News Column

PARTNERRE LTD - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 1, 2014

Executive Overview The Company is a leading global reinsurer and insurer, with a broadly diversified and balanced portfolio of traditional reinsurance and insurance risks and capital markets risks. Successful risk management is the foundation of the Company's value proposition, with diversification of risks at the core of its risk management strategy. The Company's ability to succeed in the risk assumption and management business is dependent on its ability to accurately analyze and quantify risk, to understand volatility and how risks aggregate or correlate, and to establish the appropriate capital requirements and limits for the risks assumed. All risks, whether they are reinsurance related risks or capital market risks, are managed by the Company within an integrated framework of policies and processes to ensure the intelligent and consistent evaluation and valuation of risk, and to ultimately provide an appropriate return to shareholders. The Company's Risk Management framework is discussed in Risk Management in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. For a discussion of the Company's long-term objective and annualized growth in Diluted Tangible Book Value per Share plus dividends, the metric that Management uses to measure its success in achieving its long-term objective, see below in Key Financial Measures. Overview of the Results of Operations for the Three Months and Six Months Ended June 30, 2014 The Company measures its performance in several ways. Among the performance measures accepted under U.S. GAAP is diluted net income or loss per share, a measure that focuses on the return provided to the Company's common shareholders. Diluted net income or loss per share is obtained by dividing net income or loss attributable to PartnerRe Ltd. common shareholders by the weighted average number of common shares and common share equivalents outstanding. Net income or loss attributable to PartnerRe Ltd. common shareholders is defined as net income or loss less preferred dividends and loss on redemption of preferred shares. The Company also utilizes certain non-GAAP measures to assess performance (see the discussion of these non-GAAP measures and the reconciliation of those non-GAAP measures to the most directly comparable GAAP measures in Key Financial Measures below). Key Factors Affecting Period over Period Comparability The following key factors affected the period over period comparison of the Company's results and may continue to affect our results of operations and financial condition in the future. These factors are discussed in more detail in Review of Net Income (Loss) below. The results for the three months and six months ended June 30, 2014 and 2013 were primarily impacted by the volatility in the capital markets, mainly as a result of decreases in U.S. and European longer-term risk-free interest rates during 2014 and increases in risk-free interest rates during 2013. As the Company's reinsurance operations are exposed to low frequency and high severity risk events, some of which are seasonal, results for certain periods may include unusually low loss experience, while results for other periods may include significant catastrophic losses. Consequently, the Company's results for interim periods may be volatile from period to period and are not necessarily indicative of results for the full year. The results for the three months and six months ended June 30, 2014 and 2013 demonstrate this volatility. While the results for the three months and six months ended June 30, 2014 included no significant catastrophic losses, during the three months and six months ended June 30, 2013 the Company incurred losses of $112 million, net of retrocession, reinstatement premiums and profit commissions, related to the combined impact of the floods that impacted large areas of Central Europe in June 2013 (European Floods) and the extensive flooding in Alberta, Canada (Alberta Floods) in June 2013. 32 --------------------------------------------------------------------------------

The combined impact of the European and Alberta Floods on the Company's technical result, pre-tax net loss (income), loss ratio, technical ratio and combined ratio by segment and sub-segment, and the large catastrophic losses by event for the three months and six months ended June 30, 2013 was as follows (in millions of U.S. dollars): Three months and six Life and months ended June 30, Total Non-life Health 2013 North America Global (Non-U.S.) P&C Global Specialty Catastrophe segment segment Corporate and Other Total Gross losses and loss expenses and life policy benefits $ 8 $ 14



$ 23 $ 89$ 134 $ - $

- $ 134 Reinsurance recoverable - - - (7 ) (7 ) - - (7 ) Net losses and loss expenses and life policy benefits $ 8 $ 14



$ 23 $ 82$ 127 $ - $

- $ 127 Reinstatement premiums - - - (15 ) (15 ) - - (15 ) Impact on technical result and pre-tax net (loss) income $ 8 $ 14



$ 23 $ 67$ 112 $ - $

- $ 112 Three months ended June 30, 2013 Impact on the loss ratio 2.2 % 8.3 % 6.2 % 111.8 % 11.8 % Impact on the technical ratio 2.2 % 8.3 % 6.2 % 111.8 % 11.8 % Impact on the combined ratio 11.7 % Six months ended June 30, 2013 Impact on the loss ratio 1.2 % 4.2 % 3.2 % 51.2 % 6.1 % Impact on the technical ratio 1.2 % 4.2 % 3.2 % 51.2 % 6.1 % Impact on the combined ratio 6.0 % Three months and six months ended June 30, 2013 Total(1) European Floods $ 57 Alberta Floods 55 Impact on pre-tax net (loss) income $ 112



(1) Large catastrophic losses are shown net of any reinsurance, reinstatement

premiums and profit commissions.

The results for the three months and six months ended June 30, 2013 were also impacted by the restructuring of the Company's business support operations into a single integrated worldwide support platform and changes to the structure of its Global Non-life Operations (the restructuring) announced in April 2013. The restructuring included involuntary and voluntary employee termination plans in certain jurisdictions (collectively, termination plans) and certain real estate related costs. During the three months and six months ended June 30, 2013, the Company recorded a pre-tax charge of $43 million related to the costs of the restructuring, which was primarily related to the termination plans, within Other operating expenses. During the three months and six months ended June 30, 2014, the Company recorded a pre-tax charge of $2 million related to the restructuring. Overview of Net Income (Loss) Net income (loss), net income attributable to noncontrolling interests, preferred dividends, loss on redemption of preferred shares, net income (loss) attributable to PartnerRe Ltd. common shareholders and diluted net income (loss) per share for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars, except per share data): 33 --------------------------------------------------------------------------------

For the three For the months six months ended June For the three months For the six months ended June 30, 2014 ended June 30, 2013 ended June 30, 2014 30, 2013 Net income (loss) $ 274 $ (174 ) $ 587 $ 60 Net income attributable to noncontrolling interests (2 ) (1 ) (5 ) (1 ) Net income (loss) attributable to PartnerRe Ltd. $ 272 $ (175 ) $ 582 $ 59 Less: preferred dividends 14 15 29 30 Less: loss on redemption of preferred shares - - - 9 Net income (loss) attributable to PartnerRe Ltd. common shareholders $ 258 $ (190 ) $ 553 $ 20 Diluted net income (loss) per share attributable to PartnerRe Ltd. common shareholders $ 5.02$ (3.37 )$ 10.64$ 0.34 Three-month result The increase in net income of $448 million, from a loss of $174 million in the three months ended June 30, 2013 to an income of $274 million in the same period of 2014 resulted primarily from: an increase of $465 million in pre-tax net realized and unrealized investment gains, mainly as a result of decreases in U.S. and European longer-term risk-free interest rates in the three months ended June 30, 2014 compared to modest increases in risk-free interest rates in the same period of 2013; an increase of $68 million in the Non-life underwriting



result, which

was mainly driven by a decrease in large catastrophic losses and an increase in favorable prior year loss development, partially offset by a decrease in the current accident year technical result which was primarily related to the North America sub-segment and an



increase in

adverse prior quarter loss development; and a decrease of $38 million in other operating expenses



included in

Corporate and Other, primarily driven by the charge related to the restructuring in 2013, described above; partially offset by an increase of $153 million in income tax expense, primarily due to an increase in the Company's pre-tax net income. The increase in net income attributable to PartnerRe Ltd. common shareholders and diluted net income per share for the three months ended June 30, 2014 compared to the same period of 2013 was primarily due to the above factors. For diluted net income per share specifically, the increase was also due to the accretive impact of a reduction in the diluted number of common shares and common share equivalents outstanding as a result of share repurchases. Six-month result The increase in net income of $527 million, from $60 million in the six months ended June 30, 2013 to $587 million in the same period of 2014 resulted primarily from: an increase of $584 million in pre-tax net realized and unrealized investment gains, mainly as a result of modest decreases in U.S. and European longer-term risk-free interest rates in the six months ended June 30, 2014 compared to increases in risk-free interest rates in the same period of 2013; an increase of $61 million in the Non-life underwriting



result, which

was mainly driven by a decrease in large catastrophic losses, partially offset by an increase in the acquisition cost ratio in the North America and Global (Non-U.S.) P&C sub-segments and a modestly higher level of mid-sized loss activity in the Global Specialty sub-segment; and a decrease of $41 million in other operating expenses



included in

Corporate and Other, driven by the charge related to the restructuring in 2013; partially offset by an increase of $174 million in income tax expense, primarily due to an increase in the Company's pre-tax net income. The increase in net income attributable to PartnerRe Ltd. common shareholders and diluted net income per share for the six months ended June 30, 2014 compared to the same period of 2013 was primarily due to the above factors. For diluted net income per share specifically, the increase was also due to the accretive impact of a reduction in the diluted number of common shares and common share equivalents outstanding as a result of share repurchases. 34 --------------------------------------------------------------------------------

Key Financial Measures In addition to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Management uses certain other key measures, some of which are non-GAAP financial measures within the meaning of Regulation G (see below), to evaluate its financial performance and the overall growth in value generated for the Company's common shareholders. The Company's long-term objective is to manage a portfolio of diversified risks that will create total shareholder value. The Company measures its success in achieving its long-term objective by targeting a return, which is variable and can be adjusted by Management, in excess of a referenced risk-free rate over the reinsurance cycle. The return, which is currently targeted to exceed 700 basis points in excess of the referenced risk-free rate, is calculated using compound annual growth in diluted tangible book value per common share and common share equivalents outstanding plus dividends per common share (annualized growth in Diluted Tangible Book Value per Share plus dividends). Management uses annualized growth in Diluted Tangible Book Value per Share plus dividends as its prime measure of long-term financial performance and believes this measure aligns the Company's stated long-term objective with the measure most investors use to evaluate total shareholder value creation given that it focuses on the tangible value of total shareholder returns, excluding the impact of goodwill and intangibles. Given the Company's profitability in any particular quarterly or annual period can be significantly affected by the level of large catastrophic losses, Management assesses this long-term objective over the reinsurance cycle as the Company's performance during any particular quarterly or annual period is not necessarily indicative of its performance over the longer-term reinsurance cycle. While annualized growth in Diluted Tangible Book Value per Share plus dividends is the Company's prime financial measure, Management also uses other key financial measures to monitor performance. At June 30, 2014 and December 31, 2013 and for the three months and six months ended June 30, 2014 and 2013 these were as follows: June



30, 2014 December 31, 2013 Diluted tangible book value per common share and common share equivalents outstanding(1)

$ 107.80 $ 98.49 Annualized growth in diluted tangible book value per common share and common share equivalents outstanding plus dividends (2) 21.6 % For the three For the three months ended months ended For the six months For the six months June 30, 2014 June 30, 2013 ended June 30, 2014 ended June 30, 2013 Operating earnings attributable to PartnerRe Ltd. common shareholders (in millions of U.S. dollars) (3) $ 134$ 51 $ 310 $ 253 Diluted operating earnings per common share and common share equivalents outstanding (3) $ 2.60$ 0.90 $ 5.97 $ 4.32 Annualized operating return on beginning diluted book value per common share and common share equivalents outstanding (4) 9.5 % 3.6 % 10.9 % 8.6 % Combined ratio (5) 91.5 % 97.8 % 87.8 % 90.0 %



(1) Diluted tangible book value per common share and common share equivalents

outstanding (Diluted Tangible Book Value per Share) is calculated using

common shareholders' equity attributable to PartnerRe Ltd. (total

shareholders' equity less noncontrolling interests and the aggregate

liquidation value of preferred shares) less goodwill and intangible assets,

net of tax, divided by the weighted average number of common shares and

common share equivalents outstanding (assuming exercise of all stock-based

awards and other dilutive securities). The presentation of Diluted Tangible

Book Value per Share is a non-GAAP financial measure within the meaning of

Regulation G (see Comment on Non-GAAP Measures below) and is reconciled to

the most directly comparable GAAP financial measure below. (2) Annualized growth in diluted tangible book value per common share and



common share equivalents outstanding plus dividends (annualized growth in

Diluted Tangible Book Value per Share plus dividends) is calculated using

Diluted Tangible Book Value per Share plus dividends per common share

divided by Diluted Tangible Book Value per Share at the beginning of the

year and annualizing. The presentation of annualized growth in Diluted

Tangible Book Value per Share plus dividends is a non-GAAP financial measure within the meaning of Regulation G (see Comment on Non-GAAP Measures below) and is reconciled to the most directly comparable GAAP financial measure below. (3) Operating earnings or loss attributable to PartnerRe Ltd. common shareholders (operating earnings or loss) is calculated as net income or



loss available to PartnerRe Ltd. common shareholders excluding net realized

and unrealized gains or losses on investments, net of tax (except where the

Company has made a strategic investment in an insurance or reinsurance

related investee), net foreign exchange gains or losses, net of tax, loss

on redemption of preferred shares and the interest in earnings or losses of

equity method investments, net of tax (except where the Company has made a

strategic investment in an insurance or reinsurance related investee and

where the Company does not control the investee's activities), and is 35

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calculated after preferred dividends. Operating earnings or loss per common share and common share equivalent outstanding (diluted operating earnings or loss per share) are calculated using operating earnings or loss for the period divided by the weighted average number of common shares and common share equivalents outstanding. The presentation of operating earnings or loss and diluted operating earnings or loss per share are non-GAAP financial measures within the meaning of Regulation G (see Comment on Non-GAAP Measures below) and are reconciled to the most directly comparable GAAP financial measure below. (4) Annualized operating return on beginning diluted book value per common



share and common share equivalents outstanding (Operating ROE) is

calculated using annualized operating earnings or loss, as defined above,

per diluted common share and common share equivalents outstanding, divided

by diluted book value per common share and common share equivalents outstanding as of the beginning of the year, as defined above. The presentation of Operating ROE is a non-GAAP financial measure within the meaning of Regulation G (see Comment on Non-GAAP Measures below) and is



reconciled to the most directly comparable GAAP financial measure below.

(5) The combined ratio of the Non-life segment is calculated as the sum of the

technical ratio (losses and loss expenses and acquisition costs divided by

net premiums earned) and the other operating expense ratio (other operating

expenses divided by net premiums earned).

Diluted Tangible Book Value per Share: Diluted Tangible Book Value per Share focuses on the underlying fundamentals of the Company's financial position and performance without the impact of goodwill or intangible assets. As discussed above, the Company uses this measure as the basis for its prime measure of long-term shareholder value creation, growth in Diluted Tangible Book Value per Share plus dividends. Management believes that Diluted Tangible Book Value per Share aligns the Company's stated long-term objectives with the measure most investors use to evaluate total shareholder value creation and that it focuses on the tangible value of shareholder returns, excluding the impact of goodwill and intangibles. Diluted Tangible Book Value per Share is impacted by the Company's net income or loss, capital resources management and external factors such as foreign exchange, interest rates, credit spreads and equity markets, which can drive changes in realized and unrealized gains or losses on its investment portfolio. Diluted Tangible Book Value per Share at June 30, 2014 and December 31, 2013 and the calculation of the annualized growth in Diluted Tangible Book Value per Share plus dividends for the six months ended June 30, 2014 were as follows. As described above, this metric is a long-term performance measure, however, the below table shows the annualized total shareholder value creation for the current period in order for the shareholders to monitor performance.



December 31,

June 30, 2014



2013

Diluted tangible book value per share $ 107.80



$ 98.49 Dividends per common share for the six months ended June 30, 2014

1.34



Diluted tangible book value per share plus dividends $ 109.14 Annualized growth in diluted tangible book value per share plus dividends

21.6 % The Company's Diluted Tangible Book Value per Share increased by 9.5%, from $98.49 at December 31, 2013 to $107.80 at June 30, 2014, primarily due to net income attributable to PartnerRe Ltd. and the accretive impact of share repurchases, which was partially offset by dividends on the common and preferred shares. The annualized growth in Diluted Tangible Book Value per Share plus dividends was 21.6% during the six months ended June 30, 2014. This growth was driven by net income attributable to PartnerRe Ltd. and dividends on the common shares. Over the past five years, since June 30, 2009, the Company has generated a compound annualized growth in Diluted Tangible Book Value per Share plus dividends in excess of 13%. The presentation of Diluted Tangible Book Value per Share is a non-GAAP financial measure within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of Diluted Tangible Book Value per Share to the most directly comparable GAAP financial measure, diluted book value per common share and common share equivalents outstanding, at June 30, 2014 and December 31, 2013 was as follows (in millions of U.S. dollars):



December 31,

June 30, 2014



2013

Diluted book value per common share and common share equivalents outstanding(1)

$ 118.96



$ 109.26 Less: goodwill and other intangible assets, net of tax, per share

11.16



10.77

Diluted tangible book value per share $ 107.80$ 98.49 (1) Diluted book value per common share and common share equivalents outstanding (Diluted Book Value per Share) is calculated using common



shareholders' equity attributable to PartnerRe Ltd. (total shareholders'

equity less noncontrolling 36

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interests and the aggregate liquidation value of preferred shares) divided by the weighted average number of common shares and common share equivalents outstanding (assuming exercise of all stock-based awards and other dilutive securities). Operating earnings or loss attributable to PartnerRe Ltd. common shareholders (operating earnings or loss) and operating earnings or loss per common share and common share equivalent outstanding (diluted operating earnings or loss per share): Management uses operating earnings or loss and diluted operating earnings or loss per share to measure its financial performance as these measures focus on the underlying fundamentals of the Company's operations by excluding net realized and unrealized gains or losses on investments (except where the Company has made a strategic investment in an investee whose operations are insurance or reinsurance related and where the Company does not control the investee's activities), net foreign exchange gains or losses, loss on redemption of preferred shares and certain interest in earnings or losses of equity method investments (except where the Company has made a strategic investment in an investee whose operations are insurance or reinsurance related and where the Company does not control the investee's activities). Net realized and unrealized gains or losses on investments in any particular period are not indicative of the performance of, and distort trends in, the Company's business as they predominantly result from general economic and financial market conditions, and the timing of realized gains or losses on investments is largely opportunistic. Net foreign exchange gains or losses are not indicative of the performance of, and distort trends in, the Company's business as they predominantly result from general economic and foreign exchange market conditions. Loss on the redemption of preferred shares is not indicative of the performance of, and distorts trends in, the Company's business as it resulted from general economic and financial market conditions, and the timing of the loss on redemption was largely opportunistic. Interest in earnings or losses of equity method investments are also not indicative of the performance of, or trends in, the Company's business where the investee's operations are not insurance or reinsurance related and where the Company does not control the investee companies' activities. Management believes that the use of operating earnings or loss and diluted operating earnings or loss per share enables investors and other users of the Company's financial information to analyze its performance in a manner similar to how Management analyzes performance. Management also believes that these measures follow industry practice and, therefore, allow the users of financial information to compare the Company's performance with its industry peer group, and that the equity analysts and certain rating agencies which follow the Company, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons. Operating earnings increased by $83 million, from $51 million in the three months ended June 30, 2013 to $134 million in the same period of 2014. The increase in operating earnings was primarily due to: an increase of $68 million in the Non-life underwriting result, which was



mainly driven by a decrease in large catastrophic losses and an increase in

favorable prior year loss development, partially offset by a decrease in

the current accident year technical result which was primarily related to

the North America sub-segment and an increase in adverse prior quarter loss

development; and

a decrease of $38 million in other operating expenses included in Corporate

and Other, primarily driven by the charge related to the restructuring in

2013, described above; partially offset by

an increase of $31 million in income tax expense on pre-tax operating

earnings, driven by the increase in pre-tax operating earnings primarily

due to the above two factors and by a higher distribution of the pre-tax

operating earnings in the taxable jurisdictions relative to non-taxable

jurisdictions.

Diluted operating earnings per share increased by $1.70, from $0.90 in the three months ended June 30, 2013 to $2.60 in the same period of 2014, primarily due to the increase in operating earnings and the accretive impact of the share repurchases. Operating earnings increased by $57 million, from $253 million in the six months ended June 30, 2013 to $310 million in the same period of 2014. The increase in operating earnings was primarily due to: an increase of $61 million in the Non-life underwriting result, which was



mainly driven by a decrease in large catastrophic losses, partially offset

by an increase in the acquisition cost ratio in the North America and

Global (Non-U.S.) P&C sub-segments and a modestly higher level of mid-sized

loss activity in the Global Specialty sub-segment; and

a decrease of $41 million in other operating expenses included in Corporate

and Other, driven by the charge related to the restructuring in 2013; partially offset by



an increase of $39 million in income tax expense on pre-tax operating

earnings, driven primarily by the same reasons described in the three-month

result.

Diluted operating earnings per share increased by $1.65, from $4.32 in the six months ended June 30, 2013 to $5.97 in the same period of 2014, primarily due to the increase in operating earnings and the accretive impact of the share repurchases. The other lesser factors contributing to the increases or decreases in operating earnings and diluted operating earnings per share in the three months and six months ended June 30, 2014 compared to the same periods of 2013 are further described in Review of Net Income (Loss) below. 37 --------------------------------------------------------------------------------

Operating earnings or loss attributable to PartnerRe Ltd. common shareholders and diluted operating earnings or loss per share are non-GAAP financial measures within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of operating earnings and diluted operating earnings per share to the most directly comparable GAAP financial measure for the three months and six months ended June 30, 2014 and 2013 was as follows (in millions of U.S. dollars): For the three For the months six months ended June For the three months For the six months ended June 30, 2014 ended June 30, 2013 ended June 30, 2014 30, 2013 Net income (loss) attributable to PartnerRe Ltd. $ 272$ (175 ) $ 582 $ 59 Less: Net realized and unrealized investment gains (losses), net of tax 124 (230 ) 240 (218 ) Net foreign exchange losses, net of tax (3 ) (6 ) (4 ) (6 ) Interest in earnings (losses) of equity method investments, net of tax 3 (5 ) 8 1 Dividends to preferred shareholders 14 15 28 29 Operating earnings attributable to PartnerRe Ltd. common shareholders $ 134 $ 51 $ 310 $ 253 Per diluted share: Net income (loss) attributable to PartnerRe Ltd. common shareholders $ 5.02$ (3.37 )$ 10.64$ 0.34 Less: Net realized and unrealized investment gains (losses), net of tax 2.41 (4.07 ) 4.61 (3.72 ) Net foreign exchange losses, net of tax (0.06 ) (0.10 ) (0.08 ) (0.11 ) Loss on redemption of preferred shares - - - (0.16 ) Interest in earnings (losses) of equity method investments, net of tax 0.07 (0.10 ) 0.14 0.01 Operating earnings attributable to PartnerRe Ltd. common shareholders $ 2.60$ 0.90



$ 5.97$ 4.32

Operating ROE: Management uses annualized Operating ROE as a measure of profitability that focuses on the return to common shareholders on an annual basis. To support the Company's growth objectives, most economic decisions, including capital attribution and underwriting pricing decisions, incorporate an Operating ROE impact analysis. For the purpose of that analysis, an appropriate amount of capital (equity) is attributed to each transaction for determining the transaction's priced return on attributed capital. Subject to an adequate return for the risk level as well as other factors, such as the contribution of each risk to the overall risk level and risk diversification, capital is attributed to the transactions generating the highest priced return on deployed capital. Management's challenge consists of (i) attributing an appropriate amount of capital to each transaction based on the risk created by the transaction, (ii) properly estimating the Company's overall risk level and the impact of each transaction on the overall risk level, (iii) assessing the diversification benefit, if any, of each transaction, and (iv) deploying available capital. The risk for the Company lies in mis-estimating any one of these factors, which are critical in calculating a meaningful priced return on deployed capital, and entering into transactions that do not contribute to the Company's growth objectives. The Company's Operating ROE's for quarterly periods are annualized. Annualized Operating ROE increased from 3.6% in the three months ended June 30, 2013 to 9.5% in the same period of 2014 and from 8.6% in the six months ended June 30, 2013 to 10.9% in the same period of 2014. The increase in annualized Operating ROE was primarily due to a higher diluted operating earnings per share as described above, partially offset by a higher beginning diluted book value per share at January 1, 2014 compared to January 1, 2013. The factors contributing to increases or decreases in operating earnings are described further in Review of Net Income (Loss) below. The presentation of Operating ROE is a non-GAAP financial measure within the meaning of Regulation G and should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP (see Comment on Non-GAAP Measures). The reconciliation of Operating ROE to the most directly comparable GAAP financial measure for the three months and six months ended June 30, 2014 and 2013 was as follows: 38 --------------------------------------------------------------------------------

For the For the three three For the For the months months six months six months ended June ended June ended June ended June 30, 2014 30, 2013 30, 2014 30, 2013 Annualized return on beginning diluted book value per common share calculated with net income (loss) per share attributable to common shareholders 18.4 % (13.4 )% 19.5 % 0.7 % Less: Annualized net realized and unrealized investment gains (losses), net of tax, on beginning diluted book value per common share 8.8 (16.2 ) 8.4 (7.4 ) Annualized net foreign exchange losses, net of tax, on beginning diluted book value per common share (0.2 ) (0.4 ) (0.1 ) (0.2 ) Annualized net interest in earnings (losses) of equity method investments, net of tax, on beginning diluted book value per common share 0.3 (0.4 ) 0.3 - Annualized loss on redemption of preferred shares, on beginning diluted book value per common share - - - (0.3 ) Annualized operating return on beginning diluted book value per common share 9.5 % 3.6 %



10.9 % 8.6 %

Combined ratio: The combined ratio is used industry-wide as a measure of underwriting profitability for Non-life business. A combined ratio under 100% indicates underwriting profitability, as the total losses and loss expenses, acquisition costs and other operating expenses are less than the premiums earned on that business. While an important metric of underwriting profitability, the combined ratio does not reflect all components of profitability, as it does not recognize the impact of investment income earned on premiums between the time premiums are received and the time loss payments are ultimately made to clients. The key challenges in managing the combined ratio metric consist of (i) focusing on underwriting profitable business even in the weaker part of the reinsurance cycle, as opposed to growing the book of business at the cost of profitability, (ii) diversifying the portfolio to achieve a good balance of business, with the expectation that underwriting losses in certain lines or markets may potentially be offset by underwriting profits in other lines or markets, and (iii) maintaining control over expenses. The Non-life combined ratio decreased by 6.3 points, from 97.8% in the three months ended June 30, 2013 to 91.5% in the same period of 2014. The decrease in the combined ratio for the three months ended June 30, 2014 compared to the same period of 2013 was mainly driven by a decrease in large catastrophic losses of 11.8 points in the combined ratio and an increase in favorable prior year loss development, partially offset by a decrease in the current accident year technical result which was primarily related to the North America sub-segment and an increase in adverse prior quarter loss development. The Non-life combined ratio decreased by 2.2 points, from 90.0% in the six months ended June 30, 2013 to 87.8% in the same period of 2014. The decrease in the combined ratio for the six months ended June 30, 2014 compared to the same period of 2013 was mainly driven by a decrease in large catastrophic losses of 6.1 points in the combined ratio, partially offset by an increase in the acquisition cost ratio in the North America and Global (Non-U.S.) P&C sub-segments and a modestly higher level of mid-sized loss activity in the Global Specialty sub-segment. The other lesser factors contributing to increases or decreases in the combined ratio are described further in Review of Net Income (Loss) below. The Company uses the combined ratio to measure its overall underwriting profitability for its Non-life segment as a whole. Given the Company does not allocate operating expenses to its Non-life sub-segments, Management measures the underwriting profitability of the Non-life sub-segments by using the technical result and technical ratio as described in Results by Segment below. Other Key Financial Measures In addition to using the annualized growth in Diluted Tangible Book Value per Share plus dividends as the Company's prime financial long-term measure, and diluted tangible book value per common share and common share equivalents outstanding (Diluted Tangible Book Value per Share) as the basis for this measure, the Company uses other metrics to monitor its financial performance and to measure total shareholder value. Other such metrics used by Management include, but are not limited to, diluted book value per common share and common share equivalents outstanding (Diluted Book Value per Share) and Diluted Tangible Book Value per Share plus the discount in Non-life loss reserves per common share and common share equivalents outstanding (Diluted Tangible Book Value plus the discount in Non-life reserves). Diluted Book Value per Share is a similar metric to Diluted Tangible Book Value per Share, except that it includes the impact on book value of goodwill and intangible assets. Diluted Tangible Book Value plus the discount in Non-life loss reserves is a shorter-term metric that adjusts the Company's Diluted Tangible Book 39 --------------------------------------------------------------------------------

Value per Share for the impact that changes in interest rates have on the time value of money that is embedded in the Company's Non-life loss reserves. Comment on Non-GAAP Measures Throughout this filing, the Company's results of operations have been presented in the way that Management believes will be the most meaningful and useful to investors, analysts, rating agencies and others who use financial information in evaluating the performance of the Company. This presentation includes the use of Diluted Tangible Book Value per Share, Diluted Tangible Book Value per Share plus dividends, operating earnings or loss, diluted operating earnings or loss per share and Operating ROE that are not calculated under standards or rules that comprise U.S. GAAP. These measures are referred to as non-GAAP financial measures within the meaning of Regulation G. Management believes that these non-GAAP financial measures are important to investors, analysts, rating agencies and others who use the Company's financial information and will help provide a consistent basis for comparison between years and for comparison with the Company's peer group, although non-GAAP measures may be defined or calculated differently by other companies. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable U.S. GAAP financial measures, diluted book value per share, net income or loss and return on beginning common shareholders' equity calculated with net income or loss attributable to common shareholders, is presented above. Risk Management In the reinsurance industry, the core of the business model is the assumption and management of risk. A key challenge is to create total shareholder value through the intelligent and optimal assumption and management of reinsurance, insurance and investment risks while limiting and mitigating those risks that can destroy tangible as well as intangible value, those risks for which the organization is not sufficiently compensated, and those risks that could threaten the ability of the Company to achieve its objectives. While many companies start with a return goal and then attempt to shed risks that may derail that goal, the Company starts with a capital-based risk appetite and then looks for risks that meet its return targets within that framework. Management believes that this construct allows the Company to balance the cedants' need for certainty of claims payment with the shareholders' need for an adequate total return. All business decisions entail a risk/return trade-off, and these decisions are applicable to the Company's risks. In the context of assumed business risks, this requires an accurate evaluation of risks to be assumed, and a determination of the appropriate economic returns required as fair compensation for such risks. The Company's results are primarily determined by how well the Company understands, prices and manages assumed risk. Management also believes that every organization faces numerous risks that could threaten the successful achievement of a company's goals and objectives. These include choice of strategy and markets, economic and business cycles, competition, changes in regulation, data quality and security, fraud, business interruption and management continuity; all factors which can be viewed as either strategic, financial, or operational risks that are common to any industry. See Risk Factors in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. For additional information related to the Company's risk management approach, see Business-Risk Management in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Assumed Risks Central to the Company's assumed risk framework is its risk appetite. The Company's risk appetite is a statement of how much and how often the Company will tolerate operating losses and economic losses during an annual period. The Company's risk appetite is expressed as the maximum operating loss and the maximum economic loss that the Board of Directors (Board) is willing to incur. The Company's risk appetite is approved by the Board on an annual basis. The Company manages exposure levels from multiple risk sources to provide reasonable assurance that modeled operating or economic losses are contained within the risk appetite approved by the Board. Definitions for operating and economic losses in the context of the Company's risk management framework are included in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Company establishes key risk limits for any risk source deemed by Management to have the potential to cause operating losses or economic losses greater than the Company's risk appetite. The Risk and Finance Committee of the Board (Risk and Finance Committee) approves the key risk limits. Executive and Business and Support Unit Management may set additional specific and aggregate risk limits within the key risk limits approved by the Risk and Finance Committee. The actual level of risk is 40 --------------------------------------------------------------------------------

dependent on current market conditions and the need for balance in the Company's portfolio of risks. On a quarterly basis, Management reviews and reports to the Risk and Finance Committee the actual limits deployed against the approved limits. Management established key risk limits that are approved by the Risk and Finance Committee for ten risk sources at June 30, 2014. For a detailed discussion of these ten risk sources see Business-Risk Management in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The limits approved by the Risk and Finance Committee and the actual limits deployed at June 30, 2014 and December 31, 2013 were as follows (in billions of U.S. dollars, except interest rate risk data): June 30, 2014 (2) December 31, 2013 (2) Limit Actual Limit Actual approved deployed approved deployed Natural Catastrophe Risk $ 2.3$ 1.4$ 2.3$ 1.5 Long Tail Reinsurance Risk 1.2 0.9 1.2 0.8 Market Risk 3.4 2.6 3.4 2.6 Equity and equity-like sublimit 2.8 2.0 2.8 1.8 Interest Rate Risk (duration)-excess fixed income investment portfolio(1) 6.0 years 2.7 years 6.0 years 1.5 years Default and Credit Spread Risk $ 9.5$ 6.7$ 9.5$ 6.8 Trade Credit Underwriting Risk 0.9 0.7 0.9 0.7 Longevity Risk 2.0 1.3 2.0 1.2 Pandemic Risk 1.3 0.7 1.3 0.6 Agriculture Risk 0.3 0.1 0.3 0.1 Mortgage Reinsurance Risk 0.7 0.4 0.7 0.2 Any one country sub-limit 0.5 0.4 0.5 0.2 (1) The excess fixed income investment portfolio relates to fixed income



securities included in the Company's capital funds, which are in excess of

those included in the Company's liability funds and which support the net reinsurance liabilities. (2) The limits approved and the actual limits deployed in the table above are shown net of retrocession. Natural Catastrophe Probable Maximum Loss (PML) The following discussion of the Company's natural catastrophe probable maximum loss (PML) information contains forward-looking statements based upon assumptions and expectations concerning the potential effect of future events that are subject to uncertainties. See Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a list of the Company's risk factors. Any of these risk factors could result in actual losses that are materially different from the Company's PML estimates below. Natural catastrophe risk is a source of significant aggregate exposure for the Company and is managed by setting risk appetite and limits, as discussed above. The peril zones in the disclosure below are major peril zones for the industry. The Company has exposures in other peril zones that can potentially generate losses greater than the PML estimates below. The Company's PMLs represent an estimate of loss for a single event for a given return period. The table below discloses the Company's 1-in-250 and 1-in-500 year return period estimated loss for a single occurrence of a natural catastrophe event in a one-year period. In other words, the 1-in-250 and 1-in-500 year return period PMLs mean that there is a 0.4% and 0.2% chance, respectively, in any given year that an occurrence of a natural catastrophe in a specific peril zone will lead to losses exceeding the stated estimate. The PML estimates below include all significant exposure from our Non-life and Life and Health business operations. This includes coverage for property, marine, energy, aviation, engineering, workers' compensation and mortality and exposure to catastrophe from insurance-linked securities. The PML estimates do not include casualty coverage that could be exposed as a result of a catastrophic event. In addition, they do not include estimates for contingent losses to insureds that are not directly impacted by the event (e.g. loss of earnings due to disruption in supply lines). For additional information related to the Company's natural catastrophe PML information and definitions, see Business-Natural Catastrophe Probable Maximum Loss (PML) in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Company's single occurrence estimated net PML exposures (pre-tax and net of retrocession and reinstatement premiums) for certain selected peak industry natural catastrophe perils at April 1, 2014 were as follows (in millions of U.S. dollars): 41 -------------------------------------------------------------------------------- Single Occurrence Estimated Net PML Exposure 1-in-500 year PML Zone Peril 1-in-250 year PML (Earthquake Perils Only) U.S. Southeast Hurricane $ 966 - U.S. Northeast Hurricane 1,014 - U.S. Gulf Coast Hurricane 978 - Caribbean Hurricane 183 - Europe Windstorm 630 - Japan Typhoon 147 - California Earthquake 587 $ 689 British Columbia Earthquake 209 431 Japan Earthquake 433 465 Australia Earthquake 348 449 New Zealand Earthquake 193 222 The Company estimates that the incremental loss at the 1-in-250 year return period from a U.S. hurricane impacting more than one of the three hurricane risk zones in the U.S. would be 20% higher than the PML of the largest zone impacted. In addition, there is the potential for a hurricane to impact the Caribbean peril zone and one or more U.S. hurricane peril zones. Critical Accounting Policies and Estimates Critical Accounting Policies and Estimates of the Company at June 30, 2014 have not changed materially compared to December 31, 2013. The following discussion updates specific information related to the Company's estimates for losses and loss expenses and life policy benefits and valuation of investments and funds held - directly managed, including certain derivative financial instruments. See Critical Accounting Policies and Estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the Company's other critical accounting policies which are not specifically updated in this report given they have not changed materially compared to December 31, 2013. Losses and Loss Expenses and Life Policy Benefits Losses and Loss Expenses Because a significant amount of time can elapse between the assumption of risk, occurrence of a loss event, the reporting of the event to an insurance company (the primary company or the cedant), the subsequent reporting to the reinsurance company (the reinsurer) and the ultimate payment of the claim on the loss event by the reinsurer, the Company's liability for unpaid losses and loss expenses (loss reserves) is based largely upon estimates. The Company categorizes loss reserves into three types of reserves: reported outstanding loss reserves (case reserves), additional case reserves (ACRs) and incurred but not reported (IBNR) reserves. The Company updates its estimates for each of the aforementioned categories on a quarterly basis using information received from its cedants. The Company also estimates the future unallocated loss adjustment expenses (ULAE) associated with the loss reserves and these form part of the Company's loss adjustment expense reserves. The Company's Non-life loss reserves for each category and sub-segment are reported in the table included later in this section. The amount of time that elapses before a claim is reported to the cedant and then subsequently reported to the reinsurer is commonly referred to in the industry as the reporting tail. For all lines, the Company's objective is to estimate ultimate losses and loss expenses. Total loss reserves are then calculated by subtracting losses paid. Similarly, IBNR reserves are calculated by subtraction of case reserves and ACRs from total loss reserves. The Company analyzes its ultimate losses and loss expenses after consideration of the loss experience of various reserving cells. The Company assigns treaties to reserving cells and allocates losses from the treaty to the reserving cell. The reserving cells are selected in order to ensure that the underlying treaties have homogeneous loss development characteristics (e.g., reporting tail) but are large enough to make estimation of trends credible. The selection of reserving cells is reviewed annually and changes over time as the business of the Company evolves. For each reserving cell, the Company's estimates of loss reserves are reached after a review of the results of several commonly accepted actuarial projection methodologies. In selecting its best estimate, the Company considers the appropriateness of each methodology to the individual circumstances of the reserving cell and underwriting year for which the projection is made. 42 --------------------------------------------------------------------------------

See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for additional information on the reserving methodologies employed by the Company, the principal reserving methods used for the reserving lines, the principal parameter assumptions underlying the methods and the main underlying factors upon which the estimates of reserving parameters are predicated. The Company's best estimate of total loss reserves is typically in excess of the midpoint of the actuarial ultimate liability estimate. The Company believes that there is potentially significant risk in estimating loss reserves for long-tail lines of business and for immature underwriting years that may not be adequately captured through traditional actuarial projection methodologies as these methodologies usually rely heavily on projections of prior year trends into the future. In selecting its best estimate of future liabilities, the Company considers both the results of actuarial point estimates of loss reserves as well as the potential variability of these estimates as captured by a reasonable range of actuarial liability estimates. The selected best estimates of reserves are always within the reasonable range of estimates indicated by the Company's actuaries. During the three months and six months ended June 30, 2014 and 2013, the Company reviewed its estimate for prior year losses for the Non-life segment (defined below in Results by Segment) and, in light of developing data, adjusted its ultimate loss ratios for prior accident years. The net prior year favorable loss development for each sub-segment of the Company's Non-life segment for the three months and six months ended June 30, 2014 and 2013 was as follows (in millions of U.S. dollars): For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Net Non-life prior year favorable (adverse) loss development: North America $ 68 $ 31 $ 92 $ 61 Global (Non-U.S.) P&C 30 36 77 94 Global Specialty 69 28 128 88 Catastrophe (6 ) 32 28 67 Total net Non-life prior year favorable loss development $ 161$ 127$ 325$ 310 The net Non-life prior year favorable loss development for the three months and six months ended June 30, 2014 and 2013 was driven by the following factors (in millions of U.S. dollars): For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Net Non-life prior year (adverse) favorable loss development: Net prior year loss development due to changes in premiums(1) $ (9 ) $ (13 )$ (18 )$ (24 ) Net prior year loss development due to all other factors(2) 170 140 343 334 Total net Non-life prior year favorable loss development $ 161$ 127$ 325$ 310



(1) Net prior year loss development due to changes in premiums includes, but it

is not limited to, the impact to prior years' reserves associated with

(increases) decreases in the estimated or actual premium exposure reported

by cedants.

(2) Net prior year loss development due to all other factors includes, but is

not limited to, loss experience, changes in assumptions and changes in

methodology.

For a discussion of net prior year favorable loss development by Non-life sub-segment, see Results by Segment below. See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for additional information by reserving lines. The gross reserves reported by cedants (case reserves), those estimated by the Company (ACRs and IBNR reserves) and the total gross, ceded and net loss reserves recorded at June 30, 2014 for each Non-life sub-segment were as follows (in millions of U.S. dollars): 43 --------------------------------------------------------------------------------

Case IBNR Total gross Ceded loss Total net reserves ACRs reserves loss reserves reserves loss reserves North America $ 917$ 150$ 2,401 $ 3,468 $ (18 ) $ 3,450 Global (Non-U.S.) P&C 1,348 14 1,003 2,365 (18 ) 2,347 Global Specialty 1,897 42 2,037 3,976 (168 ) 3,808 Catastrophe 264 175 152 591 (41 ) 550



Total Non-life reserves $ 4,426$ 381$ 5,593 $

10,400 $ (245 )$ 10,155

The net loss reserves represent the Company's best estimate of future losses and loss expense amounts based on the information available at June 30, 2014. Loss reserves rely upon estimates involving actuarial and statistical projections at a given time that reflect the Company's expectations of the costs of the ultimate settlement and administration of claims. Estimates of ultimate liabilities are contingent on many future events and the eventual outcome of these events may be different from the assumptions underlying the reserve estimates. In the event that the business environment and social trends diverge from historical trends, the Company may have to adjust its loss reserves to amounts falling significantly outside its current estimate. These estimates are regularly reviewed and the ultimate liability may be in excess of, or less than, the amounts provided, for which any adjustments will be reflected in the period in which the need for an adjustment is determined. The Company's best estimates are point estimates within a reasonable range of actuarial liability estimates. These ranges are developed using stochastic simulations and techniques and provide an indication as to the degree of variability of the loss reserves. The Company interprets the ranges produced by these techniques as confidence intervals around the point estimates for each Non-life sub-segment. However, due to the inherent volatility in the business written by the Company, there can be no assurance that the final settlement of the loss reserves will fall within these ranges. The point estimates related to net loss reserves recorded by the Company and the range of actuarial estimates at June 30, 2014 for each Non-life sub-segment were as follows (in millions of U.S. dollars): Recorded Point Estimate High



Low

Net Non-life sub-segment loss reserves: North America $ 3,450 $ 3,706$ 2,760 Global (Non-U.S.) P&C 2,347 2,671 1,919 Global Specialty 3,808 4,309 3,047 Catastrophe 550 582 463 It is not appropriate to add together the ranges of each sub-segment in an effort to determine a high and low range around the Company's total Non-life carried loss reserves. Of the Company's $10,155 million of net Non-life loss reserves at June 30, 2014, net loss reserves for accident years 2005 and prior of $625 million are guaranteed by ColisÉe Re, pursuant to the Reserve Agreement. The Company is not subject to any loss reserve variability associated with the guaranteed reserves. See Business-Reserves in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the Reserve Agreement. A significant amount of judgment was used to estimate the range of potential losses related to the earthquakes that occurred in New Zealand in September 2010, February 2011 and June 2011 (New Zealand Earthquakes) and the Japan earthquake and resulting tsunami (Japan Earthquake) (collectively, 2011 catastrophic events) and there remains a considerable degree of uncertainty related to the range of possible ultimate losses. Loss estimates arising from earthquakes are inherently more uncertain than those from other catastrophic events and the Company believes the ultimate losses arising from the New Zealand Earthquakes and the Japan Earthquake may be materially in excess of, or less than, the amounts provided for in the Condensed Consolidated Balance Sheet at June 30, 2014. The remaining significant risks and uncertainties related to the New Zealand Earthquakes include the ongoing cedant revisions of loss estimates for each of these events, the degree to which inflation impacts construction materials required to rebuild affected properties, the characteristics of the Company's program participation for certain affected cedants and potentially affected cedants, and the expected length of the claims settlement period. In addition, there is additional complexity related to the New Zealand Earthquakes given multiple earthquakes occurred in the same region in a relatively short period of time, resulting in cedants continuing to revise their allocation of losses between the various events and between different treaties, under which the Company may provide different amounts of coverage. 44 --------------------------------------------------------------------------------

While the Company remains cautious regarding the estimated ultimate losses from the Japan Earthquake, as time has passed the estimates received from the Company's cedants have stabilized, paid losses have increased and the remaining complexities have been reduced. In addition to the sum of the point estimates originally recorded for each of the New Zealand Earthquakes and Japan Earthquake, at December 31, 2011 the Company recorded additional gross reserves of $50 million (net reserves of $48 million after the impact of retrocession) specifically related to these events within its Catastrophe sub-segment. The additional gross reserves recorded were in consideration of the number of events, the complexity of certain events and the continuing uncertainties in estimating the ultimate losses for these events in the aggregate. The Company continues to evaluate the additional gross reserves that were recorded as part of its periodic reserving process and changes to the amounts recorded may either result in: (i) the reallocation of some or all of the additional reserves to one or more of the these events; or (ii) the release of some or all of the additional reserves to net income in future periods; or (iii) an increase in additional reserves recorded. During the year ended December 31, 2013, the Company cautiously reduced the additional gross reserves by $10 million to $40 million, primarily reflecting the reduced level of uncertainty associated with the Japan Earthquake in the first half of 2013. During the three months ended June 30, 2014, the Company increased its loss estimates related to the New Zealand Earthquakes following the receipt of updated cedant information. Concurrent with increasing its loss estimate, and partially offsetting the impact, the Company reduced the additional reserves by $20 million. As a result, $20 million of the additional gross reserves recorded in relation to the 2011 catastrophic events remain. Life Policy Benefits Policy benefits for life and annuity contracts relate to the business in the Company's Life and Health segment, which predominantly includes: reinsurance of longevity, subdivided into standard and non-standard annuities;



mortality business, which includes death and disability covers (with

various riders) primarily written in Continental Europe, term assurance and

critical illness primarily written in the United Kingdom and Ireland, and guaranteed minimum death benefit (GMDB) business primarily written in Continental Europe; and specialty accident and health business written by PartnerRe Health, including Health Maintenance Organizations (HMO) reinsurance, medical reinsurance and provider and employer excess of loss programs. The Company categorizes life reserves into three types of reserves: case reserves, IBNR reserves and reserves for future policy benefits. Such liabilities are established based on methods and underlying assumptions in accordance with U.S. GAAP and applicable actuarial standards. Principal assumptions used in the establishment of reserves for future policy benefits have been determined based upon information reported by ceding companies, supplemented by the Company's actuarial estimates of mortality, critical illness, persistency and future investment income, with appropriate provision to reflect uncertainty. Case reserves, IBNR reserves and reserves for future policy benefits are generally calculated at the treaty level. The Company updates its estimates for each of the aforementioned categories on a periodic basis using information received from its cedants. The Company's reserving practices begin with the categorization of the contracts written as short duration, long duration, or universal life business for U.S. GAAP reserving purposes. This categorization determines the Company's reserving methodology. See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits-Life Policy Benefits in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for additional information on the reserving methodologies employed by the Company for its longevity, mortality and accident and health lines. The Company's gross and net policy benefits for life and annuity contracts by reserving line at June 30, 2014 were as follows (in millions of U.S. dollars): Reserves for Total gross Life Total net Life Case IBNR future policy and Health Ceded and Health reserves reserves benefits reserves reserves reserves Accident and Health $ 7$ 140 $ 20 $ 167 $ (19 ) $ 148 Longevity 1 148 422 571 (3 ) 568 Mortality 226 566 597 1,389 (1 ) 1,388 Total policy benefits for life and annuity contracts $ 234$ 854 $ 1,039 $ 2,127 $ (23 ) $ 2,104 45

--------------------------------------------------------------------------------

Valuation of Investments and Funds Held - Directly Managed, including certain Derivative Financial Instruments The Company defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company measures the fair value of its financial instruments according to a fair value hierarchy that prioritizes the information used to measure fair value into three broad levels. Under the fair value hierarchy, Management uses certain assumptions and judgments to derive the fair value of its investments, particularly for those assets with significant unobservable inputs, commonly referred to as Level 3 assets. At June 30, 2014, the Company's financial instruments that were measured at fair value and categorized as Level 3 were as follows (in millions of U.S. dollars): June 30, 2014 Fixed maturities $ 613 Equities 37 Other invested assets (including certain derivatives) 110 Funds held - directly managed account 16 Total $ 776 For additional information on the valuation techniques, methods and assumptions that were used by the Company to estimate the fair value of its fixed maturities, short-term investments, equities, other invested assets and investments underlying the funds held - directly managed account, see Note 4 to Condensed Consolidated Financial Statements included in Item 1 of Part I of this report. For information on the Company's use of derivative financial instruments, see Note 5 to Condensed Consolidated Financial Statements included in Item 1 of Part I of this report. Results of Operations-for the Three Months and Six Months Ended June 30, 2014 and 2013 The following discussion of Results of Operations contains forward-looking statements based upon assumptions and expectations concerning the potential effect of future events that are subject to uncertainties. See Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a complete list of the Company's risk factors. Any of these risk factors could cause actual results to differ materially from those reflected in such forward-looking statements. The Company's reporting currency is the U.S. dollar. The Company's significant subsidiaries and branches have one of the following functional currencies: U.S. dollar, euro or Canadian dollar. As a significant portion of the Company's operations is transacted in foreign currencies, fluctuations in foreign exchange rates may affect year over year comparisons. To the extent that fluctuations in foreign exchange rates affect comparisons, their impact has been quantified, when possible, and discussed in each of the relevant sections. See Note 2(m) to Consolidated Financial Statements in Item 8 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of translation of foreign currencies. The foreign exchange fluctuations for the principal currencies in which the Company transacts business were as follows: the U.S. dollar average exchange rate was weaker against most currencies, except the Japanese yen and Canadian dollar, in the three months and six months ended June 30, 2014 compared to the same periods of 2013; and



the U.S. dollar ending exchange rate weakened against most currencies,

except the euro, at June 30, 2014 compared to December 31, 2013.

Review of Net Income (Loss) Management analyzes the Company's net income or loss in three parts: underwriting result, investment result and other components of net income or loss. Underwriting result consists of net premiums earned and other income or loss less losses and loss expenses and life policy benefits, acquisition costs and other operating expenses. Investment result consists of net investment income, net realized and unrealized investment gains or losses and interest in earnings or losses of equity method investments. Net investment income includes interest and dividends, net of investment expenses, generated by the Company's investment activities, as well as interest income generated on funds held assets. Net realized and unrealized investment gains or losses include sales of the Company's fixed income, equity and other invested assets and investments underlying the funds held - directly managed account and changes in net unrealized gains or losses. Interest in earnings or losses of equity method investments includes the Company's strategic investments. Other components of net income or loss include technical result and other income or loss, other operating expenses, interest expense, amortization of intangible assets, net foreign exchange gains or losses and income tax expense or benefit. 46 --------------------------------------------------------------------------------



The components of net income (loss) for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars):

For the For the three For the six For the six three months months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Underwriting result: Non-life $ 90 316 % $ 22$ 251 32 % $ 190 Life and Health 3 (26 ) 4 2 (68 ) 5 Investment result: Net investment income 130 4 125 247 (1 ) 248 Net realized and unrealized investment gains (losses) 166 NM (299 ) 308 NM (276 ) Interest in earnings (losses) of equity method investments(1) 5 NM (4 ) 11 194 4 Corporate and Other: Technical result(2) - (80 ) - - (97 ) 1 Other income(2) 5 721 1 4 162 2 Other operating expenses (30 ) (56 ) (68 ) (59 ) (41 ) (100 ) Interest expense (12 ) - (12 ) (25 ) - (24 ) Amortization of intangible assets(3) (7 ) (1 ) (7 ) (14 ) (1 ) (14 ) Net foreign exchange gains (losses) 2 NM (11 ) 3 NM (9 ) Income tax (expense) benefit (78 ) NM 75 (141 ) NM 33 Net income (loss) $ 274 NM $ (174 )$ 587 878 $ 60 NM: Not meaningful



(1) Interest in earnings or losses of equity method investments represents the

Company's aggregate share of earnings or losses related to several private

placement investments and limited partnerships within the Corporate and Other segment. (2) Technical result and other income primarily relate to income on insurance-linked securities and principal finance transactions within the Corporate and Other segment.



(3) Amortization of intangible assets relates to intangible assets acquired in

the acquisition of Paris Re in 2009 and PartnerRe Health in 2012.

Underwriting result is a measurement that the Company uses to manage and evaluate its Non-life and Life and Health segments, as it is a primary measure of underlying profitability for the Company's core reinsurance operations, separate from the investment results. The Company believes that in order to enhance the understanding of its profitability, it is useful for investors to evaluate the components of net income or loss separately and in the aggregate. Underwriting result should not be considered a substitute for net income or loss and does not reflect the overall profitability of the business, which is also impacted by investment results and other items. 47 --------------------------------------------------------------------------------

The components of the underwriting result and combined ratio for the Non-life segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended For the three months ended June 30, For the six months ended For the six months ended June 30, 2014 2013 June 30, 2014 June 30, 2013 Current accident year technical result and ratio Adjusted for large catastrophic losses and prior quarter loss development $ 11 98.8 % $ 52 94.5 % $ 50 97.6 % $ 118 93.6 % Large catastrophic losses(1) - - (112 ) 11.8 - - (112 )



6.1

Net (adverse) favorable prior quarter loss development (22 ) 2.2 15 (1.6 ) Prior accident years technical result and ratio Net favorable prior year loss development 161 (15.4 ) 127 (13.0 ) 325 (16.0 ) 310 (16.3 ) Technical result and ratio, as reported $ 150 85.6 % $ 82 91.7 % $ 375 81.6 % $ 316 83.4 % Other income 1 - - - 2 - - - Other operating expenses (61 ) 5.9 (60 ) 6.1 (126 ) 6.2 (126 ) 6.6 Underwriting result and combined ratio, as reported $ 90 91.5 % $ 22 97.8 % $ 251 87.8 % $ 190 90.0 % (1) Large catastrophic losses are shown net of any related reinsurance, reinstatement premiums and profit commissions. Three-month result The underwriting result for the Non-life segment increased by $68 million (corresponding to a decrease of 6.3 points in the combined ratio), from $22 million (97.8 points on the combined ratio) in the three months ended June 30, 2013 to $90 million (91.5 points on the combined ratio) in the same period of 2014 primarily due to: Large catastrophic losses-a decrease of $112 million (decrease of 11.8



points in the technical ratio) related to the European and Alberta Floods

in the three months ended June 30, 2013 compared to no significant catastrophic losses in the same period of 2014.



Net favorable prior year loss development-an increase of $34 million

(decrease of 2.4 points in the technical ratio) from $127 million (13.0

points on the technical ratio) in the three months ended June 30, 2013 to

$161 million (15.4 points on the technical ratio) in the same period of 2014. The increase in net favorable prior year loss development was primarily due to increases in the Global Specialty and North America sub-segments and was partially offset by decreases in the Catastrophe



sub-segment and, to a lesser extent, the Global (Non-U.S.) P&C sub-segment.

The components of the net favorable prior year loss development are described in more detail in the discussion of individual sub-segments in Results by Segment below. These factors driving the increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in the three months ended June 30, 2014 compared to the same period of 2013 were partially offset by: The current accident year technical result, adjusted for large catastrophic losses and prior quarter loss development-a decrease in the technical result (and corresponding increase in the technical ratio) which was primarily related to the North America sub-segment due to an increase in the acquisition cost ratio, driven by the increasingly competitive



conditions and pricing observed in most lines of business and by higher

profit commissions in the agriculture line, and a modestly higher level of

mid-sized loss activity.

Net (adverse) favorable prior quarter loss development-a decrease of $37

million (increase of 3.8 points in the technical ratio) from favorable

prior quarter development of $15 million (1.6 points on the technical

ratio) in the three months ended June 30, 2013 to adverse prior quarter

development of $22 million (2.2 points on the technical ratio) in the three

months ended June 30, 2014, primarily due to various mid-sized losses

reported in the Global Specialty sub-segment and modest adverse development

related to a mid-sized loss in the Catastrophe sub-segment.

The underwriting result for the Life and Health segment, which does not include allocated investment income, of $3 million in the three months ended June 30, 2014 was comparable to $4 million in the same period of 2013. The underwriting result primarily reflected a lower level of net favorable prior year loss development and a modest increase in claims activity in the short-term mortality business in the three months ended June 30, 2014, being almost entirely offset by improved profitability from the PartnerRe Health business. See Results by Segment below. 48 --------------------------------------------------------------------------------

Net investment income increased by $5 million, from $125 million in the three months ended June 30, 2013 to $130 million in the same period of 2014. The increase in net investment income was primarily attributable to an increase in net investment income from fixed maturities and from equities as a result of higher dividend income. See Corporate and Other - Net Investment Income below for more details. Net realized and unrealized investment gains increased by $465 million, from losses of $299 million in the three months ended June 30, 2013 to gains of $166 million in the same period of 2014. The net realized and unrealized investment gains of $166 million in the three months ended June 30, 2014 were primarily due to decreases in U.S. and European longer-term risk-free interest rates, improvements in worldwide equity markets and narrowing credit spreads, which were partially offset by losses on treasury note futures. See Corporate and Other - Net Realized and Unrealized Investment Gains (Losses) below for more details. Other operating expenses included in Corporate and Other decreased by $38 million, from $68 million in the three months ended June 30, 2013 to $30 million in the same period of 2014. The decrease was primarily due to the restructuring charge in the three months ended June 30, 2013, as described in Executive Overview above. Interest expense in the three months ended June 30, 2014 was comparable to the same period of 2013. Net foreign exchange gains increased by $13 million, from losses of $11 million in the three months ended June 30, 2013 to gains of $2 million in the same period of 2014. The net foreign exchange gains for the three months ended June 30, 2014 resulted primarily from currency movements on certain unhedged equity securities. The Company hedges a significant portion of its currency risk exposure as discussed in Quantitative and Qualitative Disclosures about Market Risk in Item 3 of Part I of this report. Income tax expense increased by $153 million, from a benefit of $75 million in the three months ended June 30, 2013 to an expense of $78 million in the same period of 2014, primarily reflecting an increase in the Company's pre-tax net income in the three months ended June 30, 2014 compared to the same period of 2013. See Corporate and Other-Income Taxes below for more details. Six-month result The underwriting result for the Non-life segment increased by $61 million (corresponding to a decrease of 2.2 points in the combined ratio), from $190 million (90.0 points on the combined ratio) in the six months ended June 30, 2013 to $251 million (87.8 points on the combined ratio) in the same period of 2014 primarily due to: Large catastrophic losses-a decrease of $112 million (decrease of 6.1



points in the technical ratio) related to the European and Alberta Floods

in the six months ended June 30, 2013 compared to no significant catastrophic losses in the same period of 2014.



Net favorable prior year loss development-an increase of $15 million from

$310 million (16.3 points on the technical ratio) in the six months ended

June 30, 2013 to $325 million (16.0 points on the technical ratio) in the

same period of 2014. The increase in net favorable prior year loss

development was due to increases in the Global Specialty and North America

sub-segments and was partially offset by decreases in the Catastrophe

sub-segment and, to a lesser extent, the Global (Non-U.S.) P&C sub-segment.

While net favorable prior year loss development increased in the six months

ended June 30, 2014 compared to the same period of 2013, this had a reduced

impact on the technical ratio as result of higher net premiums earned in 2014. The components of the net favorable prior year loss development are described in more detail in the discussion of individual sub-segments in Results by Segment below. These factors driving the increase in the Non-life underwriting result and the corresponding decrease in the combined ratio in the six months ended June 30, 2014 compared to the same period of 2013 were partially offset by:



The current accident year technical result, adjusted for large catastrophic

losses-a decrease in the technical result (and corresponding increase in the technical ratio) primarily due to an increase in the acquisition cost



ratio, driven by the North America and Global (Non-U.S.) P&C sub-segments,

a modestly higher level of mid-sized loss activity in the Global Specialty

sub-segment and a decrease in net premiums earned in the Catastrophe

sub-segment, which in the absence of catastrophic losses directly impact

the technical result and ratio.

The underwriting result for the Life and Health segment, which does not include allocated investment income, decreased by $3 million, from $5 million in the six months ended June 30, 2013 to $2 million in the same period of 2014. The decrease in the Life and Health underwriting result was primarily driven by a lower level of net favorable prior year loss development, partially offset by improved profitability from the PartnerRe Health business. See Results by Segment below. Net investment income of $247 million in the six months ended June 30, 2014 was comparable to $248 million in the same period of 2013 due to a decrease in net investment income from funds held - directly managed, primarily related to the lower 49 --------------------------------------------------------------------------------

average balance, and lower reinvestment rates, which was almost entirely offset by an increase in net investment income from equities as a result of higher dividend income. See Corporate and Other - Net Investment Income below for more details. Net realized and unrealized investment gains increased by $584 million, from losses of $276 million in the six months ended June 30, 2013 to gains of $308 million in the same period of 2014. The net realized and unrealized investment gains of $308 million in the six months ended June 30, 2014 were primarily due to modest decreases in U.S. and European longer-term risk-free interest rates, narrowing credit spreads and improvements in worldwide equity markets, which were partially offset by losses on treasury note futures. See Corporate and Other - Net Realized and Unrealized Investment Gains (Losses) below for more details. Other operating expenses included in Corporate and Other decreased by $41 million, from $100 million in the six months ended June 30, 2013 to $59 million in the same period of 2014. The decrease was primarily due to the restructuring charge in the six months ended June 30, 2013, as described in Executive Overview above. Interest expense in the six months ended June 30, 2014 was comparable to the same period of 2013. Net foreign exchange gains increased by $12 million, from losses of $9 million in the six months ended June 30, 2013 to gains of $3 million in the same period of 2014. The net foreign exchange gains for the six months ended June 30, 2014 resulted primarily from currency movements on certain unhedged equity securities. The Company hedges a significant portion of its currency risk exposure as discussed in Quantitative and Qualitative Disclosures about Market Risk in Item 3 of Part I of this report. Income tax expense increased by $174 million, from a benefit of $33 million in the six months ended June 30, 2013 to an expense of $141 million in the same period of 2014, primarily reflecting an increase in the Company's pre-tax net income in the six months ended June 30, 2014 compared to the same period of 2013. See Corporate and Other-Income Taxes below for more details. Results by Segment The Company monitors the performance of its operations in three segments, Non-life, Life and Health and Corporate and Other. The Non-life segment is further divided into four sub-segments, North America, Global (Non-U.S.) Property and Casualty (Global (Non-U.S.) P&C), Global Specialty and Catastrophe. Segments and sub-segments represent markets that are reasonably homogeneous in terms of geography, client types, buying patterns, underlying risk patterns and approach to risk management. See the description of the Company's segments and sub-segments as well as a discussion of how the Company measures its segment results in Note 21 to Consolidated Financial Statements included in Item 8 of Part II of Form 10-K for the year ended December 31, 2013 and in Note 9 to Condensed Consolidated Financial Statements included in Item 1 of Part I of this report. Non-life Segment North America The North America sub-segment is comprised of lines of business that are considered to be either short, medium or long-tail. The short-tail lines consist primarily of agriculture, property and motor business. Casualty is considered to be long-tail, while credit/surety and multiline are considered to have a medium tail. The casualty line typically tends to have a higher loss ratio and a lower technical result due to the long-tail nature of the risks involved. Casualty treaties typically provide for investment income on premiums invested over a longer period as losses are typically paid later than for other lines. Investment income, however, is not considered in the calculation of technical result. 50 --------------------------------------------------------------------------------

The components of the technical result and the corresponding ratios for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the six For the six three months three months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Gross premiums written $ 400 7 % $ 372$ 930 14 % $ 819 Net premiums written 392 9 360 919 14 807 Net premiums earned $ 390 9 $ 357$ 768 11 $ 690 Losses and loss expenses (240 ) (2 ) (245 ) (499 ) 3 (485 ) Acquisition costs (102 ) 29 (79 ) (194 ) 28 (151 )



Technical result (1) $ 48 45 $ 33 $

75 37 $ 54 Loss ratio (2) 61.5 % 68.6 % 65.0 % 70.2 % Acquisition ratio (3) 26.1 22.1 25.2 21.9 Technical ratio (4) 87.6 % 90.7 % 90.2 % 92.1 %



(1) Technical result is defined as net premiums earned less losses and loss

expenses and acquisition costs.

(2) Loss ratio is obtained by dividing losses and loss expenses by net premiums

earned.

(3) Acquisition ratio is obtained by dividing acquisition costs by net premiums

earned.

(4) Technical ratio is defined as the sum of the loss ratio and the acquisition

ratio.



Premiums

The North America sub-segment represented 28% and 29% of total net premiums written in the three months and six months ended June 30, 2014, respectively, compared to 28% in the same periods of 2013. The net premiums written and net premiums earned by line of business for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended June 30, 2014 For the three months ended June 30, 2013 For the six months ended June 30, 2014 For the six months ended June 30, 2013 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned written earned Agriculture $ 120 31 % $ 114 29 % $ 101 28 % $ 100 28 % $ 282 31 % $ 218 28 % $ 202 25 % $ 199 29 % Casualty 148 38 147 38 137 38 138 38 326 35 295 38 315 39 276 40 Credit/Surety 25 6 26 7 17 5 13 4 63 7 52 7 27 3 20 3 Motor 11 3 13 3 13 4 13 4 33 4 32 4 30 4 24 3 Multiline 30 8 27 7 18 5 23 6 76 8 51 7 62 8 45 7 Property 44 11 49 12 62 17 53 15 116 13 97 13 135 16 99 14 Other 14 3 14 4 12 3 17 5 23 2 23 3 36 5 27 4 Total $ 392 100 % $ 390 100 % $ 360 100 % $ 357 100 % $ 919 100 % $ 768 100 % $ 807 100 % $ 690 100 % 51

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Business reported in this sub-segment is, to an extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making period to period comparisons. The effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in the three months and six months ended June 30, 2014 compared to the same periods of 2013 was as follows: Three months ended June 30, 2014 compared to Gross premiums Net premiums Net premiums the same period of 2013 written written earned Increase in original currency 8 % 9 % 10 % Foreign exchange effect (1 ) - (1 ) Increase as reported in U.S. dollars 7 % 9 % 9 % Six months ended June 30, 2014 compared to the same period of 2013 Increase in original currency 14 % 14 % 12 % Foreign exchange effect - - (1 ) Increase as reported in U.S. dollars 14 % 14 % 11 % Three-month result Gross and net premiums written and net premiums earned increased by 8%, 9% and 10%, respectively, on a constant foreign exchange basis in the three months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written and net premiums earned were primarily attributable to new business written at the January 1 renewals in the agriculture, multiline and credit/surety lines of business and upward premium adjustments in the casualty line of business. These increases were partially offset by a decrease in the property line of business, driven by cancellations and renewal changes. Six-month result Gross and net premiums written increased by 14% and net premiums earned increased by 12% on a constant foreign exchange basis in the six months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written were primarily attributable to the agriculture and credit/surety lines of business. The increase in the agriculture line was driven by new business written and the restructuring of a significant treaty, which resulted in the full annual premium being written in the first quarter of 2014 compared to being written ratably over four quarters in 2013, while the credit/surety line benefitted from new mortgage guaranty business. The increase in net premiums earned in the six months ended June 30, 2014 compared to the same period of 2013 was primarily due to the same factors described for the increases in gross and net premiums written, and was also due to the earning of new casualty business that was written in 2013. Notwithstanding the competitive conditions prevailing in various markets within this sub-segment, the Company was able to write business that met its portfolio objectives. Technical result and technical ratio The components of the technical result and ratio for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended For the three months ended June For the six months ended For the six months ended June 30, June 30, 2014 30, 2013 June 30, 2014 2013 Current accident year technical result and ratio Adjusted for large catastrophic losses $ (20 ) 104.9 % $ 10



97.2 % $ (17 ) 102.2 % $ 1 99.8 % Large catastrophic losses(1) -

- (8 ) 2.2 - - (8 )



1.2

Prior accident years technical result and ratio Net favorable prior year loss development 68 (17.3 ) 31 (8.7 ) 92 (12.0 ) 61 (8.9 ) Technical result and ratio, as reported $ 48 87.6 % $ 33 90.7 % $ 75 90.2 % $ 54 92.1 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions. 52

--------------------------------------------------------------------------------

Three-month result The increase of $15 million in the technical result (and the corresponding decrease of 3.1 points in the technical ratio) in the three months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Net favorable prior year loss development-an increase of $37 million



(decrease of 8.6 points in the technical ratio) from $31 million (8.7

points on the technical ratio) in the three months ended June 30, 2013 to

$68 million (17.3 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the



three months ended June 30, 2014 was driven by most lines of business,

predominantly the casualty line. The net favorable loss development for

prior accident years in the three months ended June 30, 2013 was driven by

most lines of business, with the casualty line being the most pronounced,

while the credit/surety and property lines experienced combined adverse

loss development for prior accident years of $9 million.

Large catastrophic losses-a decrease of $8 million (decrease of 2.2 points

in the technical ratio) related to the Alberta Floods in the three months

ended June 30, 2013 compared to no significant catastrophic losses in the

same period of 2014.

These factors driving the increase in the technical result in the three months ended June 30, 2014 compared to the same period of 2013 were partially offset by: The current accident year technical result, adjusted for large



catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) primarily due to a higher acquisition

cost ratio, which was driven by increasingly competitive conditions and pricing observed in most lines of business during the recent January 1



renewals and higher profit commissions in the agriculture line, a modestly

higher level of mid-sized loss activity and normal fluctuations in

profitability between periods.

Six-month result The increase of $21 million in the technical result (and the corresponding decrease of 1.9 points in the technical ratio) in the six months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Net favorable prior year loss development-an increase of $31 million (decrease of 3.1 points in the technical ratio) from $61 million (8.9 points on the technical ratio) in the six months ended June 30, 2013 to $92 million (12.0 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the six months ended June 30, 2014 was driven primarily by the casualty line,



while the multiline, motor and agriculture lines experienced combined

adverse loss development for prior accident years of $13 million. The net

favorable loss development for prior accident years in the six months

ended June 30, 2013 was driven by most lines of business, with the casualty line being the most pronounced, while the credit/surety, agriculture and property lines experienced combined adverse loss development for prior accident years of $14 million.



Large catastrophic losses-a decrease of $8 million (decrease of 1.2 points

in the technical ratio) related to the Alberta Floods in the six months

ended June 30, 2013 compared to no significant catastrophic losses in the

same period of 2014.

These factors driving the increase in the technical result in the six months ended June 30, 2014 compared to the same period of 2013 were partially offset by: The current accident year technical result, adjusted for large



catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) primarily due to a higher acquisition

cost ratio, as described in the three-month result, partially offset by a

modestly lower level of mid-sized loss activity and normal fluctuations in

profitability between periods. Global (Non-U.S.) P&C The Global (Non-U.S.) P&C sub-segment is composed of short-tail business, in the form of property and proportional motor business, that represented approximately 89% and 81% of net premiums written in the three months and six months ended June 30, 2014, and long-tail business, in the form of casualty and non-proportional motor business, that represented the balance of net premiums written. 53 --------------------------------------------------------------------------------

The components of the technical result and the corresponding ratios for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the six For the six three months three months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Gross premiums written $ 155 (3 )% $ 160$ 519 (3 )% $ 532 Net premiums written 148 (6 ) 158 508 (3 ) 525 Net premiums earned $ 187 11 $ 169$ 367 10 $ 335 Losses and loss expenses (103 ) (4 ) (106 ) (196 ) 13 (173 ) Acquisition costs (52 ) 55 (34 ) (107 ) 27 (84 ) Technical result $ 32 13 $ 29$ 64 (18 ) $ 78 Loss ratio 54.6 % 62.9 % 53.5 % 51.8 % Acquisition ratio 27.9 19.9 29.0 24.9 Technical ratio 82.5 % 82.8 % 82.5 % 76.7 % Premiums The Global (Non-U.S.) P&C sub-segment represented 10% and 16% of total net premiums written in the three months and six months ended June 30, 2014, respectively, compared to 12% and 18% of total net premiums written in the same periods of 2013. The net premiums written and net premiums earned by line of business for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended June 30, 2014 For the three months ended June 30, 2013 For the six months ended June 30, 2014 For the six months ended June 30, 2013 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned written earned Casualty $ 13 8 % $ 20 11 % $ 16 10 % $ 20 12 % $ 47 9 % $ 35 10 % $ 55 10 % $ 38 11 % Motor 54 37 73 39 53 34 51 30 187 37 147 40 177 34 99 30 Property 81 55 94 50 89 56 98 58 274 54 185 50 293 56 198 59 Total $ 148 100 % $ 187 100 % $ 158 100 % $ 169 100 % $ 508 100 % $ 367 100 % $ 525 100 % $ 335 100 % Business reported in this sub-segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making period to period comparisons. The effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in the three months and six months ended June 30, 2014 compared to the same periods of 2013 was as follows: Three months ended June 30, 2014 compared to the Gross premiums Net premiums Net premiums same period of 2013 written written earned (Decrease) increase in original currency (4 )% (7 )% 9 % Foreign exchange effect 1 1 2 (Decrease) increase as reported in U.S. dollars (3 )% (6 )% 11 % Six months ended June 30, 2014 compared to the same period of 2013 (Decrease) increase in original currency (3 )% (4 )% 9 % Foreign exchange effect - 1 1 (Decrease) increase as reported in U.S. dollars (3 )% (3 )% 10 % Three-month result Gross and net premiums written decreased by 4% and 7%, respectively, and net premiums earned increased by 9% on a constant foreign exchange basis in the three months ended June 30, 2014 compared to the same period of 2013. The decreases in gross and net premiums written resulted primarily from cancellations in the property line of business. The increase in net premiums earned compared to the decreases in gross and net premiums written was driven by the earning of the new motor business that was written in 2013. 54 --------------------------------------------------------------------------------

Six-month result Gross and net premiums written decreased by 3% and 4%, respectively, and net premiums earned increased by 9% on a constant foreign exchange basis in the six months ended June 30, 2014 compared to the same period of 2013. The decreases in gross and net premiums written resulted primarily from cancellations due to pricing, increased retentions and share decreases in the property line. The increase in net premiums earned compared to the decreases in gross and net premiums written was driven by the earning of the new motor business that was written in 2013. Notwithstanding the continued competitive conditions in most markets, the Company was able to write business that met its portfolio objectives. Technical result and technical ratio The components of the technical result and ratio for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended For the three months ended June 30, For the six months ended June 30, For the six months ended June 30, June 30, 2014 2013 2014 2013 Current accident year technical result and ratio Adjusted for large catastrophic losses and prior quarter loss development $ 1 99.2 % $ 3



98.1 % $ (13 ) 103.5 % $ (2 )

100.5 % Large catastrophic losses(1) - - (14 ) 8.3 - - (14 )



4.2

Net favorable prior quarter loss development 1 (0.5 ) 4 (2.2 ) Prior accident years technical result and ratio Net favorable prior year loss development 30 (16.2 ) 36 (21.4 ) 77 (21.0 ) 94 (28.0 ) Technical result and ratio, as reported $ 32 82.5 % $ 29 82.8 % $ 64 82.5 % $ 78 76.7 % (1) Large catastrophic losses are shown net of any related reinsurance, reinstatement premiums and profit commissions. Three-month result The modest increase of $3 million in the technical result (and the corresponding decrease of 0.3 points in the technical ratio) in the three months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Large catastrophic losses-a decrease of $14 million (decrease of 8.3



points in the technical ratio) related to the European Floods in the three

months ended June 30, 2013 compared to no significant catastrophic losses

in the same period of 2014.

This factor driving the increase in the technical result in the three months ended June 30, 2014 compared to the same period of 2013 was partially offset by: Net favorable prior year loss development-a decrease of $6 million



(increase of 5.2 points in the technical ratio) from $36 million (21.4

points on the technical ratio) in the three months ended June 30, 2013 to

$30 million (16.2 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the three months ended June 30, 2014 and 2013 was driven by all lines of business, with the property line being the most pronounced.



Net favorable prior quarter loss development-a decrease of $3 million

(increase of 1.7 points in the technical ratio) from $4 million (2.2

points on the technical ratio) in the three months ended June 30, 2013 to

$1 million (0.5 points on the technical ratio) in the same period of 2014. The current accident year technical result, adjusted for large



catastrophic losses and prior quarter loss development-a modest decrease

in the technical result (and a corresponding increase in the technical

ratio) due to an increase in the acquisition cost ratio, predominantly

related to lower profit commissions reported by cedants in the property

and casualty lines of business in the three months ended June 30, 2013 and

higher profit commission adjustments reported and increasingly competitive

conditions in the three months ended June 30, 2014. These decreases in the

current accident year technical result were almost entirely offset by a

lower level of mid-sized losses and normal fluctuations in profitability between periods. 55

--------------------------------------------------------------------------------

Six-month result The decrease of $14 million in the technical result (and the corresponding increase of 5.8 points in the technical ratio) in the six months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Net favorable prior year loss development-a decrease of $17 million (increase of 7.0 points in the technical ratio) from $94 million (28.0 points on the technical ratio) in the six months ended June 30, 2013 to $77 million (21.0 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the six months ended June 30, 2014 was driven by all lines of business, with the property line being the most pronounced. The net favorable loss



development for prior accident years in the six months ended June 30, 2013

was driven by all lines of business, with the property line being the most

pronounced and included favorable loss emergence related to certain catastrophic and large loss events. The current accident year technical result, adjusted for large catastrophic losses-a decrease in the technical result (and a



corresponding increase in the technical ratio) mainly due to an increase

in the acquisition cost ratio, as described in the three-month result,

partially offset by normal fluctuations in profitability between periods.

These factors driving the decrease in the technical result in the six months ended June 30, 2014 compared to the same period of 2013 were partially offset by: Large catastrophic losses-a decrease of $14 million (decrease of 4.2 points in the technical ratio) related to the European Floods in the six



months ended June 30, 2013 compared to no significant catastrophic losses

in the same period of 2014.

Global Specialty The Global Specialty sub-segment is primarily comprised of lines of business that are considered to be either short, medium or long-tail. The short-tail lines consist of agriculture, energy and specialty property. Aviation/space, credit/surety, engineering, marine and multiline are considered to have a medium tail, while specialty casualty is considered to be long-tail. The components of the technical result and the corresponding ratios for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the three three For the six For the six months months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Gross premiums written $ 438 6 % $ 413$ 917 7 % $ 857 Net premiums written 432 6 409 822 7 771 Net premiums earned $ 406 9 $ 372$ 761 7 $ 709 Losses and loss expenses (270 ) (5 ) (284 ) (471 ) - (469 ) Acquisition costs (98 ) 10 (90 ) (178 ) 8 (165 ) Technical result $ 38 NM $ (2 )$ 112 50 $ 75 Loss ratio 66.5 % 76.6 % 61.9 % 66.1 % Acquisition ratio 24.2 24.1 23.4 23.3 Technical ratio 90.7 % 100.7 % 85.3 % 89.4 % Premiums The Global Specialty sub-segment represented 30% and 26% of total net premiums written in the three months and six months ended June 30, 2014, respectively, compared to 31% and 26% of total net premiums written in the same periods of 2013. The net premiums written and net premiums earned by line of business for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): 56 --------------------------------------------------------------------------------

For the three months ended June 30, 2014 For the three months ended June 30, 2013 For the six months ended June 30, 2014 For the six months ended June 30, 2013 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned written earned Agriculture $ 61 14 % $ 59 14 % $ 44 11 % $ 41 11 % $ 110 13 % $



85 11 % $ 79 10 % $ 59 8 % Aviation/Space

57 13 53 13 49 12 47 13 90 11 99 13 86 11 93 13 Credit/Surety 64 15 72 18 73 18 72 19 139 17 140 18 149 19 139 20 Energy 20 5 17 4 24 6 25 7 31 4 36 5 40 5 50 7 Engineering 39 9 45 11 56 14 52 14 79 9 90 12 100 13 100 14 Marine 65 15 63 16 79 19 66 18 128 16 131 17 151 20 138 19 Multiline 27 6 19 5 12 3 4 1 66 8 35 5 23 3 6 1 Specialty casualty 43 10 38 9 25 6 26 7 95 12 69 9 76 10 50 7



Specialty property 52 12 40 10

47 11 39 10 76 9 76 10 67 9 75 11 Other 4 1 - - - - - - 8 1 - - - - (1 ) - Total $ 432 100 % $ 406 100 % $ 409 100 % $ 372 100 % $ 822 100 % $ 761 100 % $ 771 100 % $ 709 100 % Business reported in this sub-segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making period to period comparisons. The effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in the three months and six months ended June 30, 2014 compared to the same periods of 2013 was as follows: Three months ended June 30, 2014 compared to Gross premiums Net premiums Net premiums the same period of 2013 written written earned Increase in original currency 5 % 4 % 8 % Foreign exchange effect 1 2 1 Increase as reported in U.S. dollars 6 % 6 % 9 % Six months ended June 30, 2014 compared to the same period of 2013 Increase in original currency 6 % 6 % 7 % Foreign exchange effect 1 1 - Increase as reported in U.S. dollars 7 % 7 % 7 % Three-month result Gross and net premiums written and net premiums earned increased by 5%, 4% and 8% on a constant foreign exchange basis, respectively, in the three months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written were primarily driven by new business that was written in prior periods in the specialty casualty, multiline and agriculture lines and increased premium estimates in the agriculture line. These increases in gross and net premiums written were partially offset by lower upward prior year premium adjustments reported by cedants in the engineering line and cancellations in the marine line. The increase in net premiums earned was primarily driven by the earning of new business that was written in 2013. Six-month result Gross and net premiums written increased by 6% and net premiums earned increased by 7% on a constant foreign exchange basis in the six months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written and net premiums earned were primarily driven by the same factors described in the three-month result. Notwithstanding the diverse conditions prevailing in various markets within this sub-segment, the Company was able to write business that met its portfolio objectives. Technical result and technical ratio The components of the technical result and ratio for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): 57 --------------------------------------------------------------------------------

For the three months ended For the three months ended For the six months ended June 30, For the six months ended June 30, June 30, 2014 June 30, 2013 2014 2013 Current accident year technical result and ratio Adjusted for large catastrophic losses and prior quarter loss development $ (13 ) 103.3 % $ (10 ) 103.0 % $ (16 ) 102.2 % $ 10 98.7 % Large catastrophic losses(1) - - (23 ) 6.2 - - (23 ) 3.2 Net (adverse) favorable prior quarter loss development (18 ) 4.5 3 (1.0 ) Prior accident years technical result and ratio Net favorable prior year loss development 69 (17.1 ) 28 (7.5 ) 128 (16.9 ) 88 (12.5 ) Technical result and ratio, as reported $ 38 90.7 % $ (2 ) 100.7 % $ 112 85.3 % $ 75 89.4 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions.

Three-month result The increase of $40 million in the technical result (and the corresponding decrease of 10.0 points in the technical ratio) in the three months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Net favorable prior year loss development-an increase of $41 million



(decrease of 9.6 points in the technical ratio) from $28 million (7.5

points on the technical ratio) in the three months ended June 30, 2013 to

$69 million (17.1 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the



three months ended June 30, 2014 was driven by most lines of business,

primarily the marine, aviation/space and specialty property lines, while the engineering and credit/surety lines experienced combined adverse loss



development for prior accident years of $16 million. The net favorable

loss development for prior accident years in the three months ended

June 30, 2013 was driven by most lines of business, except the engineering

line, which experienced adverse loss development for prior accident years

of $11 million. Large catastrophic losses-a decrease of $23 million (decrease of 6.2



points in the technical ratio) related to the European and Alberta Floods

in the three months ended June 30, 2013 compared to no large catastrophic

losses in the same period of 2014.

These factors driving the increase in the technical result in the three months ended June 30, 2014 compared to the same period of 2013 were partially offset by: Net (adverse) favorable prior quarter loss development-a decrease of $21



million (increase of 5.5 points in the technical ratio) from favorable

development of $3 million (1.0 point on the technical ratio) in the three months ended June 30, 2013 to adverse development of $18 million (4.5 points on the technical ratio) in the same period of 2014, primarily driven by various mid-sized losses reported in the marine, specialty property and energy lines.



The current accident year technical result and ratio, adjusted for large catastrophic losses and prior quarter loss development, in the three months ended June 30, 2014 was comparable to the same period of 2013, with both periods experiencing a high level of mid-sized loss activity.

58 --------------------------------------------------------------------------------

Six-month result The increase of $37 million in the technical result (and the corresponding decrease of 4.1 points in the technical ratio) in the six months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Net favorable prior year loss development-an increase of $40 million



(decrease of 4.4 points in the technical ratio) from $88 million (12.5

points on the technical ratio) in the six months ended June 30, 2013 to $128 million (16.9 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the six months ended June 30, 2014 was driven by most lines of business,



predominantly the marine, aviation/space and specialty property lines,

while the credit/surety and agriculture lines experienced combined adverse

loss development for prior accident years of $21 million. The net

favorable loss development for prior accident years in the six months

ended June 30, 2013 was driven by most lines of business, predominantly

the aviation/space and credit/surety lines, while the engineering line experienced adverse loss development for prior accident years of $13 million. Large catastrophic losses-a decrease of $23 million (decrease of 3.2



points in the technical ratio) related to the European and Alberta Floods

in the six months ended June 30, 2013 compared to no large catastrophic

losses in the same period of 2014.

These factors driving the increase in the technical result in the six months ended June 30, 2014 compared to the same period of 2013 were partially offset by: The current accident year technical result, adjusted for large



catastrophic losses-a decrease in the technical result (and corresponding

increase in the technical ratio) due to a modestly higher level of mid-sized loss activity, a lower level of upward prior year premium adjustments reported by cedants in the six months ended June 30, 2014 compared to the same period of 2013 and normal fluctuations in profitability between periods.



Catastrophe

The Catastrophe sub-segment writes business predominantly on a non-proportional basis and is exposed to volatility resulting from catastrophic losses. The varying amounts of catastrophic losses from period to period can significantly impact the technical result and ratio of this sub-segment and affect period over period comparisons and as a result, profitability in any one quarter is not necessarily predictive of future profitability. The sub-segment's results for the three months and six months ended June 30, 2014 and 2013 demonstrate this volatility. While the results for the three months and six months ended June 30, 2014 included no significant catastrophic losses, the results for the three months and six months ended June 30, 2013 included a higher level of catastrophic losses resulting from the European and Alberta Floods. The Catastrophe sub-segment results are presented before the inter-company quota share of a diversified portfolio of catastrophe treaties to the Company's fully collateralized reinsurance vehicle, Lorenz Re Ltd. (see Note 7 to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this report). The components of the technical result and the corresponding ratios for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the For the six three months three months six months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Gross premiums written $ 143 (11 )% $ 161$ 353 (12 )% $ 399 Net premiums written 136 (9 ) 149 315 (13 ) 360 Net premiums earned $ 59 (25 ) $ 79$ 138 (17 ) $ 165 Losses and loss expenses (19 ) (61 ) (51 ) 1 NM (39 ) Acquisition costs (8 ) 16 (6 ) (15 ) (9 ) (17 ) Technical result $ 32 47 $ 22$ 124 14 $ 109 Loss ratio 33.4 % 64.1 % (0.9 )% 23.8 % Acquisition ratio 13.0 8.5 11.4 10.5 Technical ratio 46.4 % 72.6 % 10.5 % 34.3 % Premiums The Catastrophe sub-segment represented 10% of total net premiums written in the three months and six months ended June 30, 2014 and 2013 compared to 11% and 12% in the same periods of 2013, respectively. 59 --------------------------------------------------------------------------------

Business reported in this sub-segment is, to an extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making period to period comparisons. The effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in the three months and six months ended June 30, 2014 compared to the same periods of 2013 was as follows: Three months ended June 30, 2014 compared to Gross premiums Net premiums Net premiums the same period of 2013 written written earned Decrease in original currency (10 )% (8 )% (23 )% Foreign exchange effect (1 ) (1 ) (2 ) Decrease as reported in U.S. dollars (11 )% (9 )% (25 )% Six months ended June 30, 2014 compared to the same period of 2013 Decrease in original currency (11 )% (12 )% (14 )% Foreign exchange effect (1 ) (1 ) (3 ) Decrease as reported in U.S. dollars (12 )% (13 )% (17 )% Three-month result Gross and net premiums written and net premiums earned decreased by 10%, 8% and 23% on a constant foreign exchange basis, respectively, in the three months ended June 30, 2014 compared to the same period of 2013. The decreases in gross and net premiums written and net premiums earned were primarily driven by the impact of reinstatement premiums related to the European and Alberta Floods in the three months ended June 30, 2013, cancellations and non-renewals due to reductions in pricing and the restructuring of certain treaties. These decreases were partially offset by new business written in the three months ended June 30, 2014. The percentage decrease in net premiums earned was higher than the percentage decreases in gross and net premiums written primarily due to the lower absolute level of net premiums earned in the three months ended June 30, 2014 and 2013 relative to the absolute level of gross and net premiums written, given the Company earns certain premiums commensurate with the seasonality of the underlying exposures. Six-month result Gross and net premiums written and net premiums earned decreased by 11%, 12% and 14% on a constant foreign exchange basis, respectively, in the six months ended June 30, 2014 compared to the same period of 2013. The decreases in gross and net premiums written and net premiums earned were primarily driven by cancellations, non-renewals, decreased shares and the impact of the reinstatement premiums related to the European and Alberta Floods in 2013. These decreases were partially offset by new business written. Technical result and technical ratio The components of the technical result and ratio for this sub-segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended June For the



three months ended June 30, For the six months For the six months ended June 30,

30, 2014 2013 ended June 30, 2014 2013 Current accident year technical result and ratio Adjusted for large catastrophic losses and prior quarter loss development $ 43 27.3 % $ 49 12.0 % $ 96 30.7 % $ 109 23.6 % Large catastrophic losses(1) - - (67 ) 111.8 - - (67 ) 51.2 Net (adverse) favorable prior quarter loss development (5 ) 8.9 8 (10.3 ) Prior accident years technical result and ratio Net (adverse) favorable prior year loss development (6 ) 10.2 32 (40.9 ) 28 (20.2 ) 67 (40.5 ) Technical result and ratio, as reported $ 32 46.4 % $ 22 72.6 % $ 124 10.5 % $ 109 34.3 %



(1) Large catastrophic losses are shown net of any related reinsurance,

reinstatement premiums and profit commissions. 60

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Three-month result The increase of $10 million in the technical result (and the corresponding decrease of 26.2 points in the technical ratio) in the three months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Large catastrophic losses-a decrease of $67 million (decrease of 111.8



points in the technical ratio) related to the European and Alberta Floods

in the three months ended June 30, 2013 compared to no significant

catastrophic losses in the same period of 2014.

This factor driving the increase in the technical result in the three months ended June 30, 2014 compared to the same period of 2013 was partially offset by: Net (adverse) favorable prior year loss development-a decrease of $38



million (increase of 51.1 points in the technical ratio) from favorable

prior year loss development of $32 million (40.9 points on the technical

ratio) in the three months ended June 30, 2013 to adverse prior year loss

development of $6 million (10.2 points on the technical ratio) in the same

period of 2014. The net adverse loss development for prior accident years in the three months ended June 30, 2014 was primarily due to adverse development related to the New Zealand Earthquakes, as described in Critical Accounting Policies and Estimates-Losses and Loss Expenses and



Life Policy Benefits-Losses and Loss Expenses above, which was partially

offset by favorable loss emergence from other events. The net favorable

loss development for prior accident years in the three months ended June 30, 2013 was primarily due to favorable loss emergence.



Net (adverse) favorable prior quarter loss development-a decrease of $13

million (increase of 19.2 points in the technical ratio) from favorable

prior quarter loss development of $8 million (10.3 points on the technical

ratio) in the three months ended June 30, 2013 to adverse prior quarter

loss development of $5 million (8.9 points on the technical ratio) in the

same period of 2014. The adverse prior quarter loss development in the

three months ended June 30, 2014 was primarily driven by modest adverse

development related to a mid-sized loss that occurred in the first quarter

of 2014. The current accident year technical result, adjusted for large



catastrophic losses and prior quarter loss development -an increase in the

technical ratio primarily due to the inclusion of reinstatement premiums

related to large catastrophic losses in the three months ended June 30,

2013 in the calculation of the current accident year technical ratio.

Excluding the effect of the reinstatement premiums, the current accident

year technical result modestly decreased (and the technical ratio modestly

increased) due to the impact of lower net premiums earned in the three months ended June 30, 2014 compared to the same period of 2013. Six-month result The increase of $15 million in the technical result (and the corresponding decrease of 23.8 points in the technical ratio) in the six months ended June 30, 2014 compared to the same period of 2013 was primarily attributable to: Large catastrophic losses-a decrease of $67 million (decrease of 51.2



points in the technical ratio) related the European and Alberta Floods in

the six months ended June 30, 2013 compared to no significant catastrophic

losses in the same period of 2014.

This factor driving the increase in the technical result in the six months ended June 30, 2014 compared to the same period of 2013 was partially offset by: Net favorable prior year loss development-a decrease of $39 million

(increase of 20.3 points on the technical ratio) from $67 million (40.5 points on the technical ratio) in the six months ended June 30, 2013 to $28 million (20.2 points on the technical ratio) in the same period of 2014. The net favorable loss development for prior accident years in the six months ended June 30, 2014 was primarily due to favorable loss



emergence, and was partially offset by the adverse development on the New

Zealand Earthquakes as described in Critical Accounting Policies and

Estimates-Losses and Loss Expenses and Life Policy Benefits-Losses and

Loss Expenses above. The net favorable loss development for prior accident

years in the six months ended June 30, 2013 was primarily due to favorable

loss emergence. The current accident year technical result, adjusted for large catastrophic losses-an increase in the technical ratio primarily due to



the inclusion of reinstatement premiums related to large catastrophic

losses in the six months ended June 30, 2013 in the calculation of the current accident year technical ratio. Excluding the effect of the reinstatement premiums, the current accident year technical result



modestly decreased (and the technical ratio modestly increased) due to the

impact of lower net premiums earned in the six months ended June 30, 2014 compared to the same period of 2013. 61

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Life and Health Segment The Company's Life and Health segment includes the mortality, longevity and health lines of business written primarily in the U.K., Ireland and France and, following the acquisition of PartnerRe Health on December 31, 2012, accident and health business written in the U.S. At the time of the acquisition, PartnerRe Health operated as a Managing General Agent (MGA), writing all of its business on behalf of third-party insurance companies and earning a fee for producing the business, as well as participating in a portion of the original business that was ceded to PartnerRe Health by these third parties based on quota share agreements. During 2013, the Company obtained the necessary licenses and approvals and began transitioning the portfolio to PartnerRe carriers. As of January 1, 2014, virtually all of the PartnerRe Health business is originated directly, without the use of third party insurance companies. As a result, this transition affects the period over period comparability with increased gross and net premiums written and net premiums earned and reduced MGA fee income, which is recorded in Other income, in the three months and six months ended June 30, 2014 compared to the same periods of 2013. The components of the allocated underwriting result for this segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the six For the six three months three months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Gross premiums written $ 326 40 % $ 233$ 615 26 % $ 486 Net premiums written 311 34 232 593 23 481 Net premiums earned $ 311 34 $ 232$ 573 26 $ 456 Life policy benefits (252 ) 40 (181 ) (468 ) 29 (363 ) Acquisition costs (43 ) 30 (33 ) (73 ) 25 (59 ) Technical result $ 16 (11 ) $ 18$ 32 (7 ) $ 34 Other income 3 (18 ) 3 4 (36 ) 6 Other operating expenses (16 ) (8 ) (17 ) (34 ) (4 ) (35 ) Net investment income 15 5 15 30 - 30



Allocated underwriting result (1) $ 18 (2 ) $ 19

$ 32 (9 ) $ 35 (1) Allocated underwriting result is defined as net premiums earned, other income or loss and allocated net investment income less life policy benefits, acquisition costs and other operating expenses. Premiums The Life and Health segment represented 22% and 19% of total net premiums written in the three months and six months ended June 30, 2014, respectively, compared to 18% and 16% of total net premiums written in the same periods of 2013. The net premiums written and net premiums earned by line of business for this segment for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the three months ended June 30, 2014 For the three months ended June 30, 2013 For the six months ended June 30, 2014 For the six months ended June 30, 2013 Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums Net premiums written earned written earned written earned written earned Accident and Health $ 84 27 % $ 84 27 % $ 33 14 % $ 33 14 % $ 129 22 % $ 129 23 % $ 63 13 % $ 63 14 % Longevity 70 22 70 22 59 26 59 26 140 23 140 24 122 25 122 27 Mortality 157 51 157 51 140 60 140 60 324 55 304 53 296 62 271 59 Total $ 311 100 % $ 311 100 % $ 232 100 % $ 232 100 % $ 593 100 % $ 573 100 % $ 481 100 % $ 456 100 % Business reported in this segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making period to period comparisons. The effect of foreign exchange fluctuations, described in the Results of Operations above, on gross and net premiums written and net premiums earned in the three months and six months ended June 30, 2014 compared to the same periods of 2013 was as follows: 62 --------------------------------------------------------------------------------

Three months ended June 30, 2014 compared to Gross premiums Net premiums Net premiums the same period of 2013 written written earned Increase in original currency 35 % 29 % 29 % Foreign exchange effect 5 5 5 Increase as reported in U.S. dollars 40 % 34 % 34 % Six months ended June 30, 2014 compared to the same period of 2013 Increase in original currency 23 % 20 % 22 % Foreign exchange effect 3 3 4 Increase as reported in U.S. dollars 26 % 23 % 26 % Three-month result Gross premiums written increased by 35% and net premiums written and earned increased by 29% on a constant foreign exchange basis in the three months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written and net premiums earned were due to increases in all lines of business, most notably in the accident and health line. The increase in the accident and health line was primarily driven by PartnerRe Health's business, due to its continuing transition from an MGA to a carrier, as described above, and new opportunities arising from the implementation of the Patient Protection and Affordable Care Act. Six-month result Gross and net premiums written and net premiums earned increased by 23%, 20% and 22% on a constant foreign exchange basis, respectively, in the six months ended June 30, 2014 compared to the same period of 2013. The increases in gross and net premiums written and net premiums earned were due to increases in all lines of business, most notably in the accident and health and mortality lines. The increase in the accident and health line was due to the same factors described in the three-month result and the increase in the mortality line was driven by new business. Allocated underwriting result Three-month result The allocated underwriting result of $18 million in the three months ended June 30, 2014 was comparable to $19 million in the same period of 2013 due to a lower level of net favorable prior year loss development and a modest increase in claims activity reported by cedants related to certain current period events affecting the short-term mortality business in the three months ended June 30, 2014 compared to the same period of 2013, being almost entirely offset by improved profitability from the PartnerRe Health business. The decrease in net favorable prior year loss development of $6 million resulted from net favorable loss development of $6 million in the three months ended June 30, 2014 compared to net favorable loss development of $12 million in the same period of 2013. The net favorable prior year loss development of $6 million during the three months ended June 30, 2014 was primarily related to the short-term mortality business and PartnerRe Health's business. The net favorable prior year loss development of $12 million during the three months ended June 30, 2013 was primarily driven by certain short-term treaties in the mortality line of business and better than expected claims activity related to the GMDB business. Six-month result The allocated underwriting result decreased by $3 million, from $35 million in the six months ended June 30, 2013 to $32 million in the same period of 2014. The decrease in the allocated underwriting result was primarily driven by the same factors described for the three-month result. The decrease in net favorable prior year loss development of $12 million resulted from net favorable loss development of $8 million in the six months ended June 30, 2014 compared to net favorable loss development of $20 million in the same period of 2013. The net favorable prior year loss development of $8 million during the six months ended June 30, 2014 was primarily related to the GMDB business, driven by improvements in the capital markets and favorable actual versus expected claims paid experience, and PartnerRe Health's business. This favorable prior year loss development was partially offset by increased claims activity reported by cedants related to certain short-term mortality business. The net favorable prior year loss development of $20 million during the six months ended June 30, 2013 was primarily related to certain short-term treaties in the mortality line of business and the GMDB business, driven by an improvement in the capital markets and better than expected claims activity. 63 --------------------------------------------------------------------------------



Premium Distribution by Line of Business The distribution of net premiums written by line of business for the three months and six months ended June 30, 2014 and 2013 was as follows:

For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Non-life Property and casualty Casualty 11 % 12 % 12 % 13 % Motor 5 5 7 7 Multiline and other 5 3 5 4 Property 9 11 12 15 Specialty Agriculture 13 11 13 10 Aviation / Space 4 4 3 3 Catastrophe 9 11 10 12 Credit / Surety 6 7 6 6 Energy 1 2 1 1 Engineering 3 4 3 3 Marine 5 6 4 5 Specialty casualty 3 2 3 3 Specialty property 4 4 2 2 Life and Health 22 18 19 16 Total 100 % 100 % 100 % 100 % The changes in the distribution of net premiums written by line of business between the three months and six months ended June 30, 2014 and the same periods of 2013 reflected the Company's response to existing market conditions and may also be affected by the timing of renewals of treaties, a change in treaty structure, premium adjustments reported by cedants and significant increases or decreases in other lines of business. In addition, foreign exchange fluctuations affected the comparison for all lines. Property: the decrease in the distribution of net premiums written in the



three months and six months ended June 30, 2014 compared to the same

periods of 2013 was primarily driven by cancellations and non-renewals in

the property lines of the North America and Global (Non-U.S.) P&C sub-segments and by increases in other lines of business.



Agriculture: the increase in the distribution of net premiums written in

the three months ended June 30, 2014 compared to the same period of 2013 was primarily driven by new business written in the North America and Global Specialty sub-segments. In addition to new business written, the



increase in the distribution of net premiums written in the six months

ended June 30, 2014 compared to the same period of 2013 was also due to a

restructuring of a significant treaty in the North America sub-segment.

Catastrophe: the decrease in the distribution of net premiums written in

the three months ended June 30, 2014 compared to the same period of 2013 was primarily driven by the impact of reinstatement premiums recorded in



the three months ended June 30, 2013. The decrease in the distribution of

net premiums written in the six months ended June 30, 2014 compared to the

same period of 2013 was primarily driven by cancellations, non-renewals and

restructuring of certain treaties, as described in the Catastrophe sub-segment above.



Life and Health: the increase in the distribution of net premiums written

in the three months and six months ended June 30, 2014 compared to the same

periods of 2013 was primarily driven by increases in PartnerRe Health's

accident and health business, as described in the Life and Health segment

above.

Premium Distribution by Reinsurance Type The Company typically writes business on either a proportional or non-proportional basis. On proportional business, the Company shares proportionally in both the premiums and losses of the cedant. On non-proportional business, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio. In both proportional and non-proportional business, the Company typically reinsures a large group of primary insurance contracts written by the ceding company. In addition, the Company writes business on a facultative basis. Facultative arrangements are generally specific to an individual risk and can be 64 --------------------------------------------------------------------------------

written on either a proportional or non-proportional basis. Generally, the Company has more influence over pricing, as well as terms and conditions, in non-proportional and facultative arrangements. The distribution of gross premiums written by reinsurance type for the three months and six months ended June 30, 2014 and 2013 was as follows: For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Non-life segment Proportional 55 % 55 % 52 % 50 % Non-proportional 16 20 24 29 Facultative 7 7 6 5 Life and Health segment Proportional 22 18 16 15 Non-proportional - - 2 1 Total 100 % 100 % 100 % 100 % The distribution of gross premiums written by reinsurance type is affected by changes in the allocation of capacity among lines of business, the timing of receipt by the Company of cedant accounts and premium adjustments reported by cedants. In addition, foreign exchange fluctuations affected the comparison for all treaty types. The changes in the distribution of gross premiums written by reinsurance type between the three months and six months ended June 30, 2014 and the same periods of 2013 primarily reflect the following: an increase in gross premiums written related to the PartnerRe Health's



business in the Life and Health segment, which are written predominantly

on a proportional basis; and

a decrease in gross premiums written on a non-proportional basis, which is

primarily driven by decreases in the Catastrophe sub-segment and the

property line of the North America sub-segment as described in the Results

by Segment above.

Premium Distribution by Geographic Region The geographic distribution of gross premiums written based on the location of the underlying risk for the three months and six months ended June 30, 2014 and 2013 was as follows: For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Asia, Australia and New Zealand 13 % 13 % 11 % 10 % Europe 35 36 41 42 Latin America, Caribbean and Africa 9 10 8 10 North America 43 41 40 38 Total 100 % 100 % 100 % 100 %



The distribution of gross premiums written during the three months and six months ended June 30, 2014 was comparable to the same periods of 2013.

65 --------------------------------------------------------------------------------

Premium Distribution by Production Source The Company generates its gross premiums written both through brokers and through direct relationships with cedants. The percentage of gross premiums written by production source for the three months and six months ended June 30, 2014 and 2013 was as follows: For the three For the three For the six For the six months ended months ended months ended months ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Broker 69 % 72 % 70 % 71 % Direct 31 28 30 29 Total 100 % 100 % 100 % 100 % The percentage of gross premiums written through brokers in the three months ended June 30, 2014 decreased compared to the same period of 2013 due to a restructuring of a significant treaty written through brokers in the agriculture line in the North America sub-segment, which resulted in the full annual premium being written in the three months ended March 31, 2014 compared to being written ratably over four quarters in 2013, and new business written directly in the Global Specialty sub-segment. The percentage of gross premiums written through brokers in the six months ended June 30, 2014 was comparable to the same period of 2013. Corporate and Other Corporate and Other is comprised of the Company's investment related activities, including principal finance transactions, insurance-linked securities and strategic investments, and its corporate activities, including other operating expenses. Net Investment Income Net investment income by asset source for the three months and six months ended June 30, 2014 and 2013 was as follows (in millions of U.S. dollars): For the For the For the six For the six three months three months months ended months ended ended June ended June June 30, June 30, 30, 2014 % Change 30, 2013 2014 % Change 2013 Fixed maturities $ 115 4 % $ 111$ 226 (1 )% $ 227 Short-term investments, cash and cash equivalents - (40 ) - - (61 ) 1 Equities 15 13 13 22 23 17 Funds held and other 9 5 9 17 (3 ) 17 Funds held - directly managed 3 (36 ) 5 7 (34 ) 11 Investment expenses (12 ) (11 ) (13 ) (25 ) (2 ) (25 ) Net investment income $ 130 4 $ 125$ 247 (1 ) $ 248 Because of the interest-sensitive nature of some of the Company's life and health products, net investment income is considered in Management's assessment of the profitability of the Life and Health segment (see Life and Health segment above). The following discussion includes net investment income from all investment activities, including the net investment income allocated to the Life and Health segment. Three-month result Net investment income increased in the three months ended June 30, 2014 compared to the same period of 2013 due to: an increase in net investment income from fixed maturities due to the



impact of the increase in the U.S. Consumer Price Index on the Company's

Treasury Inflation-Protected Securities portfolio and certain favorable

non-recurring items, which was partially offset by lower reinvestment

rates; and

an increase in net investment income from equities primarily as a result

of higher dividend income; partially offset by 66

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a decrease in net investment income from funds held - directly managed



primarily related to the lower average balance in the funds held -

directly managed account, which was driven by a release of assets related

to the commutation of a portion the funds held agreement with ColisÉe Re,

the run-off of the remaining underlying liabilities and lower reinvestment

rates. Six-month result Net investment income modestly decreased in the six months ended June 30, 2014 compared to the same period of 2013 due to: a decrease in net investment income from funds held - directly managed



primarily due to the same factors discussed above for the three-month

result; and

a decrease in net investment income from fixed maturities primarily due to

lower reinvestment rates, which was partially offset by the impact of the

increase in the U.S. Consumer Price Index on the Company's Treasury Inflation-Protected Securities portfolio and certain favorable non-recurring items; partially offset by



an increase in net investment income from equities primarily as a result

of higher dividend income.

Net Realized and Unrealized Investment Gains (Losses) The Company's portfolio managers have dual investment objectives of optimizing current investment income and achieving capital appreciation. To meet these objectives, it is often desirable to buy and sell securities to take advantage of changing market conditions and to reposition the investment portfolios. Accordingly, recognition of realized gains and losses is considered by the Company to be a normal consequence of its ongoing investment management activities. In addition, the Company records changes in fair value for substantially all of its investments as unrealized investment gains or losses in its Condensed Consolidated Statements of Operations. Realized and unrealized investment gains and losses are generally a function of multiple factors, with the most significant being prevailing interest rates, credit spreads, and equity market conditions. The components of net realized and unrealized investment gains (losses) for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the three For the six For the three months months months six months ended June ended June ended June ended June 30, 2014 30, 2013 30, 2014 30, 2013 Net realized investment gains on fixed maturities and short-term investments $ 31$ 40$ 56$ 82 Net realized investment gains on equities 34 35 35 54 Net realized investment (losses) gains on other invested assets (18 ) 8 (8 ) 19 Change in net unrealized investment (losses) gains on other invested assets (14 ) 83 (40 ) 61 Change in net unrealized investment gains (losses) on fixed maturities and short-term investments 124 (396 ) 243 (467 ) Change in net unrealized investment gains (losses) on equities 6 (58 ) 17 (8 ) Net other realized and unrealized investment gains (losses) 1 1 2 - Net realized and unrealized investment gains (losses) on funds held - directly managed 2 (12 ) 3 (17 ) Net realized and unrealized investment gains (losses) $ 166$ (299 )$ 308$ (276 ) Three-month result Net realized and unrealized investment gains increased by $465 million, from a loss of $299 million in the three months ended June 30, 2013 to a gain of $166 million in the same period of 2014. The net realized and unrealized investment gains of $166 million in the three months ended June 30, 2014 were primarily due to decreases in U.S. and European longer-term risk-free interest rates, improvements in worldwide equity markets and narrowing credit spreads, which were partially offset by 67 --------------------------------------------------------------------------------

losses on treasury note futures. Net realized and unrealized investment losses of $299 million in the three months ended June 30, 2013 were primarily due to increases in U.S. and European risk-free interest rates, widening credit spreads and modest declines in worldwide equity markets, which were partially offset by gains on treasury note futures. Net realized and the change in net unrealized investment (losses) gains on other invested assets were a combined loss of $32 million in the three months ended June 30, 2014 and a combined gain of $91 million in the three months ended June 30, 2013 and primarily related to treasury note futures. Net realized and unrealized investment gains (losses) on funds held - directly managed of $2 million gain and $12 million loss in the three months ended June 30, 2014 and 2013, respectively, were primarily due to changes in risk-free interest rates related to the segregated investment portfolio underlying the funds held - directly managed account. Six-month result Net realized and unrealized investment gains increased by $584 million, from a loss of $276 million in the six months ended June 30, 2013 to a gain of $308 million in the same period of 2014. The net realized and unrealized investment gains of $308 million in the six months ended June 30, 2014 were primarily due to modest decreases in U.S. and European longer-term risk-free interest rates, narrowing credit spreads and improvements in worldwide equity markets, which were partially offset by losses on treasury note futures. Net realized and unrealized investment losses of $276 million in the six months ended June 30, 2013 were primarily due to increases in U.S. and European risk-free interest rates and widening credit spreads, which were partially offset by gains on treasury note futures and improvements in worldwide equity markets. Net realized and the change in net unrealized investment (losses) gains on other invested assets were a combined loss of $48 million in the six months ended June 30, 2014 and a combined gain of $80 million in the six months ended June 30, 2013 and primarily related to treasury note futures. Net realized and unrealized investment gains (losses) on funds held - directly managed of $3 million gain and $17 million loss in the six months ended June 30, 2014 and 2013, respectively, primarily due to changes in risk-free interest rates related to the segregated investment portfolio underlying the funds held - directly managed account. Other Operating Expenses The Company's total other operating expenses for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the six For the six three months three months months months ended June ended June ended June ended June 30, 2014 % Change 30, 2013 30, 2014 % Change 30, 2013 Other operating expenses $ 107 (26 )% $ 145$ 219 (16 )% $ 261 Three-month result Other operating expenses represent 7.9% and 12.0% of net premiums earned (Non-life and Life and Health) for the three months ended June 30, 2014 and 2013, respectively. Other operating expenses included in Corporate and Other were $30 million and $68 million, of which $29 million and $66 million are related to corporate activities for the three months ended June 30, 2014 and 2013, respectively. Other operating expenses decreased by $38 million, or 26%, in the three months ended June 30, 2014 compared to the same period of 2013 primarily due to the restructuring charge in the three months ended June 30, 2013, as described in Executive Overview above. Six-month result Other operating expenses represent 8.4% and 11.1% of net premiums earned (Non-life and Life and Health) for the six months ended June 30, 2014 and 2013, respectively. Other operating expenses included in Corporate and Other were $59 million and $100 million, of which $57 million and $96 million are related to corporate activities for the six months ended June 30, 2014 and 2013, respectively. Other operating expenses decreased by $42 million, or 16%, in the six months ended June 30, 2014 compared to the same period of 2013 primarily due to the restructuring charge in the six months ended June 30, 2013, as described in Executive Overview above. 68 --------------------------------------------------------------------------------

Income Taxes The Company's effective income tax rate, which we calculate as income tax expense or benefit divided by net income or loss before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income or loss in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax net income or loss can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned; the geographic location, quantum and nature of net losses and loss expenses incurred; the quantum and geographic location of other operating expenses, net investment income, net realized and unrealized investment gains and losses; and the quantum of specific adjustments to determine the income tax basis in each of the Company's operating jurisdictions. In addition, a significant portion of the Company's gross and net premiums are currently written and earned in Bermuda, a non-taxable jurisdiction, including the majority of the Company's catastrophe business, which can result in significant volatility in the Company's pre-tax net income or loss from period to period. The Company's income tax expense (benefit) and effective income tax rate for the three months and six months ended June 30, 2014 and 2013 were as follows (in millions of U.S. dollars): For the For the For the six three months three months months For the six ended June ended June ended June months ended June 30, 2014 30, 2013 30, 2014 30, 2013 Income tax expense (benefit) $ 78$ (75 )$ 141 $ (33 ) Effective income tax rate 22.3 % 29.8 % 19.4 % (127.0 )% Three-month result Income tax expense and the effective income tax rate during the three months ended June 30, 2014 were $78 million and 22.3%, respectively. Income tax expense and the effective income tax rate during the three months ended June 30, 2014 were primarily driven by the geographic distribution of the Company's pre-tax net income between its various taxable and non-taxable jurisdictions. Specifically, the income tax expense and the effective income tax rate included a significant portion of the Company's pre-tax net income recorded in jurisdictions with comparatively higher tax rates, and was driven by net realized and unrealized investment gains and net favorable prior year loss development. The Company's non-taxable jurisdictions and jurisdictions with comparatively lower tax rates recorded a less significant portion of the Company's pre-tax net income, driven by the same factors and the absence of large catastrophic losses. Income tax benefit and the effective income tax rate during the three months ended June 30, 2013 were $75 million and 29.8%, respectively. Income tax benefit and the effective income tax rate during the three months ended June 30, 2013 were primarily driven by the geographic distribution of the Company's pre-tax net loss between its various taxable and non-taxable jurisdictions. Specifically, the income tax benefit and the effective income tax rate included a significant pre-tax net loss recorded in jurisdictions with comparatively higher tax rates driven by net realized and unrealized investment losses, large catastrophic losses related to the European and Alberta Floods and charges related to the restructuring, which were partially offset by net favorable prior year loss development. The Company's non-taxable jurisdictions and jurisdictions with comparatively lower tax rates recorded a modest pre-tax net income, driven by net favorable prior year loss development and partially offset by net realized and unrealized investment losses and large catastrophic losses related to the European and Alberta Floods. Six-month result Income tax expense and the effective income tax rate during the six months ended June 30, 2014 were $141 million and 19.4%, respectively. Income tax expense and the effective income tax rate during the six months ended June 30, 2014 were primarily driven by the geographic distribution of the Company's pre-tax net income between its various taxable and non-taxable jurisdictions. Specifically, the income tax expense and the effective income tax rate included a relatively even distribution of the Company's pre-tax net income between its various jurisdictions. The Company's pre-tax net income recorded in jurisdictions with comparatively higher tax rates was driven by net realized and unrealized investment gains and net favorable prior year loss development. The Company's non-taxable jurisdictions and jurisdictions with comparatively lower tax rates recorded a less significant portion of the Company's pre-tax net income, driven by the same factors and the absence of large catastrophic losses. Income tax benefit and the effective income tax rate during the six months ended June 30, 2013 were $33 million and (127.0)%, respectively. Income tax benefit and the effective income tax rate during the six months ended June 30, 2013 were primarily driven by the geographic distribution of the Company's modest pre-tax net income between its various taxable and 69 --------------------------------------------------------------------------------

non-taxable jurisdictions. Specifically, the income tax benefit and the effective income tax rate included pre-tax net income recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates were driven by net favorable prior year loss development and partially offset by net realized and unrealized investment losses and large catastrophic losses related to the European and Alberta Floods. The Company's taxable jurisdictions recorded a pre-tax net loss driven by significant net realized and unrealized investment losses, large catastrophic losses related to the European and Alberta Floods and the charges related to the restructuring, which were partially offset by net favorable prior year loss development. Financial Condition, Liquidity and Capital Resources The Company purchased, as part of its acquisition of Paris Re, an investment portfolio and a funds held - directly managed account. The discussion of the acquired Paris Re investment portfolio is included in the discussion of Investments below. The discussion of the segregated investment portfolio underlying the funds held - directly managed account is included separately in Funds Held - Directly Managed below. Investments Investment philosophy The Company employs a prudent investment philosophy. It maintains a high quality, well balanced and liquid portfolio having the dual objectives of optimizing current investment income and achieving capital appreciation. The Company's invested assets are comprised of total investments, cash and cash equivalents and accrued investment income. From a risk management perspective, the Company allocates its invested assets into two categories: liability funds and capital funds. For additional information on the Company's capital and liability funds, see Financial Condition, Liquidity and Capital Resources-Investments in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Company's total invested assets (including funds held - directly managed) at June 30, 2014 and December 31, 2013 were split between liability and capital funds as follows (in millions of U.S. dollars): % of Total % of Total June 30, 2014 Invested Assets December 31, 2013 Invested Assets Liability funds $ 10,180 58 % $ 10,366 59 % Capital funds 7,344 42 7,118 41 Total invested assets $ 17,524 100 % $ 17,484 100 % The modest increase of $40 million in total invested assets at June 30, 2014 compared to December 31, 2013 was primarily related to an increase in fixed maturities which was partially offset by decreases in cash and cash equivalents and the funds - held directly managed account (see Funds Held - Directly Managed below). The increase in fixed maturities was primarily related to decreases in U.S. and European risk-free interest rates and the reinvestment of net investment income. The decrease in cash and cash equivalents was primarily related to payments for the Company's share repurchases, dividends and taxes, which were partially offset by cash flow provided by underwriting activities. The liability funds were comprised of cash and cash equivalents, accrued investment income and high quality fixed income securities. The decrease in the liability funds at June 30, 2014 compared to December 31, 2013 was primarily driven by an increase in net reinsurance assets related to new business written and losses paid during the six months ended June 30, 2014. The capital funds were generally comprised of accrued investment income, investment grade and below investment grade fixed maturity securities, preferred and common stocks, private placement equity and bond investments, emerging markets and high-yield fixed income securities and certain other specialty asset classes. The increase in the capital funds at June 30, 2014 compared to December 31, 2013 was primarily driven by the increase in total invested assets and decrease in liability funds, as described above. At June 30, 2014, approximately 61% of the capital funds were invested in cash and cash equivalents and investment grade fixed income securities. Overview Total investments and cash (excluding the funds held - directly managed account) were $16.8 billion at June 30, 2014 compared to $16.6 billion at December 31, 2013. The major factors contributing to the increase in the six months ended June 30, 2014 were: net realized and unrealized gains related to the investment portfolio of



$305 million primarily resulting from an increase in the fixed maturity

and short-term investment portfolios of $299 million, reflecting modest

decreases in U.S. and European risk-free interest rates and narrowing

credit spreads, and an increase in the equity portfolio of $52 million.

70 --------------------------------------------------------------------------------

These factors were partially offset by a decrease in other invested assets of $48 million primarily driven by losses on treasury note futures (see discussion related to duration below); net cash provided by operating activities of $221 million; and



a decrease in net receivable for securities sold of $73 million; partially

offset by

a net decrease of $286 million, due to the repurchase of common shares of

$313 million under the Company's share repurchase program, partially offset by the issuance of common shares under the Company's employee equity plans of $27 million; dividend payments on common and preferred shares totaling $97 million; and various other factors which net to approximately $68 million, the largest



being the amortization of net premium on investments.

Trading securities The following discussion relates to the composition of the Company's trading securities. The Company's other invested assets and the investments underlying the funds held - directly managed account are discussed separately below. Trading securities are carried at fair value with changes in fair value included in net realized and unrealized investment gains and losses in the Condensed Consolidated Statements of Operations. At June 30, 2014, approximately 95% of the Company's fixed maturity and short-term investments, which includes fixed income type mutual funds, were publicly traded and approximately 92% were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent). The average credit quality, the average yield to maturity and the expected average duration of the Company's fixed maturities and short-term investments, which includes fixed income type mutual funds, at June 30, 2014 and December 31, 2013 were as follows: June 30, 2014 December 31, 2013 Average credit quality A A Average yield to maturity 2.2 % 2.5 %



Expected average duration 3.4 years 3.0 years

The average credit quality on fixed maturities, short-term investments and cash and cash equivalents at June 30, 2014 was comparable to December 31, 2013. The average yield to maturity on fixed maturities, short-term investments and cash and cash equivalents decreased to 2.2% at June 30, 2014, compared to 2.5% at December 31, 2013 primarily due to decreases in U.S. and European longer-term risk-free interest rates and narrowing credit spreads. The expected average duration on fixed maturities, short-term investments and cash and cash equivalents increased to 3.4 years at June 30, 2014 compared to 3.0 years at December 31, 2013 primarily due to an increase in the measured duration of the underlying reinsurance liabilities. For the purposes of managing portfolio duration, the Company uses exchange traded treasury note futures. The use of treasury note futures reduced the expected average duration of the investment portfolio from 4.2 years to 3.4 years at June 30, 2014, and reflects the Company's decision to continue to hedge against potential further rises in risk-free interest rates. The Company's investment portfolio generated a total accounting return (calculated based on the carrying value of all investments in local currency) of 2.0% and 3.7% in the three months and six months ended June 30, 2014, respectively, compared to a negative total return of 1.0% and 0.1%, respectively, in the same periods of 2013. The total accounting return in the three months and six months ended June 30, 2014 was primarily due to decreases in U.S. and European longer-term risk-free interest rates, improvements in worldwide equity markets and narrowing credit spreads, while the same period of 2013 was primarily impacted by increases in U.S. and European risk-free interest rates. The cost, fair value and credit ratings of the Company's fixed maturities, short-term investments and equities classified as trading at June 30, 2014 were as follows (in millions of U.S. dollars): 71 --------------------------------------------------------------------------------

Credit Rating (2) Below investment Fair grade/ June 30, 2014 Cost (1) Value AAA AA A BBB Unrated Fixed maturities U.S. government $ 1,811$ 1,827 $ - $ 1,827 $ - $ - $ - U.S. government sponsored enterprises 29 29 - 29 - - - U.S. states, territories and municipalities 211 221 30 64 - - 127 Non-U.S. sovereign government, supranational and government related 2,187 2,289 860 1,320 99 10 - Corporate 5,694 5,981 207 532 2,431 2,384 427 Asset-backed securities 1,193 1,214 294 217 161 16 526 Residential mortgage-backed securities 2,371 2,395 338 1,987 54 - 16 Other mortgage-backed securities 50 51 17 18 14 - 2 Fixed maturities 13,546 14,007 1,746 5,994 2,759 2,410 1,098 Short-term investments 32 32 6 6 - 20 - Total fixed maturities and short-term investments 13,578 14,039 $ 1,752$ 6,000$ 2,759$ 2,430$ 1,098 Equities 1,025 1,253 Total $ 14,603$ 15,292 % of Total fixed maturities and short-term investments 12 % 43 % 20 % 17 % 8 %



(1) Cost is amortized cost for fixed maturities and short-term investments and

cost for equity securities.

(2) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). Investment grade reflects a rating of BBB- or above.

The increase of $0.4 billion in the fair value of the Company's fixed maturities from $13.6 billion at December 31, 2013 to $14.0 billion at June 30, 2014 primarily reflects decreases in U.S. and European longer-term risk-free interest rates and the reinvestment of net investment income. At June 30, 2014, there has been a modest shift in the distribution of the fixed maturity portfolio compared to December 31, 2013 as the Company decreased its holdings of corporate bonds (primarily due to narrowing credit spreads) and increased its holdings of U.S. government securities, residential mortgage-backed securities and asset-backed securities. The U.S. government category includes U.S. treasuries which are not rated, however, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues. The U.S. government sponsored enterprises (GSEs) category includes securities that carry the implicit backing of the U.S. government and securities issued by U.S. government agencies (such as the Federal Home Loan Mortgage Corporation, or Freddie Mac as it is commonly known, and the Federal National Mortgage Association, or Fannie Mae as it is commonly known, and other federally owned or established corporations). At June 30, 2014, 60% of this category was rated AA with the remaining 40%, although not specifically rated, generally considered to have a credit quality equivalent to AA+ corporate issues. The U.S. states, territories and municipalities category includes obligations of U.S. states, territories, or counties. The non-U.S. sovereign government, supranational and government related category includes obligations of non-U.S. sovereign governments, political subdivisions, agencies and supranational debt. The fair value and credit ratings of non-U.S. sovereign government, supranational and government related obligations at June 30, 2014 were as follows (in millions of U.S. dollars): 72 --------------------------------------------------------------------------------

Non-U.S. Non-U.S. Credit Rating (1) Sovereign Supranational Government Fair June 30, 2014 Government Debt Related Value AAA AA A BBB Non-European Union Canada $ 133 $ - $ 343$ 476$ 195$ 182$ 99 $ - Singapore 100 - - 100 100 - - - New Zealand 80 - - 80 - 80 - - All Other 44 - - 44 1 33 - 10 Total Non-European Union $ 357 $ - $ 343$ 700$ 296$ 295$ 99$ 10 European Union France $ 503 $ - $ 9$ 512 $ - $ 512 $ - $ - Germany 305 - - 305 305 - - - Belgium 214 - - 214 - 214 - - Netherlands 198 - - 198 198 - - - Austria 190 - - 190 - 190 - - Supranational - 140 - 140 31 109 - - All Other 30 - - 30 30 - - - Total European Union $ 1,440$ 140$ 9 $



1,589 $ 564$ 1,025 $ - $ - Total

$ 1,797$ 140$ 352 $



2,289 $ 860$ 1,320$ 99$ 10 % of Total

79 % 6 % 15 % 100 % 38 % 58 % 4 % -



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

At June 30, 2014, the Company did not have any investments in securities issued by peripheral European Union (EU) sovereign governments (Portugal, Italy, Ireland, Greece and Spain). Corporate bonds are comprised of obligations of U.S. and foreign corporations. The fair values of corporate bonds issued by U.S. and foreign corporations by economic sector at June 30, 2014 were as follows (in millions of U.S. dollars): Percentage to Total Fair Value of Fair Corporate June 30, 2014 U.S. Foreign Value Bonds Sector Finance $ 1,016$ 476$ 1,492 25 % Consumer noncyclical 563 238 801 13 Communications 388 364 752 13 Utilities 285 290 575 10 Energy 252 259 511 9 Industrials 323 144 467 8 Consumer cyclical 294 59 353 6 Insurance 255 38 293 5 Basic materials 71 112 183 3 Technology 156 - 156 3 Real estate investment trusts 136 7 143 2



Government guaranteed corporate debt - 119 119

2 All Other - 136 136 1 Total $ 3,739$ 2,242$ 5,981 100 % % of Total 63 % 37 % 100 %



At June 30, 2014, other than the U.S., no other country accounted for more than 10% of the Company's corporate bonds.

73 --------------------------------------------------------------------------------

At June 30, 2014, the ten largest issuers accounted for 18% of the corporate bonds held by the Company (6% of total investments and cash) and no single issuer accounted for more than 3% of total corporate bonds (1% of total investments and cash). Within the finance sector, substantially all (more than 99%) corporate bonds were rated investment grade and 77% were rated A- or better at June 30, 2014. At June 30, 2014, the fair value of the Company's corporate bond portfolio issued by companies in the European Union was as follows (in millions of U.S. dollars): Government Non-Finance Guaranteed Finance Sector Sector Corporate



June 30, 2014 Corporate Debt Corporate Bonds Bonds

Fair Value European Union United Kingdom $ - $ 137 $ 407 $ 544 Netherlands - 85 162 247 France - 41 164 205 Spain - 42 94 136 Germany 112 8 13 133 Italy - 17 79 96 Luxembourg - - 91 91 All Other - 18 86 104 Total $ 112 $ 348 $ 1,096 $ 1,556 % of Total 7 % 22 % 71 % 100 % At June 30, 2014, the Company did not hold any government guaranteed corporate debt issued in peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain) and held less than $79 million in total finance sector corporate bonds issued by companies in those countries. Asset-backed securities, residential mortgaged-backed securities and other mortgaged-backed securities include U.S. and non-U.S. originations. The fair value and credit ratings of asset-backed securities, residential mortgaged-backed securities and other mortgaged-backed securities at June 30, 2014 were as follows (in millions of U.S. dollars): Credit Rating (1) Below investment grade/ Fair June 30, 2014 GNMA (2) GSEs (3) AAA AA A BBB Unrated Value

Asset-backed securities U.S. $ - $ - $ 133$ 139$ 104 $ - $ 506$ 882 Non-U.S. - - 161 78 57 16 20 332 Asset-backed securities $ - $ - $ 294$ 217$ 161$ 16$ 526$ 1,214 Residential mortgaged-backed securities U.S. $ 451$ 1,467$ 8 $ - $ - $ - $ 16$ 1,942 Non-U.S. - - 330 69 54 - - 453 Residential mortgaged-backed securities $ 451$ 1,467$ 338$ 69$ 54 $ - $ 16$ 2,395 Other mortgaged-backed securities U.S. $ 5 $ - $ 8$ 13$ 14 $ - $ 2$ 42 Non-U.S. - - 9 - - - - 9 Other mortgaged-backed securities $ 5 $ - $ 17$ 13$ 14 $ - $ 2$ 51 Total $ 456$ 1,467$ 649$ 299$ 229$ 16$ 544$ 3,660 % of Total 13 % 40 % 18 % 8 % 6 % - % 15 % 100 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

(2) GNMA represents the Government National Mortgage Association. The GNMA, or

Ginnie Mae as it is commonly known, is a wholly owned U.S. government

corporation within the Department of Housing and Urban Development which

guarantees mortgage loans of qualifying first-time home buyers and low-income borrowers. 74

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(3) GSEs, or government sponsored enterprises, includes securities that are issued by U.S. government agencies, such as Freddie Mac and Fannie Mae. Residential mortgage-backed securities includes U.S. residential mortgage-backed securities, which generally have a low risk of default and carry the implicit backing of the U.S. government. The issuers of these securities are U.S. government agencies or GSEs, which set standards on the mortgages before accepting them into the program. Although these U.S. government backed securities do not carry a formal rating, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues. They are considered prime mortgages and the major risk is uncertainty of the timing of prepayments. While there have been market concerns regarding sub-prime mortgages, the Company did not have direct exposure to these types of securities in its own investment portfolio at June 30, 2014, other than $19 million of investments in distressed asset vehicles (included in Other invested assets). At June 30, 2014, the Company's U.S. residential mortgage-backed securities included approximately $7 million (less than 1% of U.S. residential mortgage-backed securities) of collateralized mortgage obligations, where the Company deemed the entry point and price of the investment to be attractive. Other mortgaged-backed securities includes U.S. and non-U.S. commercial mortgage-backed securities. Short-term investments consisted of U.S. and non-U.S. government obligations and foreign corporate bonds. At June 30, 2014, the fair value and credit ratings of short-term investments were as follows (in millions of U.S. dollars): Credit Rating (1) U.S. Non-U.S. Fair June 30, 2014 Government Government Corporate Value AAA AA A BBB Country Spain $ - $ - $ 9$ 9 $ - $ - $ - $ 9 Netherlands - - 6 6 - - - 6 Canada - 5 - 5 5 - - - All Other 7 1 4 12 1 6 - 5 Total $ 7$ 6$ 19$ 32$ 6$ 6 $ - $ 20 % of Total 20 % 19 % 61 % 100 % 19 % 20 % - 61 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). Investment grade reflects a rating of BBB- or above.

Equities are comprised of publicly traded common stocks, public exchange traded funds (ETFs), real estate investment trusts (REITs) and funds holding fixed income securities. The fair value of equities (including equities held in ETFs, REITs and funds holding fixed income securities) at June 30, 2014 were as follows (in millions of U.S. dollars): 75 --------------------------------------------------------------------------------

Percentage to Total Fair Fair Value of June 30, 2014 Value Equities Sector Real estate investment trusts $ 225 22 % Energy 154 15 Finance 128 13 Insurance 123 12 Consumer noncyclical 100 10 Communications 81 8 Technology 60 6 Industrials 50 5 Consumer cyclical 41 4 All Other 54 5 Total $ 1,016 100 % Mutual funds and exchange traded funds Funds holding fixed income securities 190 Funds and ETFs holding equities 47 Total equities $ 1,253 At June 30, 2014, the Company's "insurance sector" equities included an investment of $101 million in Essent Group Ltd. (Essent), the U.S. mortgage guaranty insurance company that conducted an initial public offering in the fourth quarter of 2013. At June 30, 2014, U.S. issuers represented 61% of the publicly traded common stocks and ETFs. At June 30, 2014, the ten largest common stocks accounted for 27% of equities (excluding equities held in ETFs and funds holding fixed income securities). At June 30, 2014, other than the Company's investment in Essent, no single common stock issuer accounted for more than 3% of total equities (excluding equities held in ETFs and funds holding fixed income securities) or more than 1% of the Company's total investments and cash and cash equivalents. At June 30, 2014, approximately 96% (or $182 million) of the funds holding fixed income securities were emerging markets funds. At June 30, 2014, the Company held less than $3 million of equities (excluding equities held in ETFs and funds holding fixed income securities) issued by finance sector institutions based in peripheral EU countries (Portugal, Ireland, Italy, Greece and Spain). Maturity Distribution The distribution of fixed maturities and short-term investments at June 30, 2014, by contractual maturity date, was as follows (in millions of U.S. dollars): Fair June 30, 2014 Cost Value One year or less $ 425$ 428



More than one year through five years 5,043 5,212 More than five years through ten years 3,648 3,790 More than ten years

848 949 Subtotal 9,964 10,379



Mortgage/asset-backed securities 3,614 3,660 Total

$ 13,578$ 14,039 Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. Other Invested Assets At June 30, 2014, the Company's other invested assets consisted primarily of investments in non-publicly traded companies, asset-backed securities, notes and loan receivables, note securitizations, annuities and residuals and other specialty asset classes. These assets, together with the Company's derivative financial instruments that were in a net unrealized gain or loss position are 76 --------------------------------------------------------------------------------

reported within Other invested assets in the Company's Condensed Consolidated Balance Sheets. The fair value and notional value (if applicable) of other invested assets at June 30, 2014 were as follows (in millions of U.S. dollars): Carrying Notional Value June 30, 2014 Value (1) of Derivatives Strategic investments $ 188 $ n/a



Asset-backed securities (including annuities and residuals) 30

n/a Notes and loan receivables and notes securitizations 39 n/a Total return swaps - 43 Interest rate swaps (2) (9 ) 202 Insurance-linked securities (3) (1 ) 171 Futures contracts 2 2,988 Foreign exchange forward contracts (2 ) 2,130 Foreign currency option contracts 1 86 TBAs 2 154 Other 43 n/a Total $ 293



n/a: Not applicable (1) Included in Other invested assets are investments that are accounted for

using the cost method of accounting, equity method of accounting and fair

value accounting.

(2) The Company enters into interest rate swaps to mitigate notional exposures

on certain total return swaps and certain fixed maturities. Only the

notional value of interest rate swaps on fixed maturities is presented

separately in the table.

(3) Insurance-linked securities include a longevity swap for which the notional

amount is not reflective of the overall potential exposure of the swap. As

such, the Company has included the probable maximum loss under the swap

within the net notional exposure as an approximation of the notional

amount.

At June 30, 2014, the Company's strategic investments included $188 million of investments classified in other invested assets. These strategic investments include investments in non-publicly traded companies, private placement equity and bond investments and other specialty asset classes, and the investments in distressed asset vehicles comprised of sub-prime mortgages, which were discussed above in the residential mortgaged-backed securities category of Investments-Trading Securities. In addition to the Company's strategic investments that are classified in other invested assets, strategic investments of $140 million are recorded in equities and other assets at June 30, 2014. At June 30, 2014, the Company's principal finance activities included $94 million of investments classified in Other invested assets, which were comprised primarily of asset-backed securities, notes and loan receivables, notes securitizations, annuities and residuals and private placement equity investments, which were partially offset by the combined fair value of total return and interest rate swaps related to principal finance activities. For total return swaps within the principal finance portfolio, the Company uses internal valuation models to estimate the fair value of these derivatives and develops assumptions that require significant judgment, such as the timing of future cash flows, credit spreads and the general level of interest rates. For interest rate swaps, the Company uses externally modeled quoted prices that use observable market inputs. At June 30, 2014, all of the Company's principal finance total return and interest rate swap portfolio was related to tax advantaged real estate backed transactions. Although the Company has not entered into any credit default swaps at June 30, 2014, the Company also utilizes credit default swaps to mitigate the risk associated with certain of its underwriting obligations, most notably in the credit/surety line, to replicate investment positions or to manage market exposures and to reduce the credit risk for specific fixed maturities in its investment portfolio. The Company uses externally modeled quoted prices that use observable market inputs to estimate the fair value of these swaps. The Company has entered into various weather derivatives and longevity total return swaps for which the underlying risks reference parametric weather risks and longevity risks, respectively. The Company uses internal valuation models to estimate the fair value of these derivatives and develops assumptions that require significant judgment, except for exchange traded weather derivatives. In determining the fair value of exchange traded weather derivatives, the Company uses quoted market prices. The Company uses exchange traded treasury note futures for the purposes of managing portfolio duration. The Company also uses equity futures to replicate equity investment positions. 77 --------------------------------------------------------------------------------

The Company utilizes foreign exchange forward contracts and foreign currency option contracts as part of its overall currency risk management and investment strategies. The Company utilizes to-be-announced mortgage-backed securities (TBAs) as part of its overall investment strategy and to enhance investment performance. TBAs represent commitments to purchase future issuances of U.S. government agency mortgage-backed securities. For the period between purchase of a TBA and issuance of the underlying security, the Company's position is accounted for as a derivative. The Company's policy is to maintain designated cash balances at least equal to the amount of outstanding TBA purchases. At June 30, 2014, the Company's other invested assets did not include any exposure to peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain) and included direct exposure to mutual fund investments in other EU countries of less than $3 million. The counterparties to the Company's foreign exchange forward contracts and foreign currency option contracts include European finance sector institutions rated A- or better by Standard & Poor's and the Company manages its exposure to individual institutions. The Company also has exposure to the euro related to the utilization of foreign exchange forward contracts and other derivative financial instruments in its hedging strategy (see Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk in Item 3 of Part I of this report). Funds Held - Directly Managed For a discussion of the funds held - directly managed account and the related quota share retrocession agreement, see Business-Reserves-Reserve Agreement in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. See also Quantitative and Qualitative Disclosures about Market Risk-Counterparty Credit Risk in Item 7A of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 and in Item 3 below. The composition of the investments underlying the funds held - directly managed account at June 30, 2014 is discussed below. At June 30, 2014, approximately 98% of the fixed income investments underlying the funds held - directly managed account were publicly traded and substantially all (more than 99%) were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent). The average credit quality, the average yield to maturity and the expected average duration of the fixed maturities, short-term investments and cash and cash equivalents underlying the funds held - directly managed account at June 30, 2014 and December 31, 2013 were as follows: June 30, 2014 December 31, 2013 Average credit quality AA AA Average yield to maturity 1.1 % 1.2 % Expected average duration 3.4 years 2.9 years The increase in the expected average duration of fixed maturities, short-term investments and cash and cash equivalents underlying the funds held - directly managed account at June 30, 2014 compared to December 31, 2013 was primarily due to the release of certain shorter duration investments related to the commutation of a portion of the funds held agreement with ColisÉe Re. The average credit quality and the average yield to maturity of the fixed maturities underlying the funds held - directly managed account at June 30, 2014 were comparable to December 31, 2013. The cost, fair value and credit rating of the investments underlying the funds held - directly managed account at June 30, 2014 were as follows (in millions of U.S. dollars): 78 --------------------------------------------------------------------------------

Credit Rating (2) Fair June 30, 2014 Cost (1) Value AAA AA A BBB Fixed maturities U.S. government $ 104$ 105 $ - $ 105 $ - $ - U.S. government sponsored enterprises 47 50 - 50 - - Non-U.S. sovereign government, supranational and government related 122 128 34 79 15 - Corporate 204 215 27 74 76 38 Fixed maturities 477 498 $ 61$ 308$ 91$ 38 Other invested assets 28 16 Total (3) $ 505$ 514 % of Total fixed maturities 12 % 62 % 18 % 8 %



(1) Cost is amortized cost for fixed maturities and short-term investments.

(2) All references to credit rating reflect Standard & Poor's (or estimated

equivalent).

(3) In addition to the fair value of $514 million of investments underlying the

funds held - directly managed account at June 30, 2014, the funds held -

directly managed account also includes cash and cash equivalents of $41

million, accrued investment income of $6 million and other assets and

liabilities related to the underlying business of $109 million.

Accordingly, the total balance in the funds held - directly managed account

was $670 million at June 30, 2014.

The decrease in the fair value of the investment portfolio underlying the funds held - directly managed account from $561 million at December 31, 2013 to $514 million at June 30, 2014 was primarily related to the commutation of a portion of the funds held agreement with ColisÉe Re and the run-off of the underlying liabilities associated with this account. The U.S. government category includes U.S. treasuries which are not rated, however, they are generally considered to have a credit quality equivalent to or greater than AA+ corporate issues. The U.S. government sponsored enterprises (GSEs) category includes securities that carry the implicit backing of the U.S. government and securities issued by U.S. government agencies (such as Freddie Mac and Fannie Mae). At June 30, 2014, 82% of this category was rated AA with the remaining 18%, although not specifically rated, generally considered to have a credit quality equivalent to AA+ corporate issues. The non-U.S. sovereign government, supranational and government related category includes obligations of non-U.S. sovereign governments, political subdivisions, agencies and supranational debt. The fair value and credit ratings of non-U.S. sovereign government, supranational and government related obligations underlying the funds held - directly managed account at June 30, 2014 were as follows (in millions of U.S. dollars): Credit Rating (1) Non-U.S. Non-U.S. Sovereign Supranational Government Fair June 30, 2014 Government Debt Related Value AAA AA A

Non-European Union Canada $ 3 $ - $ 18$ 21$ 5$ 6$ 10 All Other - 3 - 3 3 - -



Total Non-European Union $ 3 $ 3 $ 18

$ 24$ 8$ 6$ 10European Union France $ 14 $ - $ 25$ 39 $ - 39 $ - Belgium 20 - - 20 - 20 - All Other 10 35 - 45 26 14 5 Total European Union $ 44 $ 35 $ 25$ 104$ 26$ 73$ 5 Total $ 47 $ 38 $ 43$ 128$ 34$ 79$ 15 % of Total 37 % 29 % 34 % 100 % 27 % 61 % 12 %



(1) All references to credit rating reflect Standard & Poor's (or estimated

equivalent). 79

--------------------------------------------------------------------------------

At June 30, 2014, the investments underlying the funds held - directly managed account included less than $1 million of securities issued by peripheral European Union (EU) sovereign governments (Portugal, Italy, Ireland, Greece and Spain). Corporate bonds underlying the funds held - directly managed account are comprised of obligations of U.S. and foreign corporations. The fair value of corporate bonds issued by U.S. and foreign corporations underlying funds held - directly managed account by economic sector at June 30, 2014 were as follows (in millions of U.S. dollars): Percentage to Total Fair Value of Fair Corporate June 30, 2014 U.S. Foreign Value Bonds Sector Finance $ 10$ 63$ 73 34 % Consumer noncyclical 27 7 34 16 Energy 6 25 31 15 Utilities 6 16 22 10 Communications 5 8 13 6 Basic materials 7 5 12 6 Consumer cyclical 7 1 8 4 Government guaranteed corporate debt - 8 8 4 All Other 11 3 14 5 Total $ 79$ 136$ 215 100 % % of Total 37 % 63 % 100 % At June 30, 2014, other than the U.S., France and the Netherlands, which accounted for 37%, 14%, and 14%, respectively, no other country accounted for more than 10% of the Company's corporate bonds underlying the funds held - directly managed account. At June 30, 2014, the ten largest issuers accounted for 37% of the corporate bonds underlying the funds held - directly managed account and no single issuer accounted for more than 6% of corporate bonds underlying the funds held - directly managed account (or more than 2% of the investments and cash underlying the funds held - directly managed account). At June 30, 2014, all of the finance sector corporate bonds held were rated investment grade (BBB- or higher) by Standard & Poor's (or estimated equivalent) and 98% were rated A- or better. At June 30, 2014, the fair value of corporate bonds underlying the funds held - directly managed account that were issued by companies in the European Union were as follows (in millions of U.S. dollars): Government Non-Finance Guaranteed Finance Sector Sector Corporate Corporate Corporate Fair June 30, 2014 Debt Bonds Bonds Value European Union France $ - $ 12 $ 19$ 31 Netherlands - 14 16 30 United Kingdom 1 9 6 16 Germany 7 - 2 9 All Other - 6 6 12 Total $ 8 $ 41 $ 49$ 98 % of Total 8 % 42 % 50 % 100 % At June 30, 2014, corporate bonds underlying the funds held - directly managed account included less than $6 million of finance sector corporate bonds issued by companies in peripheral EU countries (Portugal, Italy, Ireland, Greece and Spain). Other invested assets underlying the funds held - directly managed account primarily consists of real estate fund investments. Maturity Distribution The distribution of fixed maturities and short-term investments underlying the funds held - directly managed account at June 30, 2014, by contractual maturity date was as follows (in millions of U.S. dollars): 80 --------------------------------------------------------------------------------

Fair June 30, 2014 Cost Value One year or less $ 71$ 72



More than one year through five years 249 261 More than five years through ten years 157 165 Total

$ 477$ 498 Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. European Exposures For a discussion of the Company's management of the recent uncertainties related to European sovereign debt exposures, the uncertainties surrounding Europe in general and the Company's responses to them, see Financial Condition, Liquidity and Capital Resources-Investments-European exposures in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. There have not been any significant changes to the Company's guidelines adopted in response to the European crisis during the six months ended June 30, 2014. The Company's exposures to European sovereign governments and other European related investment risks are discussed above within each category of the Company's investment portfolio and the investments underlying the funds held - directly managed account. In addition, the Company's other investment and derivative exposures to European counterparties are discussed in Other Invested Assets above. See Risk Factors in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for further discussion of the Company's exposure to the European sovereign debt crisis. Funds Held by Reinsured Companies (Cedants) In addition to the funds held - directly managed account described above, the Company writes certain business on a funds held basis. Funds held by reinsured companies at June 30, 2014 have not changed significantly since December 31, 2013. See Funds Held by Reinsured Companies (Cedants) in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Unpaid Losses and Loss Expenses The Company establishes loss reserves to cover the estimated liability for the payment of all losses and loss expenses incurred with respect to premiums earned on the contracts that the Company writes. Loss reserves do not represent an exact calculation of the liability. Estimates of ultimate liabilities are contingent on many future events and the eventual outcome of these events may be different from the assumptions underlying the reserve estimates. The Company believes that the recorded unpaid losses and loss expenses represent Management's best estimate of the cost to settle the ultimate liabilities based on information available at June 30, 2014. At June 30, 2014 and December 31, 2013, the Company recorded gross and net Non-life reserves for unpaid losses and loss expenses as follows (in millions of U.S. dollars): December 31, June 30, 2014 2013



Gross Non-life reserves for unpaid losses and loss expenses $ 10,400

$ 10,646 Net Non-life reserves for unpaid losses and loss expenses 10,155 10,379 Net reserves guaranteed by ColisÉe Re 625 727 The net Non-life reserves for unpaid losses and loss expenses at June 30, 2014 and December 31, 2013 include $625 million and $727 million, respectively, of reserves guaranteed by ColisÉe Re (see Item 1 of Part I and Note 8 to Consolidated Financial Statements included in Item 8 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the Reserve Agreement). The net Non-life reserves for unpaid losses and loss expenses for the six months ended June 30, 2014 were as follows (in millions of U.S. dollars): 81 --------------------------------------------------------------------------------

For the six months ended June 30, 2014 Net liability at December 31, 2013 $



10,379

Net incurred losses related to: Current year 1,490 Prior years (325 ) 1,165 Change in Paris Re Reserve Agreement (8 ) Net paid losses (1,403 ) Effects of foreign exchange rate changes



22

Net liability at June 30, 2014 $



10,155

The decrease in net Non-life reserves for unpaid losses and loss expenses from $10,379 million at December 31, 2013 to $10,155 million at June 30, 2014 primarily reflects the payment of losses which was partially offset by net incurred losses during the six months ended June 30, 2014. The paid losses during the six months ended June 30, 3014 include the annual settlement of certain significant agricultural contracts related to the 2013 crop year and the commutation of a portion of the net reserves guaranteed by ColisÉe Re. See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits and Results by Segment above for a discussion of losses and loss expenses and prior years' reserve developments. See also Business-Reserves in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the impact of foreign exchange on unpaid losses and loss expenses. Policy Benefits for Life and Annuity Contracts At June 30, 2014 and December 31, 2013, the Company recorded gross and net policy benefits for life and annuity contracts as follows (in millions of U.S. dollars): December 31, June 30, 2014 2013



Gross policy benefits for life and annuity contracts $ 2,127

$ 1,974 Net policy benefits for life and annuity contracts 2,104



1,967

The net policy benefits for life and annuity contracts for the six months ended June 30, 2014 were as follows (in millions of U.S. dollars):

For



the six months ended

June 30, 2014 Net liability at December 31, 2013 $



1,967

Net incurred losses related to: Current year 476 Prior years (8 ) 468 Net paid losses (349 ) Effects of foreign exchange rate changes



18

Net liability at June 30, 2014 $



2,104

The increase in net policy benefits for life and annuity contracts from $1,967 million at December 31, 2013 to $2,104 million at June 30, 2014 is primarily due to net incurred losses, which were partially offset by paid losses. The net incurred losses for the Company's Life and Health reserves will generally exceed net paid losses in any one given year due to the long-term nature of the liabilities and the growth in the book of business. See Critical Accounting Policies and Estimates-Losses and Loss Expenses and Life Policy Benefits and Results by Segment above for a discussion of life policy benefits and prior years' reserve developments. See also Business-Reserves in Item 1 of Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. 82 --------------------------------------------------------------------------------

Reinsurance Recoverable on Paid and Unpaid Losses The Company has exposure to credit risk related to reinsurance recoverable on paid and unpaid losses. See Note 9 to Consolidated Financial Statements and Quantitative and Qualitative Disclosures about Market Risk-Counterparty Credit Risk in Item 7A of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the Company's risk related to reinsurance recoverable on paid and unpaid losses and the Company's process to evaluate the financial condition of its reinsurers. Contractual Obligations and Commitments In the normal course of its business, the Company is a party to a variety of contractual obligations, which are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. These contractual obligations are considered by the Company when assessing its liquidity requirements and the Company is confident in its ability to meet all of its obligations. Other than the commutation of one significant treaty accounted for using deposit accounting, the Company's contractual obligations at June 30, 2014 have not changed materially compared to December 31, 2013. Shareholders' Equity and Capital Resources Management Shareholders' equity attributable to PartnerRe Ltd. common shareholders was $6.9 billion at June 30, 2014, a 3% increase compared to $6.7 billion at December 31, 2013. The major factors contributing to the increase in shareholders' equity during the six months ended June 30, 2014 were: comprehensive income of $583 million, which was primarily related to net



income; partially offset by

a net decrease of $286 million, due to the repurchase of common shares of

$313 million under the Company's share repurchase program, partially offset by the issuance of common shares under the Company's employee equity plans of $27 million; and dividend payments of $97 million related to the Company's common and preferred shares. See Results of Operations and Review of Net Income (Loss) above for a discussion of the Company's net income for the six months ended June 30, 2014. As part of its long-term strategy, the Company will continue to actively manage capital resources to support its operations throughout the reinsurance cycle and for the benefit of its shareholders, subject to the ability to maintain strong ratings from the major rating agencies and the unquestioned ability to pay claims as they arise. Generally, the Company seeks to increase its capital when its current capital position is not sufficient to support the volume of attractive business opportunities available. Conversely, the Company will seek to reduce its capital, through the payment of dividends on its common shares or share repurchases, when available business opportunities are insufficient or unattractive to fully utilize the Company's capital at adequate returns. The Company may also seek to reduce or restructure its capital through the repayment or purchase of debt obligations, or increase or restructure its capital through the issuance of debt, when opportunities arise. Management uses certain key measures to evaluate its financial performance and the overall growth in value generated for the Company's common shareholders. For a discussion related to growth in Diluted Tangible Book Value per Share plus dividends see Key Financial Measures above. The capital structure of the Company at June 30, 2014 and December 31, 2013 was as follows (in millions of U.S. dollars): June 30, 2014 December 31, 2013 Capital Structure: Senior notes (1) $ 750 10 % $ 750 10 % Capital efficient notes (2) 63 1 63 1 Preferred shares, aggregate liquidation value 854 11 854 11 Common shareholders' equity attributable to PartnerRe Ltd. 6,056 78 5,856 78 Total Capital $ 7,723 100 % $ 7,523 100 %



(1) PartnerRe Finance A LLC and PartnerRe Finance B LLC, the issuers of the

Senior Notes, do not meet consolidation requirements under U.S. GAAP.

Accordingly, the Company shows the related intercompany debt of $750

million in its Condensed Consolidated Balance Sheets at June 30, 2014 and

December 31, 2013. 83

--------------------------------------------------------------------------------

(2) PartnerRe Finance II Inc., the issuer of the CENts, does not meet



consolidation requirements under U.S. GAAP. Accordingly, the Company shows

the related intercompany debt of $71 million in its Condensed Consolidated

Balance Sheets at June 30, 2014 and December 31, 2013.

The increase in total capital during the six months ended June 30, 2014 was related to the same factors above describing the increase in shareholders' equity attributable to PartnerRe Ltd. Indebtedness There was no change in the Company's indebtedness at June 30, 2014 compared to December 31, 2013 and the Company did not enter into any short-term borrowing arrangements during the six months ended June 30, 2014. See Note 10 to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of the Company's indebtedness. Shareholders' Equity Share Repurchases In September 2013, the Board approved a new share repurchase authorization of up to a total of 6 million common shares. Unless terminated earlier by resolution of the Board, the program will expire when the Company has repurchased all shares authorized for repurchase thereunder. At June 30, 2014, the Company had approximately 1.9 million common shares remaining under its current share repurchase authorization and approximately 37.3 million common shares were held in treasury and are available for reissuance. During the six months ended June 30, 2014, the Company repurchased approximately 3.1 million of its common shares under its authorized share repurchase program at a total cost of $313 million, representing an average cost of $101.97 per share. These shares were repurchased at a discount to diluted book value per share at December 31, 2013 of approximately 7%. Subsequently, during the period from July 1, 2014 to July 28, 2014, the Company repurchased 0.2 million common shares at a total cost of $18 million, representing an average cost of $109.49 per share. Following these repurchases, the Company had approximately 1.7 million common shares remaining under its current share repurchase authorization and approximately 37.5 million common shares are held in treasury and are available for reissuance. Liquidity Liquidity is a measure of the Company's ability to access sufficient cash flows to meet the short-term and long-term cash requirements of its business operations. Management believes that its significant cash flows from operations and high quality liquid investment portfolio will provide sufficient liquidity for the foreseeable future. At June 30, 2014 and December 31, 2013, cash and cash equivalents were $1.2 billion and $1.5 billion, respectively. The decrease in cash and cash equivalents was primarily due to the Company's share repurchases, dividend payments and taxes paid, which were partially offset by net cash provided by underwriting activities. Net cash provided by operating activities decreased modestly to $221 million in the six months ended June 30, 2014 from $231 million in same period of 2013 primarily due to higher taxes paid in 2013, which was partially offset by higher underwriting cash flows. Net cash used in investing activities was $86 million in the six months ended June 30, 2014 compared to net cash provided by investing activities of $489 million in the same period of 2013. The net cash used in investing activities in the six months ended June 30, 2014 primarily reflects the reinvestment of a portion of the net cash flows from operating activities that were not used to fund financing activities. The net cash provided by investing activities in the six months ended June 30, 2013 reflects the sale and maturity of investments to fund financing activities. Net cash used in financing activities was $421 million in the six months ended June 30, 2014 compared to $567 million in the same period of 2013. Net cash used in financing activities in the six months ended June 30, 2014 was primarily related to the Company's share repurchases and dividend payments on common and preferred shares. Net cash used in financing activities in the six months ended June 30, 2013 was related to the Company's redemption of the Series C preferred shares, share repurchases and dividend payments on common and preferred shares, which were partially offset by proceeds from the issuance of the Series F preferred shares. At June 30, 2014, there were no restrictions on the Company's ability to pay common and preferred shareholders' dividends from retained earnings. The declaration of dividends by Partner Reinsurance Company Ltd. is subject to prior regulatory approval through December 31, 2014. 84 --------------------------------------------------------------------------------

The Company believes that annual positive cash flows from operating activities will be sufficient to cover claims payments, absent a series of additional large catastrophic loss activity. In the event that paid losses accelerate beyond the Company's ability to fund such payments from operating cash flows, the Company would use its cash balances available, liquidate a portion of its high quality and liquid investment portfolio or access certain uncommitted credit facilities. As discussed in Investments above, the Company's investments and cash totaled $16.8 billion at June 30, 2014, the main components of which were investment grade fixed maturities, short-term investments and cash and cash equivalents totaling $14.1 billion. Financial strength ratings and senior unsecured debt ratings represent the opinions of rating agencies on the Company's capacity to meet its obligations. There was no change in the Company's current financial strength ratings at June 30, 2014 compared to December 31, 2013. See also Shareholders' Equity and Capital Resources Management-Liquidity in Item 7 of Part II of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Credit Agreements In the normal course of its operations, the Company enters into agreements with financial institutions to obtain unsecured and secured credit facilities. These facilities are used primarily for the issuance of letters of credit, although a portion of these facilities may also be used for liquidity purposes. The Company's credit facilities have not changed significantly since December 31, 2013. See Credit Agreements in Item 7 of Part II and Note 19 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for further information related to the credit facilities available to the Company. Currency See Results of Operations and Review of Net Income (Loss) above for a discussion of the impact of foreign exchange and net foreign exchange gains and losses during the six months ended June 30, 2014 and 2013. The foreign exchange gain or loss resulting from the translation of the Company's subsidiaries' and branches' financial statements (expressed in euro or Canadian dollar functional currency) into U.S. dollars is classified in the currency translation adjustment account, which is a component of accumulated other comprehensive income or loss in shareholders' equity. The currency translation adjustment account increased by $2 million during the six months ended June 30, 2014 primarily due to the translation of the Company's branches with a Canadian dollar functional currency. The reconciliation of the currency translation adjustment for the six months ended June 30, 2014 was as follows (in millions of U.S. dollars): For the six months ended June 30, 2014 Currency translation adjustment at December 31, 2013 $



1

Change in currency translation adjustment included in other comprehensive income

2

Currency translation adjustment at June 30, 2014 $



3

From time to time, the Company enters into net investment hedges. At June 30, 2014, there were no outstanding foreign exchange contracts hedging the Company's net investment exposure. See Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Risk in Item 3 of Part I below for a discussion of the Company's risk related to changes in foreign currency movements. New Accounting Pronouncements See Note 3 to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this report.


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