject,on1May2019Lloyd’sexecutiveteamunveiledamodernisationplancalledtheFutureatLloyd’s.Theproposedreformsincludeplanstoradicallyreducethecostofdoingbusinessandcreatingnewdigitalplatformsforplacinginsuranceriskandstreamingclaimsservices.Iftheplanissuccessfullyimplemented,meaningfulcostreductionswillsupportprofitability.However,theplanissubjecttoahighdegreeofexecutionriskbecauseitwilllikelyrequiresubstantialinvestmentandculturalchange.

InAMBest’sview,themodernisationprogrammeismakingimportantprogresstowardsmodernisingthemarket’soperations.However,progressisstillslowandthemarketisconsideredtobebehindotherglobalinsurersinitsadoptionoftechnology.ThefactthattheCorporationhashadtomandateuseofthePPLtogetusagepastwhatisconsideredacriticalmassisasignofthemarket’sresistancetochangeaswellasdissatisfactionwiththesystemamongsomeoftheunderwritersandbrokersthatareaskedtouseit.

14

Lloyd’s

14

Thelatestmodernisationprojectlookstoi)improveefficiencybyfocusingoncomplexrisksandusingdigitalisationtohandlelow-valuerisks;ii)improveclaimsmanagementandpayment;iii)easeofdoingbusinessinsettingupasyndicate;iv)makeiteasierfornewcapitaltoaccessinsurancerisk;andv)improvingtheoverallcustomerexperiencebybeingmoreaccessibleandtransparent.ShouldLloyd’sbeunsuccessfulinitsmodernisationprojectandpeersareabletowidenthegapinbothefficiencyandeaseofdoingbusiness,theconsequencescouldbeconsiderableforthebusinessprofile.

Overall,thepandemichassharpenedthefocusoftheFutureatLloyd’stothreemainworkstreams,namelythecomplexriskplatform(PPL),riskexchange(coverholder),andclaimshandling,whichwillcreatetangiblevaluetothemarket.

Corporate Overview:Lloyd’sistheLondon-basedmarketwhereapproximately90individualsyndicatesunderwritealltypesofinsuranceandreinsurancebusinessapartfromlongtermlifeinsurance.EachsyndicateisformedbyoneormoremembersofLloyd’s,whojointogethertoprovidecapitalandacceptinsurancerisks.Lloyd’smembersaremainlycorporatemembersalthoughasmallproportionofLloyd’sunderwritingcapacitycontinuestobeprovidedbyprivateindividuals.

In1871,thethenexistingassociationofunderwritersatLloyd’swasincorporatedbytheLloyd’sActastheSocietyandCorporationofLloyd’s(referredtointhisreportastheSocietyortheCorporation),makingtheSocietythelegalentitywhichoverseestheLloyd’smarket.ItspurposeistofacilitatetheunderwritingofinsurancebusinessbyLloyd’smembers,toprotectmembers’interestsinthiscontextandtomaintainLloyd’sCentralFund.TheSocietyisalsotheholdingcompanyforLloyd’sInsuranceCompanyS.A.andLloyd’sInsuranceCompany(China)Limited.

Enterprise Risk ManagementTheenterpriseriskmanagement(ERM)ofLloyd’sisconsideredsupportiveofanappropriateassessment.Themarket’senterpriseriskframeworkisconsideredtobedevelopedandriskmanagementcapabilitiesarealignedtotheriskprofile.

Lloyd’sERMisdesignedtomanagerisksarisingfromthemarketandtheSociety.Itprovidesanextralayerofoversightoverthemarket’sriskswhicharealsomanagedthroughtheriskfunctionsofindividualmanagingagents.TherearelimitationsontheabilityoftheCorporationtoactivelymanagethemarket’srisks,asitissupervisingindividualandcompetingsyndicateseachwiththeirownriskappetitesandcommercialstrategies.

UndertheLloyd’sAct1982,theCouncilofLloyd’sisresponsibleforthemanagementandsupervisionofthemarketasthegoverningbodyoftheSociety.ThekeycommitteesoftheCouncilaretheAuditCommittee,theMarketSupervisionandReviewCommitteeandtheRiskCommittee.TheriskcommitteeisresponsiblefortheidentificationandmanagementofLloyd’skeyrisks.From1January2017,theriskcommitteebecameanon-executivecommittee,withmembersdrawnfromtheLloyd’sCouncil.Lloyd’sChiefRiskOfficer,apositionestablishedin2014,attendsCouncilmeetings.

TheriskfunctionhasidentifiedanumberofkeyriskthemesthatareofparticularconcernforLloyd’scurrently.Keyrisksincludemarketperformance,attractivenessofLloyd’smarket,Brexit,operationalresilience,cyberrisk,financialcrime,andfailuretocomplywithrelevantlawsandregulations.Mitigatingactionshavealsobeenidentified.

15

Lloyd’s

15

TheCouncilmanagesrisksbysettingandmonitoringariskappetiteframework.Theriskappetitesarereviewedonaregularbasisandmaybeupdatedasrequiredi.e.cultureisnowincludedasaseparaterisk.Theframeworkincludes14keyrisksandanumberofunderlyingmonitoringmetrics.Theriskappetitesarestructuredunderthethreeriskobjectivepillarsofsustainability,solvency,andoperational.

Overthepastseveralyears,therehasbeenamuchtoughertoneandmoreactiveapproachtakenbytheCorporation’soversightfunctionstomanagingunder-performingsyndicatesaswellastheunder-performinglinesofgenerallywellperformingsyndicates.Theenhancedoversighthasledtosomesyndicatesbeingputintorun-offaswellasothersexitingcertainloss-makinglinesofbusiness.WhethertheCorporation’soversightfunctionsareabletoturnaroundthemarket’sperformancewillbeakeytestoftheeffectivenessoftheCouncil’sactivities.

TheSocietyofLloyd’sanditsmanagingagentsareregulatedbyTheBankofEngland,actingthroughthePRA,aswellasbytheFinancialConductAuthority(FCA).Lloyd’sremainssubjecttotheSolvencyIIregulatoryandcapitalregime,whichcameintoforceon1January2016.Itappliestothe“associationofunderwritersknownasLloyd’s”asacollectiveentity.AlthoughtheUK’sreferendumvotetoleavetheEUhasintroduceduncertaintyinrespectoffutureregulationofthemarket,itislikelythattheSolvencyIIformofregulationandcapitalregimewillcontinuefollowingtheUK’sexitfromtheEUinthenearterm.

Lloyd’susesaninternalcapitalmodeltocalculateitsSCRandSCRcoverageratio,withapprovalfromthePRA.Aninternalmodelhasbeeninusesince2012,althoughthecurrentmodelhasundergoneradicalchangesincethen.InAMBest’sopinion,theCorporation’sabilitytoassessthecapitaladequacyofthemarkethasbeenstronglyimprovedbythemodellingworkundertakenforSolvencyII.

Lloyd’srecognisesthatoneofthegreatestriskstotheCentralFundisthemarket’sexposuretocatastrophes.ThecatastrophemodelcomponentofLloyd’sinternalcapitalmodelallowstheCorporationtoassesscatastropheriskacrossreturnperiodsand,inAMBest’sopinion,hasimproveditsabilitytomonitorthemarket’saggregatecatastropheexposureagainstadefinedriskappetite.Anenhancementnotedin2020,wastheintroductionoftheCatastropheRiskOversightFramework,whichlimitssyndicateswithpoorperformancetrackrecordstogrowtheircatastropheexposure.Duetothenatureofbusinesswritten,Lloyd’shassignificantexposuretocatastrophelosses,makingthisaspectofriskmanagementparticularlyimportant.

Lloyd’sRealisticDisasterScenarios(RDSs)playacriticalroleinexposuremanagementatLloyd’s,bothasbenchmarkstresstestsvalidatingtheinternalmodeloutputandasasourceofdata.ThescenariosaredefinedindetailannuallybyLloyd’sandareusedtoevaluateaggregatemarketexposuresaswellastheexposureofeachsyndicatetocertainmajorevents.Syndicate-levelscenariosarepreparedbyeachmanagingagent,reflectingtheparticularcharacteristicsofthebusinesseachsyndicatewrites.Inaddition,Lloyd’sasksforsyndicates’aggregateexceedanceprobability(AEP)lossata30-yearreturnperiodforvariousregionalperils.AstheLloyd’sRDSsrepresentdifferentreturnperiodsfordifferentsyndicates,collectingthisadditionaldatahelpstoensureauniformtreatmentofsyndicates’exposuretolargelosses.

Reinsurance SummaryLloyd’suseofreinsuranceisrelativelyhighwhencomparedtootherlargespecialtyinsurersandreinsurers.Thisisduetothenatureofthemarket,whichconsistsofsmall-to-mediumsizedbusinessthatindependentlypurchasereinsurance.Themarketasawholeceded27.7%of

16

Lloyd’s

16

itsGWPin2018.ThisamountincludesreinsurancefromsyndicatestotheirrelatedgroupsaswellasreinsurancebetweenindividualLloyd’ssyndicates.

Lloyd’soversightfunctionmonitorsindividualsyndicates’reinsuranceplacementstoensuretheappropriatenessandcreditqualityofthemarket’soveralluseofreinsurance.

Financial Statements12/31/2019 12/31/2019

Balance Sheet GBP (000) % USD (000)Cash and Short Term Investments 9,631,000 8 12,634,042

Bonds 44,208,000 36.9 57,992,496

Equity Securities 9,055,000 7.6 11,878,440

Other Invested Assets 10,299,000 8.6 13,510,331

Total Cash and Invested Assets 73,193,000 61.1 96,015,309Reinsurers’ Share of Reserves 23,597,000 19.7 30,954,781

Debtors / Amounts Receivable 18,199,000 15.2 23,873,630

Other Assets 4,889,000 4.1 6,413,439

Total Assets 119,878,000 100 157,257,159Unearned Premiums 17,143,000 14.3 22,488,359

Non-Life - Outstanding Claims 59,655,000 49.8 78,256,026

Total Gross Technical Reserves 76,798,000 64.1 100,744,384

Debt / Borrowings 794,000 0.7 1,041,577

Other Liabilities 12,442,000 10.4 16,321,540

Total Liabilities 90,034,000 75.1 118,107,502Other Capital and Surplus 29,844,000 24.9 39,149,658

Total Capital and Surplus 29,844,000 24.9 39,149,658Total Liabilities and Surplus 119,878,000 100 157,257,159

Source: – Best’s Financial SuiteUS $ per Local Currency Unit 1.31181 = 1 British Pound (GBP)

17

Lloyd’s

17

12/31/2019 12/31/2019Non-Life Life Other Total Total

Income Statement GBP (000) GBP (000) GBP (000) GBP (000)` USD (000)Gross Premiums Written 35,905,000 ... ... 035,905,000 47,100,538

Net Premiums Earned 25,821,000 ... ... 25,821,000 33,872,246

Net Investment Income ... ... 2,563,000 2,563,000 3,362,169

Realized capital gains / (losses) ... ... 251,000 251,000 329,264

Unrealized capital gains / (losses) ... ... 723,000 723,000 948,439

Total Revenue 25,821,000 ... 3,537,000 29,358,000 38,512,118

Benefits and Claims 16,361,000 ... ... 16,361,000 21,462,523

Net Operating and Other Expense 9,998,000 ... 467,000 10,465,000 13,728,092

Total Benefits, Claims and Expenses 26,359,000 ... 467,000 26,826,000 35,190,615

Pre-Tax Income -538,000 ... 3,070,000 2,532,000 3,321,503 Net Income before Non- Controlling Interests

... ... ... 2,532,000 3,321,503

Net Income/(loss) ... ... ... 2,532,000 3,321,503


Best’s Credit Report: Society Of Lloyd’s

Rating RationaleTheratingoftheholdingcompanyisdeterminedbyreferencetotheIssuerCreditRating(ICR)oftheoperatinginsurancecompanymembersoftheassociatedratingunitLloyd’sAMB#085202.Itreflectsconsiderationofholdingcompanysourcesandusesofcash,thecompetingdemandsplaceduponholdingcompanyresourcesandnormalsubordinationofholdingcompanycreditorstoclaimsofthepolicyholdersoftheoperatinginsurancecompanies.Ingeneral,therefore,theholdingcompany’sIssuerCreditRatingisnotchedfromthoseassignedtotheoperatingcompaniesoftheratingunit.

18

Analytical Contacts:Jessica Botelho-Young, CASenior Financial [email protected]+44 207 397 0310

Catherine ThomasSenior [email protected]+44 207 397 0281

SINCE 1899

Best’s Credit Ratings:Rating Effective Date: July 15, 2020Best’s Issuer Credit Rating: a Outlook: Stable Action: Affirmed

Holding Company AssessmentFinancial Leverage Summary - Holding CompanyFinancial Leverage Ratio (%) 23.50

Adjusted Financial Leverage Ratio (%) 12.30

Interest Coverage (x) 5.20

Key Financial IndicatorsAM Best may recategorize company-reported data to reflect broader international reporting standards and increase global comparability.

Key Financial Indicators2019 GBP

(000)2018 GBP

(0002017 GBP

(000)2016 GBP

(000)2015 GBP

(000)Net Premiums Written:Non-Life ... ... ... ... 4

Composite ... ... ... ... 4

Net Income 137,000 163,000 156,000 329,956 74,352

Total Assets 7,857,000 4,911,000 4,550,000 4,364,639 3,603,357

Total Capital and Surplus 2,601,000 2,417,000 2,188,000 1,996,065 1,762,806


Key Financial Indicators & Ratios 2019 2018 2017 2016 2015

Weighted 5-Year

AverageProfitability:Balance on Non-Life Technical Account (GBP 000) 125,000 137,000 113,000 100,964 99,664 ...

Net Income Return on Revenue (%) 53.9 93.7 123.8 73.0 78.3 78.1

Net Income Return on Capital and Surplus (%) 5.5 7.1 7.5 17.6 4.3 8.2

Non-Life Combined Ratio (%) ... ... ... ... 999.9 999.9

Net Investment Yield (%) 2.9 0.6 ... 9.3 -0.5 2.4


19

Lloyd’s

Credit AnalysisBalance Sheet

Capitalisation

Capital Generation Analysis2019 GBP

(000)2018 GBP

(000)2017 GBP

(000)2016 GBP

(000)2015 GBP

(000)Beginning Capital and Surplus 2,417,000 2,188,000 1,996,065 1,762,806 1,693,317

Net Income 137,000 163,000 156,000 329,956 74,352

Net Unrealized Capital Gains (Losses) ... 2,000 ... ... 808

Currency Exchange Gains (Losses) -14,000 4,000 -5,000 14,522 -739

Other Changes in Capital and Surplus 61,000 60,000 40,935 -111,219 -4,932

Net Change in Capital and Surplus 184,000 229,000 191,935 233,259 69,489

Ending Capital and Surplus 2,601,000 2,417,000 2,188,000 1,996,065 1,762,806

Net Change in Capital and Surplus (%) 7.6 10.5 9.6 13.2 4.1


Asset Liability Management - InvestmentsComposition of Cash and Invested Assets 2019 2018 2017 2016 2015Total Cash and Invested Assets (GBP 000) 4,575,000 4,250,000 3,864,000 3,816,822 3,340,842

Cash (%) 37.1 39.7 25.1 22.9 18.3

Bonds (%) 43.2 43.0 48.9 46.4 49.6

Equity Securities (%) 8.0 5.9 10.1 14.4 14.8

Real Estate, Mortgages and Loans (%) 0.7 0.8 1.0 1.1 1.3

Other Invested Assets (%) 10.5 10.2 14.3 14.9 15.7

Total Cash and Unaffiliated Invested Assets (%) 99.5 99.6 99.5 99.8 99.7

Investments in Affiliates (%) 0.5 0.4 0.5 0.2 0.3Total Cash and Invested Assets (%) 100.0 100.0 100.0 100.0 100.0


Operating and Performance Ratios (%) 2019 2018 2017 2016 2015Overall Performance:

Return on Assets 2.1 3.4 3.5 8.3 2.1

Return on Capital and Surplus 5.5 7.1 7.5 17.6 4.3

Non-Life Performance:

Loss and LAE Ratio ... ... ... ... 350.0

Expense Ratio ... ... ... ... 999.9

Non-Life Combined Ratio ... ... ... ... 999.9


Liquidity Analysis (%) 2019 2018 2017 2016 2015Liquid Assets to Total Liabilities 76.9 150.9 137.7 135.0 150.1

Total Investments to Total Liabilities 87.0 170.4 163.6 161.1 181.5


Operating Performance

Financial Performance Summary2019 GBP

(000)2018 GBP

(000)2017 GBP

(000)2016 GBP

(000)2015 GBP

(000)Pre-Tax Income 170,000 202,000 187,000 405,149 87,187Net Income after Non-Controlling Interests 137,000 163,000 156,000 329,956 74,352


20

Lloyd’s

12/31/2019 12/31/2019Non-Life Life Other Total Total

Income Statement GBP (000) GBP (000) GBP (000) GBP (000)` USD (000)Gross Premiums Written 2,466,000 ... ... 2,466,000 3,234,923

Net Investment Income ... ... 129,000 129,000 169,223

Realized capital gains / (losses) ... ... -11,000 -11,000 -14,430

Unrealized capital gains / (losses) ... ... -12,000 -12,000 -15,742

Other Income 125,000 ... ... 125,000 163,976

Total Revenue 125,000 ... 106,000 231,000 303,028

Net Operating and Other Expense ... ... 61,000 61,000 80,020

Total Benefits, Claims and Expenses ... ... 61,000 61,000 80,020

Pre-Tax Income 125,000 ... 45,000 170,000 223,008Income Taxes Incurred ... ... ... 33,000 43,290 Net Income before Non- Controlling Interests

... ... ... 137,000 179,718

Net Income/(loss) ... ... ... 137,000 179,718


Financial Statements12/31/2019 12/31/2019

Balance Sheet GBP (000) % USD (000)Cash and Short Term Investments 1,696,000 21.6 2,224,830

Bonds 1,978,000 25.2 2,594,760

Equity Securities 367,000 4.7 481,434

Other Invested Assets 534,000 6.8 700,507

Total Cash and Invested Assets 4,575,000 58.2 6,001,531Reinsurers' Share of Reserves 1,878,000 23.9 2,463,579

Debtors / Amounts Receivable 1,145,000 14.6 1,502,022

Other Assets 259,000 3.3 339,759

Total Assets 7,857,000 100.0 10,306,891Unearned Premiums 888,000 11.3 1,164,887

Non-Life - Outstanding Claims 990,000 12.6 1,298,692

Total Gross Technical Reserves 1,878,000 23.9 2,463,579

Debt / Borrowings 1,484,000 18.9 1,946,726

Other Liabilities 1,894,000 24.1 2,484,568

Total Liabilities 5,256,000 66.9 6,894,873Other Capital and Surplus 2,601,000 33.1 3,412,018

Total Capital and Surplus 2,601,000 33.1 3,412,018Total Liabilities and Surplus 7,857,000 100.0 10,306,89


2121

Rating Lloyd’s Operations

The following criteria procedure should be read in conjunction with Best’s Credit Rating Methodology (BCRM) and all other related BCRM-associated criteria procedures. The BCRM provides a comprehensive explanation of AM Best’s Rating Services’ rating process.

A. Market OverviewThiscriteriaprocedurefocusesonAMBest’sratingprocessforallofLloyd’soperations:theSocietyofLloyd’s,theLloyd’smarket,andLloyd’ssyndicates,includinginsurancegroupswithcorporatemembersthatcontributecapitaltoLloyd’ssyndicates.

The Society of Lloyd’s and the Lloyd’s MarketLloyd’sistheLondon-basedmarketwhereapproximately90individualsyndicatesunderwritealltypesofinsuranceandreinsuranceotherthanlong-termlifeinsurance.EachsyndicateconsistsofmembersofLloyd’s.Thesemembersaremainlycorporateentities,althoughprivateindividualsstillprovideasmallproportionofLloyd’sunderwritingcapacity.Thesyndicatesoperateasindividualbusinesses,butthecollectivesizeofthemarketallowsthemtocompeteeffectivelywithmajorinternationalgroups,undertheLloyd’sbrandandwiththesupportofLloyd’sCentralFund.

TheSocietyofLloyd’s(theSociety)isthelegalentitythatoverseestheLloyd’smarket.TheSociety’spurposeistofacilitatetheunderwritingofinsurancebusinessbyLloyd’smembers,toprotectmembers’Lloyd’s-relatedinterests,andtomaintaintheCentralFund.

Method of AccountingLloyd’sannualreportcontainsthefinancialresultsofLloyd’sanditsmembersinproformafinancialstatements(PFFS),andincludesthefinancialstatementsoftheSociety.ThePFFSincludetheaggregateaccounts,whicharebasedontheaccountsofeachLloyd’ssyndicate,members’fundsatLloyd’s(FAL)andtheSociety’sfinancialstatements.

TheSocietyproducesaconsolidatedaccountsstatementthatcoversLloyd’sactivitiesoutsidetheunderwritingmarketandLloyd’scentralresources(theCentralFund).

ToensurethatthePFFSarereportedonthesameaccountingbasisasotherinsurers,Lloyd’smakesadjustments(suchasanotionalinvestmentreturnontheFALinthenon-technicalaccount)toitscapitalandinvestmentreturns.ThePFFS(whichincorporateLloyd’scentralresources)areinaccordancewithU.K.GAAP,ratherthantheInternationalFinancialReportingStandards(IFRS),whichtheSocietyhasadoptedforitsstatements.

OutlineA. Market OverviewB. Balance Sheet StrengthC. Operating PerformanceD. Business ProfileE. Enterprise Risk Management (ERM)F. Lift for SyndicatesG. Rating the Society of Lloyd’sH. Insurance Groups with Lloyd’s Operations

Contacts:Catherine Thomas+44 20 7397 [email protected]

Mathilde Jakobsen +44 20 7397 0266 [email protected]

Carlos Wong-Fupuy+44 20 7397 [email protected]

October 13, 2017

SINCE 1899

22

Lloyd’s

Lloyd’s “Chain of Security”AMBest’sassessmentofLloyd’sbalancesheetstrengthisbasedonthecompany’sunusualcapitalstructure,whichLloyd’scallsthe“chainofsecurity.”This“chainofsecurity”encompassesthePremiumTrustFunds,FAL,theCentralFund,theSociety’snetassets,andotherassets,asExhibit A.1shows,andisacriticalelementinAMBest’sratinganalysisoftheLloyd’smarket.

AnyassessmentofLloyd’scapitalstrengthiscomplicatedbythecompartmentalisationofcapitalatthememberlevel.Thefirsttwolinksinthechainofsecurity—thePremiumTrustFundsandFundsatLloyd’s—areonaseveralratherthanjointbasis,meaningthatamemberneedstomeetonlyitsshareofclaims.Incontrast,thethirdlink(Lloyd’scentralassets)isavailable—atthediscretionoftheCouncilofLloyd’s—tomeetthepolicyholderliabilitiesthatanymemberisunabletomeetinfull.ThisthirdlinkcomprisesnotjusttheCentralFundbutalsothenetassetsoftheCorporationofLloyd’sandanyissuedhybridsecuritiesthatqualifyforcapitalcredit,andcanbesupplementedbyacallonmembers’fundsuptoaspecifiedpercentageoftheiroverallpremiumlimits.Thispartiallymutualisingthirdlink,andtheliquidCentralFundinparticular,isthebasisforamarket-levelrating.

TheLloyd’smarketratingisthe“floorofsecurity”forallpolicieswrittenatLloyd’s.Itreflectsthechainofsecurityand,inparticular,theroleoftheCentralFund,whichpartiallymutualisescapitalatthemarketlevel,ensuringthateachsyndicateisbackedbycapitalconsistentwithanIssuerCreditRating(ICR)ofatleastthatoftheLloyd’smarket.Apolicyholderexposedtoasyndicateweakerthanthemarketwouldstillhavemarket-levelsecurity,giventheCentralFund’sroleasaguaranteefund.

The Rating ProcessAMBest’sratingprocessforLloyd’sisbasedonthesamebuildingblocksastheprocessforconventionalinsurers(Exhibit A.2).Forsyndicate-specificratings,an“s”modifier—e.g.,“A+s”—differentiatesratingsonindividualsyndicatesfromotherratings.

Assessing SyndicatesTounderstandthelinkbetweentheLloyd’smarket’sratingandtheratingsonindividualLloyd’ssyndicates,thefollowingconsiderationsshouldbetakenintoaccount:

Exhibit A.2: A.M. Best’s Rating Process

Exhibit A.1: Lloyd’s Chain of SecurityExhibit A.1: Lloyd’s Chain of Security

Exhibit A.2: AM Best’s Rating Process

23

Lloyd’s

• SyndicatescannotexistorbeanalysedinisolationfromtheirparticipationinLloyd’smarket.Whenassigningratingstoindividualsyndicates,thisdependencemustbetakenintoaccount.

• AllsyndicatesbenefitfromthefinancialstrengthofLloyd’s;therefore,theratingonasyndicatewillbeatleastequaltotheratingonLloyd’s.

• AsyndicatecouldhaveahigherratingthantheLloyd’smarketusuallyfortworeasons:1)itsoperatingperformanceor2)liftfromafinanciallystrongergroup.

B. Balance Sheet StrengthLloyd’s MarketCapital Management StrategyTheUniversalBest’sCapitalAdequacyRatio(BCAR)isrunfortheLloyd’smarketbasedonthePFFS.Lloyd’sbalancesheetstrengthassessmenttakesintoaccountcapitalresourcesavailableatthememberlevelandcentrally;thefungibilityconstraintsonmember-levelcapital;andthelikelihoodandpotentialimpactoffuturedrawdownsoncentralassetsbyLloyd’smembers.

BecauseLloyd’scapitalstructureconsistsofbothmutualcapital,whichcanbeusedtomeettheobligationsofallsyndicates,andmember-levelcapital,whichisavailabletomeetthatmember’sobligationsonly,ithasspecificfungibilityconsiderations.TheBCARcannotcapturethelackoffungibilityinsomepartsofthecapitalstructure.However,giventhatLloyd’sstochasticinternalcapitalmodel(LIM)fullyreflectstheseunusualfeaturesofLloyd’scapitalstructure,themarket’sSolvencyCapitalRatio(SCR)—asapprovedbytheregulator—istakenintoaccountasanadditionalindicatorofcapitaladequacy.

TheCorporationofLloyd’sisresponsibleforannuallysettingcapitalatmemberlevel,usingthesyndicates’SCRs.AMBest’sassessmentofthemarket’sbalancesheetstrengthincorporatesaviewoftheappropriatenessofLloyd’sapproachtosettingmember’s-levelcapital.AcriticalcomponentoftheLloyd’smarketbalancesheetstrengthassessmentinvolvesnotonlytheadequacyofthecapitalrequirements,butalsothemarket’sabilitytofulfilthoserequirements.

Financial FlexibilityAMBest’sassessmentofLloyd’sfinancialflexibilitytakesintoaccountitsabilitytoaccessabroadrangeofcapitalproviders,whichincludecorporateandindividualinvestors,aswellastheoptiontomakeadditionalcapitalcallswhenrequired.AlthoughequitycreditmaybegivenforqualifyinghybridinstrumentsissuedbytheSocietyofLloyd’s,noexplicitcreditistypicallygivenintheBCARforthe“callablelayer”frommemberstosupplementcentralassets.

Letters of CreditHistorically,asignificantandstableproportionofFALisaccountedforbylettersofcredit(LOCs).Initscalculationofavailablecapital,AMBestwillconsiderincludingFALprovidedasLOCs,giventhatsuchLOCscanbedrawnatthediscretionofLloyd’s,andthat,ifdrawn,willbecomeTier 1capitalfortheLloyd’smarket.

Assessing SyndicatesAsyndicate’sbalancesheetstrengthassessmentwillbethesameasthatofLloyd’s,giventhatfundamentallyallofthesyndicatesareprotectedbythecentralresourcesoftheLloyd’smarket.Asyndicate’sassessmentdoesnotincludeaseparateholdingcompanyassessment.ThebalancesheetassessmentassignedwillbethatoftheLloyd’smarket,whichalreadyincorporatesaholdingcompanyassessment.

24

Lloyd’s

C. Operating PerformanceLloyd’s MarketMarket PerformanceTheassessmentofLloyd’soperatingperformanceinvolvestheanalysisofthemarket’soverallconsolidatedperformance,takingintoaccountthestability,diversity,andsustainabilityofthemarket’ssourcesofearnings.Theassessmentalsoincorporatestheperformanceanalysisoftheindividualsyndicates—includingtheexistinggapsbetweenthestrongestandworstperformers—withaparticularfocusonthepotentialexposureofcentralcapitalresourcestolossesfromindividualmembers.

Lloyd’sperformanceisnotdirectlycomparabletothatofotherinsurers,becauseitisnotactivelymanagedcentrally.TheCorporation’sPerformanceManagementDirectoratehasadefiniteroleinagreeingtobusinessplansandmonitoringperformance,butLloyd’sisultimatelyamarketofcompetingbusinesses,eachofwhichhasitsowndecision-makingprocess.

Inaddition,themarket’sconsolidatedoperatingperformancecannotbeviewedasaleadingindicatorofitsfuturebalancesheetstrengthtothesameextentasitisforotherinsurers.EarningsgeneratedbythemarketdonotdirectlybuildorerodeLloyd’scapitalbase,asprofitsandlossesaredistributedtothemarket’scapitalproviderswhenayearofaccountisclosed(usuallyattheendof36months).ThecapitaltosupportunderwritingatLloyd’sisinsteadsuppliedbycapitalproviders(members)annually.Therefore,greaterweightmaybegiventotheimpactofthemarket’sresultsonitsabilitytoretainandattractthecapitalrequiredforcontinuedtrading.

AnyassessmentofLloyd’soperatingperformancemustalsotakeintoaccountthepotentialerosionofcentralcapitalresourcesowingtolossesincurredbyindividualmembers.MostmembersofLloyd’swritewithlimitedliability.Intheeventofsubstantialunderwritinglosses,ifthosemembersareunwillingorunabletoprovideadditionalfundstosupportanyoutstandingunderwritingobligations,theremaybeadrawdownoncentralcapitalresources.

Assessing SyndicatesInAMBest’sopinion,asyndicatecouldhaveahigherratingthantheLloyd’smarketbecauseofamorefavourableoperatingperformanceassessment,principallybecauseanindividualsyndicate’sprofitsarenotmadeavailabletomeettheobligationsofothermembers.Therefore,theassessmentofLloyd’smarket’soperatingperformancemaynotfullyreflectthepositiveimpactthatanindividualsyndicate’sstandaloneearningscanhaveonitsabilitytomeetitsownobligationstopolicyholders.

AMBest’sassessmentofanindividualsyndicate’soperatingperformanceisthesameasthatforconventionalinsurersinthatitcentresonthestability,diversity,andsustainabilityofitsearningssources.ExpenseswillincludecostsassociatedwithoperatingatLloyd’s,suchascontributionstocentralresources.

D. Business ProfileLloyd’s MarketThebusinessprofileassessmentoftheLloyd’smarketfollowstheprocessoutlinedintheBCRM.

Assessing SyndicatesThebusinessprofilesofallofthesyndicatesareinextricablylinkedtothatofLloyd’s.Asaresult,theassessmentofLloyd’sbusinessprofileactsasafloorfortheassessmentofanysyndicate’sbusinessprofile.Likewise,anyweakeningofLloyd’sbusinesspositionwillactasadragonanindividualsyndicate’srating.

25

Lloyd’s

E. Enterprise Risk Management (ERM)Lloyd’s MarketAMBest’sERMassessmentoftheLloyd’smarkettakesintoaccountboththeoverallframeworkandtheframeworksinplaceforeachindividualsyndicate.Failureatonesyndicatecouldleadtopressuresonthemarket’sERMassessmentevenif,ingeneral,theoverallriskmanagementframeworkisconsideredappropriate.

Assessing SyndicatesAMBestacknowledgesthatallsyndicatesbenefitfromtheERMframeworkandriskmonitoringatLloyd’slevel.Asaresult,theassessmentofLloyd’sERMactsasafloorfortheassessmentofanysyndicate’sERM.Likewise,anyweakeningofLloyd’sERMwillactasadragonanindividualsyndicate’srating..

F. Lift for SyndicatesAlthoughAMBestconsidersthemarket’sratinga“floor”forallofthesyndicates’ratings,certainsyndicatescouldmerithigherratings.Onereasonissimplybecauseofthestepsdescribedintheprevioussections—suchasthecaseofasyndicatewithamorefavourableoperatingperformanceassessment.Also,syndicatesthatarenon-leadratingunitsandthatbelongtowider(re)insurancegroupsmaybeeligibleforahigherratingowingtoratinglift.

Ratingliftmayapplyifthesyndicateisbackedbyacapitalprovider(theleadratingunit)that,inAMBest’sopinion,hasahigherratingthanthemarket.Theleadratingunitisalsoexpectedtobefullycommittedtosupportingthesyndicatebeyonditscorporatemember’slimitedliabilityobligationsandbeforerecoursetoLloyd’sCentralFund.AMBestundertakesadetailedanalysisofthecapitalprovider’scommitmentandwouldhavetobesatisfiedthatthecapitalproviderwouldnotceaseunderwritingatLloyd’sunderadversecircumstancesnotrelatedtoitsownsyndicate’sperformance(e.g.,anadditionalCentralFundlevy).Eligibilityforratingliftowingtocapitalbackingmaybeaffectedifthecorporatememberparticipatesinothersyndicates,sincecapitalheldatthememberlevelisfungibleacrossallofthesyndicatesinwhichthememberparticipates.

G. Rating the Society of Lloyd’sTheratingontheSocietyisderivedbynotchingfromtheratingonLloyd’sandreflectsAMBest’sopinionthattheabilityoftheSocietytomeetitsobligationsisinextricablylinkedtothatofLloyd’s.TheratingonLloyd’salsotakesintoaccounttheassetsandliabilitiesoftheSociety(astheanalysisisdoneonconsolidatedfinancials),aswellasthefinancialflexibilityoftheSociety,includingitsabilitytoraisedebt.

ThecentralassetsoftheSocietyofLloyd’s,includingtheCentralFund,areavailabletomeettheSociety’sseniorobligations.TheSocietyofLloyd’scanincreasethecontributionstotheCentralFundfrommembersoftheLloyd’smarket.TheSociety’sseniorobligationsinclude,butarenotlimited,toCentralFund“undertakings,”wherebytheCentralFundmeetstheinsuranceliabilityofinsolventmembersofLloyd’sonadiscretionarybasis.Undernormalcircumstances,Lloyd’sCouncilexecutesanundertakingfora12-monthperiodtomeettheseliabilities(whichcanberenewed).CentralFundundertakingsconstituteunsecuredobligationsoftheSocietythatrankparipassuwiththeSociety’sotherunsecuredseniorobligations.

Accordingly,therecanbenodistinctionbetweentheabilityoftheLloyd’smarketandtheSocietytomeettheirseniorobligations:TheSociety’sabilitytomeetitsseniorobligationsisthereforethesameasLloyd’s.However,inpractice,Lloyd’spolicyholdersarelikelytobepaidaheadofseniordebtholders.Therefore,intheabsenceofanyotherrelevantinformation,theratingontheSocietyisplacedonenotchbelowtheratingonLloyd’s.

26

Lloyd’s

H. Insurance Groups with Lloyd’s OperationsMarket KnowledgeAninsurancegroupwritingbusinessatLloyd’swilltypicallyownacorporatememberthatparticipatesintheLloyd’smarketbyprovidingcapacitytooneormoresyndicates.ItacceptsinsurancebusinessthroughsyndicatesonaseveralbasisforitsownprofitandlossandholdsthecapitalsupportingitsshareofbusinesswrittenintheformofFAL.Fortheseinsurancegroups,boththeperformanceofandthecapitalsupportingbusinesswrittenatLloyd’sarecapturedintheconsolidatedanalysisviathecorporatemember.

TheratingprocessforgroupswithaLloyd’splatformissubstantiallythesameasitisforallinsurancegroups.However,theuniquecapitalstructureandpracticesoftheLloyd’smarketintroducedistinctissues,particularlywithrespecttotheanalyticaltreatmentofgroupcapitalusedtosupportunderwritingatLloyd’s.

Balance Sheet StrengthAspartoftheanalysisofagroup’sconsolidatedbalancesheetstrength,AMBestusestheBCARtocalculatethenetrequiredcapitaltosupportthegroup’sfinancialrisks(includingthoseofthecorporatemember)andcomparesitwiththegroup’savailablecapital(includingcapitallodgedasFAL),toestimateexcessorshortfall.

ThelevelofFALdeterminestheamountofinsurancebusinessamembercanunderwriteatLloyd’s.Consequently,amemberunableorunwillingtoreplenishitsFALwillhavetoreducetheamountofLloyd’sbusinessitwrites.Thus,ifitsFALareexhaustedandnotreplenished,thecorporatememberwillnolongerbeabletounderwriteatLloyd’s.

Notably,ifamember’sFALareinadequatetomeetitssyndicate’slosses,amanagingagentmayaskLloyd’stomeetthecashcalloutofitscentralassets.However,inthegroup’sconsolidatedBCARanalysis,AMBestgivesnocapitalcreditfortheaccessamember’sinsurancecreditorshavetoLloyd’scentralassets,primarilybecauseonlytheobligationsofthecorporatemember—notthoseofthewidergroup—canbemetbyLloyd’scentralassets.

AMBest’sanalysisofagroup’sLloyd’sbusinessfocusesonanassessmentoftherisksgenerateddirectlybythesyndicatesinwhichthecorporatememberparticipates.

Segregation of Capital for Lloyd’s BusinessFALaredefinedascapitallodgedandheldintrustatLloyd’sassecurityforpolicyholdersandtosupportamember’soverallunderwritingbusiness.Thefundslodgedcanbeinvestmentsandcashbutareoftenlettersofcredit(LOCs)drawnononeormorebanks.

Wheninvestmentsandcashareprovidedbyagroupcompany,orwhenanLOCisbackedbycollateralfromagroupcompany,theassetsareclearlyencumbered.Toreflectthelimitationsonthetransferofthiscapitalacrossthegroup,AMBestappliesanominal1%capitalchargetothegroupassetsthatsupportFALinthegroup’sconsolidatedBCAR.ThisisinlinewithAMBest’sbaselinetreatmentofbalancesassociatedwithnon-controlledassets.

Theanalystmayincreasetheassetriskfactorbeyondthenominal1%followinganevaluationofthelikelihoodthatFALwillbeusedtopaysyndicatelosses.Theevaluationwouldtakeintoaccountthehistoricalandexpectedperformanceofthegroup’sLloyd’sbusiness,aswellasthepotentialexposureofthisbusinesstolarge,market-widelosses.

27

Lloyd’s

Letters of Credit Supporting FAL for Insurance Groups with Lloyd’s OperationsInsurancegroupscommonlyuseLOCs—eithercollateralizedoruncollateralized—tomeettheirFALrequirements.InthecaseofacollateralizedLOC,assetsbackingtheLOCareincludedinAMBest’sassessmentofagroup’savailablecapital,althoughacapitalchargemaybeappliedtotheassets.

Anundrawn,uncollateralizedLOCsupportingFALreceivesnocapitalcreditinagroup’sconsolidatedBCAR.Therationaleforthistreatmentisthat,iftheLOCweretobedrawndown,itwouldbecomeshort-termbankdebtonthegroup’sbalancesheet;AMBestdoesnotaffordcapitalcredittoshort-termbankdebt.

However,AMBestdoesrecognizethat,underastressscenario,anuncollateralizedLOCcouldbeconvertedreadilytocashtomeetthegroup’sLloyd’sobligations.Forthisreason,AMBestwouldtakeintoaccountanuncollateralizedLOCinitsassessmentofthegroup’sfinancialflexibilityandliquidity.

Internal Reinsurance and Lloyd’s BusinessInaninsurancegroup,earningsfromthegroup’scorporatememberareoftentransferredtoanothergroupentity,typicallytorealizetaxefficiencies—andfrequentlythroughquota-sharereinsurance,withthegroupreinsurerprovidingashareofthecorporatemember’sFALmatchingtheproportionofriskassumed.Forexample,ifthereisa50%whole-accountquotashareinplace,thecorporatememberandreinsurereachmayprovide50%oftheFAL.

Whendeterminingtheappropriatetreatmentinthereinsurer’sBCARoftheLloyd’sbusinessassumedandtheFALlodgedtosupportthisbusiness,AMBestwillfirstconductadetailedreviewofthereinsurancecontractandthetreatmentoftheriskassumedinthereinsurer’saccounts.

IftheLloyd’s-relatedriskisreflectedaccuratelyonthereinsurer’sbalancesheetandincomestatement—forexample,ifthereisastandardquotashareagreementinplace—AMBestwillincludetheriskassociatedwiththisbusinessandthecapitalsupportingthisrisk(ashareofFAL)initsanalysisofrisk-adjustedcapitalizationintheBCAR.AMBestwillalsoconductaBCARanalysisexcludingtheriskandcapitalrelatingtotheLloyd’sbusiness.

WhentheproportionofFALprovidedbythereinsurerexceedstheproportionoftheLloyd’sbusinessitassumes,AMBestwilldeductanamountequaltotheexcessfromcapitalinitsanalysisofthereinsurer,toavoidgivingcreditforcapitalthatsupportsrisksnotcapturedinthereinsurer’saccountsandBCAR.

Occasionally,thetransferofpremiumandreserverisktothereinsurerisnotreflectedinthereinsurer’saccountsinamannerthatallowsAMBesttocapturetheassumedriskaccuratelyintheBCAR—forexample,whenthereinsurancetransactionisaquotashareofthecorporatemember’sprofit/loss.Inthiscase,intheabsenceofadditionalinformation,AMBestwilldeductfromavailablecapitalanamountequivalenttothereinsurer’sshareofFAL.AdditionaladjustmentsmaybemadetoensurethatneithertheLloyd’s-relatedriskassumedbythereinsurernorthecapitalsupportingthisrisk(FAL)isreflectedinBCAR.

BecauseparticipationinLloyd’sisonalimitedliabilitybasis,thegroupreinsurerisnotusuallylegallyobligedtopayoutmorethanitsshareofFALtosupportitsLloyd’slosses.BydeductingFALfromavailablecapital,AMBestreflectsthemaximumlossthatthereinsurerwouldincurfromtheassumedLloyd’sbusiness.AnybusinessorreputationalissuesthatmayariseifthegroupisunableorunwillingtoreplenishitsFALarecapturedbyAMBestintheconsolidatedanalysisoftheinsurancegroup.

28

Lloyd’s

Determination of the IHC’s Rating Through NotchingAMBest’sratingonaninsuranceholdingcompany(IHC)isbasedontheIssuerCreditRatingoftheoperatinginsurer(s)onwhichtheIHCprimarilydependstomeetitsobligations.Theratingreflectstheanalysisof(1)thecreditriskimplicationsoftheIHCasalegalentityseparatefromtheoperatinginsurer(s)and(2)thenormalsubordinationofIHCcreditorstooperatingcompanypolicyholders.

ForaninsurancegroupwithasignificantLloyd’soperation,theentityonwhichtheholdingcompanymostdependstomeetitsobligationsmaybeaLloyd’ssyndicate.Inthiscase,usingthesyndicateratinginthenotchingprocessisseldomappropriate.

Lloyd’schainofsecurity—inparticular,theroleoftheCentralFund,whichpartlymutualisescapitalatthemarketlevel—ensuresthateachLloyd’ssyndicateisbackedbycapitalconsistentwiththeICRofatleastthatoftheLloyd’smarket.Consequently,asyndicateratingcannotfallbelowtheLloyd’smarketrating.

Lloyd’scentralassetsareavailabletomeetonlytheinsuranceliabilitiesofthecorporatemember.WhendeterminingtheholdingcompanyICRofagroupwithasignificantLloyd’soperation,AMBestconductsanenterprise-levelanalysisoftheconsolidatedorganization(excludingLloyd’s).ThisformsthebasisforanoveralloperatingcompanyICR,whichisthenusedinthenotchingprocess.

29

Lloyd’s

Syndicate Managing Agent

Gross Premiums

Written33 Hiscox Syndicates Limited 1,60244 Canopius Managing Agents Limited 27

218 ERS Syndicate Management Limited 360308 Tokio Marine Kiln Syndicates Limited 5318 Cincinnati Global Underwriting Agency Limited 167382 Hardy (Underwriting Agencies) Limited 316386 QBE Underwriting Limited 346435 Faraday Underwriting Limited 448457 Munich Re Syndicate Limited 569510 Tokio Marine Kiln Syndicates Limited 1,450551 Endurance at Lloyd’s Limited 329557 Tokio Marine Kiln Syndicates Limited 17609 Atrium Underwriters Limited 591623 Beazley Furlonge Limited 407727 S.A. Meacock & Company Limited 75780 RiverStone Managing Agency Ltd 34

1084 Chaucer Syndicates Limited 1,0251110 Capita Managing Agency Limited 601176 Chaucer Syndicates Limited 281183 Talbot Underwriting Ltd 7721200 Argo Managing Agency Limited 5611206 Canopius Managing Agents Limited -11218 Newline Underwriting Management Limited 1751221 Navigators Underwriting Agency Limited 3591225 AEGIS Managing Agency Limited 6531274 Antares Managing Agency Limited 4731301 StarStone Underwriting Limited 1751414 Ascot Underwriting Limited 6891458 RenaissanceRe Syndicate Management Limited 6851492 Capita Managing Agency Limited 1341686 AXIS Managing Agency Limited 8931729 Asta Managing Agency Limited 1391856 Barbican Managing Agency Limited 1071861 Canopius Managing Agents Limited 6611880 Tokio Marine Kiln Syndicates Limited 3191884 Charles Taylor Managing Agency Limited 271892 Asta Managing Agency Limited 81897 Asta Managing Agency Limited 271910 Argo Managing Agency Limited 2891919 Starr Managing Agents Limited 3061945 Sirius International Managing Agency Limited 971947 Hamilton Managing Agency Limited 581955 Barbican Managing Agency Limited 3571967 W R Berkley Syndicate Management Limited 2631969 Apollo Syndicate Management Limited 4091971 Apollo Syndicate Management Limited 671975 Coverys Managing Agency Limited 391980 Asta Managing Agency Limited 1481991 Coverys Managing Agency Limited 1632001 MS Amlin Underwriting Limited 2,0852003 Catlin Underwriting Agencies Limited 2,0912007 AXIS Managing Agency Limited 1942008 StarStone Underwriting Limited 5862010 Lancashire Syndicates Limited 2232012 Arch Underwriting at Lloyd’s Ltd 2242014 Hamilton Managing Agency Limited 1772015 The Channel Managing Agency Limited 2522088 Chaucer Syndicates Limited 1232121 Argenta Syndicate Management Limited 4582232 Allied World Managing Agency Limited 219

Syndicate Managing Agent

Gross Premiums

Written2357 Nephila Syndicate Management Limited 3762468 Neon Underwriting Limited 4352488 Chubb Underwriting Agencies Limited 4882525 Asta Managing Agency Limited 822623 Beazley Furlonge Limited 1,8552689 Asta Managing Agency Limited 1152786 Asta Managing Agency Limited 1462791 Managing Agency Partners Limited 2242987 Brit Syndicates Limited 1,7712988 Brit Syndicates Limited 1102999 QBE Underwriting Limited 1,2223000 Markel Syndicate Management Limited 5433002 Catlin Underwriting Agencies Limited 503010 Lancashire Syndicates Limited 1013268 Asta Managing Agency Limited 1193330 Coverys Managing Agency Limited 03334 Hamilton Managing Agency Limited 1303500 RiverStone Managing Agency Ltd 4313622 Beazley Furlonge Limited 263623 Beazley Furlonge Limited 1143624 Hiscox Syndicates Limited 3203902 Ark Syndicate Management Limited 894000 Hamilton Managing Agency Limited 3024020 Ark Syndicate Management Limited 2774141 HCC Underwriting Agency Ltd 1464242 Asta Managing Agency Limited 2014444 Canopius Managing Agents Limited 1,3644472 Liberty Managing Agency Limited 1,3224711 Aspen Managing Agency Limited 3795000 Travelers Syndicate Management Limited 3705623 Beazley Furlonge Limited 285678 Vibe Syndicate Management Limited 1795820 Canopius Managing Agents Limited 55886 Asta Managing Agency Limited 2056050 Beazley Furlonge Limited 06103 Managing Agency Partners Limited 216104 Hiscox Syndicates Limited 476107 Beazley Furlonge Limited 586111 Catlin Underwriting Agencies Limited -16117 Argo Managing Agency Limited 776118 Barbican Managing Agency Limited 196123 Asta Managing Agency Limited 336125 Hamilton Managing Agency Limited 246126 Asta Managing Agency Limited 16129 AXIS Managing Agency Limited 106130 Chaucer Syndicates Limited -16131 Asta Managing Agency Limited 66132 Barbican Managing Agency Limited 516133 Apollo Syndicate Management Limited 526134 Argenta Syndicate Management Limited 51

All other syndicates and inter-syndicate RITC adjustment -1,608All other syndicates and inter-syndicate RITC adjustment

-1,608

Total 35,905

Source: Lloyd's Annual Report 2019

Appendix 1 GPW by Syndicate, 2019(GBP Millions)

Appendices

30

Lloyd’s

Appendix 2 GPW by Managing Agency Group, 2019

Managing AgentGross Premiums

WrittenBeazley Furlonge Limited 2,488 Catlin Underwriting Agencies Limited 2,140 MS Amlin Underwriting Limited 2,085 Canopius Managing Agents Limited 2,056 Hiscox Syndicates Limited 1,969 Brit Syndicates Limited 1,881 Tokio Marine Kiln Syndicates Limited 1,791 QBE Underwriting Limited 1,568 Liberty Managing Agency Limited 1,322 Asta Managing Agency Limited 1,230 Chaucer Syndicates Limited 1,175 AXIS Managing Agency Limited 1,097 Argo Managing Agency Limited 927 Talbot Underwriting Ltd 772 StarStone Underwriting Limited 761 Hamilton Managing Agency Limited 691 Ascot Underwriting Limited 689 RenaissanceRe Syndicate Management Limited 685 AEGIS Managing Agency Limited 653 Atrium Underwriters Limited 591 Munich Re Syndicate Limited 569 Markel Syndicate Management Limited 543 Barbican Managing Agency Limited 534 Apollo Syndicate Management Limited 528 Argenta Syndicate Management Limited 509 Chubb Underwriting Agencies Limited 488 Antares Managing Agency Limited 473 RiverStone Managing Agency Ltd 465 Faraday Underwriting Limited 448 Neon Underwriting Limited 435

Managing AgentGross Premiums

WrittenAspen Managing Agency Limited 379 Nephila Syndicate Management Limited 376 Travelers Syndicate Management Limited 370 Ark Syndicate Management Limited 366 ERS Syndicate Management Limited 360 Navigators Underwriting Agency Limited 359 Endurance at Lloyd’s Limited 329 Lancashire Syndicates Limited 324 Hardy (Underwriting Agencies) Limited 316 Starr Managing Agents Limited 306 W R Berkley Syndicate Management Limited 263 The Channel Managing Agency Limited 252 Managing Agency Partners Limited 245 Arch Underwriting at Lloyd’s Ltd 224 Allied World Managing Agency Limited 219 Coverys Managing Agency Limited 202 Capita Managing Agency Limited 194 Vibe Syndicate Management Limited 179 Newline Underwriting Management Limited 175 Cincinnati Global Underwriting Agency Limited 167 HCC Underwriting Agency Ltd 146 Sirius International Managing Agency Limited 97 S.A. Meacock & Company Limited 75 Charles Taylor Managing Agency Limited 27 All other syndicates and inter-syndicate RITC adjustment

-1,608

Total 35,905Source: Lloyd’s Annual Report 2019

31

Lloyd’s

Appendix 3Overview of Premium Limits and Membership, 1993-2018

Year ofAccount

Individual Gross

Premium Limit (GPB

millions)Individual

% of Total

Corporate Gross

Premium Limit (GPB

millions)Corporate % of Total

Total Gross Premium

Limit (GPB millions)

Number of Active MembersIndividual Corporate Total

1993 8,724 100% 8,724 19,377 19,3771994 9,236 85% 1,595 15% 10,831 17,370 95 17,4651995 7,761 77% 2,360 23% 10,121 14,573 140 14,7131996 6,900 69% 3,044 31% 9,944 12,683 162 12,8451997 5,779 56% 4,529 44% 10,309 9,872 202 10,0741998 4,013 40% 6,129 60% 10,142 6,765 436 7,2011999 2,668 27% 7,188 73% 9,856 4,458 667 5,1252000 1,985 20% 8,123 80% 10,108 3,270 854 4,1242001 1,789 16% 9,462 84% 11,252 2,823 896 3,7192002 1,754 13% 11,473 87% 13,227 2,445 838 3,2832003 1,832 12% 13,022 88% 14,853 2,177 768 2,9452004 1,852 12% 13,223 88% 15,076 2,029 754 2,7832005 1,433 10% 12,382 90% 13,816 1,604 708 2,3122006 1,425 9% 13,580 91% 15,005 1,478 717 2,1952007 1,082 7% 15,351 93% 16,433 1,106 1,020 2,1262008 915 6% 15,191 94% 16,106 897 1,162 2,0592009 822 5% 17,314 95% 18,136 765 1,241 2,0062010 848 4% 22,174 96% 23,022 691 1,445 2,1362011 757 3% 22,539 97% 23,297 631 1,530 2,1612012 693 3% 23,491 97% 24,184 575 1,576 2,1512013 651 3% 24,346 97% 24,998 520 1,626 2,1462014 592 2% 25,936 98% 26,527 444 1,688 2,1322015 431 2% 25,835 98% 26,266 321 1,771 2,0922016 407 1% 27,105 99% 27,512 289 1,760 2,0492017 372 1% 29,923 99% 30,296 258 1,764 2,0222018 361 1% 31,929 99% 32,290 243 1,753 1,996“Note: Only active members are shown. Members who are not underwriting but remain on the electoral register are not included. Source: Statistics Relating to Lloyd’s”

Appendix 4Calendar Year Gross Written Premium by Main Business Class (2018-2019) (GBP Millions)

2018 2019 % changeReinsurance 11,070 11,418 3.1%Property 9,687 9,586 -1.0%Casualty 9,094 9,459 4.0%Marine, Aviation and Transport 3,152 2,802 -11.1%Energy 1,404 1,500 6.8%Motor 1,037 1,053 1.5%Life 83 87 4.8%Total from syndicate operations 35,527 35,905 1.1%Transactions between syndicates and the Society and insurance operations of the Society

0 0

Total calendar year premium income 35,527 35,905 1.1%Note: Figures include brokerage and commission.Source: Lloyd’s Annual Report 2019

32

Lloyd’s

32

Appendix 5Gross Written Premium by Territory (2019)

%US & Canada 52%UK 14%Rest of Europe 14%Central Asia & Asia Pacific

10%

Other Americas 6%Rest of the World 4%Total 100%Source: Lloyd’s Annual Report 2019

Appendix 6Composition of Capital (2018-2019)

2018 2019US insurance industry 20% 19%Bermudian insurance industry 13% 14%UK insurance industry 13% 12%Japan insurance industry 11% 11%European insurance industry 11% 10%Rest of the World insurance industry 10% 10%Private capital - limited & unlimited 10% 10%Worldwide non-insurance 7% 9%Middle/Far East insurance industry 6% 6%Total 100% 100%Note: Capital providers shown as a percentage of overall capacity.Source: Lloyd's Annual Report 2018 and 2019

Appendix 7Chain of Security

Syndicate Level Assets

Members’ Funds at Lloyd’s

Central Assets

Premium Trust Funds and Overseas Regulatory DepositsGBP 52,849m (GBP 53,451m)

(several basis)

Funds at Lloyd’sGBP 27,595m (GBP 26,483m )

(several basis)

Central Fund GBP 2,483m (GBP 2,185m)Subordinated Loan Notes and Subordinated Perpetual

Capital Securities GBP 794m (GBP 793m ) Other Central Assets GBP 118m (GBP 232m )

(mutual basis)

Note: Figures are shown as at 31 December 2019 (31 December 2018).Source: Lloyd’s

Published by AM Best

CREDITREPORTA.M. Best Company, Inc.

Oldwick, NJCHAIRMAN, PRESIDENT & CEO Arthur Snyder III

SENIOR VICE PRESIDENTS Alessandra L. Czarnecki, Thomas J. PlummerGROuP VICE PRESIDENT Lee McDonald

A.M. Best Rating Services, Inc.Oldwick, NJ

PRESIDENT & CEO Matthew C. MosherExECuTIVE VICE PRESIDENT & COO James Gillard

SENIOR MANAGING DIRECTORS Edward H. Easop, Stefan W. Holzberger, Andrea KeenanSENIOR VICE PRESIDENT James F. Snee

AMERICASWORLD HEADQuARTERSA.M. Best Company, Inc.

A.M. Best Rating Services, Inc.1 Ambest Road, Oldwick, NJ 08858

Phone: +1 908 439 2200

MExICO CITYA.M. Best América Latina, S.A. de C.V.

Paseo de la Reforma 412, Piso 23, Mexico City, MexicoPhone: +52 55 1102 2720

NEW YORK54W. 40th Street, 8th Floor, Suite 815, New York, NY 10018

Phone: +1 212 209 6285

EuRoPE, MIDDLE EAST & AFRICA (EMEA)LONDON

A.M. Best Europe - Information Services Ltd.A.M. Best Europe - Rating Services Ltd.

12 Arthur Street, 6th Floor, London, UK EC4R 9ABPhone: +44 20 7626 6264

AMSTERDAMA.M. Best (EU) Rating Services B.V.

NoMA House, Gustav Mahlerlaan 1212, 1081 LA Amsterdam, NetherlandsPhone: +31 20 308 5420

DuBAI*A.M. Best - MENA, South & Central Asia*

Office 102, Tower 2, Currency House, DIFCP.O. Box 506617, Dubai, UAE

Phone: +971 4375 2780*Regulated by the DFSA as a Representative Office

ASIA-PACIFICHONG KONG

A.M. Best Asia-Pacific LtdUnit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong

Phone: +852 2827 3400

SINGAPOREA.M. Best Asia-Pacific (Singapore) Pte. Ltd

6 Battery Road, #39-04, SingaporePhone: +65 6303 5000

Best’s Financial Strength Rating (FSR): an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts.

Best’s Issuer Credit Rating (ICR): an independent opinion of an entity’s ability to meet its ongoing financial obligations and can be issued on either a long- or short-term basis.

Best’s Issue Credit Rating (IR): an independent opinion of credit quality assigned to issues that gauges the ability to meet the terms of the obligation and can be issued on a long- or short-term basis (obligations with original maturities generally less than one year).

Rating Disclosure: Use and LimitationsA Best’s Credit Rating (BCR) is a forward-looking independent and objective opinion regarding an insurer’s, issuer’s or financial obligation’s relative creditworthiness. The opinion represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance, business profile, and enterprise risk management or, where appropriate, the specific nature and details of a security. Because a BCR is a forward-looking opinion as of the date it is released, it cannot be considered as a fact or guarantee of future credit quality and therefore cannot be described as accurate or inaccurate. A BCR is a relative measure of risk that implies credit quality and is assigned using a scale with a defined population of categories and notches. Entities or obligations assigned the same BCR symbol developed using the same scale, should not be viewed as completely identical in terms of credit quality. Alternatively, they are alike in category (or notches within a category), but given there is a prescribed progression of categories (and notches) used in assigning the ratings of a much larger population of entities or obligations, the categories (notches) cannot mirror the precise subtleties of risk that are inherent within similarly rated entities or obligations. While a BCR reflects the opinion of A.M. Best Rating Services, Inc. (AM Best) of relative creditworthiness, it is not an indicator or predictor of defined impairment or default probability with respect to any specific insurer, issuer or financial obligation. A BCR is not investment advice, nor should it be construed as a consulting or advisory service, as such; it is not intended to be utilized as a recommendation to purchase, hold or terminate any insurance policy, contract, security or any other financial obligation, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. Users of a BCR should not rely on it in making any investment decision; however, if used, the BCR must be considered as only one factor. Users must make their own evaluation of each investment decision. A BCR opinion is provided on an “as is” basis without any expressed or implied warranty. In addition, a BCR may be changed, suspended or withdrawn at any time for any reason at the sole discretion of AM Best.

Version 010320

Lloyd’s

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. For more information, visit www.ambest.com.

AmericAsWORLD HEADQUARTERSA.M. Best Company, Inc.

A.M. Best Rating Services, Inc.1 Ambest Road, Oldwick, NJ 08858

Phone: +1 908 439 2200

MEXICO CITYA.M. Best América Latina, S.A. de C.V.

Paseo de la Reforma 412, Piso 23, Mexico City, MexicoPhone: +52 55 1102 2720

europe, middle eAst & AfricA (emeA)LONDON

A.M. Best Europe - Information Services Ltd.A.M. Best Europe - Rating Services Ltd.

12 Arthur Street, 6th Floor, London, UK EC4R 9ABPhone: +44 20 7626 6264

AMSTERDAMA.M. Best (EU) Rating Services B.V.

NoMA House, Gustav Mahlerlaan 1212, 1081 LA Amsterdam, NetherlandsPhone: +31 20 308 5420

DUBAI*A.M. Best - MENA, South & Central Asia*

Office 102, Tower 2, Currency House, DIFCP.O. Box 506617, Dubai, UAE

Phone: +971 4375 2780*Regulated by the DFSA as a Representative Office

AsiA-pAcificHONG KONG

A.M. Best Asia-Pacific Ltd Unit 4004 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong

Phone: +852 2827 3400

SINGAPOREA.M. Best Asia-Pacific (Singapore) Pte. Ltd

6 Battery Road, #39-04, SingaporePhone: +65 6303 5000

Documents

AM Best September 2020 Lloyd’s