Guy Carpenter Publishes Its Fifth Annual Review of the Lloyd’s Market

LONDON — September 10, 2007 — Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and a part of the Marsh & McLennan Companies (NYSE: MMC), today announced the publication of The Lloyd’s Market in 2007, its fifth annual review of Lloyd’s financial and operational performance. With record results reported for 2006 and underwriting capacity at an all-time high, the report finds Lloyd’s in an increasingly strong competitive position, as recognized in recent rating upgrades to “A+” from both Standard & Poor’s and Fitch.

“In 2006, leading players demonstrated once again that it is possible to achieve outstanding returns on equity at Lloyd’s, which is crucial to the continuing strength of the market,” said Nick Frankland, Chief Executive Officer, Guy Carpenter & Co. Ltd. in the UK. “In addition, the significant strengthening of the balance sheet over the last five years provides a good platform for the future.”

The author of the report, Mike Van Slooten, Senior Vice President, added, “Substantial mitigation of legacy issues has resulted in a reappraisal of the market’s competitive advantages, with the result that new investors are being attracted to the platform. Lloyd’s focused efforts to reduce the cost of mutuality, widen access to the market and improve service standards can only be to the benefit of policyholders.”

Among the report’s other major findings:

  • Record Results: Driven by rising rates on U.S. catastrophe-exposed business, favorable claims experience and improved returns on investment, Lloyd’s reported a pre-tax profit of GBP 3.7bn for 2006 – a 31 percent return on capital employed.
  • Reduced Uncertainty: The shadow of Equitas has been lifted with the completion of the first phase of the Berkshire Hathaway transaction.
  • Capacity: Underwriting capacity increased by 8.9 percent to GBP 16.1bn for 2007, with six new start-ups since contributing a further GBP 217m. Investor interest remains strong, driven by Lloyd’s wide access to business and strong ratings.
  • Balance Sheet Strength: Reinsurance recoverables have reduced by a third, with no collection issues reported on the 2005 hurricanes. Net resources (defined as total assets less policyholder and other liabilities) have increased by 21 percent to GBP 13.3bn.
  • Reduced Central Charges: The issuance of GBP 500m of debt in June 2007 has allowed syndicate loans to be repaid and discontinued and will facilitate an expected halving of the Central Fund contribution rate for 2008.
  • Improvements in Client Service: Business process reform has significantly improved controls over placement and is continuing to improve the control environment for claims and accounting and settlement.
  • Market Access: Lloyd’s continues to focus on enhancing local distribution platforms in emerging markets and streamlining the broker accreditation and cover-holder approval process.
  • Catastrophe Exposure: Lloyd’s reports that, based on its Realistic Disaster Scenario output, U.S. windstorm exposure has been reduced by one third since 2005.
  • Cycle Management: The Franchise Performance Directorate is expected to be successful in limiting the downside of underwriting in softening market conditions.

“The primary threat to Lloyd’s remains the possibility of a marked downturn in the insurance cycle,” added Mr. Frankland. “In the absence of a major loss, we expect underwriting conditions to become difficult in most classes as we move into 2008, presenting a significant challenge to the Lloyd’s franchise model. We are already seeing leading players returning capital to shareholders and proposing sizable capacity cuts for next year, but it remains to be seen whether the same degree of discipline will extend across the broader market. There is no room for complacency if Lloyd’s is to emerge in a position to fully capitalize on the next upswing.”

A full copy of the report is available for download at www.guycarp.com.

Guy Carpenter & Company, LLC is the world’s leading risk and reinsurance specialist and a part of the Marsh & McLennan Companies. Guy Carpenter creates and executes reinsurance and risk management solutions for clients worldwide through 2,600 professionals across the globe. The firm’s full breadth of services includes 16 centers of excellence in Accident & Health, Agriculture, Alternative Risk Transfer, Environmental, General Casualty, Investment Banking*, Life & Annuity, Marine & Energy, Professional Liability, Program Manager Solutions, Property, Retrocessional, Structured Risk, Surety, Terror Risk, and Workers Compensation. In addition, Guy Carpenter’s Instrat(R) unit utilizes industry-leading quantitative skills and modeling tools that optimize the reinsurance decision-making process and help make the firm’s clients more successful. Guy Carpenter’s website address is www.guycarp.com.

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