2014 Auction Report Auction Three – 14th/15th October 2014

Highlights

• Average prices fell again by 3% to a low for the year

• Many lower valued syndicates bucked the trend

• Highest valued syndicates saw the biggest falls

• Nine syndicates rose in price – of which seven recorded their highest price of the year

• Twelve syndicates fell in price – of which eleven recorded their lowest price of the

year

• For the first time ever, the total volume of capacity traded in an auction fell below

£20m

Auction Three – an overview

Trends established in the first two auctions continued in Auction Three.

The gap between the highest and lowest valued syndicates has continued to close.

For example, in 2013 Hiscox 33 traded at 25 times the price of Argenta 2121. In 2014,

the gap has closed to just over a multiple of five, which still seems extreme, but it appears

that members are being more rational in their pricing.

In general, the lowest valued syndicates have shown the greatest gains this year. Apollo

1969 is up 86% on 2013; Argenta 2121 up 215% and Canopius 958 up 66%.

Meanwhile, the high price syndicates have either marked time (Hiscox 33 is down 1% on

2013 averages, Cathedral 2010 up 1%) or lost value. Reductions in value include Kiln

510 at 21%, MAP 2791 (20%), QBE 386 (32%) and Atrium 609 (18%).

Of the larger composites, only Beazley 623 has bucked this trend, up 19% in the year. In

part, this was due to the sale of one very large portfolio, with more than £20m of total

capacity, which had large lines on Syndicates 33, 510, 609, 2010 and 2791, but no share

on Syndicate 623.

Volumes hit a new low, with this auction being the first in which less than £20m was

traded, beating the low water mark set by Auction Two this year, which in turn had

lowered the mark set in Auction Three last year. Ever decreasing liquidity continues to be

an issue.

Argenta Private Capital Ltd

Fountain House

130 Fenchurch Street

London EC3M 5DJ

www.argentaplc.com

2

As we said in our Auction Two Bulletin, sellers need to decide how serious they are by Auction Three. In particular, we

drew attention to a block of £3m of QBE 386 which had been tendered unsuccessfully at 90p in Auctions One and Two.

This capacity did not reappear.

In order to maximise sale prospects, sellers often tender their capacity at the lowest possible price (currently 0.01p). In this

auction, more than two-thirds of the capacity for sale was tendered at less than 1p.

There were blocks of capacity left unsold and these included: £485,000 of Hiscox 33 (at prices in excess of 54p); £415,000

of Kiln 510 at 22p and more; £729,000 of MAP 2791 at 45p and up; £374,000 of Atrium 609 at 42p and more; and

£330,000 of Beazley 623 at prices in excess of 58p.

There was no unsold capacity on ERS 218, Beaufort 318, Meacock 727, Canopius 958, Chaucer (Nuclear) 1176,

Argenta 2121, Asta 2525 or ANV 5820.

Members failed to move on their capacity, even when tendered at 0.01p, on Kiln 557 (with £3.6m left unsold) and R&Q

1991 (£5.6m unsold).

The most notable aligned trade was ERS’s purchase of Syndicate 218. ERS had been outbid at 2p in Auction One, so

upped its bid to 4p for Auction Two. It bid for £30m at 4p on day one of Auction Three but increased this to 6p on day two,

jumping a queue of more than £2m of third party capacity. ERS ended the season with £3.4m out of the £8.8m traded.

Canopius employed similar tactics on Syndicate 958, adding new bids for £500,000 at 17.99p, 18.99p and 19.99p on day

two to an existing bid at 16.99p. Canopius had less success than ERS, as only the highest bid was matched, securing

£410,000 of the £1.3m traded.

Amtrust picked up another £10,000 on Syndicate 2526, but an offer to sell at 6p remained unsold.

The only other non-Members’ Agency trades were spread vehicle Athanor (which swapped £389,000 of Canopius 958 for

£155,000 of Atrium 609) and Meacock Underwriting, which added another £100,000 of Syndicate 727. Separately, 727’s

underwriter, Michael Meacock, bought capacity on Syndicates 386, 510 and 609.

Last year, Chris Hitchings (then of financial services company KBW and since retired) published research showing how the

auction prices were broadly supported by the valuation of the various listed insurers trading at Lloyd’s and that auction

price is analogous to the surplus of share price over net asset value. His analysis was more thorough than ours is here, but

there remains a strong correlation between these factors, in that the stock market ranks (by share price/book value) the

three managing agency groups with tradable syndicates in the same order as does the auction process. The three

managing agencies are shown in the table below: Beazley, Hiscox and Lancashire (which owns Cathedral).

Listed vehicle Share price (16/10/14)

Share price/Book

value

Main Syndicate at

Lloyd’s

Auction price

Amlin 425p 1.49 2001 n/a

Beazley 251p 1.93 623 61p

Brit 224p 1.35 2987 n/a

Catlin 497p 1.15 2003 n/a

Hiscox 626p 1.63 33 59p

Lancashire 620p 1.25 2010 49p

Novae 527p 1.15 2007 n/a

3

Auction Three – In Numbers

2014 Auction

One

2014 Auction

Two

2014 Auction

Three

2014 Auctions

One to Three

2013

Auctions One to Three

Capacity successfully traded £64.0m £25.9m £19.3m £109.2m £100.6m

Subscription (buy) orders £154.1m £127.9m £121.4m £403.4m £555.8m

Tender (sale) orders £77.0m £48.2m £31.6m £156.8m £133.0m

Bilateral trades 1 0 0 1 1

No. of syndicates traded 22 22 22 22 23

Average paid to acquire capacity 23.7p 34.9p 25.2p 26.6p 22.7p

Average of all Lloyd’s capacity 33.0p 30.9p 29.4p 31.2p 38.0p

Top Five Price Rises Auction

Two Price

Auction

Three Price

Price

Increase

5820 ANV Syndicates 0.03 0.07 140%

557 Kiln (Cat) 0.04 0.06 64%

218 ERS 4.03 6.07 51%

2121 Argenta 6.60 9.79 48%

318 Beaufort 13.56 15.87 17%

Top Five Price Falls Auction

Two Price

Auction

Three Price

Price

Reduction

1991 R&Q 0.07 0.02 -72%

1969 ANV (Apollo) 23.57 20.78 -12%

33 Hiscox 55.92 51.13 -9%

609 Atrium 44.65 41.08 -8%

386 QBE 69.00 64.12 -7%

Top Five Buyers

Syndicate Capacity Buyer

218 1,932,645 ERS Corporate Member Limited

510 1,000,000 Private NameCo

5820 1,000,000 Private NameCo

958 409,539 Flectat Ltd (Canopius aligned vehicle)

218 292,572 Individual member

Top Five Sellers

Syndicate Capacity Seller

510 850,000 Private LLP

958 389,384 Athanor Limited

1991 373,984 Private LLP

727 337,746 Individual member

557 333,317 Private LLP

4

Auction Four

A limited auction for capacity released by the death of a member on or after 1 September 2014 will be held on 11 and 12

November 2014. This auction will also include:

♦ disposals (including ‘trading’) of capacity in cases where the approved capacity of a syndicate for 2014 exceeds the

amount indicated in the Syndicate’s Business Forecast (SBF) (such disposals being limited to a member’s share of the

difference between the two amounts);

♦ transactions to which the Auction Official has given written consent in order to permit the correction of administrative

errors in previous auctions;

♦ transactions in capacity on syndicates where the indicative capital ratio for the syndicate (as output by the Risk Based

Capital modelling software, adjusted for syndicate Individual Capital Assessment (ICA) submissions) has increased by

10% or more between 16 September and 24 October 2014;

♦ transactions in capacity on a syndicate where a connected corporate member to a managing agent has entered into a

bilateral arrangement in the immediately preceding auction involving capacity on that syndicate; and

♦ transactions in capacity on syndicates where, after 16 September 2014, there has been a material change in the

syndicate’s 2015 business plan, that is:

o a change in the active underwriter; or

o the introduction of a new class of business; or

o an increase in the ultimate loss ratio; or

o a change in utilisation (where utilisation is the ratio of a syndicate’s gross premiums written to its capacity); or

o an increase or decrease in business from any one source; or

o in any other circumstance where the Auction Official confirms that in his view there has been a material change

to a syndicate’s business plan.

Subject to Lloyd’s final approval of syndicates’ business plans by 24th October, the Auction Official is expected to

announce on 5th November details of those syndicates which will be admitted to Auction Four. As noted in our pre-Auction

Three (no. 2) Lloyd’s Market Disclosures, we have made representations to Lloyd’s Auction Official that that, for the reasons

given in that bulletin, capacity on ERS Syndicate 218 be eligible for trading in Auction Four.

Bilateral arrangements will not be permitted to be entered in the fourth auction.

Capacity levels traded in Auction Four are based upon de-emptions and pre-emptions approved by Lloyd’s Capital

Planning Group. This means that a member who wishes to secure a £10,000 line on a syndicate where a 10% pre-emption

has been approved should subscribe for £10,000 but a member with a £10,000 line wishing to dispose of his entire share

must tender £11,000. This is the opposite of the procedure during Auctions One, Two and Three, in which members

subscribe and tender for capacity before any pre-emption or de-emption is applied.

2

Auction Three Summary

Notes: 1 2013 auction price adjusted for any de-emptions or pre-emptions applied for the 2014 year of account. 2 2014 auction price adjusted for any de-emptions or pre-emptions proposed for the 2015 year of account. 3 Includes £9,081,844 transferred by way of a bilateral transaction.

Syndicate Managing

Agent

Unadjusted

Average

2013

p/£1

Adjusted

Average

2013

p/£11

Proposed

Pre/(De)

-emption

Aligned

Capacity

Auction

One

Price

p/£1

Auction

One

Volume

(£000s)

Auctio

n Two

Price

p/£1

Auction

Two

Volume

(£000s)

Auction

Three

Price

p/£1

Auction

Three

Volume

(£000s)

Unadjusted

Average

2014

p/£1

Adjusted

Average

2014

p/£12

Total

Volume

(£000s)

33 Hiscox 62.2 59.1 72.53% 62.0 4,479 55.9 2,891 51.13 818 58.79 58.79 8,188

218 ERS 0.8 0.8 (20.0%) 67.49% 2.9 4,786 4.0 1,586 6.07 2,459 4.01 5.01 8,830

308 RJ Kiln 20.8 17.3 52.08% 22.3 475 22.0 236 21.37 61 22.13 22.13 772

318 Beaufort 10.9 10.9 91.20% 11.5 331 13.6 129 15.87 124 12.88 12.88 583

386 QBE 104.2 104.2 (14.6%) 69.59% 78.0 1,298 69.0 1,470 64.12 1,009 70.79 82.93 3,777

510 RJ Kiln 28.3 28.3 55.76% 24.1 7,595 19.9 4,178 21.57 3,873 22.36 22.36 15,646

557 RJ Kiln 0.3 0.3 0.00% 0.2 441 0.0 202 0.06 527 0.09 0.09 1,170

609 Atrium 57.2 57.2 25.92% 51.1 4,664 44.7 3,647 41.08 1,664 47.07 47.07 9,974

623 Beazley 55.5 51.4 (6.8%) 83.16% 61.4 2,401 62.0 1,755 58.00 873 61.03 65.48 5,029

727 Meacock 56.6 56.6 23.76% 56.2 828 60.0 574 55.91 470 57.30 57.30 1,873

779 ANV 0.1 0.1 32.40% 5.2 62 9.3 204 9.15 212 8.69 8.69 478

958 Canopius 7.4 9.3 5.7% 62.63% 10.8 1,968 18.0 1,040 20.16 1,320 15.38 14.55 4,328

1176 Chaucer 173.1 173.1 56.95% 184.3 185 197.7 23 190.19 30 186.35 186.35 238

1200 Argo 10.8 10.8 86.15% 15.1 295 17.1 76 17.14 87 15.85 15.85 458

1969 ANV 14.9 11.7 14.3% 22.11% 20.9 845 23.6 561 20.78 355 21.74 19.03 1,761

2010 Cathedral 48.1 48.1 (12.5%) 43.16% 48.9 1,214 48.8 839 0.02 374 0.15 0.15 3,894

1991 R&Q 0.7 0.4 57.80% 0.3 1,380 0.1 2,140 48.21 681 48.70 55.65 2,734

2121 Argenta 2.5 2.1 53.59% 5.0 1,316 6.6 940 9.79 660 6.58 6.58 2,916

2525 Asta 37.7 37.7 <25% 60.6 258 76.8 186 80.54 128 70.32 70.32 572

2526 Asta 2.8 2.6 98.72% 3.0 24,1313 3.0 204 3.00 10 3.00 3.00 24,345

2791 MAP 56.5 64.2 (11.7%) 24.26% 55.3 4,718 46.3 2,898 44.93 890 51.14 57.94 8,506

5820 ANV 0.1 0.0 51.10% 0.1 335 0.0 79 0.07 2,707 0.07 0.07 3,121

2

Connected Party Trades

The table below shows Auction One transactions that were successfully entered into by Members with Argenta Private

Capital (APCL) connected person status.

Syndicate Type Capacity Member Status

0033 Subscription 20,000 Forest Becks Limited Director / Manager1

0318 Subscription 36,883 Bergesen Underwriting Limited Director / Manager1

0318 Subscription 35,000 Forest Becks Limited Director / Manager1

0510 Tender 61,493 Sumac Underwriting (UK) Ltd Director / Manager2

0609 Tender 32,123 Sumac Underwriting (UK) Ltd Director / Manager2

0609 Subscription 15,000 Forest Becks Limited Director / Manager1

0727 Tender 50,010 Sumac Underwriting (UK) Ltd Director / Manager2

0727 Tender 30,000 Aardvark Underwriting Ltd Director / Manager3

0958 Tender 13,546 Sumac Underwriting (UK) Ltd Director / Manager2

0958 Subscription 26,486 Forest Becks Limited Director / Manager1

1969 Subscription 30,000 Bergesen Underwriting Limited Director / Manager1

1991 Subscription 200,000 Silver Lining 55 Limited Director / Manager4

1991 Subscription 50,000 Bergesen Underwriting Limited Director / Manager1

2010 Tender 38,877 Sumac Underwriting (UK) Ltd Director / Manager2

2010 Subscription 22,858 Forest Becks Limited Director / Manager1

2121 Subscription 50,000 Bergesen Underwriting Limited Director / Manager1

2121 Subscription 15,000 AMS Consultants Underwriting Limited Director / Manager (Consultant)

Notes

1 David Reames (an executive director at APCL), along with Argenta Corporate Directors Nos. 1 and 2 (wholly owned

subsidiaries of APCL) are directors of these corporate members.

2 Graham White (executive Chairman of APCL and non-executive director of Argenta Holdings plc and Argenta Syndicate

Management Limited) is a director of this corporate member.

3 Tony Harris (Harris Family Utg Ltd) and David Newton (Aardvark Underwriting Ltd) are respectively the Chief Executive

and Chairman of the Newton Follis Partnership, a third part adviser to certain APCL clients.

4 Mr Guy Heald (a non-executive director of APCL) is a director of this corporate member, which is owned by his wife (55%)

and daughter (45%).

A further disclosure concerning the intentions of the actively underwriting APCL Directors and Client Directors will be issued

following the allocation of available capacity on the Special Purpose Syndicates (a separate Bulletin on which will be sent

shortly) and the finalisation of CIL for 2015.

This Auction Report is issued for general information purpose only and should not be construed as investment advice.

Whilst all reasonable care has been taken to ensure that the information contained in this document is accurate at the time

of publication, Argenta Insurance Research Limited does not make any representations as to the accuracy or completeness

of such information. Argenta Insurance Research Limited is a wholly owned subsidiary of Argenta Private Capital Limited

which is regulated and authorized by the Financial Conduct Authority.