#1LLOYD'S Lloyd's ILS Investor Presentation January 2018 John Parry, Chief Financial Officer © Lloyd's#2LLOYD'S Disclaimer This information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. It is the responsibility of any person publishing, downloading or communicating the contents of this document or communication, or any part thereof, to ensure compliance with all applicable legal and regulatory requirements. The content of this presentation does not represent a prospectus or invitation in connection with any solicitation of capital. Nor does it constitute an offer to sell securities or insurance, a solicitation or an offer to buy securities or insurance, or a distribution of securities in the United States or to a U.S. person, or in any other jurisdiction where it is contrary to local law. Such persons should inform themselves about and observe any applicable legal requirement. Lloyd's 2#3LLOYD'S Agenda Strategy Brexit Oversight Capital Central Fund - ILS opportunity © Lloyd's 5 8 11 15 28 3#4LLOYD'S Strategy © Lloyd's#5LLOYD'S The benefits of placing business and operating at Lloyd's The advantages of operating at Lloyd's remain strong Customers & distribution Access to business brought to Lloyd's A broad and expanding licence network in over 200 territories Delegated authority and subscription models Capital • All policies underpinned by the Central Fund . Single Financial Strength Rating • Efficient and Flexible Operations & services Economies of scale from central services Talent The Lloyd's market is a recognised centre of specialist underwriting, claims and analytics expertise Brand Lloyd's has a globally recognisable brand Reputation for paying all valid claims in a timely and efficient manner Market oversight Corporation oversees risks written at Lloyd's Proportionate and robust market oversight regime consistent with an entrepreneurial and innovative culture Lloyd's 5 LO#6LLOYD'S New entrants Interest in business joining the Lloyd's Market remains strong. 12 122 The SPA structure remains attractive for the development of new businesses. Groups are continuing to access the market initially at member level, supporting third party syndicates. © Lloyd's 10 10 3 1 8 6 ■Approved Managing Agents Approved SPA ■Approved Syndicates 2 1 4 7 6 2 0 8 1 5 LO 1 1 1 2 3 2 2007 2008 2009 2010 2011 2012 2013 4 3 3 4 4 3 2 4 1 4 3 2014 2015 2016 2017 2018 6#7LLOYD'S Brexit © Lloyd's#8LLOYD'S Why do we need the Lloyd's Brussels subsidiary? GWP(1) (EUR MN) Do nothing - World Trade Organisation Rules Lloyd's Insurance Company 1,202 1,445 1,447 Note: (1) based on 2016 EEA GWP, excluding Life Accessible Reverse solicitation Prohibited Accessible via LIC © Lloyd's 1,202 2,891 8#9LLOYD'S Timeline of the Lloyd's Brussels subsidiary : • • Lloyd's Brexit lobbying position: continued trade with Single Market. No 'hard Brexit', transitional arrangements instead. Ongoing engagement with UK Government Brussels Subsidiary will be a fully fledged Insurance Company, fully regulatory and tax compliant Allows continued trading under the Lloyd's brand and benefiting from Lloyd's robust financial ratings . Maximum Reinsurance back to syndicates (100%) • Initial capital injection from Society of Lloyd's Timeline: Lloyd's © Lloyd's October 2017 Regulatory application submitted Q2 2018 Market onboarding Q4 2017 Company set-up July 2018 Operationally ready and regulatory authorisation received Q3 2018 Business processing March 2019 Live Trading UK exits EU 1 Jan 2019 9#10LLOYD'S Oversight © Lloyd's#11LLOYD'S Risk Appetite Framework Lloyd's has redeveloped the risk appetite framework Corporation purpose: L Board reporting dashboard = 13 key metrics Under our trusted name, the Corporation acts to create and maintain a competitive, innovative and secure market. Our dedicated people serve to protect and promote the interests of the market and its policyholders, provide valued services to market participants and advance the interests of Pillar: Sustainability Strategic, Group, Insurance, Credit Risk objective: Lloyd's strategy must deliver a sustainable business model over the medium term capital providers over the long term Pillar: Solvency Market, Liquidity Risk objective: Management of financial risks ensures that Lloyd's is not exposed to undue concentration and is able to withstand an extreme event & trade forward Pillar: Operational Reputation, Legal & Reg, Conduct Risk objective: Risk of operational and other events is managed to ensure Lloyd's maintains its strong reputation Underwriting profitability Syndicate capability Board level Tier 1 metrics Catastrophe exposure Reserve deterioration Reinsurance failure Attractiveness of Lloyd's Market Key Market oversight risk Corporation risk Central Fund investment Liquidity Delivery metrics Monitoring metrics Conduct Regulatory, legal & tax compliance Cyber (data protection and theft) Financial crime and sanctions Operational effectiveness 11 © Lloyd's#12LLOYD'S Performance Management - four priorities. Lloyd's Acquisition costs Operating expenses Market facilities Catastrophe cover 12#13© Lloyd's LLOYD'S Approach to business planning Entry = closing a performance gap High-level plan New timetable: staggered deadlines Direct presentations to CPG Pre HIM Post HIM Rate vs exposure changes 2013 actual 2014 actual 2015 actual Focus on combined ratio 2016 actual 2017 plan 2018 pre HIM plan 2018 post HIM plan 13#14LLOYD'S Capital © Lloyd's#15LLOYD'S Lloyd's capital base is diversifying in line with our strategy European Insurance Industry 2011 - 4.7% 2017 11.5% UK Insurance Industry' 2011 22.6% - 2017 - 13.0% Other Capital Sources: Private Capital 2011-12% 2017 - 10.2% Rest of World Insurance Industry 2011-5.5% 2017 - 9.8% Worldwide Non-Insurance 2011 -8.1% 2017 - 4.2% © Lloyd's Japan Insurance Industry 2011-5.5% 2017 13.7% Middle/Far East Insurance Industry 2011- 0.4% 2017-2.8% US Insurance Industry 2011-23.1% 2017-18.8% Bermuda Insurance Industry 2011 18.2% 2017 15.9% 15#16LLOYD'S Strong and Flexible Capital Structure: Lloyd's "Chain of Security" Claims/ Losses SEVERAL ASSETS FIRST LINK SECOND LINK SYNDICATE LEVEL ASSETS £52,983m All premiums received by a syndicate are held in its premium trust funds and are the first resource for paying policyholder claims from that syndicate. MEMBERS FUNDS AT LLOYD'S (FAL) £22,291m Each member provides Capital to support its underwriting at Lloyd's. Each managing agent produces its own capital assessment in respect of each managed syndicate stating how much capital it considers is needed to cover its underlying business risks with a 99.5% confidence level. £83m CALLABLE LAYER (≤3%) 2 £875m MUTUAL ASSETS THIRD LINK CENTRAL FUND £2,030m CORPORATION NET ASSETS¹ SUBORDINATED DEBT/ SECURITIES £792m The central assets are available at the discretion of the Council of Lloyd's to meet any valid claim that cannot be met by the resources of any member. It is funded by members' annual contributions and subordinated debt issued by the Society in 2014 and 2017. 1) Corporation net assets: Corporation Reserves, Associates Reserve, Revaluation Reserve, Translation Reserve; 2) Callable layer: Central Fund assets may be supplemented by a 'callable layer' of up to 3% of members' overall premium limits in any one calendar year. These funds would be drawn from premium trust funds. Source: Lloyd's pro forma financial statements, 30 June 2017 3 16 2 1#17LLOYD'S Balance sheet December 2014 - HY 2017 Balance sheet £m December 2014 December 2015 December 2016 June 2017 Cash and investments Reinsurers' share of unearned premiums Reinsurers' share of claims outstanding Other assets 54,889 56,900 67,646 65,941 1,976 2,368 3,110 4,422 8,785 8,610 11,310 11,963 14,063 15,751 19,536 23,122 Total assets Gross unearned premiums Gross claims outstanding Other liabilities 79,713 83,629 101,602 105,448 (12,652) (13,723) (16,548) (19,212) (38,134) (38,833) (47,747) (47,373) (5,514) (5,975) (8,710) (10,884) Net resources 23,413 25,098 28,597 27,979 Member assets 20,835 22,453 25,718 25,074 Central assets¹ 2,578 2,645 2,879 2,905 Source: Lloyd's pro forma financial statements, 30 June 2017. ¹Central assets are the net assets of the Society including the Central Fund, excluding subordinated debt liabilities and the callable 17 layer.#18LLOYD'S Lloyd's financial strength ratings are strong Ratings Insurer financial strength (IFS) Subordinated debt rating A- Key strengths quoted by the rating agency A.M. Best Affirmed July 2017 Stable outlook Standard & Poor's Fitch Ratings A+ Affirmed October 2017 Negative outlook (Strong) AA- (Very strong) Affirmed October 2017 Negative outlook A (Excellent) A- a- • • Very strong competitive position with wide geographic and product coverage Very strong capital and earnings and strong financial flexibility Strong risk controls, risk culture and risk management Very strong business profile and strong market performance . Strong and stable risk-adjusted capitalisation Strong and well structured risk management framework Strong member and central capital • Good financial flexibility Strong underwriting performance Excellent business profile IFS Ratings AA- A+ A A- 2011 2012 2013 2014 2015 2016 2017 --0------0------OOOO -0--- Fitch S&P AM Best BBB+ Source: S&P Research update October 2017, S&P Full Rating Report September 2017, Fitch Ratings Press Release October 2017, Fitch Ratings Full Rating Report July 2017, A.M. Best press release July 2017, Best's Rating of Lloyd's 2017, September 2017 18#19LLOYD'S Debt Profile Nominal value (£m) 500 400 300 200 100 Lloyd's Tier 2 subordinated debt outstanding 2017 2018 2019 N.B.: Chart shows bonds at the earlier of maturity and first call date 500 300 2020 2021 2022 2023 2024 2025 2026 2027 Issue Date Issuer Status Bond Rating (S&P/Fitch) Currency Amount Issued (£m) Amount Outstanding (£m) Coupon (%) First Call Date Maturity Date 07 Feb '17 Society of Lloyd's Tier 2 A-/A- GBP 300 300 4.875 07 Feb '27 07 Feb '47 Society of 30 Oct '14 Tier 2 A-/A- GBP 500 500 4.750 N/A 30 Oct '24 Lloyd's © Lloyd's 19#20Central assets LLOYD'S Capital setting is based on a sophisticated understanding of risks and market conditions Members' assets Syndicate SCRs1 (to ultimate) submitted to Lloyd's Syndicates' assessments and modelling of underlying risks Syndicate SCRs (to ultimate) agreed Society review/discussion/ amendment RDS and EP2 returns Business Plans Other data 35% uplift applied to reach "Economic Capital" level desired Allocated to members Funds at Lloyd's (members' assets) Syndicate risk information input to Lloyd's Internal Model and other information regarding "risks" to Central Fund assessed Lloyd's SCR and Central Fund target established (central assets) Note: 1) SCR: Solvency Capital Requirement; 2) RDS: Realistic Disaster Scenario; EP: Exceedance Probability distributions 20 20#21LLOYD'S How does Lloyd's calculate and cover solvency? ■ Under Solvency II the Solvency Capital Requirement (SCR) must be calculated - Sufficient capital to cover a 1 in 200 year loss event for the entity over a one year time period Lloyd's calculates two SCRs SCR Scope of calculation Covers whole Lloyd's market Capital available to cover SCR Lloyd's Market Wide SCR (MWSCR) Lloyd's Central SCR (CSCR) Covers central risks only, in particular risk that members may not have enough capital to meet losses (and thus hit Central Fund) All capital held at Lloyd's including syndicate assets, member level capital and central capital Central capital - mainly the Central Fund Both the Lloyd's MWSCR and CSCR are calculated using Lloyd's Internal Model ■ Solvency also assessed at the member level Lloyd's 24 21#22LLOYD'S Lloyd's solvency position stable during 2016-17 Lloyd's MWSCR₁ (£m) 1 January 2016 31 December 2016 30 June 2017 14,150 17,200 16,750 0% 20% 40% 60% Lloyd's CSCR2 (£m) 1 January 2016 1,450 31 December 2016 1,600 30 June 2017 0% 1,558 50% 80% 100% SCR 146% 6,512 2,878 23,540 Eligible assets in excess of the SCR ■Ineligible assets 144% 7,564 1,932 26,696 147% 7,800 120% 140% 1,960 26,510 160% 180% Solvency cover ratio % (risk appetite: 125%) 100% ■Eligible assets in excess of the SCR ■Ineligible assets ■SCR 1,712 218% 3,162 1,833 215% 3,433 1,728 211% 144 3,430 150% 200% 250% Solvency cover ratio % (risk appetite: 200%) Source: Lloyd's Internal Model. Data represents the position from the unaudited solvency returns, which may differ from the final audited submissions. 1MWSCR: Market Wide SCR, calculated to cover all of the risks of 'the association of underwriters known as Lloyd's; 2CSCR: Central SCR, calculated in respect only of the risks facing the Society and the Central Fund. After allowing for ring fenced funds and distributable profits. 22#23Major claims < 5% of industry wide insured cat losses (to June) LLOYD'S USD bn 140 120 100 80 60 60 40 40 Industry wide insured catastrophe losses 20 20 GBP bn 6 5 4 3 2 1 Lloyd's major claims¹ 23 0 0 T 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 Note: 1) Indexed for inflation to 2016. Claims in other currencies translated at the exchange rate prevailing at the date of loss. Source: Swiss Re Sigma Report 2016, Lloyd's Annual Report 2016 & Lloyd's Interim Report 2017#24LLOYD'S Impact of natural catastrophes in H2 USD Billions Industry loss estimates Event Lloyd's net claims estimates Low range estimate High range estimate ■ Industry estimates still vary widely Significant industry losses Market-turning event? Earnings event? Capital event? It's not only Harvey, Irma and Maria Harvey 1.8 7.5 35 - Irma 2.1 32 55 Maria 0.9 15 40 Total 4.8 54.5 130 © Lloyd's 24#25LLOYD'S The impact from the Q3 hurricanes is spread across multiple syndicates and absorbed within capital held above the SCR Make-up of ECA for the market (including the 10 largest syndicates), showing the impact of HIM losses (£m) 1,400 18,000 1,200 1,000 800 600 400 200 16,000 -Original ECA HIM impact 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Synd A Synd B Synd C Synd D Synd E Synd F Synd G Synd H Synd I Synd J All other syndicates -SCR SCR 35% uplift to calculate ECA Amount of ECA impacted by HIM losses Source: SCR/ECA analysis and large loss QMA return submissions, 30 September 2017. ECA: Economic capital assessment. SCR: Solvency capital requirement. HIM: Harvey, 25 Irma and Maria#26LLOYD'S Return on capital - 2012 – HY 2017 Return on capital 2012 2013 2014 2015 2016 HY 2017 Pre-tax result (£bn) 2.8 3.2 3.0 2.1 2.1 1.2 Combined ratio 91.1% 86.8% 88.4% 90.0% 97.9% 96.9 Investment return 2.6% 1.6% 2.0% 0.7% 2.2% 1.5% Gross written premiums 25.2 25.6 25.3 26.7 29.9 18.9 (£bn) Net resources¹ (£bn) 20.2 21.1 23.4 25.1 28.6 28.0 Pre-tax ROC 14.8% 16.2% 14.1% 9.1% 8.1% 8.9% Source: Lloyd's pro forma financial statements, 30 June 2017. 'Net resources: capital, reserves & subordinated loan notes and securities. 26#27LLOYD'S ILS Opportunity (?) © Lloyd's#28LLOYD'S Current Lloyd's capital structure Reminder © Lloyd's - Central Fund (Discretionary) – Use requires cessation of Lloyd's underwriting SCR(U) as ECU: +35% SCR(U): 100% (Graphic represents the notional syndicate level stack) 28#29LLOYD'S Where would an ILS sit in Lloyd's capital structure? © Lloyd's Central Fund (Discretionary) SCR(U) as ECU: +35% SCR(U): 100% Potential ILS layers? (Graphic represents the notional syndicate level stack) 29#30LLOYD'S Insurance Risk dominates Lloyd's SCR Additional Central Fund risk 2% RI credit risk. Lloyd's 5% Market risk 2% Reserving risk 22% 2017 SCR Operational risk 2% Catastrophe risk 30% Non-Cat Premium risk 37% Insurance risk 89% of total 30 50#31LLOYD'S Lloyd's solvency Q2 2017; current Central Assets Central solvency ratio Tier 1 Tier 2 Tier 3 Total £m £m £m £m Society assets: Subordinated debt (valued at fair value)1 888 888 Deferred tax 35 35 Balance of net assets (net of Lloyd's China provision) 1,827 1,827 Callable layer (available at the 1:200 year stress level) 680 680 Total central own funds available to meet the central SCR 2,507 888 35 3,430 1,558 109 35 144 3,286 Lloyd's central SCR 'Excess' central own funds not eligible to meet central SCR Total central own funds eligible to meet the central SCR (Tier 2 and 3 assets can only cover up to 50% of central SCR) 2,507 779 Lloyd's central solvency ratio (1) The 2014 and 2017 dated debt is Tier 2 211% 31#32LLOYD'S Historical experience shows cash requirements lag declaration of losses to Central Fund... £m 1,600 1,400 1,200 1,000 800 600 400 200 Improved £578m 0 T 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Paid Forecast drawdowns Source: Central Fund Accounts Dec 10 / Central Fund Modelling System 32 32#33© Lloyd's LLOYD'S ... and recent experience has minimal Central Fund losses Net losses to Central Fund (£m) 0 -5 5 15 10 25 20 GN All relates to 2007 & prior. No new hits 2008 to date Nil Nil -10 2011 2012 2013 2014 2015 2016 2017 33#34LLOYD'S Some rebuttable assumptions... © Lloyd's Central Fund solvency coverage meets risk appetite and supports the target Ratings Central Fund exposure / concern is insurance risk... ...and is split roughly equally across natural catastrophe, other premium risk and reserve risk Tier 2 allowance is maxed out Restricted Tier 1 debt issue an option... ...to weigh against an ILS issue Gearing and coupon / premium cover not a concern 34#35© Lloyd's LLOYD'S Key considerations for supplementing Central Assets Cash v solvency Post loss adequacy - second loss response? ☐ Actual hit to CF or to benefit of members who trade forward? Cat cover only or all insurance risks? Multi year...run-off / collateral retention? 35 55#36LLOYD'S