MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION

AND RESULTS OF

OPERATION
Industry Conditions.
The

worldwide

reinsurance

and

insurance

businesses

are

highly

competitive,

as

well

as

cyclical

by

product

and
market.

As

such,

financial

results

tend

to

fluctuate

with

periods

of

constrained

availability,

higher

rates

and
stronger

profits followed

by periods

of abundant

capacity,

lower rates

and constrained

profitability.

Competition
in

the

types

of

reinsurance

and

insurance

business

that

we

underwrite

is

based

on

many

factors,

including

the
perceived

overall

financial

strength

of

the

reinsurer

or

insurer,

ratings

of

the

reinsurer

or

insurer

by

A.M.

Best
and/or

Standard

&

Poor's,

underwriting

expertise,

the

jurisdictions

where

the

reinsurer

or

insurer

is

licensed

or
otherwise

authorized,

capacity

and

coverages

offered,

premiums

charged,

other

terms

and

conditions

of

the
reinsurance

and

insurance

business

offered,

services

offered,

speed

of

claims

payment

and

reputation

and
experience in lines written.

Furthermore, the market impact

from these competitive factors

related to reinsurance
and

insurance

is

generally

not

consistent

across

lines

of business,

domestic

and

international

geographical

areas
and distribution channels.

We

compete

in the

U.S. and

international

reinsurance

and insurance

markets

with numerous

global competitors.
Our

competitors

include

independent

reinsurance

and

insurance

companies,

subsidiaries

or

affiliates

of
established

worldwide

insurance

companies,

reinsurance

departments

of certain

insurance

companies,

domestic

and international underwriting operations,

and certain government sponsored

risk transfer vehicles. Some of these
competitors

have greater

financial resources

than we

do and

have established

long term

and continuing

business
relationships,

which

can

be a

significant

competitive

advantage.

In

addition,

the

lack

of strong

barriers

to

entry
into

the

reinsurance

business

and

recently,

the

securitization

of

reinsurance

and

insurance

risks

through

capital
markets provide additional

sources of potential reinsurance

and insurance capacity and competition.

Worldwide

insurance

and reinsurance

market

conditions historically

have been

competitive.

Generally,

there was
ample

insurance

and

reinsurance

capacity

relative

to

demand,

as

well

as

additional

capital

from

the

capital
markets through

insurance linked

financial instruments.

These financial instruments

such as side

cars, catastrophe
bonds and collateralized

reinsurance funds,

provided capital

markets with

access to insurance

and reinsurance

risk
exposure.

The

capital

markets

demand

for

these

products

was

being

primarily

driven

by

a

low

interest
environment

and

the

desire

to

achieve

greater

risk

diversification

and

potentially

higher

returns

on

their
investments.

This

increased

competition

was

generally

having

a

negative

impact

on

rates,

terms

and

conditions;
however,

the

impact

varies

widely

by

market

and

coverage.

Based

on

recent

competitive

behaviors

in

the
insurance

and reinsurance

activity,

natural

catastrophe

events and

the macroeconomic

backdrop,

there has

been
some dislocation

in the

market which

should have

a positive

impact on

rates

and terms

and conditions

generally,

though local market specificities can

vary widely.
The increased

frequency

of catastrophe

losses

experienced

throughout

2021 and

thus far

in

2022 appears

to

be
pressuring the

increase of

rates.

As business

activity continues

to regain

strength

after the

pandemic and

current
macroeconomic

uncertainty,

rates

appear to

be firming

in most

lines of

business, particularly

in the

casualty lines
that had seen significant losses such

as excess casualty and directors'

and officers' liability.

Other casualty lines are
experiencing

modest

rate

increase,

while

some

lines

such

as

workers'

compensation

were

experiencing

softer
market

conditions.

It

is

too

early

to

tell

what

the

impact

on

pricing

conditions

will

be,

but

it

is

likely

to

change
depending on the line of business and geography.
While we are

unable to

predict the

full impact the

pandemic will have

on the insurance

industry as

it continues

to
have

a

negative

impact

on

the

global

economy,

we

are

well

positioned

to

continue

to

service

our

clients.

Our
capital

position

remains

a

source

of

strength,

with

high

quality

invested

assets,

significant

liquidity

and

a

low
operating expense

ratio. Our diversified

global platform with

its broad mix of

products, distribution

and geography
is resilient.
The war

in the

Ukraine

is ongoing

and an

evolving

event.

Economic

and legal

sanctions

have

been levied

against

Russia, specific named individuals

and entities connected

to the Russian government,

as well as businesses

located
in the

Russian Federation

and/or owned

by Russian

nationals by

numerous countries,

including the

United States.
32
The

significant

political

and

economic

uncertainty

surrounding

the

war

and

associated

sanctions

have

impacted
economic

and

investment

markets

both

within

Russia

and

around

the

world.

The

Company

has

recorded

$25
million

of

incurred

underwriting

losses

related

to

the

Ukraine

and

Russia

conflict

as

of

the

nine

months

ended
September 30, 2022.













































































































































































































































33
Financial Summary.
We

monitor

and

evaluate

our

overall

performance

based

upon

financial

results.

The

following

table

displays

a

summary of the consolidated net income (loss), ratios

and stockholder's equity for

the periods indicated:

Three Months Ended

Percentage

Nine Months Ended

Percentage

September 30,
Increase/
September 30,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
2022
2021
(Decrease)
Gross written premiums
$
2,585
$
2,524
2.4%
$
7,227
$
6,974
3.6%
Net written premiums
2,228
2,069
7.7%
6,019
5,763
4.4%
REVENUES:
Premiums earned
$
2,104
$
1,851
13.6%
$
5,887
$
5,315
10.8%
Net investment income
124
197
-36.8%
457
593
-22.9%
Net gains (losses) on investments
(237)
(51)
NM
(842)
267
NM
Other income (expense)
7
10
-30.0%
(2)
12
-116.7%
Total revenues
1,998
2,007
-0.5%
5,500
6,187
-11.1%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
2,094
1,653
26.7%
4,624
4,103
12.7%
Commission, brokerage, taxes and fees
423
389
8.7%
1,216
1,126
8.0%
Other underwriting expenses
127
110
16.3%
365
329
11.0%
Corporate expense
5
11
-54.6%
17
23
-28.1%
Interest, fee and bond issue cost amortization expense
26
16
62.1%
74
47
58.1%
Total claims and expenses
2,675
2,178
22.8%
6,296
5,627
11.9%
INCOME (LOSS) BEFORE TAXES
(677)
(171)
NM
(796)
560
-242.1%
Income tax expense (benefit)
(135)
(28)
NM
(170)
118
-244.1%
NET INCOME (LOSS)

$
(542)
$
(143)
NM
$
(626)
$
442
-241.6%
RATIOS:
Point
Change
Point
Change
Loss ratio
99.6%
89.3%
10.3
78.6%
77.2%
1.4
Commission and brokerage ratio
20.1%
21.0%
(0.9)
20.7%
21.2%
(0.5)
Other underwriting expense ratio
6.1%
5.9%
0.2
6.2%
6.2%
-
Combined ratio
125.7%
116.2%
9.5
105.4%
104.6%
0.8
At
At

Percentage

September 30,
December 31,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
Balance sheet data:
Total investments and cash
$
18,946
$
19,719
-3.9%
Total assets
27,656
27,695
-0.1%
Loss and loss adjustment expense reserves
14,849
13,121
13.2%
Total debt
3,084
3,089
-0.2%
Total liabilities
22,322
20,657
8.1%
Stockholder's equity
5,334
7,038
-24.2%
(Some amounts may not reconcile due to rounding)
(NM, not meaningful)




34
Revenues.
Premiums.

Gross written

premiums increased

by 2.4%

to $2.6

billion for

the three

months

ended September

30,
2022, compared

to $2.5

billion for

the three

months ended

September 30,

2021, reflecting

a $74

million, or 8.9%,
increase in our insurance

business and a $13 million, or 0.7%,

decrease in our reinsurance

business. The increase in
insurance

premiums reflects

growth across

most lines

of business

driven by

positive rate

and exposure

increases,
new business,

and strong

renewal retention.

The decrease

in reinsurance

premiums was

mainly due to

a decline in
property

pro

rata

business,

partially

offset

by

an

increase

in

casualty

pro

rata

business.

Gross

written

premiums
increased by

3.6% to $7.2

billion for

the nine months

ended September

30, 2022, compared

to $7.0 billion

for the
nine

months

ended

September

30,

2021,

reflecting

a

$351

million,

or

14.5%,

increase

in

our

insurance

business
and

a

$98

million,

or

2.2%,

decrease

in

our

reinsurance

business.

The

increase

in

insurance

premiums

reflects
growth

across

most

lines

of

business

driven

by

positive

rate

and

exposure

increases,

new

business,

and

strong
renewal retention.

The decrease in reinsurance

premiums was mainly

due to a decline

property pro rata

business,

partially offset by an increase in casualty

pro rata business.
Net

written

premiums

increased

by

7.7%

to

$2.2

billion

for

the

three

months

ended

September

30,

2022,
compared to $2.1 billion

for the three

months ended September

30,

2021 and increased

by 4.4% to $6.0 billion

for
the nine

months ended

September 30,

2022, compared

to $5.8

billion for

the nine

months ended

September 30,
2021.

The

higher

percentage

increases

in

net

written

premiums

compared

to

gross

written

premiums

were
primarily due

to

a reduction

in business

ceded to

the segregated

accounts

of Mt.

Logan

Re during

the three

and
nine

months

ended

September

30,

2022

compared

to

the

three

and

nine

months

ended

September

30,

2021.

Premiums earned increased by 13.6% to

$2.1 billion for the three months ended

September 30, 2022, compared to
$1.9 billion

for

the three

months

ended September

30,

2021 and

increased

by

10.8%

to

$5.9 billion

for

the nine
months ended September

30, 2022, compared

to $5.3 billion

for the nine

months ended September

30, 2021. The
change

in

premiums

earned

relative

to

net

written

premiums

is

primarily

the

result

of

timing;

premiums

are
earned ratably

over the

coverage

period whereas

written premiums

are recorded

at the

initiation of

the coverage
period.

Accordingly,

the

significant

increases

in

gross

written

premiums

from

pro

rata

business

during

the

latter

half of 2021 contributed to the current quarter

percentage increase in net earned premiums.
Other

Income

(Expense).

We

recorded

other

income

of

$7

million

and

$10

million

for

the

three

months

ended
September

30,

2022

and

2021,

respectively.

We

recorded

other

expense

of

$2

million

and

other

income

of

$12
million for the nine months

ended September 30, 2022 and

2021, respectively.

The change was primarily the

result

of fluctuations in foreign currency exchange

rates.

Net Investment Income.

Refer to Consolidated

Investments Results Section below.
Net Gains (Losses) on Investments.

Refer to Consolidated Investments

Results Section below.


































































































































































































































































































35
Claims and Expenses.
Incurred

Losses

and

Loss

Adjustment

Expenses.

The

following

table

presents

our

incurred

losses

and

loss

adjustment expenses ("LAE") for

the periods indicated.

Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,260
59.9%
$
7
0.3%
$
1,267
60.2%
Catastrophes
826
39.2%
1
0.1%
827
39.3%
Total
$
2,086
99.1%
$
8
0.4%
$
2,094
99.6%
2021
Attritional
$
1,112
60.0%
$
-
0.0%
$
1,112
60.0%
Catastrophes
544
29.4%
(3)
-0.1%
541
29.3%
Total
$
1,656
89.4%
$
(3)
-0.1%
$
1,653
89.3%
Variance 2022/2021
Attritional
$
148
(0.1)
pts
$
7
0.3
pts
$
155
0.2
pts
Catastrophes
282
9.8
pts
4
0.2
pts
286
10.0
pts
Total
$
430
9.7
pts
$
11
0.5
pts
$
441
10.3
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
3,636
61.8%
$
7
0.1%
$
3,643
61.9%
Catastrophes
971
16.5%
10
0.2%
981
16.7%
Total
$
4,607
78.3%
$
17
0.3%
$
4,624
78.6%
2021
Attritional
$
3,267
61.5%
$
(2)
0.0%
$
3,265
61.5%
Catastrophes
840
15.8%
(2)
0.0%
837
15.8%
Total
$
4,106
77.3%
$
(4)
0.0%
$
4,103
77.2%
Variance 2022/2021
Attritional
$
369
0.3
pts
$
9
0.1
pts
$
378
0.5
pts
Catastrophes
131
0.7
pts
12
0.2
pts
144
0.9
pts
Total
$
500
1.0
pts
$
21
0.3
pts
$
522
1.4
pts
(Some amounts may not reconcile due to rounding.)
Incurred

losses

and

LAE

increased

by

26.7%

to

$2.1

billion

for

the

three

months

ended

September

30,

2022
compared

to

$1.7 billion

for

the

three

months

ended

September

30,

2021, primarily

due

to

an

increase

of $148
million

in

current

year

attritional

losses

and

an

increase

of

$282

million

in

current

year

catastrophe

losses.

The
increase in

current

year attritional

losses was

mainly due

to

the impact

of the

increase

in premiums

earned. The
current year

catastrophe

losses of $826

million for the

three months

ended September

30, 2022 mainly

related to
Hurricane

Ian

($769

million),

Hurricane

Fiona

($25

million),

Typhoon

Nanmadol

($20

million),

and

the

2022
Western

Europe hailstorms

($9 million).

The current

year catastrophe

losses of

$544 million

for the

three months
ended September 30, 2021 related to

Hurricane Ida ($431 million) and the Europeans floods

($113 million).

Incurred

losses

and

LAE

increased

by

12.7%

to

$4.6

billion

for

the

nine

months

ended

September

30,

2022
compared

to

$4.1

billion

for

the

nine

months

ended

September

30,

2021,

primarily

due

to

an

increase

of

$369
million

in

current

year

attritional

losses

and

an

increase

of

$131

million

in

current

year

catastrophe

losses.

The
increase

in current

year

attritional

losses

was

mainly due

to

the impact

of the

increase

in premiums

earned and
$25

million

of

attritional

losses

incurred

due

to

the

Ukraine/Russia

war.

The

current

year

catastrophe

losses

of





36
$971

million

for

the

nine

months

ended

September

30,

2022

related

to

Hurricane

Ian

($769

million),

the

2022
Australia

floods

($74

million),

the

2022

South

Africa

flood

($38

million),

Hurricane

Fiona

($25

million),

Typhoon
Nanmadol

($20 million),

the

2022 Canada

derecho

($16 million),

the 2022

2nd quarter

U.S.

storms

($12 million),
the

2022 We

stern

Europe

hailstorms

($9 million)

and

the

2022 March

U.S.

storms

($8

million).

The current

year
catastrophe

losses of

$840 million

for the

nine months

ended September

30, 2021

primarily related

to Hurricane
Ida ($431

million), the

Texas

winter storms

($279 million)

and the

European floods

($113 million)

with the

rest of
the losses emanating from the 2021 Australia

floods and Victoria Australia flooding.

Commission, Brokerage,

Taxes

and Fees.

Commission, brokerage,

taxes and

fees increased

to $423 million

for the
three

months

ended

September

30,

2022

compared

to

$389

million

for

the

three

months

ended

September

30,
2021. Commission,

brokerage,

taxes

and fees

increased

to $1.2

billion for

the nine

months

ended September

30,
2022 compared

to $1.1

billion for

the nine

months ended

September 30,

2021. The

increases

were mainly

due to
the impact of the increase in premiums earned and changes

in the mix of business.
Other Underwriting Expenses.

Other underwriting expense

s

increased to

$127 million for

the three months

ended
September

30,

2022

compared

to

$110

million

for

the

three

months

ended

September

30,

2021.

Other
underwriting

expenses

increased

to

$365

million

for

the

nine

months

ended

September

30,

2022

compared

to
$329

million

for

the

nine

months

ended

September

30,

2021.

The

increases

were

mainly

due

to

the

impact

of

increase in premiums earned and costs incurred

to support the expansion of the insurance business.

Corporate

Expenses.

Corporate

expenses,

which

are

general

operating

expenses

that

are

not

allocated

to
segments,

have

decreased

to

$5

million

from

$11

million

for

the

three

months

ended

September

30,

2022

and
2021, respectively

and decreased

to $17

million from

$23 million

for the

nine months

ended September

30, 2022
and 2021, respectively.

The variances are mainly due to changes

in variable incentive compensation expenses.
Interest, Fees

and Bond Issue Cost

Amortization Expense.

Interest, fees

and other bond amortization

expense was
$26 million and

$16 million for

the three months

ended September

30, 2022

and 2021, respectively.

Interest, fees
and other

bond amortization

expense was

$74 million

and $47

million for

the nine

months

ended September

30,
2022 and 2021,

respectively.

The variances

in expenses

were primarily

due to the

issuance of $1.0

billion of senior
notes in

October 2021. Interest

expense was

also impacted

by the movements

in the floating

interest rate

related
to the long-term subordinated

notes, which is reset

quarterly per the note

agreement. The floating

rate was 5.29%
as of September 30,

2022.

Income Tax

Expense (Benefit).

We had

income tax benefit

of $135 million

and $170 million

for the three

and nine
months

ended

September

30,

2022,

respectively.

We

had

an

income

tax

benefit

of

$28

million

and

income

tax
expense

of

$118

million

for

the

three

and

nine

months

ended

September

30,

2021,

respectively.

Income

tax
expense is

primarily a

function of

the geographic

location of

the Company's

pre-tax

income and

the statutory

tax
rates

in those

jurisdictions.

The effective

tax

rate

("ETR") is

primarily affected

by tax

-exempt

investment

income,
foreign tax

credits and

dividends. Variations

in the

ETR generally

result from

changes in

the relative

levels of

pre-
tax

income,

including

the

impact

of catastrophe

losses,

foreign

exchange

gains

(losses)

and

net

gains

(losses)

on

investments, among jurisdictions with different

tax rates.

On August 16, 2022, the Inflation Reduction

Act of 2022 ("IRA") was enacted. We

have evaluated

the tax provisions
of

the

IRA,

the

most

significant

of

which

are

the

corporate

alternative

minimum

tax

and

the

share

repurchase
excise tax and do not expect

the legislation to have a material

impact on our results of operations. As the

IRS issues
additional guidance, we will evaluate any

impact to our consolidated financial statements.
Net Income (Loss).

Our

net

loss

was

$542

million

and

$143

million,

for

the

three

months

ended

September

30,

2022

and

2021
respectively.

Our

net

loss

was

$626

million

and

net

income

was

$442

million,

for

the

nine

months

ended
September

30,

2022

and

2021

respectively.

The

changes

were

primarily

driven

by

the

financial

component
fluctuations explained above.

37
Ratios.
Our combined ratio

increased by 9.5

points to 125.7% for

the three months

ended September 30,

2022, compared
to

116.2%

for

the

three

months

ended

September

30,

2021

and

increased

by

0.8

points

to

105.4%

for

the

nine
months ended September

30, 2022 compared

to 104.6%

for the nine

months ended September

30, 2021. The loss
ratio

component increased

by 10.3

points for

the three

months ended

September 30,

2022 over

the same

period
last

year

mainly due

to

an increase

of $282

million

in

current

year

catastrophe

losses. The

loss

ratio

component
increased by 1.4

points for

the nine months

ended September 30,

2022 over the

same period last

year mainly due
to an

increase of

$131 million

in current

year catastrophe

losses, and

$25 million

in current

year attritional

losses
due to the Ukraine

Russia conflict incurred in

2022. The commission and brokerage

ratio components decreased

to
20.1%

for

the

three

months

ended

September

30,

2022

compared

to

21.0%

for

the

three

months

ended
September 30,

2021 and

decreased to

20.7% for

the nine

months ended

September 30,

2022 compared

to 21.2%
for the nine months

ended September 30, 2021. These

changes were mainly due

to changes in the mix

of business.
The

other

underwriting

expense

ratios

increased

slightly

to

6.1%

from

5.9%

for

the

three

months

ended
September 30, 2022 and

2021, respectively and

remained the same at

6.2%

for the nine months

ended September
30, 2022 and 2021, respectively.

Stockholder's Equity.

Stockholder's equity

decreased by

$1.7 billion to

$5.3 billion at

September 30, 2022

from $7.0 billion

at December
31,

2021,

principally

as

a

result

of

$1.0

billion

of

net

unrealized

depreciation

on

investments,

net

of

tax,

$626
million of

net loss

and $41 million

of net

foreign currency

translation

adjustments,

partially offset

by $2

million of
net benefit

plan obligation

adjustments,

net of

tax. The

movement in

the unrealized

depreciation on

investments

was driven by the change in interest

rates on the Company's

fixed maturity portfolio.

Consolidated Investment

Results

Net Investment Income.

Net investment

income decreased

to $124

million for

the three

months

ended September

30, 2022

compared

to
$197 million

for the

three

months

ended September

30, 2021.

Net investment

income decreased

to $457

million
for the

nine months

ended September

30, 2022

compared

to $593

million for

the nine

months ended

September
30,

2021.

The

decreases

were

primarily

the

result

of

reductions

in

income

from

limited

partnerships

and

other
alternative

investments,

partially

offset

by

an

increase

in

income

from

fixed

maturity

securities.

The

limited
partnership

income primarily

reflects changes

in their

reported

net asset

values. As

such, until

these asset

values
are

monetized

and

the

resultant

income

is

distributed,

they

are

subject

to

future

increases

or

decreases

in

the

asset value, and the results may be volatile.

38

The following table shows the components

of net investment income for

the periods indicated:

Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
129
$
83
$
339
$
260
Equity securities

7
4
15
10
Short-term investments and cash
4
-
4
-
Other invested assets
Limited partnerships
(25)
82
63
260
Dividends from preferred shares of affiliate
8
8
23
23
Other

11
31
37
63
Gross investment income before adjustments
132
208
482
617
Funds held interest income (expense)
1
1
5
7
Interest income from Parent
3
2
7
4
Gross investment income
137
210
494
629
Investment expenses
13
13
37
36
Net investment income
$
124
$
197
$
457
$
593
(Some amounts may not reconcile due to rounding.)
The following table shows a comparison

of various investment yields

for the periods indicated.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Annualized pre-tax yield on average cash and invested assets
2.5%
4.7%
3.1%
4.9%
Annualized after-tax yield on average cash and invested assets
2.0%
3.7%
2.5%
3.9%
























































































































































































































39
Net Gains (Losses) on Investments.
The following table presents the composition

of our net gains (losses) on investments

for the periods indicated:

Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
2022
2021
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities available for sale
Gains
$
1
$
9
$
(8)
$
7
$
24
$
(17)
Losses
(46)
(6)
(40)
(67)
(13)
(54)
Total
(45)
3
(48)
(60)
11
(71)
Equity securities, fair value
Gains
59
3
56
67
18
49
Losses
(2)
(3)
1
(48)
(11)
(37)
Total
57
-
57
19
6
13
Other invested assets
Gains
7
2
5
15
8
7
Losses
(1)
-
(1)
(4)
(2)
(2)
Total
6
2
4
11
6
5
Total net realized gains (losses) from dispositions
Gains
68
14
54
90
50
40
Losses
(49)
(10)
(39)
(119)
(27)
(92)
Total
20
4
16
(29)
23
(52)
Allowances for credit losses:
(12)
(7)
(5)
(12)
(30)
18
Gains (losses) from fair value adjustments:
Equity securities, fair value
(134)
(4)
(130)
(451)
137
(588)
Other invested assets, fair value
(111)
(44)
(67)
(350)
137
(487)
Total
(245)
(48)
(197)
(801)
274
(1,075)
Total net gains (losses) on investments
$
(237)
$
(51)
$
(186)
$
(842)
$
267
$
(1,109)
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments

during the three months ended

September 30, 2022 primarily relate

to net losses
from

fair

value

adjustments

on

equity

securities

of

$134

million

as

a

result

of

equity

market

declines

during

the
third quarter

of 2022,

net losses

of $111

million from

fair value

adjustments

on other

invested

assets, $20

million
of

net

realized

gains

from

disposition

of

investments

and

$12

million

of

credit

allowances

on

fixed

maturity
securities.
Net gains

(losses) on investments

during the nine

months ended September

30, 2022 primarily

relate to

net losses
from fair value adjustments

on equity securities of $451 million as a result of equity

market declines during the first
nine months of 2022, net losses of $350 million from

fair value adjustments

on other invested assets,

$29 million of
net

realized

losses

from

disposition

of

investments

investments

and

$12

million

of

credit

allowances

on

fixed
maturity securities.
Segment Results.
The Company

manages its

reinsurance

and insurance

operations

as autonomous

units and

key

strategic

decisions

are based on the aggregate operating

results and projections for these segments

of business.

The

Reinsurance

operation

writes

risks

on

a

worldwide

basis

in

property

and

casualty

reinsurance

and

specialty

lines of business, on both a treaty and facultative

basis, through reinsurance brokers,

as well as directly with ceding
companies.

Business

is

written

in

the

United

States

as

well as

through

branches

in

Canada

and

Singapore.

The






































































40
Insurance operation

writes property and

casualty insurance directly

and through brokers,

surplus lines brokers

and

general agents within the United States.

These segments

are

managed

independently,

but

conform

with corporate

guidelines

with respect

to

pricing, risk
management,

control

of

aggregate

catastrophe

exposures,

capital,

investments

and

support

operations.

Management generally monitors

and evaluates the financial performance

of these operating segments

based upon
their underwriting results.

Underwriting

results

include

earned

premium

less

losses

and

LAE

incurred,

commission

and

brokerage

expenses

and other underwriting expenses.

We measure our underwriting results

using ratios, in particular loss, commission
and brokerage

and other underwriting

expense ratios,

which respectively,

divide incurred

losses, commissions

and
brokerage and other

underwriting expenses by premiums earned.

The

Company

does

not

maintain

separate

balance

sheet

data

for

its

operating

segments.

Accordingly,

the
Company

does not

review and

evaluate

the financial

results

of its

operating

segments based

upon balance

sheet
data.

Our

loss

and

LAE

reserves

are

management's

best

estimate

of

our

ultimate

liability

for

unpaid

claims.

We

re-
evaluate

our

estimates

on

an

ongoing

basis,

including

all

prior

period

reserves,

taking

into

consideration

all
available

information

and,

in

particular,

recently

reported

loss

claim

experience

and

trends

related

to

prior
periods.

Such re-evaluations are recorded

in incurred losses in the period in which the re-evaluation

is made.

The following discusses the underwriting results for

each of our segments for the periods indicated:

Reinsurance.
The

following

table

presents

the

underwriting

results

and

ratios

for

the

Reinsurance

segment

for

the

periods
indicated.

Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,681
$
1,693
$
(12)
-0.7%
$
4,454
$
4,552
$
(98)
-2.2%
Net written premiums
1,506
1,461
45
3.0%
3,936
3,961
(25)
-0.6%
Premiums earned
$
1,398
$
1,280
$
118
9.2%
$
3,902
$
3,690
$
212
5.8%
Incurred losses and LAE
1,531
1,208
323
26.8%
3,227
2,917
310
10.6%
Commission and brokerage
337
320
17
5.6%
985
935
50
5.3%
Other underwriting expenses
33
32
1
3.8%
97
101
(4)
-4.6%
Underwriting gain (loss)
$
(504)
$
(279)
$
(225)
79.9%
$
(406)
$
(264)
$
(142)
53.6%
Point Chg
Point Chg
Loss ratio
109.5%
94.3%
15.2
82.7%
79.1%
3.6
Commission and brokerage ratio
24.1%
25.0%
(0.9)
25.2%
25.3%
(0.1)
Other underwriting ratio
2.4%
2.5%
(0.1)
2.5%
2.7%
(0.2)
Combined ratio
136.0%
121.8%
14.2
110.4%
107.2%
3.4
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums.

Gross written

premiums decreased

by 0.7%

to $1.7

billion for

the three

months ended

September 30,
2022 primarily

due

to

a

decline in

property

pro

rata

business,

partially

offset

by

an increase

in

casualty

pro

rata
business.

Net written premiums

increased by 3.0% to

$1.5 billion for the

three months ended September

30,

2022.
The higher percentage

increases in net

written premiums compared

to gross written

premiums were

primarily due
to

a

reduction

in

business

ceded to

the

segregated

accounts

of Mt.

Logan

Re

during

the three

and

nine

months
ended September 30,

2022 compared to

the three and nine

months ended September

30, 2021. Premiums

earned
increased by 9.2%

to $1.4 billion

for the three

months ended September

30, 2022 compared

to $1.3 billion

for the
three months

ended September 30,

2021. The change

in premiums

earned relative

to net written

premiums is the
result of timing; premiums are earned

ratably over the coverage

period whereas written

premiums are recorded at

































































































































































































































































































41
the initiation

of the

coverage

period. Accordingly,

the increases

in gross

written premiums

from pro

rata

business

during the latter half of 2021 contributed

to the current quarter percentage

increase in net earned premiums.
Gross

written

premiums

decreased

by

2.2% to

$4.5 billion

for

the

nine months

ended September

30,

2022 from
$4.6

billion

for

the

nine

months

ended

September

30,

2021

primarily

due

to

a

decline

in

property

pro

rata
business,

partially offset

by an

increase in

casualty pro

rata business

.

Net written

premiums decreased

by 0.6%

to
$3.9 billion

for

the nine

months

ended September

30, 2022

compared

to

$4.0 billion

for

the nine

months

ended
September 30,

2021, which

is consistent

with the

change in

gross written

premiums. Premiums

earned increased
5.8% to

$3.9 billion

for the

nine months

ended September

30, 2022

compared to

$3.7 billion

for the

nine months
ended

September

30,

2021.

The

change

in

premiums

earned

relative

to

net

written

premiums

is

the

result

of
timing;

premiums

are

earned

ratably

over

the

coverage

period

whereas

written

premiums

are

recorded

at

the
initiation

of

the

coverage

period.

Accordingly,

the

increases

in

gross

written

premiums

from

pro

rata

business

during the latter half of 2021 contributed

to the current quarter percentage

increase in net earned premiums.
Incurred Losses and LAE.

The following tables present

the incurred losses and LAE for

the Reinsurance segment

for

the periods indicated.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
800
57.2%
$
7
0.5%
$
807
57.7%
Catastrophes
722
51.7%
2
0.1%
724
51.8%
Total segment
$
1,522
108.9%
$
9
0.6%
$
1,531
109.5%
2021
Attritional
$
744
58.1%
$
-
0.0%
$
744
58.1%
Catastrophes
466
36.4%
(2)
-0.1%
464
36.2%
Total segment
$
1,209
94.5%
$
(2)
-0.1%
$
1,208
94.3%
Variance 2022/2021
Attritional
$
56
(0.9)
pts
$
7
0.5
pts
$
63
(0.4)
pts
Catastrophes
256
15.3
pts
4
0.2
pts
260
15.6
pts
Total segment
$
312
14.4
pts
$
11
0.7
pts
$
323
15.2
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
2,350
60.2%
$
8
0.2%
$
2,358
60.4%
Catastrophes
857
22.0%
11
0.3%
868
22.3%
Total segment
$
3,207
82.2%
$
19
0.5%
$
3,227
82.7%
2021
Attritional
$
2,216
60.1%
$
1
0.0%
$
2,217
60.1%
Catastrophes
704
19.1%
(3)
-0.1%
701
19.0%
Total segment
$
2,920
79.1%
$
(3)
-0.1%
$
2,917
79.1%
Variance 2022/2021
Attritional
$
134
0.1
pts
$
7
0.2
pts
$
141
0.3
pts
Catastrophes
153
2.9
pts
14
0.4
pts
167
3.3
pts
Total segment
$
287
3.0
pts
$
21
0.6
pts
$
310
3.5
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses

increased by

26.8% to

$1.5 billion

for the

three months

ended September

30, 2022,

compared

to
$1.2 billion for

the three months

ended September 30,

2021.

The increase was

primarily due to

an increase of

$56






























































































42
million

in

current

year

attritional

losses

and

an

increase

of

$256

million

in

current

year

catastrophe

losses.

The

increase in current year attritional

losses was mainly related to the impact

of the increase in premiums earned. The
current year

catastrophe

losses of $722

million for

the three

months ended

September 30,

2022 related

primarily
to

Hurricane

Ian ($670

million),

Typhoon

Nanmadol

($20 million),

Hurricane

Fiona ($20

million) and

the Western
Europe

hailstorms

($9

million).

The

$466

million

of

current

year

catastrophe

losses

for

the

three

months

ended

September 30, 2021 related to Hurricane

Ida ($352 million) and the European floods ($113 million).

Incurred

losses

increased

by

10.6% to

$3.2 billion

for

the

nine

months

ended

September

30,

2022,

compared

to
$2.9 billion for

the nine months

ended September 30,

2021. The increase

was primarily due

to an increase

of $153
million

in

current

year

catastrophe

losses

and

an

increase

of

$134

million

in

current

year

attritional

losses.

The
increase in current year

attritional losses

was mainly related

to the impact of the increase

in premiums earned and
$25

million

of

attritional

losses

incurred

due

to

the

Ukraine/Russia

war.

The

current

year

catastrophe

losses

of
$857 million for

the nine

months ended

September 30,

2022 related

primarily to

Hurricane Ian

($670 million), the
2022

Australia

floods

($74

million),

the

2022

South

Africa

flood

($38

million),

Hurricane

Fiona

($20

million),
Typhoon Nanmadol

($20 million), the 2022 Canada

derecho ($16 million), the

2022 Western

Europe hailstorms

($9
million),

the

2022

2nd

quarter

U.S.

storms

($7

million)

and

the

2022

March

U.S.

storms

($4

million).

The

$704
million

of

current

year

catastrophe

losses

for

the

nine

months

ended

September

30,

2021

primarily

related

to

Hurricane Ida ($352 million), the

Texas

winter storms ($221 million)

and

the

European

floods

($113 million) with
the rest of the losses emanating from the 2021 Australia

floods and Victoria Australia flooding.
Segment

Expenses.

Commission

and

brokerage

expense

increased

by

5.6% to

$337

million

for

the

three

months
ended

September

30,

2022

compared

to

$320

million

for

the

three

months

ended

September

30,

2021.
Commission and

brokerage

expense increased

by 5.3%

to $985

million for

the nine

months ended

September 30,
2022 compared to

$935 million for

the nine months

ended September 30,

2021. The increases

were mainly due

to

changes in the mix of business.

Segment other underwriting

expenses increased

slightly to $33

million for the

three months

ended September 30,
2022

from

$32

million

for

the

three

months

ended

September

30,

2021.

Segment

other

underwriting

expenses
decreased

to

$97 million

for

the nine

months

ended September

30, 2022

from

$101 million

for

the nine

months

ended September 30, 2021. The decreases were

mainly due to the impact of decreases in premiums earned.

Insurance.
The

following

table

presents

the

underwriting

results

and

ratios

for

the

Insurance

segment

for

the

periods
indicated.

Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
905
$
831
$
74
8.9%
$
2,773
$
2,422
$
351
14.5%
Net written premiums
722
608
114
18.8%
2,083
1,802
281
15.6%
Premiums earned
$
706
$
571
$
135
23.6%
$
1,985
$
1,625
$
360
22.1%
Incurred losses and LAE
564
445
119
26.6%
1,398
1,185
213
17.9%
Commission and brokerage
85
69
16
23.4%
231
190
41
21.6%
Other underwriting expenses
94
77
17
21.5%
269
228
41
17.9%
Underwriting gain (loss)
$
(37)
$
(21)
$
(16)
79.2%
$
87
$
22
$
65
NM
Point Chg
Point Chg
Loss ratio
79.9%
78.0%
1.9
70.4%
72.9%
(2.5)
Commission and brokerage ratio
12.1%
12.1%
-
11.7%
11.7%
-
Other underwriting ratio
13.3%
13.6%
(0.3)
13.5%
14.0%
(0.5)
Combined ratio
105.3%
103.7%
1.6
95.6%
98.7%
(3.1)
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)


















































































































































43
Premiums.
Gross written

premiums increased

by 8.9%

to $905

million for

the three

months ended

September 30,
2022

compared

to

$831

million

for

the

three

months

ended

September

30,

2021.

The

increase

in

insurance
premiums

reflects

growth

across

most

lines

of

business

driven

by

positive

rate

and

exposure

increases,

new
business,

and strong

renewal

retention.

Net

written

premiums

increased

by

18.8%

to

$722

million

for

the

three
months

ended

September

30,

2022 compared

to

$608 million

for

the

three

months

ended September

30,

2021.
The higher

percentage

of net

written premiums

compared to

gross written

premiums was

mainly due

to business
mix. Premiums earned increased

23.6% to $706 million for

the three months ended

September 30, 2022 compared
to $571

million for

the three

months ended

September 30,

2021. The

change in

premiums earned

is the

result of
timing;

premiums

are

earned

ratably

over

the

coverage

period

whereas

written

premiums

are

recorded

at

the
initiation of

the coverage

period. Accordingly,

the significant

increases in

gross written

premiums during

the latter
half of 2021 contributed to the current quarter

percentage increase in net earned premiums.
Gross

written

premiums

increased

by

14.5%

to

$2.8

billion

for

the

nine

months

ended

September

30,

2022
compared

to

$2.4

billion

for

the

nine

months

ended

September

30,

2021.

The

increase

in

insurance

premiums
reflects

growth

across

most

lines

of

business

driven

by

positive

rate

and

exposure

increases,

new

business,

and
strong

renewal

retention.

Net

written

premiums

increased

by

15.6%

to

$2.1

billion

for

the

nine

months

ended
September 30,

2022 compared

to $1.8 billion

for the

nine months

ended September

30, 2021,

which is consistent
with the change

in gross

written premiums.

Premiums earned

increased 22.1%

to $2.0

billion for

the nine

months
ended September

30, 2022

compared to

$1.6 billion

for the

nine months

ended September

30, 2021.

The change
in premiums earned is the result

of timing; premiums are earned ratably

over the coverage period

whereas written
premiums

are

recorded

at

the

initiation

of

the

coverage

period.

Accordingly,

the

significant

increases

in

gross
written

premiums

during

the

latter

half

of

2021

contributed

to

the

current

quarter

percentage

increase

in

net
earned premiums.
Incurred Losses

and LAE.

The following

tables present

the incurred

losses and

LAE for

the Insurance

segment for
the periods indicated.

Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
461
65.3%
$
-
0.0%
$
461
65.3%
Catastrophes
104
14.7%
-
-0.1%
104
14.6%
Total segment
$
565
80.0%
$
-
-0.1%
$
564
79.9%
2021
Attritional
$
368
64.4%
$
-
0.0%
$
368
64.4%
Catastrophes
78
13.7%
(1)
-0.1%
78
13.6%
Total segment
$
446
78.1%
$
(1)
-0.1%
$
445
78.0%
Variance 2022/2021
Attritional
$
93
0.9
pts
$
-
-
pts
$
93
0.9
pts
Catastrophes
26
1.0
pts
1
-
pts
26
1.0
pts
Total segment
$
119
1.9
pts
$
1
-
pts
$
119
1.9
pts

















































































































































44
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,285
64.8%
$
-
0.0%
$
1,285
64.8%
Catastrophes
114
5.7%
(1)
-0.1%
113
5.6%
Total segment
$
1,399
70.5%
$
(1)
-0.1%
$
1,398
70.4%
2021
Attritional
$
1,051
64.6%
$
(2)
-0.1%
$
1,049
64.5%
Catastrophes
136
8.4%
1
0.1%
137
8.4%
Total segment
$
1,186
73.0%
$
(1)
-0.1%
$
1,185
72.9%
Variance 2022/2021
Attritional
$
234
0.2
pts
$
2
0.1
pts
$
236
0.3
pts
Catastrophes
(22)
(2.7)
pts
(2)
(0.2)
pts
(24)
(2.8)
pts
Total segment
$
213
(2.5)
pts
$
-
(0.1)
pts
$
213
(2.5)
pts
(Some amounts may not reconcile due to rounding.)
Incurred

losses

and

LAE

increased

by

26.6%

to

$564

million

for

the

three

months

ended

September

30,

2022
compared

to

$445

million

for

the

three

months

ended

September

30,

2021,

mainly

due

to

an

increase

of

$93

million in current year attritional

losses which is primarily related to the impact of the increase

in premiums earned
and

an

increase

of

$26

million

in

current

year

catastrophe

losses.

The

$104

million

of

current

year

catastrophe
losses for the

three months ended

September 30, 2022,

related to

Hurricane Ian ($99

million) and Hurricane

Fiona
($5 million).

The $78

million of

current

year catastrophe

losses for

the three

months

ended September

30, 2021,
related to Hurricane Ida.

Incurred

losses

and

LAE

increased

by

17.9%

to

$1.4

billion

for

the

nine

months

ended

September

30,

2022

compared to $1.2 billion for the

nine months ended September 30, 2021,

mainly due to an increase of $234 million
in

current

year

attritional

losses

which

is

primarily

related

to

the

impact

of

the

increase

in

premiums

earned,
partially

offset

by

a

decrease

of $22

million

in

current

year

catastrophe

losses.

The $114

million

of current

year
catastrophe

losses

for

the

nine

months

ended

September

30,

2022,

related

to

Hurricane

Ian

($99

million),
Hurricane

Fiona

($5

million),

the

2022

March

U.S.

storms

($5

million) and

the

2022

2nd

quarter

U.S.

storms

($5
million).

The

$136

million

of

current

year

catastrophe

losses

for

the

nine

months

ended

September

30,

2021,

related to Hurricane Ida ($78 million) and

the Texas

winter storms ($58 million).
Segment

Expenses.

Commission

and

brokerage

increased

by

23.4%

to

$85

million

for

the

three

months

ended
September 30,

2022 compared

to $69

million for

the three

months

ended September

30, 2021.

Commission and
brokerage

increased by

21.6% to

$231 million

for the

nine months

ended September

30, 2022

compared

to $190
million

for

the

nine

months

ended

September

30,

2021.

These

increases

were

mainly

due

to

the

impact

of

the

increase in premiums earned and changes in

the mix of business.

Segment

other underwriting

expenses

increased

to

$94 million

for

the three

months

ended

September

30, 2022
compared to

$77 million

for the

three months

ended September

30, 2021.

Segment other

underwriting expenses
increased to

$269 million

for

the nine

months

ended September

30, 2022

compared

to $228

million for

the nine
months ended

September 30,

2021. These

increases were

mainly due

to the

impact of

the increases

in premiums
earned and increased expenses related

to the continued build out of the insurance

business.

Market Sensitive Instruments.
The

SEC's

Financial

Reporting

Release

#48

requires

registrants

to

clarify

and

expand

upon

the

existing

financial
statement

disclosure

requirements

for

derivative

financial

instruments,

derivative

commodity

instruments

and
other financial

instruments

(collectively,

"market

sensitive

instruments").

We

do not

generally

enter into

market

sensitive instruments for trading

purposes.





























45
Our

current

investment

strategy

seeks

to

maximize

after-tax

income

through

a

high

quality,

diversified,

taxable
and tax

-preferenced

fixed

maturity

portfolio,

while maintaining

an adequate

level of

liquidity.

Our mix

of taxable
and

tax-preferenced

investments

is

adjusted

periodically,

consistent

with

our

current

and

projected

operating
results,

market

conditions

and

our

tax

position.

The

fixed

maturity

securities

in

the

investment

portfolio

are

comprised of non-trading available

for sale securities. Additionally,

we have invested

in equity securities.

The overall

investment strategy

considers the

scope of present

and anticipated

Company operations.

In particular,
estimates of

the financial

impact resulting

from non-investment

asset and

liability transactions,

together with

our
capital

structure

and

other

factors,

are

used

to

develop

a

net

liability

analysis.

This

analysis

includes

estimated
payout

characteristics

for which

our investments

provide liquidity.

This analysis

is considered

in the

development
of

specific

investment

strategies

for

asset

allocation,

duration

and

credit

quality.

The

change

in

overall

market

sensitive risk exposure principally reflects

the asset changes that took place during the period.

Interest Rate

Risk.

Our $18.9 billion

investment

portfolio, at

September 30,

2022, is principally

comprised of fixed
maturity securities,

which are

generally subject

to interest

rate risk

and some

foreign currency

exchange

rate risk,
and some equity securities, which are subject to price fluctuations

and some foreign exchange

rate risk. The overall
economic impact

of the foreign

exchange risks

on the investment

portfolio is

partially mitigated

by changes

in the
dollar value of foreign currency

denominated liabilities and their associated

income statement impact.

Interest

rate

risk

is

the

potential

change

in

value

of

the

fixed

maturity

securities

portfolio,

including

short-term
investments,

from

a

change

in

market

interest

rates.

In

a

declining

interest

rate

environment,

it

includes
prepayment

risk

on

the

$1.9

billion

of

mortgage-backed

securities

in

the

$12.1

billion

fixed

maturity

portfolio.
Prepayment

risk results

from potential

accelerated

principal

payments

that shorten

the average

life and

thus the
expected yield of the security.

The

table

below

displays

the

potential

impact

of

fair

value

fluctuations

and

after-tax

unrealized

appreciation

on
our fixed

maturity

portfolio

(including $454

million of

short-term

investments)

for

the period

indicated

based

on
upward

and

downward

parallel

and

immediate

100

and

200 basis

point

shifts

in

interest

rates.

For

legal

entities
with

a

U.S.

dollar

functional

currency,

this

modeling

was

performed

on

each

security

individually.

To

generate
appropriate

price

estimate

on

mortgage-backed

securities,

changes

in

prepayment

expectations

under

different
interest rate

environments

were taken

into account.

For legal entities

with non-U.S. dollar

functional currency,

the
effective

duration

of the

involved

portfolio

of securities

was

used as

a proxy

for

the fair

value

change

under the
various interest rate

change scenarios.

Impact of Interest Rate Shift in Basis Points
At September 30, 2022
(Dollars in millions)
-200
-100
0
100
200
Total Fair Value
$
14,925
$
14,568
$
14,210
$
13,853
$
13,495
Fair Value Change from Base (%)
5.0%
2.5%
0.0%
-2.5%
-5.0%
Change in Unrealized Appreciation
After-tax from Base ($)
$
565
$
282
$
-
$
(282)
$
(565)
We had $14.8 billion and $13.1 billion

of gross reserves for losses

and LAE as of September 30, 2022 and December
31,

2021,

respectively.

These

amounts

are

recorded

at

their

nominal

value,

as

opposed

to

present

value,

which
would reflect

a discount

adjustment to

reflect the

time value

of money.

Since losses

are paid

out over

a period

of
time, the

present

value of

the reserves

is less

than the

nominal value.

As interest

rates

rise, the

present

value of
the reserves

decreases

and,

conversely,

as interest

rates

decline, the

present

value

increases.

These movements
are

the

opposite

of

the

interest

rate

impacts

on

the

fair

value

of

investments.

While

the

difference

between
present

value

and

nominal

value

is

not

reflected

in

our

financial

statements,

our

financial

results

will

include
investment

income

over

time

from

the

investment

portfolio

until

the

claims

are

paid.

Our

loss

and

loss

reserve
obligations have an expected

duration that is reasonably consistent

with our fixed income portfolio.

46
Equity Risk.

Equity risk

is the potential

change in fair

value of

the common

stock, preferred

stock and

mutual fund
portfolios

arising

from

changing

prices.

Our

equity

investments

consist

of

a

diversified

portfolio

of

individual
securities. The primary

objective of

the equity portfolio

is to

obtain greater

total return

relative to

our core

bonds

over time through market appreciation

and income.

The table

below

displays

the impact

on fair

value

and after

-tax

change

in fair

value

of a

10% and

20% change

in

equity prices up and down for the periods indicated.

Impact of Percentage Change in Equity Fair Value
At September 30, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,007
$
1,132
$
1,258
$
1,384
$
1,510
After-tax Change in Fair Value
(199)
(99)
-
99
199
Foreign

Currency

Risk.

Foreign

currency

risk is

the potential

change

in value,

income

and

cash

flow arising

from
adverse changes

in foreign

currency exchange

rates.

Each of

our non-U.S.

("foreign")

operations

maintains capital
in the

currency

of the

country

of its

geographic

location

consistent

with local

regulatory

guidelines. Each

foreign
operation

may

conduct

business

in

its

local

currency,

as

well

as

the

currency

of

other

countries

in

which

it
operates.

The

primary

foreign

currency

exposures

for

these

foreign

operations

are

the

Singapore

and

Canadian
Dollars. We

mitigate foreign

exchange

exposure by

generally matching

the currency

and duration

of our

assets to
our corresponding

operating liabilities. In

accordance with FASB

guidance, the impact

on the fair

value of available
for

sale

fixed

maturities

due

to

changes

in

foreign

currency

exchange

rates,

in

relation

to

functional

currency,

is
reflected as

part of other

comprehensive income.

Conversely,

the impact of

changes in

foreign currency

exchange
rates,

in

relation

to

functional

currency,

on

other

assets

and

liabilities

is

reflected

through

net

income

as

a

component of other income (expense). In

addition, we translate

the assets, liabilities and income of non-U.S.

dollar
functional currency

legal entities

to the

U.S. dollar.

This translation

amount is

reported as

a component

of other
comprehensive income.

SAFE HARBOR DISCLOSURE
This report

contains forward

-looking statements

within the meaning

of the U.S.

federal securities

laws. We

intend
these forward

-looking statements

to

be covered

by

the safe

harbor

provisions

for

forward-looking

statements

in
the federal

securities laws.

In some cases,

these statements

can be identified

by the use

of forward-looking

words
such

as

"may",

"will",

"should",

"could",

"anticipate",

"estimate",

"expect",

"plan",

"believe",

"predict",
"potential"

and "intend".

Forward-looking

statements

contained

in

this report

include

information

regarding

our
reserves for losses

and LAE, the

CARES Act, the

impact of the

TCJA, the adequacy

of our provision

for uncollectible
balances, estimates

of our catastrophe

exposure, the

effects of

catastrophic

and pandemic events

on our financial
statements

and

the

ability

of

our

subsidiaries

to

pay

dividends.

Forward-looking

statements

only

reflect

our
expectations

and

are

not

guarantees

of

performance.

These

statements

involve

risks,

uncertainties

and
assumptions.

Actual

events

or

results

may

differ

materially

from

our

expectations.

Important

factors

that

could
cause our

actual events

or results

to be

materially different

from our

expectations

include those

discussed under
the

caption

ITEM

1A,

"Risk

Factors"

in

the

Company's

most

recent

10-K

filing.

We

undertake

no

obligation

to
update or revise

publicly any forward-looking

statements, whether

as a result of new

information, future events

or
otherwise.

ITEM 3.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments.

See "Market Sensitive Instruments"

in PART I - ITEM 2.

47
ITEM 4.

CONTROLS AND PROCEDURES
As

of

the

end

of

the

period

covered

by

this

report,

our

management

carried

out

an

evaluation,

with

the
participation

of

the

Chief

Executive

Officer

and

Chief

Financial

Officer,

of

the

effectiveness

of

our

disclosure
controls

and procedures

(as defined

in Rule

13a-15(e)

under the

Securities Exchange

Act of

1934 (the

"Exchange
Act")).

Based

on

their

evaluation,

the

Chief

Executive

Officer

and

Chief

Financial

Officer

concluded

that

our
disclosure

controls

and procedures

are effective

to ensure

that information

required

to

be disclosed

by us

in the
reports

that we

file or

submit under

the Exchange

Act are

recorded,

processed,

summarized

and reported

within
the time

periods specified

in the

Securities and

Exchange

Commission's

rules and

forms.

Our management,

with
the

participation

of

the

Chief

Executive

Officer

and

Chief

Financial

Officer,

also

conducted

an

evaluation

of

our

internal control over financial

reporting to determine whether any

changes occurred during the quarter covered

by
this

report

that

have

materially

affected,

or

are

reasonably

likely

to

materially

affect,

our

internal

control

over
financial reporting.

Based on

that evaluation,

there has

been no

such change

during the

quarter covered

by this
report.