BMS Pathlight Analytics – 1121-02

Pathlight Analytics TM

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Overview BMS has actuarial, catastrophe analytics, and capital management experts that all use best-in-class tools and methodologies. We employ relevant catastrophe models, have a proprietary exposure management platform that can be customized for each client, and access all the pertinent loss data and industry information databases. However, we know that access to tools and data alone is not enough. BMS distinguishes between solutions and tools. Rather than lead with tools, we start with your goals and deliver actionable intelligence that empowers you to make informed decisions. In 2021, BMS launched Pathlight Analytics TM . It is not a tool, rather, it is a platform upon which all our analytics capabilities sit. We harness the collective power of our analytics disciplines to help you address your unique objectives. The role of analytics is to help you understand and determine the optimal path forward, hence the name: Pathlight Analytics TM .

Our focus is on answers for your challenges, not just output.

Every organization has unique challenges, and deserves equally thoughtful solutions.

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“Achieving the best outcome for our clients starts with the right team, the right framework, and clear communication.” Kirk Conrad, Global Head of Analytics, BMS

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Analytics Organized Around Your Challenges

Rather than organize our capabilities based on specific disciplines or tools, we took a different approach centered on our clients. The ability to produce meaningful solutions requires multiple disciplines/specialists working together, a thorough understanding of your specific challenges, and the ability to customize your analyses (rather than shoehorning data into a tool). It is in this way that Pathlight Analytics TM breaks the industry mold. In order to clearly convey the value of Pathlight Analytics TM , we divided our capabilities into four key areas, each representing a different set of client challenges.

The most efficient structure to protect your capital.

Leverage data to improve results.

Everything you need to know, when you need to know it.

Increase your ability to achieve targets.

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Case Study BMS provided solutions to a regional carrier client that had a desire to expand operations and had access to additional capital and a wholly owned MGA that can write on 3 rd party balance sheets. Below outlines how we addressed each of their unique concerns:

Protect Unique concern: flexibility and timing risk of cash flows

Designed reinsurance program: cash flow enhancement with premiums paid in arrears, stackable layers to add coverage as they grow, auto-acceptance of new divisions. Improve Unique concern: adverse terms due to loss picks based on historical results Mined historical data for new unit with challenged results, then overlaid underwriting, coverage and rate changes independently to highlight pathway to target profitability. Grow Unique concern: actual results versus projected and channel conflict Created framework for evaluating new opportunities, including scalability and projected long-term results based on historical market cycles. Inform Unique concern: inexperience responding to hurricane events Client received continual forecast and loss estimates from BMS, enabling them to mobilize claims response unit and report loss estimates internally.

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Protect Reinsurance is just one piece of your capital management plan. A reinsurance strategy should never be designed in a vacuum. We must understand how much capital your business requires, your long term goals and your net risk appetite. Even then, reinsurance is not always the answer and certainly isn’t the only answer - there are many capital levers that we can pull. We consider the following three items when helping clients manage and preserve their capital: Balance Sheet ظ Current capital position and any upcoming impacting events (e.g. expiring debt) ظ Gross capital at risk and gross volatility (sources and magnitude of downside risk) ظ Required capital from regulatory and rating agency perspective 1

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Core Reinsurance Structure ظ Key effectiveness metrics ظ Comparison to any other considered structures ظ Net position in relation to capital position Around-the-Edges Transactions ظ Legacy Transactions ظ Discretionary reinsurance protections (such as: loss pick arbitrage, structured aggregate for frequency tail risk, and sleep at night covers)

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Structure Comparison Measure and compare the

effectiveness of reinsurance strategies using your key performance indicators and change in capital at risk. Our analysis is completely customizable and returns the information most important to you.

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Long-Term Capital Planning

Protecting and optimizing capital requires a bi-lingual team in capital instruments and reinsurance. We create custom analyses for clients to directly compare the cost/benefit of reinsurance with other forms of capital . Analyses like these are only possible when members from every discipline work together to inform the loss picks and reinsurance/debt terms. In this example, we compared quota share reinsurance and debt issuance options over a 5-year period.

Options: Current = 10% quota share 1 = Quota Share of 35% 2 = Debt issuance of $60 million at 9%

3 = Combination of 20% quota share and issuance of $36 million debt at 9% 4 = Decrease 35% quota share to 30% in year 3 and to 20% in years 4 and 5

BCAR at Var 99.6 Earnings Net Income (M Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4

Current Option 1 Option 2 Option 3 Option 4

16.5% 19.7% 26.1% 35.0% 39.7% $9.8

$33.7

$44.9

$57.7

34.2% 32.5% 34.1% 39.4% 42.1% $(0.8)

$16.8

$24.3

$33.8

34.2% 34.0% 36.6% 42.3% 45.1% $6.0

$31.1

$42.2

$54.9

34.2% 33.5% 35.8% 41.5% 44.2% $3.3

$25.4

$35.0

$46.4

34.2% 32.5% 31.6% 34.5% 40.4% $(0.8)

$16.8

$27.6

$48.1

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Observations:

Future growth plans already put pressure on BCAR in year 1 necessitating a change in capital strategy. Options 2 and 3 afford the most long term growth in surplus (less ceded margin over time).

The larger QS cession options have a detrimental impact on profitability.

BCAR

Earnings

Options Current and 4 afford the highest ROE.

Surplus

ROE

Surplus (M) ROE Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 $67.0 $184.1 $217.8 $262.7 $320.4 $387.3 5.5% 16.8% 18.7% 19.8% 18.9% $40.3 $169.2 $186.0 $210.3 $244.1 $284.4 -0.5% 9.5% 12.3% 14.9% 15.3% $64.1 $236.4 $267.5 $309.6 $364.5 $428.6 2.9% 12.3% 14.6% 16.3% 16.2% $54.6 $209.5 $234.9 $269.9 $316.4 $371.0 1.7% 11.4% 13.9% 15.8% 15.9% $63.7 $169.2 $186.0 $213.6 $261.7 $325.4 -0.5% 9.5% 13.8% 20.2% 21.7% In this specif ic case, our client’s current capital level was not suff icient to support their f ive-year strategic plan. Their key objectives were to protect their stressed BCAR and minimize volatility. Options 2 and 3 performed best long term, but 2 came with a larger debt facility than the client was willing to entertain. For this reason, the blended QS/debt option (3) was their selection. Answers Not Output Capital is a critical part of any strategic plan. We provide clients with the intelligence they need to compare all available options and make an informed decision.

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Understanding Your Downside Risk Our industry suffers from information overload. Advancements in the access of data, increased model sophistication, and the sheer number of f irms focused on understanding your loss potential from natural perils can be overwhelming and lead you to question how best to quantify your downside risk. We solve this problem for you by staying educated on catastrophe science and recommending which view(s) of risk are most appropriate for your unique exposure prof ile.

Probable Maximum Loss by Return Period (000s)

For perils like hurricane and earthquake, commercial models are generally the best starting point for understanding your downside risk. But models often have divergent views by territory and type of business. Further, you can achieve drastically different results within a single model depending on which settings you select. We help you understand these differences and guide you to develop your internal view of risk.

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Rationalizing Loss Potential Deterministic loss analyses are a powerful way to augment and stress test modeled losses. To facilitate this, we built scenario testing capabilities into our proprietary iVision platform.

Scenario Modeling ظ Create hypothetical event scenarios simply by drawing it on the map of your policy concentrations. ظ Run as-if analyses on large historical losses to measure impact of exposure change. ظ Overlay actual historical events which can be rotated around areas of concentrated risk. ظ Apply damageability factors to develop custom losses reflective of actual claims experience. Answers Not Output We are your guide for understanding and quantifying the threat that catastrophes pose to your profitability and capital.

Hypothetical Hurricane

Historical Tornado

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Improve

Small changes make the difference between winning and losing. Standard portfolio optimization tools show you a few policies that drive risk, they do not tell you how to make the small changes that matter. We are experts at understanding your business and providing solutions that makes impactful improvements to your bottom line.

Below are just two of the ways we help our clients improve results:

Common Concerns Analysis A series of “checks” against your portfolio and current reinsurance costs. Like a mechanic running through a 15 point inspection of your vehicle, our analysis identifies simple, generally small changes you can make immediately that save you money and/or improve your results. Examples include: ظ Data checks - decisions are being made based on your data, what if it is erroneous? ظ One or two accounts driving exposure to a per risk program - buying facultative coverage could lead to a larger reduction in total reinsurance spend. ظ Catastrophe modeling assumptions - are you coding everything correctly and applying sub-limits and deductibles properly?

Profitability Review In-depth investigation to break down your portfolio results. ظ Identify under-performing segments of business ظ Work hand-in-hand with you to hypothesize reasons for under-performance ظ Create bespoke analyses to test hypotheses and create targeted solutions to improve results ظ Look beyond the class of business to identify common insured characteristics

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Policy Level Profit Creating a profit/loss metric for each policy is the starting point for investigating what the most and least profitable policies have in common. Typically we find that 80 to 90% of policies produce a healthy profit, while the remaining erode that profit.

See what we do next →

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Enhance Profitability

Your data is the key to improving results. Insurers are not experts at extracting actionable intelligence from data. Their attempts often result in paralysis by analysis, or worse, they hire consultants who rack up billable hours while they try to learn how insurance works. BMS takes a different approach. We developed methods for identifying which types of risks are prof itable and which are unprof itable. More importantly, we produce answers that lead to increased prof itability in the future, not just today.

Case Study Texas and Louisiana are difficult states to write homeowners (HO) business due to natural perils and the huge dichotomy of home types. To the right, we show excerpts of a profitability study we performed for a client on their Texas & LA HO book. Note that we looked at dozens of policy and coverage characteristics beyond what is shown here. The client used this information along with supporting actuarial work from BMS to revamp their rating plan and improve profitability.

Number of Stories

Below we show the profitability by county/parish. Our unique analysis revealed that the existing rating plan appeared adequate for HU but was underpricing SCS in Tier 2 and 3.

By cross referenc houses were losin

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After creating a profit/loss metric for each policy, we analyze insured and coverage characteristics to determine commonality, including:

Answers Not Output Typically our competitor’s output is comprised of a list of policies that appear unprof itable, with a suggestion that you non- renew them. Interesting, but not particularly insightful, because the next year, a new list of policies crop up because you did not change anything, you just non-renewed a “faceless” list of policies. What we provide is a face for these policies by taking the extra step of identifying common attributes of policies that make and lose money for you. Once identif ied, these can be compared with your rating plan and we can stress test how subtle price changes could lead to large changes in overall prof itability. The goal of continual, long- term improvement can never be reached when you act without learning.

ظ Territory ظ Roof Type ظ Deductible ظ Distance to Coast ظ Occupancy ظ Square Footage ظ Construction ظ Policy Type

ظ TIV/Limit ظ Cat/Non-Cat Ratios ظ Year Built ظ Agent Group ظ Business Unit ظ Number of Stories ظ Premium Size ظ Protection Class

Square Footage

cing the two variables above it became clear that smaller ng money while larger houses appeared more profitable.

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Common Concerns Analysis

Medical doctors extensively share information, so even if working for unrelated f irms they can consult on a diagnosis. Competition between insurers prevents this style of learning from other f irm’s experiences. Therefore, insurers with similar challenges are forced to f igure out optimal solutions on their own. As reinsurance brokers we have worked with hundreds of insurers and track issues and effective solutions. Client’s leverage this experience through our Common Concerns Analysis.

Case Study - Reinstatement Terms

5% chance of > 1 loss 0.5% chance of >2 losses

Solution: Performed an actuarial analysis measuring the probability of needing a 3 rd limit versus the additional reinsurance cost. Result: Client purchased 1 reinstatement and saved $750k in reinsurance costs. Issue: For this new client we identif ied a 2 nd reinstatement on a per risk layer that warranted further review.

80% chance of no loss

Deposit Premium

Reinstatement

Probability of No Recoveries Probability of 1 Limit Used Probability of 2 Limits Used 1 @ 100% 2,625,000 2 @ 100% 3,375,000 Difference 750,000

Answers Not Output Whenever we review our analysis with new clients we always f ind areas to improve. Typically we produce a list of items that would benef it from further investigation. Once we run our tailored analyses for your specif ic circumstances, we draw upon our past experience to help solve these items and design solutions best f it for your company.

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Examples from Our Analysis Change Impact - Your reinsurance cost depends on how your future results are perceived. • Adjusting rate change for exposure and deductible changes • Creating an as-if loss analysis to account for changes in guidelines • Modifying industry data to reflect your specif ic strategy Data Integrity - Sound decisions require an accurate picture. • Overstate auto exposure by repeating 6 month policies on a bordereau • Inconsistent coding of percentage and dollar deductibles • Lack of referencing underlying policy for supported excess/umbrella Facultative Reinsurance - Fac is a powerful tool for improving results, but requires a well thought-out plan. • Cost/benef it of treaty versus facultative for upper layers • Underuse of fac to effectively compete on risks larger than treaty capacity • Huge administrative burden due to lack of a coordinated strategy Per Risk Structure Review - Structure decisions should be based on an analytics framework built for purpose.

• Ineffective use of an annual aggregate deductible • Retention inconsistent with risk tolerance • Reinstatement terms are not optimized or based on metrics

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Grow

There are many ways to grow your bottom line, and we know them all. Rather than just focusing on something that looks nice or “checks the box” for the latest insurance industry buzzword, we create a framework for evaluating opportunities using the metrics most important to you. We access the data sets we subscribe to, as well as publicly available information, to best understand the feasibility of your expansion plans. In addition, we have our own robust pipeline of program business and partnership opportunities.

We view the opportunities falling into three broad categories:

Your Core Business Expanding your current products into new states and territories. To evaluate, we perform: ظ Customer profitability profiling to cross reference with population profiles ظ Competitive landscape studies ظ Profitability analyses from annual statement data

Complimentary Business Access the robust BMS pipeline of MGA and other partnership opportunities. Such as: ظ Program business ظ Companion facilities ظ Additional lines of business ظ Reinsurance assumed

Fee Business Leverage your balance sheet to generate low-risk fee income. Including: ظ Pure insurance front ظ Fronting for ILS markets with retained tail risk ظ Hybrid fronting arrangements

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Partnership Evaluation Analysis To more efficiently evaluate whether a partnership opportunity makes sense, we start with qualitative questions so you can swiftly decline those that do not fit and instead focus your attention on the quantitative analysis of reasonable options.

Worst Fit

Best Fit

Confidence in Partner

Channel Conflict with Existing Producers

Correlation with Existing Portfolio

Reinsurance Impact

Economics

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Expanding with Intelligence

Growth is challenging. The knowledge gained by doing business in one state does not always transfer across the country. Every territory has it’s unique challenges. Catastrophe exposure, the legal climate, and competition are just a few that make expanding your business complicated and risky. To help you navigate these challenges, we developed methods to minimize the risks. Our process below includes a healthy mix of technical analysis, research and common sense. Analysis of Current Portfolio & Identification of Expansion Territories ظ Review competition, statutory results, and legal differences for expansion area ظ Actuarial analysis to identify which segments of your business outperform ظ Deep dive to identify the variables/traits that profitable business have in common 1

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Overlay Variables for Profitable Business Using Lifemodes ظ Access detailed demographics information through BMS partnership with ESRI ظ Use this data to make reasonable assumptions about the market size of the target business and specific geographic region within the expansion area Develop Business Plan for Review ظ Determine the size of your target market and the relevant producers ظ Stress test pricing assumptions through agents ظ Quantify catastrophe exposure in expansion area where applicable ظ Review capital requirements for expansion

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Answers Not Output Rather than being reactive to client requests for specif ic bits of intelligence, we partner with clients to develop a strategy. We provide data points to target your resources effectively and minimize the amount of trial and error required when expanding into new territories. Case Studies Regional Peril Risk

Loss Ratio Trends By Lifemode In this example we analyzed the client’s existing portfolio by Lifemode variable. The core business generally performs well but there are some pockets of business that were losing money and should be avoided. We used this information to identify regions with high concentrations of prof itable business for target growth.

In this example a Louisiana client was considering expansion into Texas but wanted to minimize exposure to hail. We quantif ied the hail exposure at a granular level to inform their roll out plan.

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Select Partnerships Partnering with a managing general agency ( MGA ) can be an effective way to grow your top and bottom line. Programmarket share and credibility are growing. Underwriting leaders who spent 20+ years at brick and mortar insurance companies are moving to the programmodel, creating bountiful oportunities to augment your portfolio by partnering with MGAs. Ultimately, one size does not fit all. T he key to successfully establishing long-term partnerships is the alignment of fina ncial interests. Our analytics team works with you to create the technical framework for evaluating opportunities and the ideal parameters of a complimentary portfolio.

We are a leader in the Programs space. Programs are a core segment of expertise for BMS Re. We specialize in developing strategies and delivering solutions to help our clients grow. Our dedicated team of experts provides innovative structures focused on securing primary capacity, reinsurance needs, analytics support, and beyond.

>$2 B of Program Business

Answers Not Output T he shotgun approach to fi nding capacity is not effective in today’s evolving marketplace. We take the time to understand the original business, how it impacts the economics on both sides, and fi nd the perfect portfolio to align fina ncial interests and create the best match.

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Case Study In this example, we introduced a client to a MGA with a $25 million portfolio. The MGA business was highly specialized, carried a lower loss pick than the client’s overall existing portfolio and was not correlated to any business they currently write. BMS provided guidance, analytics and reinsurance support at every step in the process. The end result was an increase in expected net income and a decrease in volatility. Notes 1. $5 million marginal cost to existing reinsurance programs 2. New program runs at a lower loss ratio than existing business 3. Equivalent expense ratios 4. Adds $1.7 million to expected underwriting income 5. Adds stability to results due to non-correlating revenue stream

6. 1.2 point improvement in expected combined ratio 7. Less than 2% change in 250 year downside risk

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Better information leads to better business decisions. In their personal lives, most people rely on a trusted source to distill news into a digestible feed, customized for their interests. Your business life should not be any different. We have a presence in all relevant market segments and industry trade groups. In addition, we track information about market behavior and have proprietary information feeds for our clients. As a client, you will benefit from the following three categories: Inform

Thought Leadership As trends emerge, we conduct and publish industry research to keep you informed on topics that are timely and critical to your business.

Client Intelligence On a continual basis, we share with you the latest updates on market quoting behavior, pricing achieved, current terms and conditions being asked for by markets, etc. and use this information when placing your program to ensure you get the best deal. Event Response Whether it is severe weather, an earthquake, or terrorism; when real events happen, it is essential that you are able to proactively manage your response. We ensure you have the information you need to make the right decisions.

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Intelligent Event Response Before an event: stay informed with our in-house meteorologist. ظ Receive advanced notification of pending hurricanes and severe weather ظ Access pre-landfall forecasts and data to make informed reinsurance decisions During a storm: use real-time data to assess exposure. ظ Overlay your policies with live weather feeds to estimate hail, wind, and rain impact ظ Inform your response with adjusters and claims management ظ Verify policy holders claiming damage on a certain day After an event: quickly know your policy impact. ظ Eliminate surprises with automated emails of policy impacts ظ Respond appropriately to an event with modeled loss estimates

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About Us

We are a leading, independent, international, specialist reinsurance and insurance broking group with significant employee ownership and backed by strategic investments from British Columbia Investment Management Corporation and Preservation Capital Partners. Established 40 years ago and headquartered in London, BMS has over 600 employees operating out of 26 offices around the world including the US, Canada, Bermuda, Latin America, Australia, Singapore, Hong Kong, and Spain. As a whole, BMS places over $2.9 billion in annual premium into our clients’ chosen markets. BMS is comprised of talented and respected professionals with extensive knowledge and expertise in the various disciplines needed to effectively serve our clients’. We have a proven ability to execute in reinsurance and capital markets worldwide.

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Contact Us

Kirk Conrad Global Head of Analytics T: +1 214.753.4244 M: +1 469.847.2134 kirk.conrad@bmsgroup.com

Scott Christian EVP - Catastrophe Analytics M: +1 404.401.6816 scott.christian@bmsgroup.com Nick Dranchak EVP - Capital Management T: +1 215.644.6707 M: +1 267.432.3922 nick.dranchak@bmsgroup.com

Kurt Johnson Chief Actuary

T: +1 952.252.0816 M: +1 612.991.3642 kurt.johnson@bmsgroup.com

BMS Group Ltd is authorised and regulated by the Financial Conduct Authority. Firm Reference Number 309686. Registered in England 1479949. BMS Re is a trading name of BMS Group Ltd. BMS Intermediaries Inc is a US licensed Reinsurance Intermediary Broker headquartered in Minneapolis and registered in Texas 156302700. BMS Latin America LLC is a division of BMS Intermediaries Inc. BMS Intermediaries, Inc. also oper- ates as BMS Re US.

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