Note 10.

Lloyd’s Syndicate 1221

The Lloyd’s Operations included in the consolidated financial statements represents its participation in Syndicate 1221. Syndicate 1221’s stamp capacity is £215 million ($336.9 million) for the 2014 underwriting year compared to £195 million ($323.7 million) for the 2013 underwriting year. Stamp capacity is a measure of the amount of premiums a Lloyd’s syndicate is authorized to write based on a business plan approved by the Council of Lloyd’s. Syndicate 1221’s stamp capacity is expressed net of commission (as is standard at Lloyd’s). The Syndicate 1221 premiums recorded in our Company’s financial statements are gross of commission. Our Company controlled 100% of Syndicate 1221’s stamp capacity for the 2014, 2013 and 2012 underwriting years through its wholly-owned Lloyd’s corporate member.

During the first quarter, Syndicate 1221 revised its foreign exchange accounting methodology from reporting its financial position and results using three functional currencies (GBP, USD and CAD) to one functional currency (USD). The USD was chosen as the single functional currency as the majority of the Syndicate’s insurance business has been and continues to be transacted in USD. This cumulative change in re-measurement has resulted in an immaterial correction of $10.0 million ($6.6 million, after-tax) reducing Accumulated Other Comprehensive Income in the consolidated balance sheet, offset by a gain in Other Income in the consolidated statement of income. The impact of the correction is not material to the previously issued annual financial statements for 2013 and 2012.

Our Company provides letters of credit and posts cash to Lloyd’s to support its participation in Syndicate 1221’s stamp capacity. If Syndicate 1221 increases its stamp capacity and our Company participates in the additional stamp capacity, or if Lloyd’s changes the capital requirements, our Company may be required to supply additional collateral acceptable to Lloyd’s. If our Company is unwilling or unable to provide additional acceptable collateral, our Company will be required to reduce its participation in the stamp capacity of Syndicate 1221. Refer to Note 8, Credit Facilities, for additional information.