Starr Insurance & Reinsurance Limited and Subsidiaries

Starr Insurance & Reinsurance Limited and Subsidiaries Financial Statements

Table of Contents Page Independent Auditors Report 1 Financial Statements Consolidated Balance Sheet 2 Consolidated Statement of Operations and Comprehensive Income (Loss) 3 Consolidated Statement of Changes in Shareholder's Equity 4 Consolidated Statement of Cash Flows 5 6

Independent Auditors Report Board of Directors Starr Insurance & Reinsurance Limited and Subsidiaries We have audited the consolidated balance sheet of Starr Insurance & Reinsurance Limited and Subsidiaries (the Company ) as of, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholder's equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Starr Insurance & Reinsurance Limited and Subsidiaries as of, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. New York, New York May 9, 2012 1

Consolidated Balance Sheet (Expressed In Thousands of U.S. Dollars, Except for Number of Shares and Par Value Data) Assets 2011 2010 Cash and cash equivalents $ 23,002 $ 26,669 Available-for-sale investments: Fixed maturity securities, at fair value 1,411,864 1,260,395 Equity securities and hedge, private equity, and real estate funds, at fair value 1,025,649 1,156,082 Total available-for-sale investments 2,437,513 2,416,477 Investments in real estate 444,957 458,630 Equity method investment 64,047 - Accrued investment income 18,568 16,727 Insurance balances receivable 108,448 50,210 Funds withheld 26,279 15,559 Reinsurance balances recoverable 44,164 36,039 Prepaid reinsurance premiums 78,352 17,033 Deferred acquisition costs 46,774 43,473 Other assets 8,543 5,216 Total assets $ 3,300,647 $ 3,086,033 Liabilities and Shareholder s Equity Liabilities Loss and loss adjustment expense reserves $ 456,233 $ 315,261 Accounts payable and accrued liabilities 13,377 5,808 Due to related parties 4,504 38,511 Reinsurance balances payable 74,288 9,217 Unearned premiums 242,803 158,717 Unearned commissions 235 67 Net deferred tax liability 1,843 505 Long-term borrowings 88,958 88,591 Total liabilities 882,241 616,677 Shareholder's Equity Share capital, par value $1.00, authorized and issued 1,000,000 shares in 2011 and 2010 1,000 1,000 Contributed capital 1,986,512 1,986,512 Retained earnings 30,119 28,809 Accumulated other comprehensive income 294,698 343,857 Total controlling interest 2,312,329 2,360,178 Noncontrolling interests 106,077 109,178 Total liabilities and shareholder's equity $ 3,300,647 $ 3,086,033 See notes to consolidated financial statements 2

Consolidated Statement of Operations and Comprehensive Income (Loss) (Expressed In Thousands of U.S. Dollars) Years Ended 2011 2010 Underwriting Income Gross premiums written $ 511,470 $ 431,592 Reinsurance premiums ceded (127,717) (48,732) Net premiums written 383,753 382,860 Change in unearned premiums (81,831) (1,230) Change in prepaid reinsurance premiums 58,905 (21,696) Net premiums earned 360,827 359,934 Underwriting Expenses Losses and loss adjustment expenses 308,281 235,750 Commissions and brokerage 107,657 116,504 Change in deferred acquisition costs (3,177) (5,401) Commission income (4,610) (36) Total underwriting expenses 408,151 346,817 Net underwriting income (loss) (47,324) 13,117 Net Investment Income (Loss) 68,173 (8,049) General and Administrative Expenses 18,896 6,225 Net Income (Loss) Before Tax 1,953 (1,157) Tax Expense 1,370 447 Net Income (Loss) 583 (1,604) Less: Net loss attributable to noncontrolling interests, (net of income tax expense 2011: $15 and 2010: $159) (727) (342) Net Income (Loss) Attributable to Controlling Interest 1,310 (1,262) Other Comprehensive Income (Loss) Other comprehensive income from equity method investee 633 - Unrealized holdings gains (losses) on available-for-sale securities arising during the year (18,658) 295,145 Reclassification adjustment for realized (gains) losses on available-for-sale securities included in net investment income (loss) (31,134) 30,011 Total other comprehensive income (loss) (49,159) 325,156 Less: Other comprehensive income attributable to noncontrolling interests - - Other comprehensive income (loss) attributable to the controlling interest (49,159) 325,156 Comprehensive Income (Loss) Attributable to Controlling Interest $ (47,849) $ 323,894 See notes to consolidated financial statements 3

Consolidated Statement of Changes In Shareholder s Equity (Expressed In Thousands of U.S. Dollars) Years Ended 2011 2010 Share Capital Balance, beginning and end of period $ 1,000 $ 1,000 Contributed Capital Balance, beginning of period 1,986,512 449,463 Amounts contributed during the period - 1,537,049 Balance, end of period 1,986,512 1,986,512 Retained Earnings Balance, beginning of period 28,809 30,071 Net income (loss) attributable to controlling interest 1,310 (1,262) Balance, end of period 30,119 28,809 Accumulated Other Comprehensive Income Balance, beginning of period 343,857 14,996 Accumulated other comprehensive income on investments contributed - 3,705 Other comprehensive income (loss) - 325,156 Balance, end of period 343,857 343,857 Total controlling interest $ 2,361,488 $ 2,360,178 Noncontrolling Interests Balance, beginning of period $ 109,178 $ - Net distribution to noncontrolling interests (2,374) - Noncontrolling interests contributed during the period - 109,520 Net loss attributable to noncontrolling interests (727) (342) Balance, end of period $ 106,077 $ 109,178 See notes to consolidated financial statements 4

Consolidated Statement of Cash Flows (Expressed In Thousands of U.S. Dollars) Years Ended 2011 2010 Cash Flows from Operating Activities Net income (loss) attributable to controlling interest $ 1,310 $ (1,262) Net loss attributable to non-controlling interests (727) (342) Net income (loss) 583 (1,604) Net realized (gain) loss on investments (31,134) 30,011 Income from equity method investments (966) - Depreciation of fixed assets 126 - Deferred taxes 1,338 505 Net amortization of bond premium 8,075 5,793 Change in: Accrued investment income (1,841) (2,844) Insurance balances receivable (58,238) 15,873 Funds withheld (10,720) 7,882 Reinsurance balances recoverable (8,125) 24,685 Prepaid reinsurance premiums (61,319) 21,696 Deferred acquisition costs (3,301) (5,401) Other assets (3,453) (5,097) Loss and loss adjustment expense reserves 140,972 54,917 Accounts payable and accrued liabilities 7,569 3,115 Due to related parties (34,007) 20,859 Reinsurance balances payable 65,071 (25,419) Unearned premiums 84,086 1,230 Unearned commission 168 (675) Net cash provided by operating activities 94,884 145,526 Cash Flows from Investing Activities Fixed maturity securities available-for-sale: Purchases (354,420) (464,691) Sales, maturities and calls 247,066 304,458 Equity securities and hedge, private equity and real estate funds: Purchases and contributions (191,635) (119,702) Sales and distributions 252,372 97,558 Purchase of investment in real estate - (99,538) Net return of capital from investment in real estate 9,500 - Purchase of equity method investment (62,448) - Net cash received from contributed subsidiary - 18,000 Net cash used in investing activities (99,565) (263,915) Cash Flows from Financing Activities Net distribution to noncontrolling interests (2,374) - Long-term borrowings for investment in real estate 3,388 81,875 Net cash provided by financing activities 1,014 81,875 Net decrease in cash and cash equivalents (3,667) (36,514) Cash and Cash Equivalents, Beginning of Period 26,669 63,183 Cash and Cash Equivalents, End of Period $ 23,002 $ 26,669 Supplementary Cash Flow Information Noncash financing activities: Contributions of investments and subsidiaries from Parent, net of cash received $ - $ 1,546,091 Impact of foreign translation adjustment on purchase of real estate investment and long-term borrowings for investment real estate $ (7,194) $ 6,716 See notes to consolidated financial statements 5

1. The Company and its Activities Starr Insurance & Reinsurance Limited (the Company ) was incorporated under the laws of Bermuda on April 12, 2007. The Company is a wholly owned subsidiary of Starr International Investments Ltd, (the Parent ) a Bermuda registered company which in turn is 100% owned by Starr International Company, Inc, ( SICO ) a Panamanian company incorporated in 1943. The registered office of the Company is Bermuda Commercial Bank Building, 19 Par-la-Ville Road, Hamilton, Bermuda. The Company reinsures primarily on a quota share basis insurance companies which underwrite various classes of business. Since inception, the majority of business reinsured is produced by the agency subsidiaries of C.V. Starr & Co, Inc. (the Starr Agencies ). Certain key personnel of the Starr Agencies are also directors of the Company. The Company reinsures the following lines of business - aviation, energy, excess casualty, property, accident and health, professional liability, marine, residential construction, contractors pollution, and political and financial risk. The Company uses quota share and excess of loss reinsurance agreements to limit its exposure on reinsurance assumed. On June 30, 2010 the Parent contributed the common stock of Starr International Cayman, Inc. and Subsidiaries ( Starr Cayman ) an investment management company. Starr Cayman invests primarily in limited partnerships, real estate investments and private equity funds as more fully described in Note 16. In addition, the Parent also contributed bonds and equity securities. On January 1, 2011, the Company s UK Branch, Starr Insurance & Reinsurance Limited, London Branch, commenced writing various lines of business including aviation, energy, property, marine, casualty and political and financial risk on a direct basis. The Company evaluated subsequent events for recognition or disclosure through May 9, 2012, the date the financial statements were available to be issued. 2. Significant Accounting Policies The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. While management believes that the amounts included in the financial statements reflect the Company's best estimates and assumptions, actual results could differ from these estimates. Significant estimates made by the Company include fair value of investments, other-than-temporary impairment of investments, deferred acquisition costs and loss and LAE reserves. Principles of Consolidation The consolidated financial statements include all accounts, after material intercompany eliminations, between the Company and its subsidiaries. 6

Noncontrolling Interests The Company records noncontrolling (i.e., minority) interests in partially owned consolidated subsidiaries in the consolidated balance sheet as a separate component of consolidated shareholder s equity. The noncontrolling interests share of net loss is reported as a part of consolidated net loss with disclosure of the attribution of consolidated net loss attributable to the controlling and noncontrolling interests on the face of the consolidated statement of operations and comprehensive income (loss). Premiums Gross premiums written are recognized as revenue on a pro rata basis over the term of reinsurance treaties to which they relate. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums. Premiums written for which the ceding company's reports are not available are estimated. Insurance Balances Receivable Insurance balances receivable are periodically evaluated for collectability based on past credit history of ceding companies and their current financial condition. Provisions for uncollectible insurance balance receivables are charged against an allowance account when such balances are deemed to be uncollectible. The Company had no valuation allowance recorded as of. Reinsurance Ceded Reinsurance premiums ceded are recognized over the policy term in the same manner as the related premiums are earned. The portion of premiums that will be recognized in the future are deferred and reported as prepaid reinsurance premiums. The Company uses quota share and excess of loss reinsurance arrangements to reduce the risk of catastrophic loss from reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Company of its obligations to its ceding companies. The Company remains liable to its ceding companies for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance arrangement. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers. It is the opinion of management that the financial strength of the Company's reinsurers is such that any potential exposure to the Company for non-payment is minimal, and therefore no valuation allowance has been recorded as of. Certain quota share agreements written and ceded include profit sharing provisions. The Company accrues assets or liabilities pursuant to the profit sharing provisions based upon the best estimate of the probable profit or loss. As of, the Company recorded ultimate profit commissions in the amount of $1,733 and $2,008, respectively, which are included in accounts payable and accrued liabilities in the consolidated balance sheet. 7

Deferred Acquisition Costs Acquisition costs represent commissions and other costs of successfully acquiring new insurance and reinsurance contracts and the renewing of existing contracts. Acquisition costs are deferred and amortized over the term of the contracts to which they relate. Proceeds from retrocessional reinsurance transactions that represent recovery of acquisition costs reduce applicable unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in proportion to net revenue recognized. The amount amortized into earnings for the years ended was $3,177 and $5,401, respectively. The Company conducts a premium deficiency analysis whereby deferred acquisition costs are reviewed to determine if they are recoverable from future income. If such costs are estimated to be unrecoverable they are written off. The Company considers investment income in its determination of premium deficiency. The Company determined no such deficiency existed as of. Losses and Loss Adjustment Expenses Losses and loss adjustment expenses ( LAE ) include amounts paid and recovered in the period and changes in the outstanding loss reserves, incurred but not reported reserves, reinsurance balances recoverable and loss reserve discount. Loss adjustment expenses are charged to income as they are incurred and consist mainly of external costs relating to the negotiation and settlement of claims. Loss and Loss Adjustment Expense (LAE) Reserves and Reinsurance Balances Recoverable The Company s loss and LAE reserves are comprised of outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves. The outstanding loss reserves comprise estimated losses based on reports provided by the ceding companies. The incurred but not reported reserves are based upon management's best estimate of the ultimate cost of settlement of losses that may be incurred by the Company, in accordance with the recommendations of an actuary. 8

Outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves reflect management's best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to the Company. In many cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the Company's payment of that loss. As part of the process in determining the Company's outstanding loss and LAE reserves and incurred but not reported loss and LAE reserves, actuarial models are used that analyze industry data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, and changes in social attitudes and economic conditions. Management believes that its outstanding loss reserves and incurred but not reported loss and LAE reserves are fairly stated as of December 31, 2011 and 2010. However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management's informed estimates, assumptions and judgments using data currently available. As additional experience and data becomes available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends, changes in social attitudes and economic conditions, the estimates are revised accordingly. If the Company's ultimate losses prove to differ substantially from the amounts recorded at December 31, 2011 and, the related adjustments could have a material adverse effect on the Company's financial condition, results of operations and liquidity. Amounts recoverable from reinsurers are estimated in a manner consistent with the reserving methodology adopted in the estimation of the outstanding loss reserves and the incurred but not reported reserves and the related reinsurance arrangements. Future adjustments to the amounts recorded resulting from the continual review process, as well as differences between estimates and ultimate settlements, will be recorded in the consolidated statement of operations and comprehensive income when such adjustments become known and are estimable. Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid investments with maturities of three months or less at the date of acquisition. Fixed Maturity Securities Fixed maturity securities have been classified as available for sale and are reported at fair value, adjusted for any other-than-temporary decline in fair value, with unrealized holding gains and losses reported as a net amount in accumulated other comprehensive income. Realized gains and losses are determined using the specific identification basis. 9

The Company reviews fixed maturity securities in its investment portfolio on a periodic basis to specifically identify individual securities that have incurred an other-than-temporary decline in fair value below cost or amortized cost. This review encompasses, among other things, recent issuer activities, such as defaults, quarterly earnings announcements, and other pertinent financial news for the issuer, recent developments and economic outlooks for particular industries, rating agency actions, and the length of time and extent to which fair value has been less than cost or amortized cost. When management's review identifies an other-than-temporary impairment, it compares its projected discounted cash flows to the amortized cost in order to determine the credit related portion of the impairment, which is recognized in the statement of operations. The non-credit portion of the other-thantemporary impairment relative to all other factors is recorded through comprehensive income in the consolidated balance sheet. In addition, management also considers whether it has the intent to sell a particular security or whether it is more likely than not the Company has the ability to hold the security to recovery. Management does not intend to sell these securities and it is more likely than not that the Company has the ability to hold these securities to recovery. Equity Securities, Hedge, Private Equity and Real Estate Funds All equity securities, hedge, private equity and real estate funds are classified as availablefor-sale and are carried at fair value with net unrealized holding gains or losses reported as a component of accumulated other comprehensive income. The Company reviews all equity securities, hedge, private equity and real estate funds in its investment portfolio on a periodic basis to specifically identify individual securities that have incurred an other-than-temporary decline in fair value below cost. This review encompasses, among other things, recent issuer activities, such as defaults, quarterly earnings announcements, and other pertinent financial news for the issuer, recent developments and economic outlooks for particular industries, rating agency actions, and the length of time and extent to which fair value has been less than cost. When management s review identifies an other-than-temporary impairment in the valuation of a security, a realized loss is recognized in the consolidated statements of operations and comprehensive income (loss). 10

Investments in Real Estate Investments in real estate, including related improvements, are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset, when the real estate is placed in use. No depreciation expense has been recorded for December 31, 2011 or 2010 as the investments were substantially not in use during 2011 or 2010. Rental income is recognized on a straight-line basis over the term of the respective leases. The Company classifies a property as held-forsale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs. Real estate is not depreciated while it is classified as held-for-sale. There was no real estate held-for-sale as of December 31, 2011 or 2010. The Company periodically reviews its investments in real estate for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their expected future undiscounted cash flows are written down to their estimated fair value, with the impairment loss included in net investment gains (losses). There were no impairment losses recorded during 2011 or 2010. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows discounted at a rate commensurate with the underlying risks. Equity Method Investments The Company utilizes the equity method of accounting with respect to investments where it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate the ability to exercise significant influence is restricted. In applying the equity method, the Company records its investment at cost in the consolidated balance sheet as investment in partially owned companies. Any increase or decrease in the carrying amount subsequent to acquisition is the result of the Company s share of the net earnings or losses and comprehensive income (loss) of the investee. The Company s share of earnings or loss and comprehensive income (loss) are recorded in the Company s consolidated statement of income and comprehensive income (loss). 11

3. Cash and Cash Equivalents 2011 2010 Cash $ 9,381 $ 8,189 Cash held at custodian 1,621 6,480 Certificate of deposit 12,000 12,000 Total $ 23,002 $ 26,669 4. Investments The cost or amortized cost and fair value of the Company's investment portfolio at December 31 were as follows: Amortized Cost/Cost Gross Unrealized Gains 2011 Gross Unrealized Losses Fair Value Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 19,711 $ 12 $ 1 $ 19,722 States, political subdivisions and foreign government securities 64,860 6,272-71,132 Corporate debt securities 1,241,293 82,210 5,237 1,318,266 Other asset-backed securities 2,745 2 3 2,744 Total fixed maturity securities 1,328,609 88,496 5,241 1,411,864 Equity securities 283,074 68,904 31,155 320,823 Hedge funds 10,796 3,079 135 13,740 Private equity funds 489,895 180,505 12,297 658,103 Real estate funds 31,074 4,255 2,346 32,983 Total equity securities, hedge funds, private equity funds and real estate funds 814,839 256,743 45,933 1,025,649 Total $ 2,143,448 $ 345,239 $ 51,174 $ 2,437,513 12

Amortized Cost/Cost Gross Unrealized Gains 2010 Gross Unrealized Losses Fair Value Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 29,248 $ 4 $ 2 $ 29,250 States, political subdivisions and foreign government securities 60,690 1,731 579 61,842 Corporate debt securities 1,096,364 62,882 6,579 1,152,667 Other asset-backed securities 16,538 111 13 16,636 Total fixed maturity securities 1,202,840 64,728 7,173 1,260,395 Equity securities 322,246 145,320-467,566 Hedge funds 16,972 4,321 66 21,227 Private equity funds 511,353 144,919 10,543 645,729 Real estate funds 19,209 3,699 1,348 21,560 Total equity securities, hedge funds, private equity funds and real estate funds 869,780 298,259 11,957 1,156,082 Total $ 2,072,620 $ 362,987 $ 19,130 $ 2,416,477 Certain cash and cash equivalents and fixed maturity securities available for sale with an aggregate fair value of $601,568 and $503,347 as of, respectively, have been placed in trust accounts to secure the Company's obligations to ceding companies. The Company may not reduce, close, terminate or draw from the trust accounts without the express permission of the respective ceding companies. Pursuant to the terms of certain quota share reinsurance agreements, the Company has issued letters of credit as of in the amount of $108,465 and $4,069, respectively, in favor of the ceding insurers. The facilities are secured by cash and cash equivalents and fixed maturity securities held at the custodian. 13

For securities that were in an unrealized loss position, the length of time that such securities have been in an unrealized loss position, as measured by their year-end fair values, were as follows: December 31, 2011 Less than 12 Months 12 Months or More Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fixed maturity securities: U.S. Treasury Securities and obligations of U.S. government agencies $ 5,989 $ 1 $ - $ - $ 5,989 $ 1 States, Political subdivisions and foreign government securities - - - - - - Corporate debt securities 63,793 3,456 66,090 1,781 129,883 5,237 Other asset-backed securities 1,153 3 - - 1,153 3 Total fixed maturity securities 70,935 3,460 66,090 1,781 137,025 5,241 Equity securities 161,629 31,155 - - 161,629 31,155 Hedge funds 2,103 43 260 92 2,363 135 Private equity funds 6,392 157 17,343 12,140 23,735 12,297 Real estate funds - - 12,134 2,346 12,134 2,346 Total equity securities hedge, private equity and real estate funds 170,124 31,355 29,737 14,578 199,861 45,933 Total $ 241,059 $ 34,815 $ 95,827 $ 16,359 $ 336,886 $ 51,174 14 December 31, 2010 Fixed maturity securities: U.S. Treasury Securities and obligations of U.S. government agencies $ 1,318 $ 2 $ - $ - $ 1,318 $ 2 States, Political subdivisions and foreign government securities 32,160 579 - - 32,160 579 Corporate debt securities 277,847 6,430 10,312 149 288,159 6,579 Other asset-backed securities 5,544 13 - - 5,544 13 Total fixed maturity securities 316,869 7,024 10,312 149 327,181 7,173 Equity securities - - - - - - Hedge funds 176 66 - - 176 66 Private equity funds 59,714 10,543 - - 59,714 10,543 Real estate funds 7,482 1,348 - - 7,482 1,348 Total equity securities hedge, private equity and real estate funds 67,372 11,957 - - 67,372 11,957 Total $ 384,241 $ 18,981 $ 10,312 $ 149 $ 394,553 $ 19,130

As of December 31, 2011, the Company had $5,241 in unrealized losses on fixed maturity securities which primarily relate to corporate debt securities. The determination that a security has incurred an other-than-temporary impairment and the amount of any loss recognized requires the judgment of management and continued review of the Company s investments. The Company performs quarterly reviews of its investments in order to determine whether declines in market value below the amortized cost basis were considered other-than-temporary. For 2011 the Company recorded a loss of $27,315 on its equity investments that was deemed to be an other-than-temporary impairment. The Company s assessment was based on the issuer s current and expected future financial position, as well as relevant information provided by investment advisors and analysts. As of December 31, 2011, the Company holds one direct investment with a cost, net of otherthan-temporary impairment, and estimated fair value recorded by the Company of $25,000. During the year ended December 31, 2011, the Company recorded other-than-temporary impairments related to this investment to write the investment down from its carried amount of $52,315 at December 31, 2010 to $25,000 at December 31, 2011. In 2012, the Company is expecting to receive $25,000 under an agreement to sell this investment to its ultimate parent. The Company's investments are managed in accordance with its investment guidelines established by its Executive Committee and approved by its Board of Directors. The Company's investments potentially expose it to credit risk. The Company's portfolio comprises a diversified holding of debt securities and therefore does not contain significant holdings with any one single issuer. All debt securities are in accordance with the investment guidelines. Management has received Board approval to hold below investment grade securities and will continue to monitor these investments for potential impairment. Market risk exists in that the recorded fair value will fluctuate with changes in fair value. Management has considered the nature of investments in an unrealized loss position, the cause of their impairment, the severity and duration of their impairment and other relevant information available and believes that impairments are temporary in nature. In the opinion of management, the risk of exposure due to market risk is low due to the diversified portfolio. For securities, other than fixed maturity securities, that are in an unrealized loss position management considers such factors as the size of the loss compared to fair value, the commitment period and remaining commitment of the fund, other information from investment managers to determine if the impairment is other-than-temporary, and the Company s ability and intent to hold these securities to recovery. 15

The amortized cost and fair value of fixed maturity securities by contractual maturity as of December 31, 2011 are shown below. Expected maturities will differ from contractual maturities because the issuers may have the right to call or prepay certain obligations. Amortized Cost/ Cost Fair Value Within one year $ 19,356 $ 19,367 One to five years 192,383 201,224 Six to ten years 1,108,759 1,182,750 After ten years 8,111 8,523 Total $ 1,328,609 $ 1,411,864 The nature of the Company s investments is as follows: U.S. Treasury, U.S. Government Corporations and Agencies The Company invests in U.S. Treasury obligations and direct obligations of U.S. government agencies. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the par value of the investment. State, Political Subdivision, and Foreign Government Securities The Company invests in states, municipalities and political subdivisions in which the contractual terms of those investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Corporate Debt Securities The Company invests in corporate debt securities in various entities in diversified industries. The contractual terms of corporate bonds do not permit those entities to settle the security at a price less than the par value of the investment. Asset Backed Securities The Company s investments in asset-backed securities are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. The pools of underlying assets include common payments from credit cards and auto loans, to esoteric cash flows from aircraft leases and royalty payments. 16

Equity Securities The Company s investment in equity securities and exchange traded funds of various entities in diversified industries traded on various foreign exchanges. Hedge Funds The Company has various investments in hedge funds located in the United States and foreign countries. Each fund has its own strategy which determines the type of investments and the methods of investment it undertakes. Each fund is managed by its own investment manager which has spread investments over various entities. The Company has diversified its investments over several hedge fund managers. Private Equity Funds The Company has a diversified investment portfolio in private equity funds located in various countries. This investment vehicle is used for making investments in various equity securities as identified by management. These funds are typically limited partnerships and are managed by various investment managers. Real Estate Funds The Company has a direct investment in a fund located in a foreign country. This fund invests in a variety of commercial real estate ventures. Investments in Real Estate The Company owns commercial real estate in certain subsidiaries in which the Company has a controlling interest. Other Investments The Company has direct investments in various entities whose business are in diversified industries located in the United States of America and other countries. 5. Insurance Balances Receivable Insurance balances receivable are comprised of amounts due from ceding insurers and is stated net of acquisition costs, funds withheld and losses paid. All amounts are due within one year of the balance sheet date. 6. Funds Withheld Funds withheld comprise amounts held by ceding insurers pursuant to the terms of the quota share reinsurance agreements. Interest earned on funds withheld and trust assets amounted to $25,319 and $21,246 as of, respectively, and is included in net investment income (loss). 17

7. Loss and LAE Reserves and Reinsurance Balances Recoverable 2011 2010 Gross balance, beginning of year $ 315,261 $ 260,344 Less: reinsurance recoverable, beginning of year 36,039 60,723 Net reserves 279,222 199,621 Net incurred losses and LAE related to: Current year 279,094 272,877 Prior years (favorable) adverse 41,722 (15,253) Net discount (12,535) (21,874) 308,281 235,750 Net paid losses and LAE related to: Current year 58,061 49,733 Prior years 117,221 106,416 175,282 156,149 Net balance, end of year 412,221 279,222 Foreign currency translation exchange adjustments (152) - Plus: reinsurance recoverable, end of year 44,164 36,039 Gross balance, end of year $ 456,233 $ 315,261 Comprising: Outstanding loss and LAE reserves $ 208,285 $ 139,770 Incurred but not reported loss and LAE reserves 247,948 175,491 Total $ 456,233 $ 315,261 The unfavorable development of losses in 2011 is a result of higher than estimated losses on the Company s aviation and excess casualty lines of business, as the estimated ultimate losses of prior years for these lines of business were based upon industry data, primarily as the Company had limited historical loss experience on which to base its estimates. The Company s actual experience during 2011 is included in the Company s statement of operations and comprehensive income (loss). During 2011 and 2010, the Company discounted its excess casualty line of business. The discount is calculated using a 3.6% interest rate, which approximates the Company s 2011 and 2010 investment yield, and payment patterns for excess casualty business which consider industry and Company experience. At, loss and LAE reserves reflect a net discount of $34,409 and $21,874, respectively. 18

8. Reinsurance The components of net premiums written and earned, and losses and LAE incurred were as follows: 2011 2010 Premiums written Direct $ 117,126 $ 26,091 Assumed 394,344 405,501 Ceded (127,717) (48,732) Net $ 383,753 $ 382,860 Earned premiums Direct $ 27,860 $ 12,796 Assumed 286,535 369,220 Ceded 46,432 (22,082) Net $ 360,827 $ 359,934 Losses and loss adjustment expenses Direct $ 25,182 $ 13,748 Assumed 325,267 262,376 Ceded (42,168) (40,374) Net $ 308,281 $ 235,750 Included in the assumed reinsurance are amounts relating to the reinsurance of affiliated companies. As of, $43,266 and $-0- were due from affiliated companies and included in insurance balance receivable. 9. Related Party Transactions and Balances During 2008, SICO entered into an investment management agreement with the Starr Agencies which includes the Company. SICO charged the Company investment management fees of $26,353 and $20,680 for the years ended, respectively, of which $1,679 and $24,123 remained outstanding as of, respectively, and is included in due to related parties. During 2011, the Company entered into various contracts of reinsurance ceded by affiliated companies. The total gross written premium assumed from affiliated companies during the years ended 2011 and 2010 was $188,350 and $66,327, respectively. 19

10. Net Investment Income (Loss) Net investment income (loss) is comprised of for the year ended December 31: 2011 2010 Net interest income $ 72,649 $ 45,975 Net income from equity method investments 966 - Net realized gain (loss) on sales of investments 58,449 (30,011) Losses on other-than-temporary impairment (27,315) - 104,749 15,964 Less investment management fees (36,576) (24,013) Total $ 68,173 $ (8,049) 11. Income Taxes The Company has received an undertaking from the Bermuda government exempting it from all local income, withholding and capital gains taxes until March 28, 2016. At the present time no such taxes are levied in Bermuda. Certain of the Company s subsidiaries are subject to federal, state or local taxes based upon their countries of incorporation or where they conduct business. Such amounts are immaterial to the consolidated financial statements. 12. Statutory Capital and Surplus Effective April 19, 2007, the Company was registered as a Class 4 insurer under The Bermuda Insurance Act 1978 and related regulations, (the "Act"), which requires that the Company file a statutory financial return and maintain certain measures of solvency and liquidity during the period. As of the Company met the required Minimum General Business Solvency Margin and the required Minimum Liquidity Ratio. The required Minimum General Business Solvency Margin as of was $190,088 and $190,119, respectively. The Company's statutory capital and surplus at those dates was $2,102,838 and $2,089,505, respectively. The Minimum Liquidity Ratio is the ratio of the insurer's relevant assets to its relevant liabilities; the minimum allowable ratio is 75%. The Company's relevant assets as of December 31, 2011 and 2010 were $1,734,007 and $1,550,786, respectively, and 75% of its relevant liabilities as of were $514,002 and $340,409, respectively. The Minimum Liquidity Ratio was met as of. Distributions to shareholders are restricted to the extent that such a distribution would result in the Company not meeting the required Minimum General Business Solvency Margin or the required Minimum Liquidity Ratio. 20

Accounting practices under the Act vary in some respects from U.S. GAAP. The significant variances between the Act and U.S. GAAP are as follows: a. Under the Act, certain assets designated as nonadmitted assets (principally prepaid expenses and deferred acquisition costs) result in a direct charge to surplus. b. Under the Act, investments in affiliates shall be valued either by the cost method of valuation or the equity method of valuation provided that: if the value arrived at by the use of the equity method of valuation is less than the value arrived at by the cost method of valuation, the value arrived at by the equity method shall be used; the directors shall carry the said investments at a fair value determined in good faith if that value is less than the valuations under the cost method and the equity method of valuation; advances to affiliates shall be carried at fair value determined in good faith; if any amount is in the opinion of the directors uncollectible, that amount shall be deducted. Under U.S. GAAP, investments in affiliates are generally consolidated and the balance sheets and statements of operations of those subsidiaries consolidated with those of the Company. 13. Fair Value Measurements The Company applies the provisions of FASB authoritative accounting guidance which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. FASB authoritative accounting guidance establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 - Fair value measures are based on unadjusted quoted market prices in active markets for identical securities. The fair value of securities included in this category was based on quoted prices that are readily and regularly available in an active market. Level 1 assets include listed mutual funds, equities and certain debt securities. 21

Level 2 - Fair value measures are based on observable inputs, such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. Assets which generally are included in this category may include states, municipalities and political subdivisions fixed maturities, corporate bonds and redeemable preferred stocks, mortgage backed securities and asset backed securities. Level 3 - Fair value measures are based on inputs that are unobservable and significant to the overall fair value measurement, and may involve management judgment. Assets included in this category generally include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds, and funds of hedge funds. Level 3 inputs include capital accounts of the Company s interest for partnership interests in various alternative investments, hedge funds, real estate and private equity. The various partnerships are investment companies which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, including independent appraisals, from third party sources, however, in some instances current valuation information, for illiquid securities or securities in markets that are not active, may not be available from any third party source or fund management may conclude that the valuations that are available from third party sources are not reliable. In these instances fund management may perform model-based analytical valuations that may be used to value these investments. The Company s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. 22

The following table provides the fair value measurements of applicable Company financial assets by level within the fair value hierarchy as of. These financial assets are measured on a recurring basis: 2011 Level 1 Level 2 Level 3 Total Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 19,722 $ - $ - $ 19,722 States, political subdivision and foreign government securities - 71,132-71,132 Corporate debt securities - 1,318,266-1,318,266 Other asset-backed securities - 2,744-2,744 Total fixed maturity securities 19,722 1,392,142-1,411,864 Equity securities, hedge, private equity and real estate funds: Equity securities 320,823 - - 320,823 Hedge funds - - 13,740 13,740 Private equity funds - - 658,103 658,103 Real estate funds - - 32,983 32,983 Total equity securities, hedge, private equity and real estate funds 320,823-704,826 1,025,649 Total assets measured at fair value $ 340,545 $ 1,392,142 $ 704,826 $ 2,437,513 23

2010 Level 1 Level 2 Level 3 Total Fixed maturity securities: U.S. Treasury securities and obligations of U.S. government agencies $ 29,250 $ - $ - $ 29,250 States, political subdivision and foreign government securities - 61,842-61,842 Corporate debt securities - 1,152,667-1,152,667 Other asset-backed securities - 16,636-16,636 Total fixed maturity securities 29,250 1,231,145-1,260,395 Equity securities, hedge, private equity and real estate funds: Equity securities 467,566 - - 467,566 Hedge funds - - 21,227 21,227 Private equity funds - - 645,729 645,729 Real estate funds - - 21,560 21,560 Total equity securities, hedge, private equity and real estate funds 467,566-688,516 1,156,082 Total assets measured at fair value $ 496,816 $ 1,231,145 $ 688,516 $ 2,416,477 Changes in Level 3 hedge, private equity and real estate funds measured at fair value on a recurring basis for the year ended December 31: 2011 2010 Cost at beginning of year $ 547,534 $ - Unrealized gain (loss) beginning of year 140,982 - Beginning of year 688,516 - Realized (losses) (35,070) 78,334 Unrealized gains 32,079 10,311 Purchases 108,676 105,066 Sales (89,375) (122,154) Other settlements - 719,439 Transfers in/out - (102,480) End of year $ 704,826 $ 688,516 24

2011 2010 Cost at end of year $ 531,765 $ 547,534 Unrealized gain end of year 173,061 140,982 End of year $ 704,826 $ 688,516 The Company s policy is to record transfers between levels at their fair values at the end of each reporting period consistent with the date of the determination of fair value. Transfers from Level 1 are recorded when the investment is no longer transacted with sufficient frequency or volume in an active market, and vice-versa. Investments are transferred into Level 3 when a significant input cannot be corroborated with observable market data, which market activity has dramatically decreased and underlying inputs cannot be observed, current prices are not available or substantial differences exist between quotes from market participants. There were no such transfers for the years ended. On September 30, 2009, the FASB issued Accounting Standards Update ( ASU ) No. 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent), which permits the use of net asset value ( NAV ) as a practical expedient to estimate the fair value of certain alternative investments, if NAV is calculated consistent with accounting principles generally accepted in the United States of America for investment companies and sale of the investment at an amount different than NAV is not probable. The Company considered the nature, risk and probability for the sale of the investment (at amounts different from NAV). The Company s considerations included (but were not limited to): Unfunded commitments (for additional investment) Redemption eligibility and frequency Required redemption notice Based upon these considerations, the Company concluded that NAV for its alternative investments is calculated consistent with accounting principles generally accepted in the United States of America for investment companies and the sale of the investment at an amount different from NAV is not probable. ASU 2009-12 also provides guidance regarding the classification and disclosure of the applicable investments. 25

The following table includes information related to the Company s investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring or non-recurring basis at, the Company uses the net asset value per share as a practical expedient for fair value. Fair Value Using Net Asset Value 2011 2010 Fair Value Unfunded Using Net Commitments Asset Value Unfunded Commitments Investment category includes: Private equity funds $ 658,103 $ 270,857 $ 645,729 $ 334,957 Hedge funds 13,740 728 21,227 1,380 Real estate funds 32,983 29,447 21,560 41,312 $ 704,826 $ 301,032 $ 688,516 $ 377,649 Private equity fund investments included above are not redeemable during the lives of the funds, and have expected remaining lives that extend in some cases to 10 years. None of the total above have expected remaining lives of less than three years, 6.3 percent between 3 and 7 years, and 93.7 percent between 7 and 10 years. Expected lives are based upon legal maturity, which can be extended at the general manager s discretion, typically in one year increments. 99 percent of the hedge fund investments included above are redeemable, quarterly, with redemption notices ranging from 1 day to 180 days. Funds that equate to 1 percent of the total value of hedge funds hold at least one investment that the general manager deems to be illiquid. In order to treat investors fairly and to accommodate subsequent subscription and redemption requests, the general manager isolates these illiquid assets from the rest of the fund until the assets become liquid. 14. Financial Instruments The Company's financial instruments consist of cash and cash equivalents, investments at fair value and accrued investment income. Fair Values The carrying value of cash and cash equivalents, accrued investment income, insurance balances receivable, funds withheld, accounts payable and accrued liabilities and due to related party approximate fair value due to their short term nature. Interest Rate Risk Fluctuations in interest rates will have a direct impact of the interest earned on the Company's cash and cash equivalents. 26

15. Long-Term Borrowings 2011 2010 Mortgage loan $ 88,958 $ 88,591 The Company entered into a mortgage loan agreement with a Taiwanese bank during 2010 to fund the acquisition of a real estate investment. The loan is fully repayable with a balloon repayment at the loan s five year maturity. The applicable interest rate is at the New Taiwan Dollars, reference rate, plus 1.50%. The rate was 2.4915% and 2.2421% at December 31, 2011 and 2010, respectively. Repayment of the note is mandatory upon sale of the building or change in control of the borrower. The terms of the loan contain the following financial covenants: The loan to valuate ratio shall not exceed 80%; if the loan to value ratio exceeds 80%: (a) the Company cannot use the amount under the expense account (comprised of all cash flows relating to the loan facility or the collateral including any rent, account receivables, sales tax refunds etc.) unless the usage is for the real estate maintenance; (b) the bank can withdraw the amount under the expense account to repay the loans on the collateral inspection date and interest payment date until the loan to value ratio is lower than 80%. The Company cannot provide additional collateral or other fund for repayment; and (c) in case that the loan to value ratio exceeds 80%, it is not deemed as an event of default under the agreement. As of, the Company believes it is in compliance with the aforementioned covenants. 16. Contribution from Parent The below table describes the assets contributed and liabilities assumed by the Company on June 30, 2010 from the Parent: Assets contributed Cash $ 14,400 Available-for-sale investments: Fixed maturity securities, at fair value (amortized cost of $385,098) 396,525 Equity securities and hedge, private equity and real estate funds, at fair value 890,070 Real estate investments 247,146 Accrued investment income 6,088 Total assets contributed 1,554,229 Liabilities Assumed Due to related parties 13,475 Net assets contributed $ 1,540,754 27

17. Investment in Dazhong Insurance Company Limited On May 31, 2011, the Company purchased a 20% equity interest in Dazhong Insurance Company Limited ( Dazhong ). As a result, the Company acquired board representation and participation in the policy making process of Dazhong. The investment is considered an equity method investment by the Company and is recorded under the equity method. Details of the initial investment are as follows: Consideration: Cash including acquisition expenses and capital expenditures $ 62,448 Net equity in Dazhong at date of acquisition (27,092) Goodwill $ 35,356 The following is the aggregated summarized financial information of Dazhong as of and for the year ended December 31, 2011: Balance sheet information: Total assets $ 87,414 Total liabilities $ 58,724 Statement of operations information: Total revenue $ 46,840 Total expenses $ 44,926 18. Commitments and Contingencies Certain of the Company s real estate investments require the Company to commit additional capital to fund the completion of the real estate project. As of, the Company had $53,854 and $61,786, respectively, of such unfunded commitments. 28