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Annual Report 2009

Plain-text annual report

Annual Report 2009 1 S I R I U S I N T E R N A T I O N A L I N S U R A N C E C O R P O R A T I O N A N N U A L R E P O R T 2 0 0 9 Annual Report 2009 Contents White Mountains Insurance Group Comments from the President and CEO Board of Directors’ Report Income Statement - Group Balance Sheet - Group Change in shareholders’ equity - Group Cash flow Statement - Group Income Statement – Parent Company Balance Sheet – Parent Company Change in shareholders’ equity – Parent Company Cash flow Statement – Parent Company Performance analysis – Parent Company Note 1 Accounting Principles Note 2 Information on risks Note 3 Premium income Note 4 Claims incurred, for own account Note 5 Operating costs Note 6 Investment income Note 7 Unrealised gains on investments Note 8 Investment expenses and charges Note 9 Unrealised losses on investments Note 10 Net profit or net loss per category of financial instrument Note 11 Taxes Note 12 Intangible assets Note 13 Land and buildings Note 14 Shares and participations in group companies Note 15 Shares and participations in associated companies Note 16 Investment in shares and participations Note 17 Bonds and other interest-bearing securirites Note 18 Debtors arising out of direct insurance and other debtors Note 19 Categories of financial assets and liabilities and their fair values Note 20 Tangible assets Note 21 Deferred acquisition costs Note 22 Untaxed reserves Note 23 Provisions for unearned premiums and unexpired risks Note 24 Claims outstanding Note 25 Equalisation provision Note 26 Claims handling provision Note 27 Pensions provisions and similar items Note 28 Creditors arising out of direct insurance and other creditors Note 29 Contingent liabilities and commitments Note 30 Associated parties Note 31 Average number of employees, salaries and other remuneration Note 32 Fees and reimbursement to auditors Note 33 Operational leasing Note 34 Class analysis The Board of Directors’ and the President’s signatures Audit report Definitions 1 2 5 11 12 14 16 17 18 20 22 23 24 31 40 40 42 42 43 43 43 44 45 46 47 47 49 49 50 50 51 54 54 54 55 56 56 57 57 57 58 58 59 62 62 62 63 64 65 2 Annual Report 2009 White Mountains – our owners White Mountains Insurance Group, Ltd. White Mountains Re Ltd is a financial services holding company White Mountains Re Ltd. (“White Moun- with primary business interests in property tains Re”) – Bermuda holding company and casualty insurance and reinsurance. whose operating companies offer capac- The Company’s corporate headquarters and ity for most property, casualty, accident & its registered office are located in Hamil- health, marine, and aviation exposures. Its ton, Bermuda and its principal executive principal operating companies are: office is located in Hanover, New Hamp- White Mountains Reinsurance Company shire. of America (“WMRe America”) – a U.S.- The Company conducts its principal based international multi-line reinsurance businesses through: company that employs a conservative White Mountains Re – global reinsurance. strategy with specialized underwriting ex- Onebeacon – specialty and personal pertise, a diversified portfolio, and strong property and casualty primary insurance. operational discipline. WMRe America’s OneBeacon’s common shares are listed on home office is in New York, and it has the New York Stock Exchange under the branch offices in Connecticut, Miami and symbol “OB”. White Mountains owns a 75% Toronto. interest of OneBeacon. Sirius International Insurance Corpora- White Mountains Advisors – investment tion (“Sirius”) – a Sweden based inter - management with $29.2 billion of assets un- national reinsurer that focuses mainly der management. on property and other short-tailed lines. White Mountains´ common shares are Sirius is the largest reinsurance company listed on the New York Stock Exchange in Scandinavia and a leading reinsurer in and the Bermuda Stock Exchange under the Europe. Sirius’ home office is in Stock- symbol “WTM”. Market capitalization as of holm, and it has branch offices in Bermu- December 31, 2009 was approximately $2.9 da, Copenhagen, Hamburg, Liège, London, billion. As of December 31, 2009, White Singapore and Zurich. Mountains reported total assets of $15.4 White Mountains Specialty Under- billion adjusted, shareholders’ equity NGM of writing, Inc. (DBA “White Mountains Re $3.7 billion, and adjusted GAAP book value Solutions”) – a Connecticut-based profes- per share NGM of $417. sional team specializing in opportunistic structured acquisitions of run-off property and casualty insurance liabilities. White Mountains Re Solutions further enhances traditional returns via effective post- acquisition management of the run-off process. 3 Annual Report 2009 Comments from the President and CEO figures are set out at the bottom of this report. They are outstanding no matter how you view them. Premium income was higher than ever, whilst the cost of claims fell. In fact, we only had two net losses above $10 million, and none at all above $15 million. As a result of this combination of trends, profitability increased from an already high level, and we were able to build our solvency capital yet again. Every one of our business units returned underwriting surpluses. Overall, 2009 was the second best year in the history of our company. At the same time we were able to develop our business in a way consistent with our strategic goal of steady rather than spectacular growth. Our new Aus- tralian branch made a promising start and is giving us a stronger presence in the region. Above all, we were pleased to welcome colleagues in our new Bermuda branch to the Sirius family after their transfer from our sister company White Mountains Re. They write mainly US Ca- tastrophe XL business. These extensions to our activities were entirely in line with our main focus: the maintenance and development of long-term relationships with brokers and cedants underpinned by mutual trust. Consistency of service, combined with a conservative, sustainable approach to underwriting, form the basis of all that 2009 was a year that reinsurers will want to remember, one where profits rose as losses failed to materialise. As I write this review, however, 2010 has already given us a timely reminder of the impor- tance of maintaining a longer perspec- tive. After barely two months of the New Year there have been three big events: earthquakes in Haiti and Chile; and storm Xynthia through Portugal, Spain, France and Germany. In case we forget, we work in a volatile business. For this reason, I would like to use this report to consider Sirius Interna- tional’s performance over several years, as well as its achievements during 2009. As much as it gives me genuine pleasure to look back on a highly profitable 12 months, our consistency over a longer timeframe is even more important to our customers and shareholders alike. we do. Beginning with 2009 itself, the headline Saying this is one thing, making it happen 4 Annual Report 2009 quite another, which is why I would also like this, we are truly able to back our like to discuss briefly our longer-term promise of giving our clients solid, long- record. We have now returned underwrit- term support. The growth of our premi- ing profits every year from 2002 onwards. um income may not be exciting, but it is Our average combined ratio for the past sustainable and a tribute to the quality of decade, including the World Trade Centre our underwriting teams. 2001 and the 2005 hurricane season, is Looking to the prospects for this 94%. This falls to 89% over the past six year, it started with a challenging renew- years. In other words, our great results in al season. Nonetheless, we substantially 2009 were no flash in the pan; they were increased our footprint in Credit and part of a pattern. Aviation, and were pleased to welcome Similarly, we have increased our sol- new clients across all classes of business vency capital for each of the past eight and geographical regions. years, even in 2008 at the height of the As already mentioned, we know financial crisis. Although the latest rise that there are some significant losses in in capital of more than 50% followed a the pipeline. Even so, the underlying transfer of funds from within the White strength of our portfolio and underwrit- Mountains group, there was also signifi- ing justifies confidence in the eventual cant organic growth. outcome for 2010 and future years. This year-in, year-out performance I would like to thank the staff of underlines our resilience even in diffi- Sirius International for their continuing cult times, as our aviation team in Zurich hard work and loyalty and, above all, were able to demonstrate in 2009. our clients and brokers for the trust you Although benign for the reinsurance place in us. industry as a whole, it was one of the worst years ever for the aviation market. Yet, even in this class, we achieved a 97% combined ratio. With performances g ö r a n t h o r s t e n s s o n p r e s i d e n t & c e o 5 Annual Report 2009 At a glance 2009 2008 Net premium income $911 million $858 million Claims net of reinsurance $545 million $560 million Combined Ratio 86% 87% Investment income $30 million $42 million Income before tax (group) $207 million $127 million Combined Ratio (Parent Company) 99% 80% 88% 87% 86% 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 Solvency Capital (Group), MSEK 9 364 9 893 10 399 10 455 12 544 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 6 Annual Report 2009 Board of Directors’ Report Sirius International Insurance Corporation by Sirius International’s London branch. (publ) Furthermore, a branch office was opened Corporate Identity Number: 516401-8136 in Bermuda in September. The operations on Bermuda were taken over from Sirius The Board of Directors and the President International’s fellow subsidiary, White of Sirius International Insurance Corpora- Mountains Re, Bermuda. The branch under- tion (publ) (Sirius International) hereby writes American catastrophe reinsurance. submit the company’s annual report for With the new branch in Bermuda, Sirius 2009. General information concerning the company International now underwrites business from all parts of the world. The largest claim for the year, a hail storm in Switzerland and Austria, took Sirius International is active in internatio- place in July and is expected to cost nal insurance and reinsurance. Sirius Inter- approximately MSEK 118 for own account. national was established in 1989. In addition to this claim, there was only Insurance operations commenced in one further claim of any significance; 1945 in Försäkringsaktiebolaget Sirius. In winter storm Klaus, which hit France and 1989, the reinsurance activities were trans- Spain. The cost for this storm is calculated ferred to Sirius International. Sirius Inter- at approximately MSEK 105 for own national has been the Parent Company of account. the Sirius Group since 1992. In general, price levels were satisfactory in the majority of markets for all classes of The development, results and position of business. The run-off results were positive the company for earlier years. 2009 was a benign year as regards natural Gross premium income for the Group catastrophes; no major hurricanes, typ- amounted to MSEK 8,630 (MSEK 6,683) and hoons, floods or earthquakes occurred, and MSEK 8,630 (MSEK 6,683) for the Parent the year turned out to be a good one, both Company. Premium income for own for the reinsurance industry as a whole and account for the Group totalled MSEK 6,957 for Sirius International. The company had (MSEK 5,602) and for the Parent Company one of its best years ever, with a combined MSEK 6,957 (MSEK 5,602). The insurance ratio of 86%. Sirius International has had, operating results of the Group amounted to as of and including 2009, a combined ratio MSEK 1,316 (MSEK 928) and for the Parent of less than 100% for eight years in a row. Company MSEK 1,311 (MSEK 923). During the year, the operations increased It is worth noting that all of the branch with two new branch offices. In January offices recorded a combined ratio below a branch office was opened in Australia. 100%, as did all active classes of business. The aim is to be able to underwrite local The combined ratio was 86% (87%) for the business in the country, both direct and Group and 86% (87%) for the Parent reinsurance. The administration is handled Company. The return on deployed capital 7 Annual Report 2009 in the insurance operations amounted yield and total yield is made in accordance to 16%. with the recommendations of the Swedish The financial markets bounced back Financial Supervisory Authority. notably during the year. Stock markets The investment portfolio’s focus and around the world saw major upswings, composition is largely unchanged with the Swedish OMX 30 increasing by compared with the previous year. During 44%, S&P 500 in the US increasing by 24% the latter part of the year, the portion of and the major stock exchanges in Europe short-term investments increased, as well noting upturns of around 20%. The interest as the bank funds in the portfolio. These rate levels on government bonds conti- funds will be reinvested in interest-bearing nue to be low, in spite of an increase in investments with a somewhat longer interest on the somewhat longer durations investment horizon in 2010. At the end of during the year. The credit spreads the year, the investment portfolio was compared with risk-free interest have composed of: shares and participations, decreased notably during the year. 7%; investments in associated companies, All in all, the yield on the bond portfo- 16%; and interest-bearing investments and lios amounted to 4.2%, excluding exchange bank funds, 77%. rate effects. For the equity portfolio, inclu- Other events regarding changes in the ding investments in associated companies Group’s structure are described primarily and private equity companies, the yield under the section “Ownership”. amounted to 19.7%, excluding exchange rate effects. As a result of a decline, during Ownership the year, in the USD vis á vis the Swedish Sirius International is a wholly owned sub- krona of 8.4%, the company’s continued sidiary of Sirius Insurance Holding Sweden policy, regarding the exchange rate expo- AB (Corporate Identity Number 556635- sure vis á vis the USD, resulted in realised 9724), Stockholm, Sweden, which is ultima- and unrealised exchange rate losses. tely owned by White Mountains Insurance Exchange rate losses have negatively Group Ltd, Bermuda. impacted the yield in terms of Swedish In September 2009, Sirius International krona. From 1 January, 2010, the company Insurance Corporation Bermuda Branch, has hedged approximately 50% of its Hamilton, Bermuda was opened. foreign exchange rate exposure in USD. At year-end 2009, the Group consists of The investment result, as presented Sirius International Insurance Corporation in the Income Statement of the Group, (publ) with the subsidiaries Sirius Belgium amounted to a profit of MSEK 658 (MSEK Réassurances S.A. (in liquidation), Liège, 94) including currency exchange losses but Belgium, Sirius Rückversicherungs Service before allocation of interest to the insu- GmbH, Hamburg, Germany, and Sirius In- rance operations. If unrealised gains in the ternational Holdings (NL) BV, Amsterdam, bond portfolio, which is recorded directly The Netherlands. in shareholders’ equity, are included, then In addition, Sirius International has the investment result amounted to a profit eight branch offices outside of Sweden. of MSEK 791. The year’s total yield amoun- These include the branch office in London, ted to 3.3%. Calculation of investment Great Britain - Sirius International Insu- 8 Annual Report 2009 rance Corporation (publ) UK Branch; the ownership is equivalent to approximately branch office in Zurich, Switzerland - Sirius 24%. As per 1 September, 2009 the person- International Insurance Corporation (publ), nel in White Mountains Re Bermuda were Stockholm, Zurich Branch; the branch office transferred to the newly opened branch in Singapore - Sirius International office in Bermuda. After that point in time, Insurance Corporation Asia Branch, all new underwriting which previously took Singapore; the branch office in Liège, place in White Mountains Re Bermuda, was Belgium - Sirius International Insurance executed in the new branch office’s name. Corporation (publ), Belgian Branch; the The company White Mountains Re branch office in Copenhagen, Denmark, Bermuda has been placed in run-off as Sirius International Danish Branch, at the same date. In conjunction with the filial af Sirius International Försäkringsak- opening of the branch office, Sirius tiebolag (publ), the branch office in Hamil- International received a shareholders’ ton, Bermuda, Sirius International Insurance contribution of MUSD 200. Corporation Bermuda Branch, the branch In the continued restructuring work office in Australia, Sirius International within the group, Sirius International has, Insurance Corporation, Australian Branch, as at 4 February, 2010, in an intra-group and in Hamburg, Germany. The operation in transfer, acquired all of the shares in White Germany is conducted through the agency Mountains Re Bermuda Ltd for a purchase Sirius Rückversicherungs Service GmbH, price equivalent to MUSD 100. which operates on behalf of Sirius Interna- As at 1 January, 2010, the company had tional. entered into an internal currency hedging During 2001, a voluntary liquidation agreement with White Mountains Re of Sirius Belgium Réassurances S.A., Liège, Financial Services Ltd (WMReFS). This Belgium, was commenced as the company is agreement implies that Sirius International no longer in active operation. The liquida- has sold MUSD 250 on the basis of a tion has not been completed, due to a tax currency futures transaction to WMReFS dispute. The outcome of the dispute will with a duration of five years. With the help have no impact on the company’s of foreign exchange options, the currency financial status. futures transactions are settled on the basis of an exchange rate cap of SEK 11.93 per Major events occurring during the financial USD, and an exchange rate floor of SEK year or after the closing day 5.11 per USD. Outside this range, the com- As per 21 January, 2009 a restructuring has pany takes no hedging measures. taken place within the White Mountains On 27 February, 2010 a massive earthquake International Group, of which Sirius Inter- struck 60 km off the coast of Chile. The national owned approximately 28%. After earthquake measured 8.8 on the Richter- this restructuring, Sirius International is scale and caused substantial material part-owner in the Luxembourg-based White damages. Sirius International has exposures Mountains Phoenix Group, which, in turn, in the area. However, it is still too early to owns 100% of the shares in White Moun- forcast how large loss the earthquake will tains Reinsurance Company of America. cause the company. After the restructuring, Sirius Ínternationals´ 9 Annual Report 2009 Information on risks and factors of uncertainty Please refer to Note 1, Accounting principles and Note 2, Information on risks. Financial instruments and risk management Please refer to Note 1, Accounting principles and Note 2, Information on risks. Salaries and other remuneration to senior mem- bers of the management Please refer to Note 31, Average number of employees, salaries and other remuneration. Insurance contracts with no significant insurance risk The Company has only a few insurance contracts, with no significant insurance risk, deemed to be insufficiently reinsured. These contracts are then classified as investment agreements. Please refer to Note 1, Accounting principles. Expectations concerning future developments The underlying profitability of the insurance operations is positive in spite of increasing competition and the diversified investment portfolio is expected to contribute to a stable return on investments. However, the continued increase in competi- tion requires discipline in pricing and under- writing, continued efficiency improvements and a well-balanced risk relationship between insurance operations and investments in order to secure long-term profitability. For 2010, Sirius International’s objective is to achieve a combined ratio lo- wer than 90% and an underwriting return on capital (UROC) of 12%. 10 Five-year Summary Annual Report 2009 GROUP (MSEK) Net premium income Net premiums earned Other technical income Allocated interest Net claims incurred Net operating expenses Insurance operating result Investment operating result Other expenses Net income for the year Net technical provisions Market value on investment assets Insurance operating result Claims ratio Cost ratio Combined ratio Investment result Investment yield Total yield Solvency capital Shareholders’ equity Deferred tax on untaxed reserves Deferred tax on reserve for unrealised capital gains Other adjustment items Total solvency capital Solvency ratio Capital base 3) Required solvency capital Group-based values 4) Capital base Solvency requirement PARENT COMPANy (MSEK) Net premium income Net premiums earned Allocated interest Net claims incurred Net operating expenses Insurance operating result Investment operating result Other expenses Net income for the year Net technical provisions Market value on investment assets Insurance operating result Claims ratio Cost ratio Combined ratio Investment result Investment yield Total yield Solvency capital Shareholders’ equity Untaxed reserves Deferred tax on Reserve for unrealized capital gains Other adjustment items Total solvency capital Solvency ratio Capital base Required solvency capital 1) For the comparison year 2006 legally restricted IFRS has been applied 2) For the comparison year 2005 legally restricted IFRS has not been applied. 3) Includes Sirius International with subsidiaries. 4) Includes WM Re Ltd. with subsidiaries. 2009 2008 2007 1) 2006 2) 2005 6,957 6,867 0 369 -4,164 -1,756 1,316 289 -27 1,275 5,602 5,822 0 168 -3,659 -1,403 928 -74 -27 695 5,810 6,019 10 259 -3,471 -1,845 972 -51 -27 577 7,257 5,898 5 149 -3,046 -1,927 1,079 84 -35 669 4,877 4,988 -12 130 -3,463 -1,618 26 692 -35 541 7,883 18,449 7,992 16,743 7,001 15,508 8,774 17,881 8,824 18,862 61% 25% 86% 2% 3% 9,945 2,548 53 -2 12,544 180% 12,149 1,030 63% 24% 87% 3% 2% 8,017 2,420 18 0 10,455 187% 10,013 956 58% 30% 88% 6% 2% 7,833 2,581 -15 0 10,399 179% 9,764 956 17,544 2,350 17,236 2,566 18,482 2,369 51% 33% 84% 3% 1% 7,468 2,430 -5 0 9,893 136% 9,628 1,154 69% 32% 102% 4% 5% 7,268 2,094 4 -2 9,364 192% 8,324 792 2009 2008 2007 1) 2006 2) 2005 6,957 6,867 369 -4,164 -1,761 1,311 -139 -17 490 5,602 5,822 168 -3,659 -1,408 923 106 -17 738 5,810 6,019 258 -3,418 -1,861 998 153 -17 430 7,245 5,886 149 -2,807 -1,916 1,312 329 -25 227 4,713 4,739 130 -3,165 -1,543 161 511 -25 553 7,886 18,379 7,993 16,882 7,001 15,508 7,340 15,314 7,159 14,431 61% 25% 86% 2% 3% 2,654 9,691 53 0 12,398 178% 12,021 1,030 63% 24% 87% 3% 2% 1,295 9,197 18 0 10,510 188% 9,968 956 57% 31% 88% 5% 3% 1,136 9,217 -15 0 10,338 178% 9,776 956 48% 32% 80% 3% 3% 1,093 8,680 -14 0 9,759 135% 9,560 1,105 67% 33% 99% 4% 5% 1,077 7,408 0 28 8,513 181% 8,210 724 11 Annual Report 2009 Proposed Appropriation of Earnings For 2009, the Parent Company recorded a result before appropriations and taxes of MSEK 1,155 (MSEK 1,012). Net income for the year amounted to a profit of MSEK 490 (MSEK 738). As of December 31, 2009 retained earnings in the Group amounted to MSEK 2,000. At the disposal of the General Meeting of the Shareholders of the Parent Company Sirius International: Retained earnings Shareholders’ contribution received Unrestricted reserves Dividend paid, as resolved by the meeting of the shareholders Group contribution Net income for the year Total The Board of Directors and the President propose that the amount be appropriated as follows: - Dividends to owners - Retained earnings Total SEK in thousands 495,027 1,423,660 98,103 -295,000 -357,412 489,782 1,854,160 160,000 1,694,160 1,854,160 The company’s financial position does in relation to the scope and risks of the not reflect any other view than that the operations. Regarding the company’s and company can be expected to fulfil its the Group’s results and financial position, obligations in the short-term, as well as please refer to the attached income state- in the long-term. It is the opinion of the ments and balance sheets, cash flow ana- Board of Directors that the solvency lyses, report on changes in shareholders' capital of the company as it has been equity and accompanying notes. reported in the annual report is adequate 12 Annual Report 2009 Income Statement – Group January 1 - December 31 (MSEK) TEChNICAL ACCOUNT FOR INSURANCE OPERATIONS Earned premiums, for own account Gross premium income Ceded reinsurance premiums Change in the gross provision for unearned premiums Change in the provision for unearned premiums, Reinsurers' share Total earned premiums, for own account Allocated investment return transferred from the non-technical account Claims incurred, for own account Claims paid - Gross amount - Reinsurers’ share Claims paid, for own account Change in the provision for claims, for own account - Gross amount - Reinsurers’ share Total claims incurred, for own account Change in other technical provisions, for own account - Gross amount Total other claims incurred, for own account Operating costs Operating profit/loss of technical account Balance of technical account Investment income/expenses - Investment income - Unrealised gains - Investment expenses and charges - Unrealised losses Investment income allocated to the technical account Total investment income/expenses Goodwill depreciation Result before taxes Taxes Net income for the year Note 2009 2008 3 3 4 4 5 6 7 8 9 12 11 8,630 -1,673 -237 147 6,867 6,683 -1,081 156 64 5,822 369 168 -4,243 431 -3,812 -206 -146 -4,164 0 0 -4,321 561 -3,760 -2,992 3,090 -3,662 3 3 -1,756 1,316 -1,403 928 1,316 928 421 635 -370 -28 -369 289 -27 1,578 -303 1,275 1,386 170 -563 -899 -168 -74 -27 827 -132 695 13 Annual Report 2009 Balance Sheet - Group December 31 ASSETS Intangible assets Goodwill Capitalized software Total intangible assets Investment assets Land and buildings Total land and buildings Investments in associated companies Shares and participations in associated companies Total investments in group companies Other financial investments Shares and participations Bonds and other interest bearing securities Total other financial investments Note 2009 2008 12 13 15 264 5 269 2 2 291 1 292 4 4 2,185 2,185 2,101 2,101 16, 19 17, 19 1,797 8,662 10,459 1,745 8,782 10,527 Deposits with cedents 1,544 1,716 Reinsurers’ share of technical provisions Provisions for unearned premiums Claims outstanding Total reinsurers’ share of technical provisions Debtors Debtors arising out of direct insurance operations Debtors arising out of reinsurance operations Current tax receivables Deferred tax receivables Other debtors Total debtors Other assets Tangible assets Cash and bank balance Total other assets Prepayments and accrued income Accrued interest Deferred acquisition costs Other prepayments and accrued income Total prepayments and accrued income 23 24 18 11 18 20 21 482 3,948 4,430 10 1,480 108 26 770 385 4,588 4,973 37 1,252 766 21 55 2,394 2,131 21 4,384 4,405 152 419 23 594 16 2,454 2,470 170 441 18 629 TOTAL ASSETS 26,282 24,843 14 Annual Report 2009 December 31 Note 2009 2008 ShAREhOLDERS’ EQUITy, PROVISIONS AND LIABILITIES Shareholders’ equity Share capital (8 million shares of nom. value SEK 100) Other restricted reserves Other reserves Retained earnings Net income for the year Total shareholders’ equity Technical provisions Provisions for unearned premiums Claims outstanding Equalisation provision Total technical provisions Provisions for other risks and expenses Pension provisions Current tax liability Deferred tax liability Total provisions for other risks and expenses Deposits received from reinsurers Creditors Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Other creditors Total creditors Accrued expenses and deferred income Accrued expenses and deferred income Total accrued expenses and deferred income TOTAL ShAREhOLDERS’ EQUITy, PROVISIONS AND LIABILITIES Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collaterals Contingent liabilities Commitments 800 7,142 147 581 1,275 9,945 2,330 9,983 0 800 6,778 49 -305 695 8,017 2,343 10,620 3 12,313 12,966 15 2 2,572 2,589 15 429 2,419 2,863 125 59 14 513 626 1,153 157 157 25 245 546 816 122 122 26,282 24,843 6,647 8,527 0 67 0 0 79 0 23 24, 26 25 27 11 28 19, 28 19 29 29 29 29 15 Annual Report 2009 Change in shareholders´equity for the Group Restricted equity Non-restricted equity Total Group (MSEK) Amount 1 January 2009 Transfer of net result from previous year Equalisation provision (73.7%) Shareholders’ contribution 1) Transfer to fair value reserve Translation difference for the year Change of untaxed reserves Net profit/loss for the year Group contribution provided 2) Dividend paid 3) Amount 31 December 2009 Amount 1 January 2008 Transfer of net result from previous year Translation difference for the year Change in fair value reserve Change in untaxed reserves Net profit/loss for the year Group contribution provided Dividend paid Share Other Other brought loss for Capital Reserves Reserves forward the year Profit/loss Net profit/ 800 6,778 0 0 0 0 0 0 0 0 0 0 0 0 0 364 0 0 0 0 49 0 0 0 98 0 0 0 0 0 800 7,142 147 800 6,637 0 0 0 0 0 0 0 0 0 0 141 0 0 0 -37 0 0 86 0 0 0 0 49 -305 695 2 1,424 0 -364 -219 0 -357 -295 581 -144 577 68 0 -141 0 -335 -330 -305 Total equity 8,017 0 2 1,424 98 0 -219 1,275 -357 -295 695 -695 0 0 0 0 0 1,275 0 0 1,275 9,945 577 -577 0 0 0 695 0 0 7,833 0 68 86 0 695 -335 -330 695 8,017 Amount 31 December 2008 800 6,778 In the table above so-called shareholder activities, consisting of shareholders’ contribution received, provision for group contribution and dividends, are included. 1) Shareholders’ contribution received from White Mountains Re Financial Services Ltd. 2) Group contributions have been provided to Fund American Holdings AB and Sirius Insurance Holding Sweden AB 3) During the year, dividend has been paid to the Parent Company Fund American Holdings AB 16 ShARE CAPITAL Specified in number of shares Issued per 1 January Issued per 31 December Annual Report 2009 2009 2008 8,000,000 8,000,000 8,000,000 8,000,000 Per 31 December 2009, registered share capital comprised of 8,000,000 (8,000,000) ordinary shares. The shares have a nominal value of 100 (100) SEK. 2009 2008 UNTAxED RESERVES AND OThER RESTRICTED RESERVES Equity portion of untaxed reserve and other restricted reserves Opening equity portion of untaxed reserves and other restricted reserves Change for the year Closing equity portion of untaxed reserves and other restricted reserves OThER RESERVES Fair value reserve Opening fair value reserve Change for the year Closing fair value reserve Tax on fair value reserve Opening tax on fair value reserve after tax Change for the year Closing tax on fair value reserve after tax Fair value reserve Opening fair value reserve Change for the year Closing fair value reserve PROFIT/LOSS BROUGhT FORWARD Opening profit/loss brought forward Transfer of net result from previous year Shareholders’ contribution Equalisation provision (73.7%) Translation difference for the year Transfer to restricted reserves Transfer from restricted reserves Dividend paid Group contribution provided 73.7% (72%) Closing profit/loss brought forward NET PROFIT/LOSS FOR ThE yEAR Net profit/loss for the year TRANSLATION DIFFERENCE Opening translation difference Change for the year Closing translation difference 6,778 364 7,142 67 133 200 -18 -35 -53 49 98 147 -305 695 1,424 2 -219 -377 13 -295 -357 581 1,275 75 -219 -144 6,637 141 6,778 -52 119 67 15 -33 -18 -37 86 49 -144 577 0 0 68 -141 0 -335 -330 -305 695 7 68 75 17 Annual Report 2009 Cash flow statement for the Group 2009 2008 OPERATING ACTIVITIES Profit/loss before tax 1) Adjustment for non-cash items Income tax paid Cash flow from current operations before changes in assets and liabilities Change in land and buildings Change in financial investments Change in other operating receivables Change in other operating liabilities Cash flow from operating activities INVESTING ACTIVITIES Net investment in tangible assets Cash flow from investing activities FINANCING ACTIVITIES Dividends paid Shareholders contribution received Group contributions paid Cash flow from financing activities Cash flow for the year Cash and cash equivalents at beginning of year Cash flow for the year Cash and cash equivalents at end of year 2) 1) Of which Interest received Dividends received Total 2) The following sub-components are included in cash and cash equivalents: Cash and bank balances Current investments, equivalent to cash and cash equivalents Total 1,578 -192 204 1,590 2 117 -202 -228 1,279 -13 -13 -295 1,424 -465 664 1,930 2,454 1,930 4,384 482 45 527 320 4,064 4,384 827 94 -193 728 1 -997 -4,399 4,885 278 -6 -6 -330 0 -211 - 541 -269 2,723 -269 2,454 455 52 507 272 2,182 2,454 18 Annual Report 2009 Income Statement – Parent Company January 1 - December 31 (MSEK) TEChNICAL ACCOUNT FOR INSURANCE OPERATIONS Earned premiums, for own account Gross premium income Ceded reinsurance premiums Change in the gross provision for unearned premiums Change in provision for unearned premiums, reinsurers’ share Total earned premium, for own account Allocated investment return transferred from the non-technical account Claims incurred, for own account Claims paid - Gross amount - Reinsurers’ share Claims paid, for own account Change in the provision for claims, for own account - Gross amount - Reinsurers’ share Total claims incurred, for own account Change in other technical provisions, for own account - Gross amount Total claims incurred, for own account Operating costs Operating profit/loss of technical account NON-TEChNICAL ACCOUNT Balance of technical account Investment income/expenses - Investment income - Unrealised gains - Investment expenses and charges - Unrealised losses Investment income allocated to the technical account Total investment income/expenses Goodwill depreciation Result before appropriations and taxes Appropriation to safety reserve Changes in excess depreciation on intangible assets Result before taxes Taxes Net income for the year Note 2009 2008 3 3 4 4 5 6 7 8 9 12 11 8,630 -1,673 -237 147 6,867 6,683 -1,081 156 64 5,822 369 168 -4,243 431 -3,812 -206 -146 -4,164 0 0 -4,321 561 -3,760 -2,992 3,090 -3,662 3 3 -1,761 1,311 -1,408 923 1,311 923 385 228 -355 -28 -369 -139 -17 1,155 -511 17 661 -171 490 1,053 170 -329 -620 -168 106 -17 1,012 0 19 1,031 -293 738 19 Annual Report 2009 Balance Sheet - Parent Company December 31 (MSEK) ASSETS Intangible assets Goodwill Other intangible assets Total intangible assets Investment assets Land and buildings Total land and buildings Investments in group companies and associated companies Shares and participations in group companies Shares and participations in associated companies Total investments in group companies and associated companies Other financial investments Shares and participations Bonds and other interest-bearing securities Total financial investments Deposits with cedents Reinsurers’ share of technical provisions Provisions for unearned premiums Claims outstanding Total reinsurers’ share of technical provisions Debtors Debtors arising out of direct insurance operations Debtors arising out of reinsurance operations Current tax receivables Deferred tax receivables Other debtors Total debtors Other assets Tangible assets Cash and bank balance Total other assets Prepayments and accrued income Accrued interest Deferred acquisition costs Other prepayments and accrued income Total prepayments and accrued income Note 2009 2008 12 13 14 15 16, 19 17, 19 23 24 18 11 18 20 21 212 5 217 2 2 656 2,058 2,714 1,251 8,662 9,913 2229 1 230 4 4 656 2,058 2,714 1,294 8,782 10,076 1,544 1,716 482 3,948 4,430 10 1,480 95 25 756 2,366 20 4,331 4,351 152 419 21 592 385 4,588 4,973 37 1,252 753 21 40 2,103 15 2,431 2,446 169 441 18 628 TOTAL ASSETS 26,129 24,890 20 Annual Report 2009 December 31 Note 2009 2008 ShAREhOLDERS’ EQUITy, PROVISIONS AND LIABILITIES Shareholders’ equity Share capital (8 million shares of nom. value SEK 100) Other reserves Retained earnings Net income for the year Total shareholders’ equity Untaxed reserves Excess depreciations on intangible assets Safety reserve Total untaxed reserves Technical provisions Provisions for unearned premiums Claims outstanding Equalisation provision Total technical provisions Provisions for other risks and expenses Current tax liability Deferred tax liability Total provisions for other risks and expenses Deposits received from reinsurers Creditors Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Other creditors Total creditors Accrued expenses and deferred income Accrued expenses and deferred income Total accrued expenses and deferred income TOTAL ShAREhOLDERS’ EQUITy, PROVISIONS AND LIABILITIES Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collateralsr Contingent liabilities Commitments 800 147 1,217 490 2,654 44 9,647 9,691 2,330 9,983 3 888 800 49 -292 738 1,295 61 9,136 9,197 2,343 10,620 3 12,316 12,996 0 21 21 125 14 513 638 1,165 157 157 427 0 427 59 25 245 554 824 122 122 26,129 24,890 6,647 8,527 0 67 0 0 79 0 22 23 24, 26 25 11 28 19, 28 19 29 29 29 29 21 Annual Report 2009 Change in shareholders´ equity - Parent Company (MSEK) Amount 1 January 2009 Transfer of net result from previous year Shareholders’ contribution 1) Change in fair value reserve Group contribution provided 2) Dividend paid 3) Net profit/loss for the year Amount 31 December 2009 Amount 1 January 2008 Transfer of net result from previous year Change in fair value reserve Group contribution provided Dividend paid Net profit/loss for the year Amount 31 December 2008 Non-restricted equity Total Restricted equity Share Capital 800 0 0 0 0 0 0 Profit/loss Net profit/ Other brought loss for reserves forward the year 49 0 0 98 0 0 0 -292 738 1,424 0 -358 -295 0 800 147 1,217 800 0 0 0 0 0 -37 0 86 0 0 0 -57 430 0 -335 -330 0 800 49 -292 738 -738 0 0 0 0 490 490 430 -430 0 0 0 738 738 Total equity 1,295 0 1,424 98 -358 -295 490 2,654 1,136 0 86 -335 -330 738 1,295 In the table above so-called shareholder activities, consisting of shareholders’ contribution received, provision for group contribution and dividends, are included. 1) Shareholders’ contribution received from White Mountains Re Financial Services Ltd 2) Group contribution provided to Fund American Holdings AB och Sirius Insurance Holding Sweden AB. 3) During the year, dividend has been paid to the Parent Company Fund American Holdings AB. 22 Annual Report 2009 ShARE CAPITAL Specified in number of shares, SEK Issued per 1 January Issued per 31 December 2009 2008 8,000,000 8,000,000 8,000,000 8,000,000 Per 31 December 2009, registered share capital comprised of 8,000,000 (8,000,000) ordinary shares. The shares have a nominal value of SEK 100 (100). 2009 2008 FAIR VALUE RESERVE Fair value reserve Opening fair value reserve Change for the year Closing Fair value reserve Tax on Fair value reserve Opening tax on Fair value reserve Change for the year Closing tax on Fair value reserve Fair value reserve after tax Opening Fair value reserve Change for the year Closing Fair value reserve after tax PROFIT/LOSS BROUGhT FORWARD Opening profit/loss brought forward Transfer of net result from previous year Shareholders’ contribution Dividend paid Group contribution provided 73,7% (72%) Closing profit/loss brought forward 67 133 200 -18 -35 -53 49 98 147 -292 738 1,424 -295 -358 1,217 -52 119 67 15 -33 -18 -37 86 49 -57 430 0 -330 -335 -292 NET PROFIT/LOSS FOR ThE yEAR Net profit/loss for the year 490 738 23 Annual Report 2009 Cash flow statement for the Parent Company 2009 2008 OPERATING ACTIVITIES Profit/loss before tax 1) Adjustment for non-cash items Income tax paid Cash flow from current operations before changes in assets and liabilities Change in land and buildings Change in financial investments Change in other operating receivables Change in other operating liabilities Cash flow from operating activities INVESTING ACTIVITIES Net investment in tangible assets Acquisition of subsidiaries, net impact on liquidity Disposal of subsidiaries, net impact on liquidity Cash flow from investing activities FINANCING ACTIVITIES Shareholders' contribution paid Loans taken Repayment of loans Dividends paid Shareholders´ contribution received Group contributions paid Cash flow from financing activities Cash flow for the year Cash and cash equivalents at beginning of year Cash flow for the year Cash and cash equivalents at end of year 2) 1) Of which Interest received Interest paid Dividends received Total 2) The following sub-components are included in cash and cash equivalents: Cash and bank balances Current investments, equivalent to cash and cash equivalents Total 24 661 515 204 1,380 2 296 -202 -228 1,248 -12 0 0 -12 0 0 0 -295 1,424 -465 664 1,900 2,431 1,900 4,331 481 0 9 490 316 4,015 4,331 1,031 4 -178 857 1 -487 -4,349 4,880 902 -7 0 0 -7 -643 0 0 -330 0 -211 -1,184 -289 2,720 -289 2,431 419 0 34 453 448 1,983 2,431 Annual Report 2009 Performance analysis, Parent Company Analysis of Insurance Result (MSEK) Direct Swedish Direct Assumed risks, aviation foreign risks reinsurance Total Technical result insurance operations Premiums earned, for own account Allocated investment return transferred from the non-technical account Claims incurred, for own account) Operating costs Change of equalisation provision Technical result of insurance operations Of which results from prior years 1) Technical provisions Unearned premiums and remaining risks Outstanding claims Equalisation provision Claims adjustment provision Total technical provisions Reinsurer´s share of technical provisions Unearned premiums and remaining risks Outstanding claims Total technical provisions, reinsurer´s share Premiums earned, for own account Gross premium income Ceded reinsurance premium Change in gross provision for unearned premiums Reinsurer´s share of change in unearned premiums Premiums earned, for own account Claims incurred, for own account Claims paid Reinsurer´s share Claims handling expenses Change in provision for outstanding claims Reinsurer´s share Claims incurred, for own account 5 0 -2 0 0 3 3 -1 -1 0 0 -2 0 0 0 7 -1 -1 0 5 -1 0 0 -1 0 -2 606 6,256 6,867 23 -372 -282 0 -25 346 -3,790 -1,479 0 369 -4,164 -1,761 0 1,333 1,311 49 232 284 -348 -263 -3 -9 -1,981 -9,597 0 -113 -2,330 -9,861 -3 -122 -623 -11,691 -12,316 77 61 138 813 -202 -5 0 405 3,887 4,292 7,810 -1,470 -231 147 482 3,948 4,430 8,630 -1,673 -237 147 606 6,256 6,867 -563 122 -19 90 -2 -3,511 -4,075 309 -149 -295 -144 431 -168 -206 -146 -372 -3,790 -4,164 1) The performance analysis is substantially the same for the Group and the Parent Company. 2) Defined as result from year 2008 and earlier. 25 Annual Report 2009 Note 1 • Accounting Principles General information This annual report was issued per 31 December 2009 and refers to Sirius International Försäkringsaktiebolag (publ), both the Group and the Parent Company, which is an insurance company with its registered offices in Stockholm. The address of the head office is Birger Jarlsgatan 57B, Stockholm and the Corporate Identity Number is 516401-8136. Compliance with standards and law The Company's annual report/consolidated accounts have been prepa- red in accordance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), as well as the Swedish Financial Supervisory Authority's regulations and general advice on Annual Reports in Insurance Companies (FFFS 2008:26) and the Swedish Financial Accounting Standards Council's recommendation RFR 2.2. The insurance company applies so-called legally restricted IFRS (IFRS as restricted by Swedish legislation), which refers to international accounting standards adopted for application with the limita- tions implied by RFR 2.2 and FFFS 2008:26. This entails that all IFRS and statements approved by the EU are applied to the extent that this is possible within the framework of Swedish law and with regard to the relation between accounting and taxation. The Parent Company applies the same accounting principles as the Group, save for the exceptions described in the section on the Parent Company’s accounting principles. Assumptions in the preparation of the Company’s financial reports The Company’s functional currency is the Swedish krona (SEK) and the financial reports are presented in Swedish kronor. Unless otherwise stated, all amounts are rounded to the nearest million. Assets and liabilities are recorded at acquisition cost, with the exception of certain financial assets and liabilities which are valued at fair value. Financial assets and liabilities valued at fair value consist of derivative instruments, financial assets clas- sified as financial assets valued at fair value via the income statement or as available-for-sale financial assets. Changed accounting principles No changes to the accounting principles have been made during the year. Changes to standards, statements and interpretations A number of standards, statements and interpretations have been published in connection with the preparation of the Company’s annual report per 31 December 2009 but have not yet come into force. In addition, certain stan- dards, statements and interpretations currently in force have been changed, and certain standards, statements and interpretations have come into force during 2009. Below follows a summary and a preliminary assessment of the effect these standards, statements and interpretations may have on the Company’s financial reports. Changes other than those given below are not deemed relevant to the Company, alternatively are not expected to affect the Group’s financial reports. IFRS 7 (Financial instruments: Disclosures) has been amended and the amendment applies to the financial year beginning 1 January 2009 or later. The amendment requires disclosure in the annual report of the manner in which fair value measurements have been determined for the financial in- struments measured at fair value in the balance sheet (Levels 1-3). Financial instruments classified as Level 1 have quoted prices (unadjusted) in active markets; financial instruments classified as Level 2 are based on observable data other than quoted prices included in Level 1; and financial instruments that are classified as Level 3 are based on non-observable data. No compa- rative figures are required for previous periods, if the amendments to IFRS 7 are applied in the annual report for 2009. For financial instruments classified as Level 3, the disclosures shall also be submitted in the form of a reconci- liation of the changes between opening and closing balance in fair value. Furthermore, IFRS 7 requires that the annual report be supplemented with disclosures on liquidity risk. According to IFRS 7.39, a duration analysis of financial liabilities should be provided, indicating the period of contract remaining until due date. Sirius applies the afore-mentioned amendments to IFRS 7 in their annual report for 2009. IAS 1 (Presentation of Financial Statements) has been revised and is mandatory for consolidated accounts, for financial years beginning 1 Ja- nuary 2010 or later. The revised standard prohibits presentation of revenue and cost items (that is, changes in shareholders’ equity which do not refer to transactions with shareholders) in the report of changes in shareholders’ equity, but requires that changes in shareholders’ equity which do not refer to transactions with shareholders be reported separately from changes in shareholders’ equity referring to transactions with shareholders, and that this be included in the report of total other comprehensive income. Compa- rative information is to be re-calculated, in order that it reflects application of the revised standard. The revised standard IAS 1 (Presentation of Financial Statements) has not been applied in advance of the effective date. The Swedish Financial Supervisory Authority’s instructions and general advice on annual accounts in insurance companies (FFFS 2009:12) was adopted on 11 December 2009. These changed instructions and general advice come into effect on 1 January 2010 and is applied in the annual book- closing, annual reports and consolidated accounts prepared for the financial year beginning after 31 December 2009. The change implies that the possibility of applying statutory IFRS in consolidated accounts is eliminated and, instead, IFRS is to be applied in full in 2010. This implies changes in a number of areas of which the major areas deemed to impact the company are: The formats of the income statements and balance sheets are no longer to follow the guidelines of the Swedish Financial Advisory Authority, and should, instead, be determined by the company based on the IAS 1 framework. The company has yet to make a final assessment of the effect of this change. Pensions are to be reported in accordance with IAS 19, which stipulates that commitments and plan assets for defined-benefit pension plans are to be recorded as pension liabilities or assets. The effect for the company is deemed to be negligible. Property held for own use may no longer be valued in the same manner as property held for investment, but are, instead, to be valued at acquisition value, less depreciation, or according to the valuation method. The effect for the company is deemed to be negligible. Goodwill and other items arising in conjunction with the acquisition of operations is to be reported according to the updated version of IFRS 3, which primarily implies that depreciation is not to be reported. The effect on shareholders’ equity, as at 31 December 2009, is equivalent to accumulated depreciation on Goodwill of MSEK 351. Please see note 12. Assessments and estimates in the financial statements The preparation of financial statements in conformity with IFRS requires the Company’s management to make assessments and estimates, as well as assumptions impacting the application of the accounting principles and the recorded values of assets, provisions, liabilities, income and expenses. These estimates and assumptions are based on historical experience and a number of other factors considered reasonable in the current situa- tion. The results of these estimates and assumptions are, subsequently, used to assess the recorded values of assets, provisions and liabilities which are not otherwise clearly apparent from other sources. Actual out- come can deviate from these estimates and assessments. Estimates and assumptions are reviewed on a regular basis. Changes in estimates are recorded in the period in which the change is made if the change only affects that period, or the period in which the change is made as well as future periods, if such change affects both current and future periods. Significant assessments in the application of the Accounting principles 26 Annual Report 2009 have been made in conjunction with the decision to report financial instru- ments at fair value, as well as in conjunction with the decision to classify insurance contracts as insurance/investment contracts. Insurance contracts and financial instruments According to IFRS 4, contracts transferring significant insurance risk should be classified as insurance. The Company has made the assessment that insurance risk in excess of five percent should be deemed significant and the contract is thus classified as insurance. All agreements which legally can be considered insurance contracts have been subject to assessment regarding whether they signify a transfer of significant insurance risk, so that they can also be presented as insurance contracts in the accounts. In the case of certain agreements which are a combination of risk and savings, the Company has been obligated to under- take an assessment of the contracts which can be considered to signify a transfer of significant insurance risk. The amount of the insurance risk has been assessed through a consideration of whether there exists one or more scenarios with commercial implications in which the insurance company would be liable to pay significant further benefits in excess of the amount which would have been paid had the insured event never occurred. Certain contracts include an option for the contract holder to insure themselves in the future. The Company does not consider such options, in themselves, to constitute a material insurance risk. Classification of financial assets and liabilities The Company’s accounting principles provide detailed definitions of the manner in which assets and liabilities should be classified into different categories: • The classification of financial assets and liabilities held for trade presumes that these correspond to the description of financial assets and liabilities held for trade in the accounting principles. • Financial assets and liabilities that the Company has initially chosen to value at fair value via the income statement under the presumption that the criteria of the accounting principles have been fulfilled. • Financial assets and liabilities classified as available-for-sale presume that the criteria specified in the accounting principles have been fulfilled. • Classification of financial assets as investments held to maturity under the presumption that the Company has the expressed intention and capacity to hold the assets until maturity in accordance with what is stated in the accounting principles. Important sources of uncertainty in estimates The Company makes assessments and estimates forming the basis for the valuation of certain assets, provisions and liabilities. These assessments and valuations are made on an ongoing basis and are based on previous experience and future expected outcomes. Technical provisions The Company’s accounting principles for insurance contracts are described below. The Company’s most critical accounting estimate concerns insu- rance technical provisions. This estimate is based on historical experience and other relevant factors considered as reasonable. Even if the applied methods and employed parameters are assessed as correct, future outco- mes may deviate from the expected value. The process applied for the determination of central assumptions, for- ming the basis for the valuation of the provisions, is described in Note 2. Determination of fair value of financial instruments The valuation methods described below have been applied in the valuation of financial assets and liabilities for which there is no observable market price. There may be some uncertainty as regards the observed market price for financial instruments with limited liquidity. Such instruments may, therefore, require further assessments, depending on the uncertainty of the market situation. Company management has discussed the development, selection and disclosure of significant accounting principles and estimates of the Group and of the Parent Company, as well as discussing the application of these principles and estimates. The specified accounting principles have been consistently applied to all periods presented in the financial statements, unless stated otherwise below. Approval The annual accounts were approved for publication by the Board of Direc- tors on 8 March 2010. The income statement and balance sheet will be adopted at the General Meeting held in the spring of 2010. Consolidation principles Subsidiaries Subsidiaries are companies in which the Parent Company has a controlling influence. The term “controlling influence” refers to the direct or indirect right to formulate a company’s financial and operative strategies with the intention of receiving financial benefit. Subsidiaries are reported according to the purchase accounting method. This method implies that the acquisition of subsidiaries is considered to be a transaction through which the Group indirectly acquires the subsidiary’s assets and takes over its provisions, lia- bilities and contingent liabilities. The Group acquisition value is determined through an acquisition analysis concurrent with the acquisition. In the case of business acquisitions in which the acquisition cost exceeds the net value of the acquired assets and assumed provisions and liabilities and contingent liabilities, the difference is recorded as goodwill. When the difference is negative, this is recorded directly in the income statement. Subsidiaries’ financial statements are included in the consolidated ac- counts from the date of acquisition until the date upon which the controlling influence ceases. Associated companies Associated companies are those companies in which the Group has a significant, but not controlling, influence over the operational and financial administration, usually through the holding of participations between 20% and 50% of the number of votes. From the point in time when the significant influence is acquired, participations in associated companies are recorded in the consolidated accounts according to the equity method. The equity method implies that the value of the shares in the associated company, reported in the Group, corresponds to the Group’s share of the associated companies’ equity and Group goodwill and any other remaining amount of positive or negative group adjustment in consolidation. In the consolidated income statement, the Group’s share of the associated companies’ net profit/loss after tax and minority interest adjusted for any amortisation, impairment or reversals of acquired surplus or deficit values, are recorded as “Participations in associated companies”. Dividends received from the associated company reduce the recorded value of the investment. When the Group’s share of reported losses in an associated company exceeds the book value of the Group’s participations in the company, the value of the participations is reduced to zero. The equity method is applied up to the point in time when the significant influence ceases. Transactions eliminated on consolidation Receivables and liabilities, income and expenses, and unrealised gains and losses arising on internal transactions between Group companies are eliminated in their entirety when the consolidated financial statements are prepared. Unrealised gains arising from transactions with associated companies and joint ventures are eliminated to the extent corresponding to the Group’s participating interest in the company. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent there is no write-down requirement. 27 Annual Report 2009 Foreign currency Transactions in foreign currency Transactions in foreign currency are translated to the functional currency at the exchange rate prevailing on transaction date. The Company’s functional currency is the Swedish krona and the closing rate on the balance sheet date has been used in the valuation of assets, provisions and liabilities in foreign currency. Exchange rate fluctuations are recorded net in the income statement on the lines, Investment, income or Investment, expenses. Closing rates for the most important currencies USD 7.13 EUR 10.27 GBP 11.51 Financial statements of foreign operations Assets and liabilities in foreign operations, including goodwill and other Group surplus and deficit values, are translated from the functional currency of the foreign operation to the Group’s reporting currency, Swedish kronor, at the exchange rate prevailing on the balance sheet date. Income and expenses in foreign operations are translated into Swedish kronor at an average rate that approximates the exchange rates prevailing at the date of the respective transactions. Translation differences arising in the currency translation of foreign operations are recorded directly against shareholders' equity in a translation reserve. Net investments in foreign operations Translation differences arising in the translation of foreign net investments and the associated effects of the hedging of net investments are recorded directly in the translation reserve in shareholders' equity. Upon disposal of a foreign operation, accumulated translation differences attributable to the operation, less any currency hedging, are realised in the Group’s income statement. Insurance contracts Insurance contracts are recorded and valued in the income statement and balance sheet in accordance with their financial substance as opposed to their legal form, in the event that these differ. Contracts transferring material insurance risks from the policyholder to the Company and whereby the Company agrees to compensate the policyholder or other beneficiary in the event that a pre-agreed insured event occurs are recorded as insurance contracts. Finacial instruments are contracts which do not transfer any material insurance risk from the policyholder to the Company. The Company has issued a policy entailing a mandatory test of whether sufficient insuran- ce risk exists in written contracts for classification as insurance contracts. This test builds upon definitions in accordance with IFRS 4. For contracts or groups of contracts classified as insurance contracts, recording and valuation are carried out in accordance with previously applied principles. For contracts or groups of contracts which are not classified as insurance contracts, recording and valuation are conducted according to IAS 39, Financial Instruments or according to IAS 18, Revenue. Recording of insurance contracts Revenue recognition/Premium income The total gross premiums for direct insurance and assumed reinsurance paid or credited to the Company, for insurance contracts in which the insurance period commenced prior to the close of the financial year, are recorded as premium income. The premium income includes the net of ente- red and withdrawn premium portfolios. Reinstatement premiums (premiums for reinstating the coverage following a claim) and premiums for insurance periods not commencing until after the close of the financial year, are also recorded as premium income if, according to contract, they fall due for payment during the financial year. The term gross premium refers to the contractual premiums for the entire insurance period. Renewal premiums that are not confirmed by the policyholder and premiums for newly written insurance contracts are recog- nized in the amounts expected to be paid to the Company. Cancellations reduce premium income, as soon as the amount is known. Additional pre- miums are recognized in the amount estimated to be paid to the Company. Premium revenue corresponds to the portion of premium income that has been earned. Unearned premiums are allocated to Provision for unearned premiums. Technical provisions Technical provisions consist of the Provisions for unearned premiums and unexpired risks, Provisions for outstanding claims, Equalization provisions (in the Parent Company) and Claims adjustment provisions. Provision for unearned premiums and unexpired risks In the balance sheet, this provision consists of amounts corresponding to the Company’s liability for claims, administrative expenses and other costs during the remainder of the contract period for policies in force. “Policies in force” refers to insurance policies in accordance with entered agreements irrespective if they wholly or in part relates to later insurance period. In calculating these provisions, an estimate is made of anticipated costs for any claims that may occur during the remaining terms of these insurance policies, as well as administrative expenses for this period. The estimation of costs is based on the Company’s own experience and consider both the observed and the forecasted development of relevant costs. Unexpired risk refers to the risk that the insurance contract’s future claims and expenses cannot be covered by unearned expected premium revenue after the close of the financial year. For insurance policies with premiums paid for multiple years, the provisi- on for unearned premiums is calculated on the basis of a careful estimation of the Company’s liability for contracts in force. Provisions for unearned premiums are estimated with the help of the unearned portion of the premium for policies in force, generally using a pro rata temporis calculation in accordance with the insurance contract’s terms and conditions over the contract period in relation to the insurance coverage for the period. If the premium level for policies in force is considered insufficient, a provision is made for unexpired risks. The period’s change in provisions for unearned premiums and unexpired risks is recorded in the income statement. Differences that can be explained by translation of changes in technical provisions to the exchange rate prevailing on the balance sheet date are recorded as exchange rate gains or losses under investment income. Provision for outstanding claims This balance sheet item comprises of estimated undiscounted cash flows relating to final costs for settlement of all claims resulting from events occurring before the close of the financial year, with deduction of those amounts that have already been paid, on the basis of receipt of claims payment advices. This amount also includes estimated undiscounted cash flows regarding future external costs for the settlement of incurred but, as of balance sheet date, outstanding claims, as well as refunds that are due for payment. The provision for incurred but not reported claims (IBNR) includes ex- penses for incurred but, to date, unknown claims and not yet fully reported claims. This amount is an estimate based on historic experience of the outcome of claims. The income statement records the change in outstanding claims for the period. Differences that can be explained by the translation of changes in technical provisions to the exchange rate prevailing on the balance sheet date are recorded as exchange rate gains or losses under investment income. Embedded derivatives in insurance contracts The Company does not individually value embedded derivatives that can be defined as insurance contracts or options to repurchase insurance contracts, either on the basis of a fixed amount, or on the basis of a fixed amount and interest rate. 28 Annual Report 2009 Equalisation provision The amount of this provision is calculated as 150% of the highest net premium revenue for class 14, credit insurance, with equivalent reinsurance, during the five most recent financial years. Provisions for each financial year are equivalent to 75% of the technical insurance surplus in the credit insurance operations. equivalent to the actual total yield from the investment assets belonging to the insurance operations. The weighted average interest rate for 2009 amounted to 6.21%. Applied interest rates Claims adjustment provision The amount of this provision is based on outstanding claims. The provision is equal to 2% of reported unpaid claims and 4% of incurred unreported or not yet fully reported claims. The period’s change in the claims adjustment provision is recorded in the income statement within the items Claims handling expenses and Operating costs. EUR GBP SEK USD 2009 2008 2.68% 8.19% 2.06% 8.40% 6.22% 3.73% 8.03% 0.93% Deferred acquisition costs for insurance contracts The term acquisition costs refers to such operating costs that, directly or indirectly, vary with the acquisition or renewal of insurance contracts. Defer- red acquisition costs are only recorded for insurance contracts deemed to generate a margin at least covering the acquisition costs. Sirius only records deferred acquisition costs to agents and ceding companies. Defer- red acquisition costs are normally amortized in a manner corresponding to the earning pattern of the premium for the insurance policy in question. The asset is tested for impairment each quarter to ensure that the contracts are deemed to generate a margin that, as a minimum, covers the value of the asset. Other costs for insurance contracts are recorded as costs when they arise. Provision adequacy testing The Company’s applied accounting and valuation principles for the balance sheet items Deferred acquisition costs, Provisions for unearned premiums and Unexpired risks automatically entail testing of whether the provisions are sufficient with regard to expected future cash flows. Operating costs All operating costs are allocated in the income statement according to their functional nature; acquisition, claims adjustment, administration, commission and profit shares in ceded reinsurance, investment expenses and in certain cases, other technical costs. Changes in technical provisions for insurance contracts are recorded in the income statement under each heading. Payments to policyholders, due to insurance contracts or incurred claims, during the financial year, are recorded as claims paid, regardless of when the claim was incurred. Ceded reinsurance As premiums for ceded reinsurance are recorded amounts paid during the fi- nancial year, amounts recorded as liabilities to the company that have assu- med the reinsurance, in accordance with entered reinsurance agreements, and premium portfolios. These premiums are expensed so that costs are allocated to the corresponding period of the insurance cover. Deductions are made for amounts credited due to portfolio transfers or a change in the reinsurer’s share of proportional reinsurance contracts. The reinsurer’s share of technical provisions corresponds to the reinsurer’s liability for technical provisions according to the entered agree- ments. The Company assesses any required impairment for assets referring to reinsurance agreements biannually. If the recoverable amount is lower than the carrying amount of the asset, the asset is impaired to the recovera- ble amount and the impairment is recorded in the income statement. Reporting of investment return Investment income allocated to the technical account Investment return is transferred from the non-technical account to the technical account on the basis of average technical provisions for the Company’s own account, less deductions for net receivables in insurance operations. This capital base is allocated per currency. The transferred investment return is calculated on the basis of an interest rate per currency Investment income The item Investment income refers to yield from investment assets and comprises rental income from land and buildings, dividends from shares and participations, including dividends from shares in Group companies and as- sociated companies, interest income, net foreign exchange gains, reversed impairments and net capital gains. Investment expenses and charges Charges on investment assets are recorded under the item Investment expenses and charges. The item comprises operating costs for land and buildings, asset management costs, interest expense, net foreign exchange losses, depreciations and impairments and net capital losses. Changes in realised and unrealised gains and losses For investment assets valued at acquisition value, capital gain comprises the positive difference between sale price and book value. For investment assets valued at fair value, a capital gain is the positive difference between sale price and acquisition value. For interest-bearing securities, acquisition value is the amortised cost value and, for other investment assets, it is the historical acquisition value. At the sale of investment assets, previously unrealised changes in value are recognised as adjustment entries under the item Unrealised profits from investment items or Unrealised losses from in- vestment items, as appropriate. As regards interest-bearing securities clas- sified as available-for-sale financial assets, previously unrealised changes in value are recognized as adjustment entries directly under Shareholders’ equity. Capital gains from assets other than investment assets are recorded as Other income. Unrealised gains and losses are recorded net per asset class. Changes due to exchange rate fluctuations are recorded as exchange rate gains or exchange rate losses under the item Investment income/expenses. Taxes Income tax Income taxes consist of current tax and deferred tax. Income taxes are recorded in the income statement, except when the underlying transaction is recorded directly against shareholders' equity, whereupon the pertaining tax effect is recorded in shareholders' equity. Current tax is tax to be paid or received regarding the current year, with application of the tax rates which have been enacted or practically enacted at balance sheet date, which also includes the adjustment of current tax referring to previous periods. Deferred tax is calculated according to the balance sheet method on the basis of temporary differences between the book values of assets and liabilities and their tax values. Temporary differences are not considered as regards differences arising at the initial recording of goodwill and the initial recording of assets and liabilities that are not business acquisitions and which did not affect either net profit/loss or taxable profit/loss at the transaction date. Furthermore, temporary differences referring to participa- tions in subsidiaries or associated companies that are not expected to be reversed within the foreseeable future are not considered either. The valua- tion of deferred tax is based on the extent to which underlying assets and liabilities are expected to be realised or settled. Deferred tax is calculated 29 Annual Report 2009 with the application of the tax rates and regulations that have been enacted or practically enacted as per balance sheet date. Deferred tax assets regarding deductible temporary differences and losses carry-forward are recorded only to the extent that they are likely to be utilised. The value of deferred tax assets is reduced when it is no longer considered likely that they can be utilised. for which the instrument was acquired. This classification determines the manner in which the financial instrument will be valued after initial recording, as described below. Derivative instruments are recorded at fair value both initially and on an ongoing basis. Changes in fair value are recorded in the manner described below. Intangible assets Goodwill Goodwill represents the difference between the acquisition value in the bu- siness acquisition and the fair value of acquired assets, assumed provisions and liabilities and contingent liabilities. Goodwill and other intangible assets with indeterminable economic lives are amortised in accordance with the Swedish Annual Accounts Act. This usually entails amortisation over five years. In certain cases, the amortisa- tion period may be longer than five years. Regarding goodwill arising from the purchase of the net assets of businesses acquired before 1 January 2004, the Company has chosen not to apply IFRS retroactively following the transition to IFRS. Instead, the car- rying amount at this date consists of the Company’s acquisition cost, after impairment testing. Other intangible assets Other separately acquired intangible assets acquired by the Company are recorded at acquisition value less accumulated amortisation (see below) and impairment. Amortisation method Amortisation is recognised in the income statement on a straight-line basis over the intangible asset’s calculated useful life. This useful life is reasses- sed annually. Amortisable intangible assets are amortised from the date on which they become available for use. The calculated useful lives are: • goodwill • capitalised development expenditure • goodwill arising from the purchase of the net assets of businesses • other intangible assets 20 years 3 years 20 years 3 years Amortisation deviating from plan is recognised as an appropriation under the heading Difference between book amortisation and amortisation ac- cording to plan. Land and buildings Investment properties are recorded at acquisition value less a deduction for accumulated depreciation and any impairment, with an addition for ap- preciation, if applicable. Financial instruments Financial instruments recorded in the balance sheet include, on the asset side, shares and other equity instruments, loan receivables and interest- bearing securities as well as derivatives. Where appropriate, derivatives with negative market value are included among liabilities and shareholders' equity. Acquisitions and disposals of financial assets are recorded on trade date, the date upon which the Company commits to acquire or dispose of the asset. Classification and valuation Financial instruments which are not derivatives are initially recorded at acquisition value corresponding to the fair value of the instrument plus transaction costs, except in the case of instruments belonging to the category Financial assets recorded at fair value via the income statement, which are recorded at fair value exclusive of transaction costs. A financial instrument is classified when it is initially reported, based upon the purpose Financial assets valued at fair value via the income statement This category consists of two sub-groups: financial assets available for sale and other financial assets that the Company had initially chosen to be placed into this category (according to the so-called Fair Value Option). Financial instruments in this category are continually valued at fair value, with changes in value recorded in the income statement. The first sub-group includes derivatives with a positive fair value, except for derivatives that are identified as, and deemed effective hedging instruments. The second sub-group consists of financial investments in equity instruments, except for shares in subsidiaries or associated companies. Calculation of fair value Financial instruments listed on an active market For financial instruments listed on an active market, fair value is determined on the basis of the asset’s listed bid rate at balance sheet date, with no added transaction costs (e.g. commission) at the time of acquisition. A financial instrument is considered to be listed in an active market if listed pri- ces are easily accessible on a stock exchange, with a trader, broker, trade association, company supplying current price information or supervisory authority and these prices represent actual and regularly occurring market transactions under business-like conditions. Possible future transaction costs from a disposal are not considered. These instruments are included in the balance sheet items Shares and participations, Bonds and other interest-bearing securities and Other financial assets. Derivative transac- tions with a negative market value are recorded on the liability side of the balance sheet under the heading Derivatives. The predominant proportion of the Company’s financial instruments has been assigned a fair value with prices quoted on an active market. Financial instruments not listed on an active market If the market for a financial instrument is not active, the Company establis- hes the fair value by means of various valuation techniques. As far as is possible, the valuation methods employed are based on market data, while company-specific information is used to the least degree possible. The Company regularly calibrates valuation methods and tests their validity by comparing the outcome of the valuation methods with prices from obser- vable current market transactions in the same instrument. These valuation methods are used solely for the Company’s investments in private equity companies. The total effect in the Income Statement from financial instruments valued at fair value in the balance sheet by using valuation techniques based on assumptions that are neither supported by the prices from observable current market transactions in the same instruments, nor based on available observable market information, amounted to MSEK -8, while the recorded value per balance sheet date of 31 December 2009 amounted to MSEK 323. Loans receivable and accounts receivable Loans receivable and accounts receivable are non-derivative financial assets which are not listed on an active market and with fixed or determinable payments. These assets are valued at amortised cost. Amortised cost is determined on the basis of the effective rate calculated at the time of acquisition. Accounts receivables and loans outstanding are reported in the amounts which are expected to be received, that is, after deductions for bad debt provisions. held-to-maturity investments Held-to-maturity investments are financial assets comprising interest-bea- ring securities with determined or determinable payments and determined durations which the Company has the expressed intent and ability to hold to 30 Annual Report 2009 maturity. Assets in this category are valued at amortised cost. Available-for-sale financial assets The category available-for-sale financial assets includes financial assets not classified in any other category or financial assets that the Company has initially chosen to classify in this category. The holding of bonds and other interest-bearing securities is recorded here. Assets in this category are continuously valued at fair value with changes in value recorded in share- holders' equity, except for changes in value due to impairment or to foreign exchange rate differences on monetary items recorded in the income sta- tement. Furthermore, interest on interest-bearing instruments is recorded in accordance with the effective interest method in the income statement. As regards these instruments, any transaction costs will be included in the acquisition value when initially reported, and will, thereafter, be assessed on an ongoing basis at fair value, to be included in the reserve item at fair value until that point in time the instruments in question mature or are disposed. At disposal of the assets, the accumulated profit/loss, previously recorded in the shareholders' equity section, is recorded in the income statement. A long-term approach forms the basis for investments in this category, where the yield granted by these instruments at the time of investment is of significance for which investments shall be made. Other financial liabilities Borrowings and other financial liabilities, for example, accounts payable, are included in this category. These liabilities are valued at amortised cost. Financial guarantees Financial guarantee agreements are recorded as insurance contracts in ac- cordance with the accounting principles described in the section Accounting of insurance contracts, above. Write-downs of financial instruments Impairment testing of financial assets At each reporting date, the Company assesses whether there exists any objective evidence indicating that a financial asset or group of assets requires impairment as a consequence of one or several events occurring after the asset is reported for the first time and that these loss-making events have an impact on the estimated future cash flows from the asset or group of assets. If there is objective evidence indicating that an impairment requirement may exist, the assets in question are considered to be doubtful. Objective evidence is constituted both of observable conditions which have arisen and which have a negative impact on the possibility of recovering the acquisition cost, and of significant or extended reductions of the fair value of a financial investment classified as an available-for-sale financial asset. During an impairment of an equity instrument classified as an available- for-sale financial asset, previously reported accumulated profit or loss in the shareholders' equity section is recorded in the income statement. The reported value after impairment of assets belonging to the cate- gories held-for-maturity investments and loans receivable and accounts receivable, which are recorded at amortised cost, are estimated as the cur- rent value of future cash flows discounted by the effective interest rate app- licable when the asset was first recorded. Assets with a short duration are not discounted. An impairment loss is recognised in the income statement. Reversal of impairment An impairment is reversed if an indication exists both that the impairment requirement no longer exists and that a change has taken place in the as- sumptions forming the basis of the estimation of the impaired amount. The impairment of held-for-maturity investments or loans receivable and accounts receivable, recorded at amortised cost, is reversed if a later increase of the recoverable amount can be objectively related to an event occurring after the impairment has been performed. The impairment of interest-bearing instruments, classified as available- for-sale financial assets, is reversed over the income statement if fair value increases and this increase can objectively be related to an event occurring after the write-down was carried out. Leased assets All lease agreements are classified and recorded in the Group and Parent Company as operational leases. In operational leasing, the leasing fee is expensed over the duration of the lease, on the basis of the benefit received, which can differ from the amount paid as a leasing fee during the year. Tangible assets Tangible assets are recorded at acquisition value after deduction for accumulated depreciation and any impairment, with a supplement for any appreciation. In disposal or sale, gains and losses are recorded net in operating cost. Depreciation takes place systematically over the estimated useful lives of the assets. Estimated useful lives: • equipment such as cars, furniture and computer equipment 3 - 10 years Depreciation of tangible and amortisation of intangible assets Impairment testing of tangible and intangible assets and participations in subsidiaries and associated companies. The reported values of the assets are tested on each balance sheet date. If any indication of an impairment requirement exists, the asset's recoverable amount is estimated in accordance with IAS 36. An impairment loss is recognised when the reported value of an asset or cash-generating unit exceeds its recoverable amount. An impairment loss is recognised in the income statement. The impairment of assets related to a cash-generating unit is primarily allocated to goodwill. The proportional impairment of other assets included in the unit is subsequently performed. The recoverable amount is the highest of fair value less selling expenses and value in use. In the calculation of value in use, future cash flow is discounted by a discount factor that considers the risk-free interest rate and the risk associated with the specific asset. Reversal of impairment An impairment is reversed if an indication exists both that the impairment requirement no longer exists and that a change has taken place in the as- sumptions forming the basis of the estimation of the recoverable amount. However, the impairment of goodwill is never reversed. A reverse is only performed to the degree that the asset's reported value after reversal does not exceed the reported value that should have been reported, with deduc- tion for depreciation or amortisation when appropriate, if no impairment had been carried out. Share capital Dividends Dividends are recorded as liabilities after approval of the dividend by the General Meeting of Shareholders. Other provisions A provision is recognised in the balance sheet when the Company has an existing legal or constructive obligation as a result of past events, when it is likely that an outflow of resources will be required to settle the obligation and when the amount can be estimated reliably. In cases in which the date of payment has a material effect, the amount of the provision is calculated via the discounting of the expected future cash flow to an interest rate before taxes which reflects the relevant market assessments of the effect of the time value of money and, if applicable, the risks associated with the liability. Pensions and similar commitments The Company's pension plans for contracted occupational pensions are safeguarded via insurance contracts. The pension plan for the Company’s employees has been assessed as both a defined benefit and a defined contribution plan. The Company’s com- mitments regarding contributions to defined contribution plans are recorded 31 Annual Report 2009 as expenses in the income statement at the rate they are earned by employ- ees through the performance of services to the Company over a period. In addition to the contracted occupational pensions safeguarded via insurance, the Company has also signed separate agreements with certain employees ensuring that these employees may terminate their service at an earlier age than 65 years of age, although no earlier than 64 years of age for an increased amount of compensation than granted by the collectively agreed pension benefits. Employees in Germany are covered by a defined benefit plan in which pension obligations are entered as a liability in the Company's balance sheet. held-for-sale assets and discontinued operations Classification as a discontinued operation takes place upon disposal or at an earlier point in time if and when the operation meets the criteria for classification as held-for-sale. A disposal group which is to be discontinued can also qualify for classification as a discontinued operation. Sirius lacks such assets. Contingent liabilities A contingent liability is recognised when there is a possible obligation which arises from past events and whose existence is solely confirmed by one or more uncertain future events, or when there is a commitment which is not recorded as an liability or provision due to the fact that it is unlikely that an outflow of resources will be required. Parent Company's accounting principles The Parent Company's annual report has been prepared in accordance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), the Swedish Financial Supervisory Authority's regulations and general advice concerning insurance companies (FFFS 2008:26) and the Swedish Financial Accounting Standards Council's recommendation RFR2.2, Accounting for Legal Entities. Changed accounting principles The Parent Company's changed accounting principles have been recorded in accordance with the provisions of IAS 8, but taking consideration of the special transitional regulations in RFR 2.2. This implies that the changed accounting principles are recorded with retroactive effect. Differences between accounting principles in the Group and the Parent Company The differences between the accounting principles in the Group and the Parent Company are presented below. The accounting principles stated below for the Parent Company have been consistently applied for all periods presented in the Parent Company’s financial statements, unless stated otherwise. Subsidiaries and associated companies The Parent Company records participations in subsidiaries and associates according to the cost method. Only dividends which have been received are recognised as income, provided that such dividends derive from profits earned subsequent to the acquisition. Dividend amounts exceeding this earned profit are considered as repayment of the investment and reduce the carrying value of the participations. Anticipated dividends Anticipated dividends from subsidiaries are recorded in those cases in which the Parent Company has the sole right to make decisions regarding the amount of the dividend and the Parent Company has reached a decision on the dividend's amount before the Parent Company has published its financial statements. Taxes Untaxed reserves are recorded in the Parent Company including deferred income tax liabilities. However, untaxed reserves in the consolidated ac- counts are allocated between deferred income tax liabilities and sharehol- ders' equity. Appropriations and untaxed reserves Appropriations and untaxed reserves are only recorded in the Parent Com- pany and not in the Group. Taxation legislation in Sweden gives companies the option of decreasing taxable income for the year by making provisions to untaxed reserves. When applicable, untaxed reserves are set off against fiscal loss deductions or be- come subject to taxation upon resolution. In accordance with Swedish prac- tice, changes in untaxed reserves are recorded in the income statement. Provisions made to untaxed reserves are recorded in the income statement under the heading Appropriations. The accumulated value of the provisions is recorded in the balance sheet under the heading Untaxed Reserves. A total of 26.3% of the untaxed reserves can be considered as a deferred tax liability and 73.7% as shareholders' equity. The deferred tax liabilities can be described as an interest-free liability with a non-defined duration. In the group accounts, 26.3% of the untaxed reserves can be allocated to deferred tax liabilities and 73.7% to shareholders' equity. In an assessment of financial strength, the total value of the untaxed reserves is considered risk capital, as any losses can be covered, to a large extent, by the dissolution of untaxed reserves without taxes becoming payable. The largest item attributable to untaxed reserves refers to the safety reserve. The safety reserve forms a collective security-conditioned reinforcement of the technical provisions. Accessibility is limited to loss coverage and otherwise requires official authorisation. Equalisation provision The Parent Company’s balance sheet includes an Equalisation provision within Technical provisions, and any changes for the period in this provision are reported in the income statement. However, in the consolidated balance sheet, the Equalisation provision is allocated into deferred tax liabilities and shareholders’ equity. Group contributions and shareholders’ contributions for legal entities The Company reports group contributions and shareholders' contributions in accordance with the statements of the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council (UFR2). Shareholders’ contributions are recorded directly against shareholders' equity in the receiving entity and in shares and participations in the entity providing the contribution, to the extent that no impairment is required. Group contribu- tions are recorded according to their financial significance. This implies that group contributions provided and received for the purpose of minimising the Group’s total taxes are recorded directly against retained earnings, with a deduction for the current tax effects of the contribution. Group contributions which can be seen as the equivalent of a dividend are reported as a dividend. This implies that group contributions received and their current tax effects are recorded in the income statement. Group contributions provided and their current tax effects are recorded directly against retained earnings. In the receiving entity, group contributions which can be seen as the equivalent of a shareholders' contribution are directly recorded in retained earnings, with consideration for current tax effects. The contributor records the group contribution and its current tax effects as investments in participations in the Group company, to the extent that impairments are not required. 32 Annual Report 2009 Note 2 • Information on risks Risk management The company’s risk management – also referred to as Enterprise risk management, ERM – is at the heart of Sirius’ thinking. Sirius defines ERM as the discipline by which Sirius assesses, controls, exploits, finances and monitors risks from all sources for the purpose of increasing Sirius’ short- and long-term value to Sirius stakeholders. ERM is, in essence, an ongoing process with the objective of creating a risk management culture that emanates from top management and which permeates throughout the entire organization. The management’s role is to communicate, implement, monitor and nurture this culture. The objectives of Sirius’ work with ERM are: • Secure existing high profitability through better risk management. • Obtain better information for strategic management decisions. • Demonstrate strong risk management vis à vis rating agencies and other interested parties. • Provide stakeholders with transparent risk management information. • Comply with Solvency II requirements. Risk strategy and the company’s risk appetite Risk strategy and risk appetite comprise the foundation of the risk manage- ment processes and risk management infrastructure. Sirius' risk strategy and risk appetite have been established by the Sirius Board which aims to secure a balance between risk, return and capital requirements. As part of the planning process, strategic limits are explicitly discussed and specified. The strategic risk appetite is expressed either in quantitative terms – for example an aggregate risk limit for windstorms in Europe – or in qualitative terms – for example in relation to operational risk. From these overall risk appetite statements, operational limits are successively applied at detail level throughout the organization in the form of operational risk limits, maxi- mum risk exposure, retrocession limits, foreign exchange exposure limits, maximum equity exposure in the investment portfolio, etc. As part of the ERM culture, Sirius embraces the following qualitative principles: • Controlled/moderate risk taking and adequate capitalization. • All insurance transactions are to yield positive technical results. • Active use of retrocession as part of business and capital planning. • Strive for diversification. • Strong accumulation control. • Strong and independent risk control functions. • Inspire and motivate employees to further develop their risk management capabilities. Risk management infrastructure The risk management processes within Sirius risk are supported by a risk management infrastructure consisting of the Board of Sirius, various risk committees, risk management functions, risk control functions, policies and procedures, risk models and reporting routines. This is described in further detail in the risk sections below. The Board of Sirius is ultimately responsible for Sirius risk management strategy, risk tolerance and policies. Sirius´ Management is directly responsible for all ERM activities, and in order to discharge this responsibility, Sirius works through different risk committees in carrying out certain duties. The Sirius Group Risk Management function is responsible for the coordi- nation, monitoring, risk control and compliance of all risk areas. Internal Audit fulfils an important role in the independent evaluation of risk management and control systems. This includes evaluating the reliabi- lity of reporting, effectiveness and efficiency of operations, and compliance with laws and regulations. Sirius’ owner is listed in the US and, consequently, is required by the Sarbanes-Oxley Act, Section 404, to express an opinion on the effective- ness of internal control over financial reporting executed during the year. As part of this assessment, a thorough documentation and evaluation of all processes and controls leading up to the annual report have been undertaken. This work has enabled Sirius to demonstrate compliance with the requirements of the act. Insurance risk management Goals, principles and methods A clear focus on managing insurance risks is vital for Sirius’ continued suc- cess. These risks are managed mainly by evaluating the degree of gross and net risk after retrocession Sirius is willing to assume. The goal for all underwriting is to maximize profitability for each selected risk level. The anticipated profitability of each contract which is entered into shall comprise the basic ground for decision making regarding all underwriting. Other guiding principles include diversification, strong ac- cumulation controls and an active use of reinsurance in order to adjust risks to acceptable risk tolerance levels. Sirius divides insurance risk management into two principal areas; underwriting risk and reserve risk. Underwriting risk Underwriting risk refers to premium and accumulation assessment, which is defined as premium risk and catastrophe risk, respectively. The underwri- ting risk assessment is performed by underwriters on each individual risk and the Chief Underwriting Officer is ultimately responsible for managing these risks. The insurance premiums for assumed business are to cover expected losses and expenses as well as provide a reasonable return on allocated capital. The premium risk is therefore associated with any possible level of losses deviating from expected levels. The premium risk is generally mana- ged through the application of pricing models and underwriting procedures, but also through a reduction in underpriced business, or through declining to accept such business. If a larger, catastrophic event occurs, impacting simultaneously a large number of cedants, this may result in a single loss that could wipe out the expected annual profit, or, even consume a portion of the solvency capital. This catastrophic risk is generally managed with the assistance of underwrit- ing methods and tools which monitor and control the company’s total risks, both gross and net. Catastrophe risk is also managed by the effective use of retrocession. In order to ensure consistency in the underwriting process, all under- writing within Sirius complies with specific routines. Detailed Underwriting Guidelines comprise the framework for all risk acceptances, and these guidelines contain sections regarding, for example, Limits, Underwriting Authorities and Restricted Business. A Four-Eyes Underwriting System, that is, a system in which at least two individuals participate in each decision, is applied for the majority of all business. The Guidelines are updated continu- ously and reviewed annually. There are several levels of control functions as well as technical sys- tems, which are in place to monitor and control that underwriting policies and procedures are followed. There is an underwriting control group reporting to the Chief Underwriting Officer. This group focuses in detail on how the business is underwritten and that the underwriters follow issued policies and procedures. Another group controls the underwriting system and ensures it is used correctly and that input data is accurate. Finally, Internal Audit and Group Risk Management also monitor these control 33 Annual Report 2009 groups, carrying out random inspections/tests, in detail ensuring they use out sufficient control. Retrocession Sirius International uses retrocession as a tool to manage risk and has a centralized unit responsible for the purchasing and administration of its outwards reinsurance. The implementation of reinsurance purchase is based on the strategic direction of the inwards portfolio, overall risk tolerance and the search for an optimal portfolio mix. Catastrophe models and other tools are used in the analytical and decision making process. Sensitivity to risks attributable to insurance agreements Within the insurance operations, property damage insurance (wind, flooding, and earthquakes) constitutes the company’s greatest risk. In order to manage this catastrophe risk, and the resulting accumulated risks, the company utilizes a number of different models. Within Property Damage Insurance, the area with the highest level of catastrophe risk, the company utilizes a system linked to the underwriting system. In this system, all busi- ness is registered and the company’s exposure is measured via a number of predefined catastrophe scenarios. The total exposure limits per country are also registered. The primary tools, however, are the so-called catastrophe models which the company has at its disposal via licensing agreements with AIR and RMS. Based on these models, reports and analyses can be produced on a regular basis demonstrating the various degrees of likelihood of estimated claims. Everything from average claims per year to claims that are only expected to occur once every 10,000 years can be estimated using these models. Aside from the possibility of modeling single events, aggregate claims are also modeled. Different levels of claims can also be modeled to varying degrees of likelihood, from expected claims per year, to the worst level of annual claims in 10,000 years. Sensitivity analyses are undertaken based on a comparison of claims estimated by various models, but also through changes to the assumptions applied by the different models, such as, return periods. Concentrations and sensitivity analysis The table below shows a summary of the manner in which the company ana- lyses catastrophe risks, divided by geographical area and return periods. The figures show the situation as per October 2009, when the company experienced its highest level of exposure during 2009. Sensitivity analysis – losses divided by geographical area and return periods (MSEK) Global - Gross Global - Net Europe - Gross Europe - Net Once per Once per 100 years 250 years 3,584 2,635 3,507 1,888 5,136 3,050 5,136 2,854 Through the use of these simulation models, the company can obtain an estimation of catastrophe risk, both prior to and after retrocession. The lar- gest single catastrophe risk in the current portfolio is a storm (“windstorm”) in Europe. An estimation of the maximum loss an individual windstorm in Europe, expected to occur only once every 250 years, can result in is an estimated net loss of MSEK 2,854 (gross claims MSEK 5,136). In order to estimate how claims of this size affect solvency capital, the company makes an estimation of the so-called Net Financial Impact (NFI), which is based on the estimated net claims adjusted for reinstatement premiums (premium to reinstate cover after a loss) from the covered clients and from the profit from other lines of business and areas. The deficit is then compared to the solvency capital in order to find whether the losses in relation to solvency capital are acceptable in relation to the company’s established risk tolerance. Within the area Aviation reinsurance, the company applies another licen- sed third-party model, ALPS, in which the exposure per Airline Company can be followed on-line. Within the insurance classes, Accident and Trade Credit, the company has models which it has developed inhouse. Reserve risk The reserving risk, i.e. the risk that insurance technical provisions will be insufficient to settle incurred and future claims, is foremost handled by actuarial methods and a careful continuous review of reported claims. This risk is also limited by reinsurance. Provisions are made to obtain a correct balance sheet and match revenues and costs with the period in which they emerged. The amount of the provision shall correspond to the amount that is required to fulfill all expected obligations and reflect the best knowledge available to Sirius. Acknowledged and appropriate methods are used in these estimations. Sirius supports its decisions on provisions by a combination of several actuarial methods, such as the Chain Ladder method, the Bornhuetter-Fergu- son method and the Benktander method. A combination of benchmarks and underwriting judgment is used for the most recent years. The provisions are further annually reviewed by independent actuaries. Regarding run-off results and claims development from previous years please refer also to Note 4 Claims incurred and Note 24 Claims Outstanding, where a specification of claims costs and expenses relating to the current year and prior years is made. historical Loss Reserve Trends The table below shows historical loss reserve trends. When reading the table it should be noted that amounts in other currencies are converted to the closing exchange rate for 2009. The table below is thus not directly comparable to the income statement. The increases in claims costs shown in the table should be seen in relation to earned exposure. The amounts shown do not include internal claims adjustment expenses. During 2004 two larger operations were acquired, that were accounted in a way that does not make amounts fully available, thus we have excluded this underwriting year. 34 Annual Report 2009 Claims (MSEK), gross underwriting year 2004 and prior years Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later Current estimate of total claims Total paid 2005 2006 2007 2008 2009 Total 3 443 3 994 3 886 3 858 3 844 3 844 3 617 2 648 3 357 6 562 6 030 6 030 2 946 3 749 4 324 4 325 3 819 4 727 3 706 4 325 3 661 4 727 2 927 3 706 1 288 Claims outstanding 1 667 227 3 085 665 1 800 2 417 9 861 Claims (MSEK), gross underwriting year 2004 and prior years Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later Current estimate of total claims Total paid 2005 2006 2007 2008 2009 Total 2 876 3 355 3 262 3 251 3 237 3 237 3 016 2 361 3 014 3 074 3 055 3 055 2 724 3 272 3 796 3 775 3 467 4 151 3 162 3 775 3 185 4 151 2 615 3 162 1 199 Claims outstanding 1 272 221 331 590 1 536 1 963 5 913 Objectives, principles and methods for managing financial risks In the company’s operation various types of financial risks arise, such as market risks, credit risks, liquidity risks and operational risks. In order to limit and control the risk taking in the operations, Sirius’ Board of Directors has, as ultimately responsible for the internal control in the company, deter- mined guidelines and instructions for the financial operations. The overall investment objective is to achieve consistent positive returns and to maximize long-term after-tax return on invested assets within prudent levels of risk, through a diversified portfolio of high-quality fixed income and equity investments. Sirius makes an important distinction between Policyholder Funds In- vestments and Owners’ Funds Investments. Policyholder Funds are defined as policyholder liabilities plus statutory minimum capital and surplus, less policyholder assets. Policyholder liabilities are Net Technical Reserves as defined by The Swedish Financial Supervisory Authority. As regards Policyholder Funds Investments, at least 95 percent shall be invested in fixed income securities at all times. Furthermore, at least 80 percent of the fixed income portfolio must be creditworthy and liquid; i.e. consisting of securities with high credit ratings (investment grade). To limit concentration risk (the risk of large losses) the guidelines also include size limits, industry limits and rating limits. The balance of Sirius' investable assets (Owners' Funds Investments) may utilize a mixture of fixed income, equity and private investments with a focus on maximizing total return and preserving capital. Market risk Market risk is the risk that an actual value on current or future cash flows from a financial instrument varies due to changes in market prices and due to changes in their respective volatilities. There are three types of market risk: interest rate risk, currency risk and other price risk, primarily equity risk. The company’s investment operations during 2009 amounted to a total return of 3.3 percent, expressed in SEK. The duration in the portfolio with interest-bearing investments at the end of 2009 was 1.56 years which was unchanged compared to 2008. During the year, the percentage of equities in the investment portfolio decreased to approximately 12 percent. The ta- ble below shows the investment assets divided by class of asset, excluding deposits in companies that are reinsured by Sirius. Investment assets, division by class of asset Percentage split Bonds and other interest-bearing securities Shares and participations - whereof venture capital companies Cash and bank balances Total 58.29 12.11 1.47 29.60 100 Market risks Below, the company’s exposure and sensitivity to respective market risk is described. The descriptions are made on the basis of the company’s reporting of the Traffic Light model to the Swedish Financial Supervisory Authority as per 31 December 2009 with its sensitivity analyses in the form of stress tests and subsequent capital requirements. Interest rate risk The company is exposed to the risk that the market value on its fixed- interest assets decreases as market interest rates increase, or alternati- vely, that the market value increases as the interest rates decreases. The level of interest risk increases with the asset’s duration. The following table illustrates, in absolute figures, the company’s exposure to interest rate risk in accordance with the Traffic Light model as per 31 December 2009. 35 Annual Report 2009 Investment assets, interest rate risk according to the Traffic Light model Exposure Scenario, Corresponding requirements requirements (MSEK) stress test basis points (MSEK) (MSEK) Capital Reduced capital Nominal interest rate risk in SEK Nominal interest rate risk in EUR Nominal interest rate risk in USD and other currencies Total 3,611 602 4,449 8,662 30% 25% 30% - 101 85 115 - 82 5 121 208 54 3 80 137 Equity risk The equity risk is the risk that the market value of equities will decrease as a result of factors related to the external economic climate and factors related specifically to the company in question. Equity risks are mainly miti- gated by a diversification of the share portfolio. The table below shows the equity risk in accordance with the Traffic Light model as per 31 December 2009. Investment assets, equity risk according to the Traffic Light model Capital Reduced capital Exposure Scenario, requirements requirements (MSEK) stress test (MSEK) (MSEK) Swedish shares and participations Foreign shares and participations Foreign associated companies Total - 1,251 2,741 3,992 - 35% 35% - 438 959 1,397 - 285 637 922 Currency risk Currency risk arises if assets and liabilities in the same foreign currency vary in amounts. Sirius’ total net currency exposure is divided into two categories, exposure related to Policyholders Funds, which is matched with the corresponding assets, and exposure related to Owner’s Funds. Sirius’ net Policyholders Funds exposure for currency risk is marginal as the company’s objective for managing currency risk is to match net insurance debts in foreign currency with corresponding assets within very tight frames. The company’s total net exposure for currency risk, i.e. including both Policyholder and Owners Funds, before and after any hedging by derivatives is shown in the table below. Exchange rate exposure – Group (MSEK) USD EUR GBP Other Investment assets Shares and participations Bonds and other interest-bearing securities Other financial investment assets Other assets and liabilities, net Total assets Technical provisions, net Total liabilities and provisions Net exposure before financial 3,514 4,338 1,395 1,971 11,218 5,323 5,323 114 971 2,176 289 3,550 1,763 1,763 hedging with derivatives 5,895 1,787 Nominal value currency forwards 0 0 Net exposure after financial hedging with derivatives 5,895 1,787 0 143 39 -41 141 141 141 0 0 0 0 0 38 38 76 66 66 10 0 10 36 Annual Report 2009 A general unfavorable change of 25 basis points, alternatively 10 percent unfavorable change, in the respective foreign currencies toward SEK has been calculated to affect the company’s equity and results as shown in the table below. The analysis below assumes that the changes in exchange rates do not affect other risk parameters, such as interest rate. The sensiti- vity analysis takes into consideration existing financial hedges with currency related derivatives. Sensitivity analysis per currency (MSEK) USD EUR GBP Other Total Change 25 basis points Change 10% 205 590 43 178 0 0 - 1 248 769 Credit risk Credit risk, or counterparty risk, refers to the risk that the company will not receive agreed payment and/or will make a loss due to the counterparty’s inability to fulfill its obligations. A substantial portion of the credit risk to which the company is exposed, arises as a result of established reinsurance agreements. Credit risk in investment management The company’s policy in the investment management is to allow only invest- ments in securities with very high credit quality. The credit/counterparty risk in this part of the operations is therefore assessed to be relatively limited, except for the price effects on securities arising due to increases in credit risk spreads as a result of turbulence in the credit and financial mar- kets, a phenomenon which was clearly manifested during 2008 and 2009. The table below shows the exposure of Sirius’ investment assets divided per class of asset. Exposure (MSEK) - Group Bonds & other interest-bearing assets Governments Swedish mortgage institutions Other Swedish issuers Other issuers Shares & participations Total 8,662 5,305 103 104 3,150 1,797 10,459 The table below lists the ten largest holdings. The table includes Corporate bonds and Shares and participations and excludes Government bonds and other similar interest-bearing securities as well as Shares and participations in associated companies. Name of security Type of security Market value % of financial OneBeacon Insurance Group Ltd SABMiller PLC Atlas Copco AB Royal Dutch Shell PLC PPG Industries Inc Anheuser-Busch Inbev BAE Systems PLC Enterprise Rent A Car Merck & Co Inc Cargill Inc Total Share Bond Bond Bond Bond Bond Bond Bond Bond Bond 543 138 106 98 98 77 77 75 72 65 assets 4.3 1.1 0.8 0.8 0.8 0.6 0.6 0.6 0.6 0.5 1,349 10.7 37 A 10 0 0 100 0 25 BBB BB Total 13 0 0 0 0 34 0 0 0 0 0 1 100 100 100 100 100 100 Annual Report 2009 The tables below show fixed income investments and equity investments per geographical area and credit rating classes. Fixed income investments are also presented per sector. Group and/or parent company Credit quality on classes of financial assets, % AAA AA Bonds and other interest-bearing securities -Swedish government -Swedish mortgage institutions -Other Swedish institutions -Foreign governments -Other foreign issuers 74 100 100 0 99 33 3 0 0 0 1 7 Equity investments, divided by geographical area Western Europe North America Asia Total Percentage Split 25.85 72.28 1.87 100 Interest-bearing investments, divided by geographical areas Percentage split Western Europe North America Scandinavia Other Total 11.65 48.75 38.69 0.91 100 Interest-bearing investments, divided by sector Governments Swedish mortgage institutions Other Swedish issuers Other foreign issuers Total Percentage split 61.26 1.18 1.20 36.36 100 Credit risk on receivables with reinsurers The credit risk resulting from reinsurance ceded by Sirius can be divided into two separate components; reinsurers’ share of technical provisions as recorded on an ongoing basis under assets in the balance sheet, and the potential exposure that would emerge in the event of large claims in the insurance portfolio, for example, in the case of a severe European wind- storm. An event like this would trigger major portions of Sirius’ purchased reinsurance cover. To manage the risk of reinsurer insolvency, Sirius’ Security Commit- tee assigns and monitors ratings of all counterparties according to Sirius internal rating scale and model for reinsurance counterparty analysis. For each rating there is a corresponding maximum limit for the total exposure per reinsurer and per program. If the credit worthiness of a retrocessionaire deteriorates into unac- ceptable status (in bankruptcy, liquidation, insolvent run-off, scheme of arrangement, or is, by other reasons, deemed to be unable or unwilling to honor its obligations), the counterparty is classified as an IDC company (Insolvent or Doubtful Company). Counterparties which are classified as IDC companies are regularly monitored by the company’s Credit Control Committee. For IDC companies, a provision is made to a credit risk reserve, which is established based on the company’s Bad Debt Reserving Policy. The credit risk reserve for these bad debts amounted, as per 31 December 2009, to MSEK 65. 38 Annual Report 2009 Ageing balances Receivables regarding both direct insurance as well as assumed reinsurance are followed up on a monthly basis and outwards reinsurance receivables are followed-up on a quarterly basis. Outstanding receivables are analyzed on the basis of the length of time that has passed since the due date with the following distribution: From up to 1 month, 1-3 months, 3-6 months, 6-9 months, 9-12 months and over 1 year. These analyses comprise the basis for various collection activities, as does the supporting documentation regarding the assessment of the counterparty’s credit risk status and any write-down requirements. In accordance with Sirius’ policy for write-downs of receivables outstanding for more than 1 year, there is a specific reserve for counterparties which are not classified as IDC companies which total MSEK 13. Due <1 month Net receivables (MSEK) 119 1-3 52 3-6 -1 6-9 1 9-12 -6 >1 64 Total 229 Retrocession credit risk Reinsurers’ share of technical provisions consists of outstanding claims including IBNR reserves, as well as a provision for unearned premiums and remaining risks. The total amount as per 31 December 2009 was MSEK 4,430. The credit rating distribution for this exposure is shown in the table below. Financial Strength Rating - Standard & Poor's Gross MSEK Collateral MSEK Net MSEK Percentage AAA AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval Internal reinsurance Sum 137 0 43 34 387 70 148 5 756 130 2 720 4 430 0 0 0 0 0 0 33 0 107 0 2 720 2 860 137 0 43 34 387 70 115 5 649 130 0 1 570 3 0 1 1 9 2 3 0 17 3 61 100 In the item Internal reinsurance above the majority of ceded reinsurance refers to White Mountains Life Re. This receivable is 100% guaranteed with investment assets. Except for the credit exposure above, reported as an asset in the balance sheet, significant credit losses can potentially arise from large claims. Such credit losses can arise if two different events occur at the same time, that is, if a large catastrophe event occurs at the same time as a reinsurer to which Sirius has ceded business defaults. The table below describes the assumed liabilities from Retrocessionaires (excluding costs for reinstatements) and the distribution of credit ratings for Sirius’ 2009 Retrocession Program. Financial Strength Rating - Standard & Poor's MSEK Percentage AA+ AA AA- A+ A A- BBB+ BBB or lower Fully collateralized Special approval Sum split 3 16 9 33 4 24 2 2 4 3 80.4 483.6 268.0 993.0 125.3 739.3 56.0 54.7 114.6 106.4 3 021.3 100 39 Annual Report 2009 Liquidity risk Liquidity risk is the risk that the company will have difficulties fulfilling payment obligations, mainly those related to insurance liabilities. Liquidity risk can also be expressed as the risk of loss or impaired earning potential as a result of the company not being able to fulfill payment obligations in due time. Liquidity risks arise as assets and debts including derivatives instruments have different durations. The company’s strategy for dealing with liquidity risk aims to, in the greatest extent possible, match expected payments and receipts of payment (so called asset-liability management, ALM). This is accomplished through advanced liquidity analysis of financial assets and insurance liabili- ties. At the end of 2009, the duration of interest-bearing investment assets was 1.56 years and the duration of insurance liabilities was 1.88 years. The liquidity is monitored continuously and stress tests are performed for different scenarios. The company’s claims payment capabilities are further strengthened with its high portion of cash and bank deposits of the total investment assets, The cash flow analysis 2009 also provides an illustration of the company’s liquidity situation. The tables below show a more detailed maturity profile for the Group in respect of both financial assets and debts. Liquidity profile – financial assets (Contractual inflows) MSEK On demand <3 months –1 year 1-5 years >5 years No duration Total 3 months Bonds and other interest-bearing securities Shares & participations in associated companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debts Prepaid expenses and accrued income Sum Liquidity profile - financial debts (Contractual outflows) 1 017 404 5 162 2 079 0 0 0 4 383 0 0 15 0 0 0 0 0 0 719 23 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 185 1 797 0 10 19 36 0 8 662 2 185 1 797 4 383 10 1 480 770 175 4 398 1 759 5 162 2 079 4 047 19 462 0 0 0 0 1 461 0 152 2 017 3 months MSEK On demand <3 months –1 year 1-5 years >5 years No duration Total Payables, direct insurance Payables, reinsurance Other debts Accrued expenses and deferred income Sum 0 0 0 0 0 0 0 102 78 180 0 556 485 50 1 091 0 0 39 29 68 0 0 0 0 0 14 -43 0 0 -29 14 513 626 157 1 310 Liquidity profile – Technical provisions (Estimated claim payments, net, excluding ULAE) MSEK <3 months –1 year 1-5 years >5 years Total 3 months Technical provisions Sum 717 717 2 183 2 183 3 062 3 062 964 964 6 926 6 926 40 Annual Report 2009 Operational risks Sirius has defined operational risks as “The risk of losses due to defective or inappropriate internal processes and routines, human errors, defective systems or external events, including legal risk”. All employees within Sirius are responsible for the contribution to a well functioning process for operational risk management and shall see themselves as risk managers. The Group Risk Management function for Risk Control is a group function responsible for developing and improving the operational risk methodology and thereby supporting the organization and the process owners with the tools needed to manage these risks. During 2009 the improvement of Sirius’ operational risk management pro- cess has been into focus. The development of a framework for Operational Risk Management and an Incident Reporting Database will continue during the first quarter of 2010, followed by implementation of the framework and new routines. Operational risks within Sirius are e.g. identified through regularly con- ducted Risk Control & Compliance Reviews (the RCC Review). Other helpful sources are the continuously updated process narratives and flowcharts where any gaps or operational risks are visualized and can be mitigated. Operational risks are also identified and managed by defining controls within the processes and through follow up and testing of the effectiveness of the key controls. The result of the RCC Review that was performed from November 2008 until April 2009 was presented to the Executive Group in June 2009 together with suggested recommendations. Within the RCC Review key persons from different parts of the organization were interviewed regarding the risks within their respective working area or process, covering not only operational risks but also other risks. Any material issues subject to operational risks and incidents are repor- ted to the Board of Directors and Senior Management within the Quarterly Risk Report and to the Board of Directors as part of the yearly summarizing Risk and Governance Report. Solvency and capital requirements The new Swedish solvency regulation, the so-called Traffic Light system, takes into account the company’s risks in the areas financial risks, insu- rance risk and operating expense risk. The model results in a total capital net requirement which is compared to a so-called buffer capital (“solvency capital”) in order to asses the company’s capital strength. The table below shows the result in accordance with the Traffic Light model as per 31 December 2009 and 2008. Total capital requirement according to the Traffic Light model Total capital net requirement Capital buffer Surplus 2009 2008 3 919 12 567 8 648 2 622 10 925 8 303 Financial Strength Rating The financial strength of Sirius International has been rated by Standard & Poor’s, A M Best and Moody’s. Finacial Strength Rating as per 31 December 2009 S&P's A M Best Moody’s Financial Strength Rating Outlook A- Stable A Negative A3 Stable 41 Annual Report 2009 Note 3 • Premium income Premium income, geographical allocation Group Parent Company 2009 2008 2009 2008 Direct insurance, Sweden Direct insurance, other EEA Direct insurance, other countries Premiums for accepted reinsurance Premium income before ceded reinsurance Premium for ceded reinsurance Premium income after ceded reinsurance 8 128 684 7,810 8,630 -1,673 6,957 -79 106 529 6,127 6,683 -1,081 5,602 8 128 684 7,810 8,630 -1,673 6,957 -79 106 529 6,127 6,683 -1,081 5,602 Note 4 • Claims incurred for own account Claims incurred for the year´s operations 2009 2008 Group Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Claims handling expenses -1,401 59 -1,563 -981 -168 Total claims incurred for the year’s operations -4,054 90 0 298 175 0 563 2009 -1,311 59 -1,265 -806 -168 -3,491 -1,531 45 -1,284 -843 -241 -3,854 Group -1,432 54 -1,119 -788 -241 -3,526 99 9 165 55 0 328 2008 Claims incurred for previous year’s operations Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) -3,001 268 1,124 1,214 Total claims incurred for the previous year’s operations -395 337 4 -84 -535 -278 -2,664 272 1,040 679 -673 -2,518 -76 995 -1,860 -3,459 380 73 -273 3,143 3,323 -2,138 -3 722 1,283 -136 Total claims incurred -4,449 285 -4,164 -7,313 3,651 -3,662 2009 2008 Group Gross Ceded Net Gross Ceded Net -4,402 327 -168 -4,243 427 -3,975 4 0 331 -168 431 -3,812 -4,049 -31 -241 -4,321 2009 Group -3,570 51 -241 -3,760 479 82 0 561 2008 Gross Ceded Net Gross Ceded Net -439 233 -206 214 -360 -146 -225 -127 -352 -289 -2,703 -2,992 -108 3,198 3,090 -397 495 98 Total claims paid Claims paid Loss portfolios Claims handling expenses Total claims paid Change in Provision for outstanding claims Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Total 42 Annual Report 2009 Claims incurred for the year´s operations Gross Ceded Net Gross Ceded Net 2009 2008 Parent Company Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Claims handling expenses -1,401 59 -1,563 -981 -168 Total claims incurred for the year´s operations -4,054 90 0 298 175 0 563 2009 -1,311 59 -1,265 -806 -168 -3,491 -1,531 45 -1,284 -843 -241 -3,854 Parent Company -1,432 54 -1,119 -788 -241 -3,526 99 9 165 55 0 328 2008 Claims incurred for previous year’s operations Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Total claims incurred for previous year's operations -3,001 268 1,124 1,214 -395 337 4 -84 -535 -278 -2,664 272 1,040 679 -673 -2,518 -76 995 -1,860 -3,459 380 73 -273 3,143 3,323 -2,138 -3 722 1,283 -136 Total claims incurred -4,449 285 -4,164 -7,313 3,651 -3,662 Total claims paid Claims paid Loss portfolios Claims handling expenses Paid claims 2009 2008 Parent Company Gross Ceded Net Gross Ceded Net -4,402 327 -168 -4,243 427 -3,975 4 0 331 -168 431 -3,812 -4,049 -31 -241 -4,321 -3,570 51 -241 -3,760 479 82 0 561 2008 Change in Provision for outstanding claims 2009 Parent Company Gross Ceded Net Gross Ceded Net Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Total -439 233 -206 214 -360 -146 -225 -127 -352 -289 -2,703 -2,992 -108 3,198 3,090 -397 495 98 43 Annual Report 2009 Note 5 • Operating costs Specification of income statement item operating costs Group Parent Company 2009 2008 2009 2008 Acquisition costs -1,673 -1,239 -1,673 -1,239 Change in prepaid acquisition costs (+/–) Administrative expenses Provisions and profit shares in ceded reinsurance (–) 86 -452 283 -100 -260 196 86 -457 283 -100 -265 196 Total -1,756 -1,403 -1,761 -1,408 Other operating costs Group Parent Company 2009 2008 2009 2008 Claims handling expenses included in claims paid Costs for treasury management included in Return on capital, costs Costs for property management included in Return on capital, net Other operating costs Total operating costs -168 -41 -3 -1,756 -1,968 -241 -45 -2 -1,403 -1,691 -168 -41 -3 -1,761 -1,973 -241 -45 -1 -1,408 -1,695 Total operating costs by type Direct and indirect personnel costs Premises costs Depreciation/Amortisation Other expenses related to operations Total Group Parent Company 2009 2008 2009 2008 -369 -47 -8 -1,544 -1,968 -318 -46 -7 -1,320 -1,691 -354 -46 -8 -1,565 -1,973 -305 -44 -7 -1,339 -1,695 Note 6 • Investment, income Dividend income from: Swedish shares and participations Foreign shares and participations Interest income Bonds and other interest-bearing securities Other interest income - of which from financial assets not valued at fair value with changes in value reported in the income statement Exchange rate profit (net) Capital gains and reversed write-downs (net) Swedish shares Foreign shares Interest-bearing securities Property Group Parent Company 2009 2008 2009 2008 0 45 329 46 46 0 1 0 0 0 2 48 339 85 85 913 0 0 0 0 0 9 329 46 46 0 1 0 0 0 2 33 338 85 85 595 0 0 0 0 Total return on capital, income 421 1,386 385 1,053 44 Annual Report 2009 Note 7 • Unrealised gains on investments Swedish shares and participations Foreign shares and participations Share of income in associated company 1) Derivatives Total unrealised gains on investments Group Parent Company 2009 2008 2009 2008 0 365 270 0 635 2 167 0 1 170 0 228 0 0 228 2 167 0 1 170 ") Refers to the Group´s share of income in associated company, WM Phoenix.The translation of the exchange rate difference arising in the conversion to Swedish krona is reported directly against equity (-186). In previous years, the Group´s share of revenues for the previous holdings in associated company White Mountains Internatio- nal, was recorded as realized and unrealized gain/loss. Note 8 • Investment expenses and charges Group Parent Company 2009 2008 2009 2008 Operating expenses for land and buildings Asset management costs Interest expenses Other interest expenses - of which from financial assets not valued at fair value with changes in value reported in the income statement -3 -43 -1 -1 Capital losses on foreign exchange, net -258 Swedish shares and participations Foreign shares and participations Subsidiaries & associated companies Bonds and other interest-bearing securities Write-down of investment assets 0 -35 0 -30 0 -2 - 49 -2 -2 0 -4 -259 -232 -15 0 -3 -43 -1 -1 -244 0 -34 0 -30 0 -2 -43 -2 -2 0 -4 -258 0 -15 0 Total -370 -563 -355 -329 Note 9 • Unrealised losses on investments Group Parent Company 2009 2008 2009 2008 Swedish shares and participations Foreign shares and participations Derivatives, forward exchange agreements Total unrealised losses on investments 0 -28 0 -28 -8 -889 -1 -899 0 -28 0 -28 -8 -610 -1 -620 45 Annual Report 2009 Note 10 • Net profit or net loss per category of financial instrument Group 2009 Financial assets identified as items valued Loan at fair value in Available-for- receivables the income sale financial and accounts Financial assets statement instruments receivables Total Shares and participations Bonds and other interest-bearing securities Deposits with edents Other debtors Total 575 0 0 0 575 0 478 0 0 478 Parent Company 2009 Financial assets identified as items valued 575 478 22 7 1,082 0 0 22 7 29 Loan Financial assets statement instruments receivables Total at fair value in Available-for- receivables the income sale financial and accounts Shares and participations Bonds and other interest-bearing securities Deposits with edents Other debtors Total 166 0 0 0 166 0 478 0 0 478 0 0 22 7 29 166 478 22 7 673 Group 2008 Financial assets identified as items valued at fair value in Available-for- the income sale financial Financial assets statement instruments Total Shares and participations Bonds and other interest-bearing securities Total -1,222 0 -1,222 0 527 527 -1,222 527 -695 Parent Company 2008 Financial assets identified as items valued at fair value in Available-for- the income sale financial Financial assets statement instruments Total Shares and participations Bonds and other interest-bearing securities Total -710 0 -710 0 527 527 -710 527 -183 The amounts in the table above constitute a specification of the amounts regarding finanicial instruments which are reported in the income statement as (i) return on capital, income (ii) unrealised gains (iii) return on capital, expenses, (iv) unrealised losses, with exception for (a) potential amortisation and write-downs, (b) asset management costs and (c) excange rate gains/losses. As the Company has no financial liabilities generating interest expenses, these have not been specified in the above table; neither does the table include interest income from Cash & Bank. 46 Annual Report 2009 Note 11 • Taxes Current tax expense (-)[/tax revenue (+)] Curent tax expenses Tax adjustment attributable to previous years Deferred tax expense (-) [/tax revenue (+)] Deferred tax regarding temporary differences Total reported tax expense Group Parent Company 2009 2008 2009 2008 -187 -4 -112 -303 -341 278 -69 -132 -185 -4 18 -171 -338 278 -233 -293 Reconciliation of effective tax Reconciliation of effective income tax rate for the Group and Parent Company to the Swedish income tax rate: Group Parent Company 2009 2008 2009 2008 Tax according to applicable tax rate for the Parent Company -26.3% Non-deductible expenses Non-taxable income Tax regarding previous years Other -0.3% 8.4% -1.0% 0% -28.0% -8.6% 7.6% -5.5% 18.6% -26.3% -28.0% -0.3% 3.2% -2.4% 0 -0.1% 4.4% -4.5% -0.2% Reported effective tax -19.2% -15.9% -25.8% -28.4% "Other" refers mainly to the effect of the change in the tax rate in Sweden for income year 2009 to 26.3% Profit before tax for the Parent Company refers to profit after transfer to safety reserve. The total provision for 2009 amounts to 511 (0). Reported deferred tax receivables and tax liabilities Reported deferred tax receivables and tax liabilities related to the following: Group Deferred tax assets Deferred tax liabilities Net 2009 2008 2009 2008 2009 2008 Pension provisions Other provisions Surplus value of securities Safety reserve and accelerated depreciation Net tax receivables/tax liabilities 10 16 0 0 26 8 13 0 0 21 0 -1 -22 -2 549 -2,572 0 0 0 -2 419 -2,419 10 15 -22 -2 549 -2,546 8 13 0 -2 419 -2,398 Deferred tax assets Deferred tax liabilities Net Parent Company 2009 2008 2009 2008 2009 2008 Pension provisions Other provisions Surplus value of securities Net tax receivables/tax liabilities 10 15 0 25 8 13 0 21 0 0 -21 -21 0 0 0 0 10 15 -21 4 8 13 0 21 Unreported deferred tax receivables There are no deductible temporary differences and fiscal loss carry forward for which deferred tax receivables have not been reported in the income statement and balance sheet. Group Parent Company Changes in deferred tax 2009 2008 2009 2008 Opening balance Recognized in income statement Recognized in shareholders’ equity Closing balance -2,398 -112 -36 -2 296 -69 -33 -2,546 -2,398 21 18 -35 4 287 -233 -33 21 Taxes recognized in shareholders’ equity mainly refers to available-for-sale financial assets -35 (-33). There is no loss carry-forward included in the change of deferred tax. 47 Annual Report 2009 Note 12 • Intangible assets Intangible assets -IT Intangible assets -IT Capitalized Acquired Capitalized Acquired expenditure for intangible expenditure for intangible development assets development assets work Goodwill Total work Goodwill Total Accumulated acquisition value Opening balance, 1 January 2008 Acquisitions for the year Closing balance, 31 December 2008 Opening balance, 1 January 2009 Acquisitions for the year Closing balance, 31 December 2009 Accumulated amortisation Opening balance, 1 January 2008 Depreciation for the year Closing balance, 31 December 2008 Opening balance, 1 January 2009 Depreciation for the year Closing balance, 31 December 2009 Carrying amount Per 1 January 2008 Per 31 December 2008 Per 1 January 2009 Per 31 December 2009 Amortisation for the year is included in the following rows of the income statement for 2008: Operating costs Other costs Total Amortisation for the year is included in the following rows of the income statement for 2009: Operating costs Other costs Total 65 1 66 66 5 71 -65 0 -65 -65 -1 -66 0 1 1 5 0 0 0 -1 0 -1 615 0 615 615 0 615 -297 -27 -324 -324 -27 -351 318 291 291 264 0 -27 -27 0 -27 -27 680 1 681 681 5 686 -362 -27 -389 -389 -28 -417 318 292 292 269 0 -27 -27 -1 -27 -28 In the item IT-related intangible assets, acquired licenses and expenses brought forward are included for the development of business-critical systems. All intangible assets are depreciated. For information regarding the deprications, see Note 1, Accounting principles 65 1 66 66 5 71 -65 0 -65 -65 -1 --66 0 1 1 5 0 0 0 -1 0 -1 460 0 460 460 0 460 -214 -17 -231 -231 -17 -248 246 229 229 212 0 -17 -17 0 -17 -17 525 1 526 526 5 531 -279 -17 -296 -296 -18 -314 246 230 230 217 0 -17 -17 -1 -17 -18 48 Note 13 • Land and Buildings Acquisition cost Opening balance, 1 January 2008 Closing balance, 31 December 2008 Opening balance, 1 January 2009 Closing balance, 31 December 2009 Depreciation Opening balance, 1 January 2008 Depreciation for the year Closing balance, 31 December 2008 Opening balance, 1 January 2009 Depreciation for the year Closing balance, 31 December 2009 Carrying amount 1 January 2008 31 December 2008 1 January 2009 31 December 2009 Assessed value Annual Report 2009 Group Parent Company 18 18 18 18 -13 -1 -14 -14 -2 -16 5 4 4 2 18 18 18 18 -13 -1 -14 -14 -2 -16 5 4 4 2 Group Parent Company 2009 2008 2009 2008 Assessed value, buildings (in Sweden) Assessed value, land (in Sweden) Total 2 1 3 1 1 2 2 1 3 1 1 2 Note 14 • Shares and participations in Group companies Name of subsidiary Registered offices, country Participating interest, % Sirius Rückversicherungs Service GmbH Hamburg, Germany Sirius Belgium Réassurances S.A Liège, Belgium Sirius International Holdings (NL) B.V Amsterdam, The Netherlands 2009 2008 100 100 100 100 100 100 Accumulated acquisition cost Beginning of year Acquisition Disposals Closing balance, 31 December Accumulated write-downs Beginning of year Acquisition Disposals Write-downs for the year Closing balance, 31 december Carrying amount 31 December Parent Company 2009 2008 1,252 0 0 609 643 0 1,252 1,252 -596 -596 0 0 0 -596 656 0 0 0 -596 656 49 Annual Report 2009 Subsidiaries' equity 2009 Name of subsidiary Equity Share % Number of Book value Profit/loss shares 2009 Sirius Rückversicherungs Service GmbH, Hamburg, Germany Sirius Belgium Réassurances S.A., Liège, Belgium 18 14 100 100 0 13 5 0 1 share nom. value EUR 51,129 Share capital total EUR 1,245,681 consisting of 700,000 shares with nom. value EUR 100 per share Sirius International Holdings (NL) B.V., Amsterdam, The Netherlands 592 100 643 Share capital total 157 EUR 18,000 consisting of 180 shares with nom. value EUR 100 per share Total 624 100 656 162 2008 Name of subsidiary Equity Share % Number of Book value Profit/loss shares 2008 Sirius Rückversicherungs Service GmbH, Hamburg, Germany Sirius Belgium Réassurances S.A., Liège, Belgium 14 15 100 100 0 13 2 0 1 share nom. value EUR 51,129 Share capital total EUR 1,245,681 consisting of 700,000 shares with nom. value EUR 100 per share Sirius International Holdings (NL) B.V., Amsterdam, The Netherlands 467 100 643 Share capital total -241 EUR 18,000 consisting of 180 shares with nom. value EUR 100 per share Total 496 656 -239 50 Annual Report 2009 Note 15 • Shares and participations in associated companies Carrying amount at start of year Acquisitions of associated companies Share of associated company's profit/loss 1) Translation differences Other changes in associated company's equity Group 2009 2008 2,101 0 270 -186 0 1,652 385 -249 296 17 Carrying amount at end of year 2,185 2,101 Carrying amount at start of year Acquisition of associated company Carrying amount at end of year Parent Company 2009 2008 2,058 0 2,058 1,673 385 2,058 Associated Companies Assets Liabilities Equity Net income Share of capital % 2) Number of shares White Mountains Phoenix S.a.r.l., Luxembourg Total 22,921 22,921 14,455 14,455 8,466 8,466 1,139 1,139 23,6 23,6 2,461,000 2,461,000 1) Refers to the Group's share of income in the associated company, WM Phoneix. The translation of the exchange rate difference arising in the conversion to Swedish krona is reported directly against shareholders equity (-186). In previous years, the Group's share of revenues for the previous holdings in the associated company, White Mountains International, was specified according to realized and unrealized income. 2) The participating interest in the Company's total shareholders equity at year-end is equivalent to 23.6% (28.2%). The participating interest in total outstanding shares at year-end is equivalent to 22.0% (22.0%). Note 16 • Investments in shares and participations Group 1,797 1,745 2,053 2,338 Fair value Acquisition cost 2009 2008 2009 2008 Fair value Acquisition cost 2009 2008 2009 2008 Parent Company 1,251 1,294 1,352 1,595 Further information on financial instruments can be found in Note 19. 51 Annual Report 2009 Note 17 • Bonds and other interest-bearing securities Group Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total Fair value Acquisition cost 2009 2008 2009 2008 3,144 466 2,161 2,890 8,662 3,126 1,089 2,578 1,989 8,782 3,038 456 2,152 2,815 8,462 2,982 1 121 2,523 2,089 8,715 of which listed 8,662 8,782 8,462 8,715 Average difference compared to nominal value Total excess amount Total shortfall 461 33 365 200 263 35 166 68 Parent Company Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total Fair value Acquisition cost 2009 2008 2009 2008 3,144 466 2,161 2,890 8,662 3,126 1,089 2,578 1,989 8,782 3,038 456 2,152 2,815 8,462 2,982 1,121 2,523 2,089 8,715 of which listed 8,662 8,782 8,462 8,715 Average difference compared to nominal value Total excess amount Total shortfall 461 33 365 200 263 35 166 68 Note 18 • Debtors arising out of direct insurance and other debtors Group Parent Company 2009 2008 2009 2008 Amounts due from intermediaries Total debtors arising out of direct insurance 10 10 37 37 10 10 37 37 Group Parent Company 2009 2008 2009 2008 Other debtors, group companies Other debtors Total other debtors 713 57 770 0 55 55 713 43 756 0 40 40 52 Annual Report 2009 Note 19 • Categories of financial assets and liabilitities and their fair values Group 2009 Financial Loan assets valued Financial assets receivables statement assets amount Fair value value receivables and at fair value Available-for- accounts via the income sale financial Total carrying Acquisition Shares and participations Bonds and other interest-bearing securitites Accrued income Other debtors Total 0 0 0 770 770 1,797 0 594 0 0 8,662 0 0 1,797 8,662 594 770 1,797 8,662 594 770 2,021 8,622 594 770 2,391 8,662 11,823 11,823 12, 007 Parent Company 2009 Financial Loan assets valued Financial assets receivables statement assets amount Fair value value receivables and at fair value Available-for- accounts via the income sale financial Total carrying Acquisition Shares and participations Bonds and other interest-bearing securitites Accrued income Other debtors Total 0 0 0 756 756 1,251 0 592 0 0 8,662 0 0 1,251 8,662 592 756 1,251 8,662 592 756 1,352 8,622 592 756 1,843 8,662 11,261 11,261 11,322 Group 2009 Financial liabilities liabilities amount Fair value Other financial Carrying Other liabilities Accrued expenses Total 626 157 783 626 157 783 626 157 783 Parent Company 2009 Financial liabilities liabilities amount Fair value Other financial Carrying Other liabilities Accrued expenses Total 638 157 795 638 157 795 638 157 795 53 Annual Report 2009 Group 2008 Financial assets valued Financial assets statement assets amount Fair value value at fair value Available-for- Total via the income sale financial carrying Acquisition Shares and participations Bonds and other interest-bearing securities Accrued income Total 1,745 0 629 2,374 0 8,782 0 8,782 1,745 8,782 629 1,745 8,782 629 2,099 8,234 629 11,156 11,156 10,962 Parent Company 2008 Financial assets valued Financial assets statement assets amount Fair value value at fair value Available-for- Total via the income sale financial carrying Acquisition Shares and participations Bonds and other interest-bearing securities Accrued income Total 1,294 0 628 1,922 0 8,782 0 8,782 1,294 8 ,82 628 1,294 8,782 628 1,359 8,234 628 10,704 10,704 10,221 Group 2008 Financial liabilities liabilities amount Fair value Other financial Carrying Other liabilities Accrued expenses Total 546 122 668 546 122 668 546 122 668 Parent Company 2008 Financial liabilities liabilities amount Fair value Other financial Carrying Other liabilities Accrued expenses Total 554 122 676 554 122 676 554 122 676 54 Annual Report 2009 In the tables below, data is provided regarding the determination of fair value for financial instruments valued at fair value in the balance sheet. The determination of fair values is categorized according to the following three levels: • Level 1: Based on prices listed on a active market for identical assets or liabilities • Level 2: Based on directly (according to price listings) or indirectly (derived from price listings) observable market data for assets or liabilities that are not included in Level 1 • Level 3: Based on input data that is not observable on the market Group 2009 Levei 1 Level 2 Level 3 Total Shares and participations Bonds and other interest-bearing securities Total 546 4,723 5,269 928 3,939 4,867 323 0 323 1,797 8,662 10,459 Parent Company 2009 Level 1 Level 2 Level 3 Total Shares and participations Bonds and other interest-bearing securities Total 0 4,723 4,723 928 3,939 4,867 323 0 323 1,251 8,662 9,913 The fair value of financial instruments traded on an active market is based on the listed price on balance sheet date. A market is seen to be active in cases where listed prices from a stock exchange, broker, industry group, pricing service or supervisory authority are easily accessible, and where these prices repre- sent genuine, regularly-occurring market transactions conducted at arm’s length. The listed market price applied in determining the fair value of instruments that are to be found in Level 1 is the current buying-rate. Fair value of financial instruments which are not traded on an active market are determined with the aid of valuation techniques. This procedure applies, as far as possible, such market information as is available, while information specific to a company is applied as little as possible. If all significant input data required in determining the fair value of an instrument is observable, the instrument is to be found in Level 2. Specific valuation techniques applied in valuing financial instruments include • Listed market prices or broker listings for similar instruments. • Fair value of interest swaps is determined as the current value of estimated future cash flows, based on observable yield curves. • Fair value for currency forward exchange agreements is determi- ned through the use of exchange rates for forward exchanges on balance sheet date, at which point the resulting value is discoun- ted to current value. • Other techniques, such as the calculation of discounted cash-flows, are applied in determining fair value for any financial instruments not covered by the above techniques. Note that all fair values determined with the aid of these valua- tion techniques are to be found in Level 2 In the event that one or more significant input data figures are not based on observable market information, the associated instrument is to be classified in Level 3. The table below shows a reconciliation of opening and closing balance data for financial instruments valued at fair value in the balance sheet, on the basis on non-observable input data (Level 3) Opening balance, 1 January 2009 Total reported profit/loss: -reported in profit/loss for the year 1) -reported directly in equity Acquisition cost , purchase Proceeds of sale, sales Transfers from Level 3 Transfers into Level 3 Closing Balance 31 December 2009 Profit/Loss reported in profit/loss for the year for assets included in the closing balance 31 December 2009 2) Shares and Participations Bonds Total 376 -8 0 36 -81 0 0 323 -23 0 0 0 0 0 0 0 0 0 376 -8 0 36 -81 0 0 323 -23 1) Reported in net income of financial transactions in profit/loss for the year. 2) Reported in net income of financial transactions in profit/loss for the year. 55 Annual Report 2009 Note 20 • Tangible assets Acquisition cost Opening balance 1 January 2008 Acquisitions Disposals Closing balance 31 December 2008 Openinge balance 1 January 2009 Acquisitions Disposals Closing balance 31 December 2009 Depreciation Opening balance 1 January 2008 Depreciation for the year Disposals Closing balance 31 December 2008 Opening balance 1 January 2009 Depreciation for the year Disposals Closing balance 31 December 2009 Reported values 1 January 2008 31 December 2008 1 January 2009 31 December 2009 Group Equipment Parent Company Equipment 93 7 -28 72 72 13 -5 80 -77 -7 28 -56 -56 -7 4 -59 16 16 16 21 92 7 -28 71 71 13 -5 79 -77 -7 28 -56 -56 -7 4 -59 15 15 15 20 Note 21 • Deferred acquisition costs Opening balance Capitalisation for the year Depreciation/amortisation for the year Exchange rate gains/losses Closing balance Note 22 • Untaxed reserves Parent Company Group Parent Company 2009 2008 2009 2008 441 460 -443 -39 419 464 341 -441 77 441 441 460 -443 -39 419 464 341 -441 77 441 Accumulated accelerated depreciation regarding goodwill and equipment 2009 2008 Opening balance 1 January Change for the year Exchange rate fluctuation for the year Closing balance as of 31 December Safety reserve Opening balance 1 January Provisions for the year Closing balance 31 December 61 -17 0 44 9,136 511 9,647 81 -20 0 61 9,136 0 9,136 Total untaxed reserves 9,691 9,197 56 Annual Report 2009 Note 23 • Provisions for unearned premiums and unexpired risks Provisions for unearned premiums Opening balance Insurance policies signed during the period Earned insurance premiums for the period Currency effect Closing balance 2009 2008 Group Gross Reinsurer's Net Gross Reinsurer's Net share -274 -381 235 41 -379 1,909 2,042 -1,944 -196 1,811 2,183 2,423 -2,179 -237 2,190 share -161 -200 135 -48 -274 1,775 1,468 -1,697 363 1,909 1,936 1,668 -1,832 411 2,183 Provisions for unexpired risks Opening balance Current year’s provisions included in profit/loss Previous yerar´s provisions included in profit/loss Currency effect Closing balance 2009 2008 Group Gross Reinsurer's Net Gross Reinsurer's Net share -111 0 -1 9 -103 160 0 -7 -13 140 49 0 -8 -4 37 share -93 0 1 -19 -111 125 9 -1 27 160 32 9 0 8 49 Provisions for unearned premiums Opening balance Insurance policies signed during the period Premiums earned during the period Currency effect Closing balance 2009 2008 Parent Company Gross Reinsurer's Net Gross Reinsurer's Net share -274 -381 235 41 -379 1,909 2,042 -1,944 -196 1,811 2,183 2,423 -2,179 -237 2,190 share -161 -200 135 -48 -274 1,775 1,468 -1,697 363 1,909 1,936 1,668 -1,832 411 2,183 Provisions for unexpired risks Opening balance Current year’s provisions included in profit/loss Previous year´s provisions included in profit/loss Currency effect Closing balance 2009 Parent Company 2008 Gross Reinsurer's Net Gross Reinsurer's Net share -111 0 -1 9 -103 160 0 -7 -13 140 49 0 -8 -4 37 share -93 0 1 -19 -111 125 9 -1 27 160 32 9 0 8 49 57 Annual Report 2009 Note 24 • Claims outstanding Provisions for outstanding claims 2009 Reinsurer's Group 2008 Reinsurer's Gross share Net Gross share Net Opening balance, reported claims Opening balance, incurred but not reported claims (IBNR) Opening balance Cost for claims incurred during the current year Change in estimated cost for claims incurred in previous years (close-down profit/loss) Claims handling expenses 4,861 5,646 10,507 4,054 395 168 Paid/transferred to insurance liabilities or other current liabilities 4,075 Currency effect Closing balance Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) -852 9,861 4,982 4,879 -698 -3,890 , -4,588 -563 278 0 -431 494 -3,948 -852 -3,096 4,163 1,756 5,919 3,491 673 168 3,644 -358 5,913 4,130 1,783 3,898 2,321 6,219 3,853 3,460 241 4,080 1,296 -712 -395 -1,107 -329 -3,322 0 -561 -392 10,507 -4,588 4,861 5,646 -698 -3,890 3,186 1,926 5,112 3,524 138 241 3,519 904 5,919 4,163 1,756 Provisions for outstanding claims 2009 Reinsurer's Parent Company 2008 Reinsurer's Gross share Net Gross share Net Opening balance, reported claims Opening balance, incurred but not reported claims (IBNR) Opening balance Cost for claims incurred during the current year Change in estimated cost for claims incurred in previous years (close-down profit/loss) Claims handling expenses 4,861 5,646 10,507 4,054 395 168 Paid/transferred to insurance liabilities or other current liabilities 4,075 Currency effect Closing balance Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) -852 9,861 4,982 4,879 -698 -3,890 -4,588 -563 278 0 -431 494 -3,948 -852 -3,096 4,163 1,756 5,919 3,491 673 168 3,644 -358 5,913 4,130 1,783 3,898 2,321 6,219 3,853 3,460 241 4,080 1,296 -712 -395 -1,107 -329 -3,322 0 -561 -392 10,507 -4,588 4,861 5,646 -698 -3,890 3,186 1,926 5,112 3,524 138 241 3,519 904 5,919 4,163 1,756 Note 25 • Equalisation provision Opening balance Changed accounting principles 1) Dissolution of provisions made in previous years Exchange rate gain/loss Closing balance Group Parent Company 2009 2008 2009 2008 3 -3 0 0 0 5 0 -3 1 3 3 0 0 0 3 5 0 -3 1 3 An allocation of the equalization provision to equity and deferred tax liabilities has been included in the consolidated accounts for 2009. 58 Annual Report 2009 Note 26 • Claims handling provision Group Parent Company 2009 2008 2009 2008 Opening balance Dissolution of provisions made in previous years Provisions for the year Closing balance 113 -30 39 122 77 -77 113 113 113 -30 39 122 77 -77 113 113 Note 27 • Pension provisions and similar items Pension provisions Group Parent Company 2009 2008 2009 2008 Total amount * 15 15 0 0 1) The pension provisions only comprise employees in Germany. Employees in Germany are covered by a defined benefit pension plan. The plan is funded by the Company. Pension claims are reported as liabilities on the company’s balance sheet. Note 28 • Creditors arising out of direct insurance and other creditors Creditors arising out of direct insurance Group Parent Company 2009 2008 2009 2008 Amounts due to intermediaries Total creditors arising out of insurance 14 14 25 25 14 14 25 25 Other creditors Amounts due to group companies Other creditors Total other creditors 1) 1) The majority of the receivables has a duration less than one year Group Parent Company 2009 2008 2009 2008 543 83 626 484 62 546 560 78 638 496 58 554 59 Annual Report 2009 Note 29 • Contingent liabilities and commitments In the form of pledged assets for own liabilities and provisions Bonds and other interest-bearing securities Cash and bank Assets for which policy holders have Group Parent Company 2009 2008 2009 2008 6,482 165 8,343 183 6,482 165 8,343 183 preferential rights 6,647 8,527 6,647 8,527 On the basis of the stipulations in Chapter 7, Section 11 of the Insurance Business Act, registered assets amount to MSEK 6,468. In the case of insolvency, the insured has preferential rights to the registered assets. During the course of operations, the Company has the right to register and de-register assets from the register, provided that all insurane commitments are covered by technical provisions in accordance with the Insurance Business Act. MSEK (nominal amount) 2009 2008 2009 2008 Future commitments for investments in venture capital company Total 67 67 79 79 67 67 79 79 Group Parent Company Note 30 • Associated parties Summary of transactions with associated parties Associated parties within the White Mountains Group Group and Parent Company 2009 Services purchased Receivables Liabilities, Premium from associated associated income, Indemni- associated parties per parties per net fication parties 31 Dec. 31 Dec. Other associated parties White Mountains Re America – assumed reinsurance Esurance - assumed reinsurance WM Life Re - ceded reinsurance White Mountains Re Services - administrative services White Mountains Re Services Ltd - assumed reinsurance and adminstrative services White Mountains Re Underwriting Services Ltd. - assumed reinsurance White Mountains Financial Services LLC - financial services Sirius Insurance Holding Sweden AB - group contribution Fund American Holdings AB - group contribution White Mountains Advisors LLC - asset management 376 1,956 -216 0 95 0 0 0 0 0 -166 - 1,844 -491 0 0 0 0 0 0 0 Total 2,211 -2,501 1) Refers to reinsurer´s share of outstanding claims. -1 0 0 -35 0 0 0 0 0 -23 -59 841 498 2,7151) 0 0 0 713 0 0 0 4,767 3 0 16 16 36 5 0 302 183 6 567 60 Annual Report 2009 Group and Parent Company 2008 Services purchased Receivables Liabilities, Premium from associated associated income, Indemni- associated parties per parties per net fication parties 31 Dec. 31 Dec. Other associated parties Folksamerica Reinsurance Co. (White Mountains Re America) Esurance, One Beacon WM Life Re – ceded reinsurance White Mountains Re Underwriting Services Ltd. White Mountains Financial Services LLC Sirius Insurance Holding Sweden AB – group contribution Fund American Holdings AB – group contribution White Mountains Advisors LLC Total 336 1,850 -179 0 0 0 0 0 -313 -1,780 3,299 0 0 0 0 0 2,007 1,206 -2 0 0 0 -23 0 0 -24 -49 914 540 0 0 0 0 0 0 1,454 1 13 0 23 11 280 186 7 521 Note 31 • Average number of employees, salaries and other remuneration Average number of employees - Group Men Women Total Men Women Total 2009 2008 Parent Company Germany Total, Group 250 11 261 111 3 114 123 4 127 127 7 134 2009 238 10 248 127 7 134 2008 Average number of employees – Parent Company Men Women Total Men Women Total Sweden UK Belgium Switzerland Singapore Denmark Bermuda (1 September 2009 - 31 December 2009) 59 23 24 4 5 3 5 70 18 20 4 9 1 5 129 41 44 8 14 4 10 54 23 23 4 5 2 0 73 19 21 3 9 2 0 Total, Parent Company 123 127 250 111 127 127 42 44 7 14 4 0 238 Senior management in the Group and Parent Company Men Women Total Men Women Total 2009 2008 Board and CEO Other senior members of management Total Group/Parent Company 4 3 7 0 0 0 4 3 7 4 3 7 0 0 0 4 3 7 61 Receivables Liabilities, associated associated parties per parties per 31 Dec. 31 Dec. 841 498 2,7151) 0 0 0 0 0 0 713 4,767 3 0 16 16 36 5 0 302 183 6 567 Annual Report 2009 Remuneration to employees Salaries including bonuses Of which paid out bonuses Pension expenses Social security contributions, special employer’s contributions, pensions Total remuneration to employees Group Parent Company 2009 2008 2009 2008 244 34 44 65 353 207 41 41 55 303 232 32 43 65 340 196 39 40 55 291 Of which paid remuneration for the year to: Group Parent Company CEO 2009 2008 2009 2008 Salaries including bonuses Of which paid out bonuses Pension expenses Total remuneration to CEO The board and other senior members of management Salaries including bonuses Of which paid out bonuses Pension expenses Total remuneration to the board and other senior members of management 8 4 3 11 10 5 2 12 8 5 3 11 9 4 2 11 8 4 3 11 10 5 2 12 8 5 3 11 9 4 2 11 Salaries and other remuneration, divided by country – Group 2009 2008 Of which bonuses Salaries and paid for Saleries and Of which bonuses paid for remuneration the year remuneration the year Total, Parent Company Germany Total salaries and other remuneration 232 12 244 32 2 34 196 11 207 39 2 41 Salaries and other remuneration, divided by country – Parent Company 2009 2008 Of which bonuses Salaries and paid for Saleries and Of which bonuses paid for remuneration the year remuneration the year 113 34 45 15 9 3 13 232 17 1 10 3 1 0 0 32 104 33 40 9 7 3 196 22 4 10 2 1 0 39 Sweden Belgium UK Switzerland Singapore Denmark Bermuda (1 September 2009 - 31 December 2009) Total, Parent Company 62 Annual Report 2009 Salaries and remuneration the money is invested. At the time of retirement, the employee has the option of The Board receives remunerations in accordance with the resolutions of the either receiving the money as a lump sum or as a series of payments over time. Annual General Meeting. Board fees are not paid to individuals employed in Germany: Employees are covered by a defined benefit pension plan.The plan the company. No Board fees were paid in 2009. Remuneration to the CEO and is funded by the company. The pension receivables are reported as liabilities on other senior members of management consists of basic salary, bonuses and the balance sheet. other compensations such as car benefits and pensions. Switzerland: Employees are covered by pension plans according to the Variable remuneration The plan is a combination of a defined benefit and fee based pension plan. The Annual General Meeting has resolved upon a variable remuneration plan for Sirius pays for 60 percent of the premiums while the employee pays for the the CEO and senior members of management. remaining 40 percent. Other employees are also covered under a variable remuneration plan. Singapore: The Company is not required to pay pensions. Levels of variable remuneration are based upon the Group’s profit/loss as well Denmark: All employees are covered by a mandatory pension plan with industrial sector to which they belong. as individually set goals. Pensions Danica pension. Sirius pays the agreed upon percentage rate stated in the emplyee´s employment contract, however, this percentage shall be at a minimum, 15 % of the employee´s salary. Thereafter, this amount is distributed Sweden: Sirius applies the pension agreement signed with FAO/FTF/Saco. to cover other aspects such as life insurance and disability benefits. The agreement comes into effect as of 1 January 2008 and implies that Bermuda: All employees are covered by the pension plan applied. The employees born 1971 and earlier have a benefit defined pension plan, whereas plan is premium based. The company pays 10% of the employee's income in employees born 1979 and earlier are offered a premium defined solution. The accordance with The National Pension Scheme Act. pension benefits are safeguarded by insurance. The Company’s CEO has a premium based executive pension plan. Three Severance pay additional senior members of management subscribe to special premium based Upon termination initiated by the Company, the CEO is entitled to severance pay pension plans. Both plans are safeguarded by insurance. during the termination period of 12 months. A 6 month termination period is The CEO is entitled to a life long pension from the age of 65. required if termination is initiated by the CEO. UK: The pension plan covers all employees over 21 years of age and who are employed with conditional tenure. The plan is premium based. The employee Drafting and decision-making process pays 1.5 percent or more of his/her salary and Sirius pays 12 percent of the Decisions regarding remuneration for the CEO are resolved upon by the Board. employee’s salary. In terms of salary, no upper limit exists. The money is in- Decisions regarding remuneration for other senior members of management vested in funds of the employee’s choosing. The plan is optional and employees are made by the CEO, in some cases after consultation with the Chairman of may choose not to participate. the Board. Belgium: All employees are covered by a pension plan in which Sirius pays 4.5 percent or 6.5 percent of the salary, depending on the employee category. Loans to senior members of management – none. The employee pays 2 percent. Possible changes to the plan must be approved by local unions. The premiums are invested by an insurance company and the employee cannot influence how Absence due to illness in the Parent Company 2009 2008 Total absence due to illness as a percentage of ordinary working hours Share of total absence due to illness regarding continuous absence due to illness of 60 days or more 2.49% 0.71% 1.98% 11.90% Absence due to illness as a proportion of each group’s standard working hours Absence due to illness divided by gender: Men Women Absence due to illness divided by age category: Younger than 30 years 30 - 49 years 50 years and older 2.66% 2.35% 1.55% 3.09% 1.83% 1.71% 2.18% 2.32% 1.81% 2.20% 63 Annual Report 2009 Note 32 • Fees and reimbursement to auditors Group Parent Company 2009 2008 2009 2008 Öhrlings PricewaterhouseCoopers - audit engagement 4 5 4 5 Audit assignment refers to the examination of the annual report and accounting records, as well as the administration of the Board of Directors and CEO, other duties which are the responsibility of the Company’s auditors to execute and the provision of advisory services or other assistance resulting from observations made during such an examination or the implementation of such other duties. All other undertakings are classified as other assignments. Note 33 • Operational leasing Leasing contracts in which the Company is the lessee Group Parent Company 2009 2008 2009 2008 Non-cancellable leases amount to: Due for payment within one year Due for payment later than one year but within five years Due for payment after five years Total 33 54 9 96 25 57 3 85 31 48 8 87 24 51 0 75 Note 34 • Class analysis Profit/loss per insurance class 2009 Parent Company Personal Marine, Fire and other accident and aviation and property Credit Total direct Assumed health transport damage insurance Miscellaneous insurance reinsurance Total Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalisation provision Technical result 640 645 -349 -267 -7 0 22 28 20 -72 -11 -4 0 -67 61 59 -29 -35 0 0 -5 1 1 0 0 0 0 1 90 89 -44 -41 0 0 4 820 814 -494 -354 -11 0 -45 7,810 7,579 -3,955 -1,658 -979 0 987 8,630 8,393 -4,449 -2,012 -990 0 942 2008 Parent Company Personal Marine, Fire and other accident and aviation and property Credit Total direct Assumed health transport damage insurance Miscellaneous insurance reinsurance Total Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalisation provision Technical result 507 498 -268 -209 -23 0 -2 19 41 -5 -20 -3 0 13 43 49 -114 -35 2 0 -98 -80 2 -2 1 0 3 4 67 66 -45 -33 -2 0 -14 556 656 -434 -296 -26 3 -97 6,127 6,183 -6,879 -1,295 2,843 0 852 6,683 6,839 -7,313 -1,591 2,817 3 755 64 Annual Report 2009 Stockholm, March 8, 2010 Allan Waters Chairman of the Board of Directors Brian Kensil Göran Thorstensson President & CEO Jan Silverudd Employee Repr esentative Our Auditors’ Report was submitted on March 10, 2010 Catarina Ericsson Authorized Public Accountant Anna Hesselman Authorized Public Accountant 65 Annual Report 2009 Audit Report To the general meeting of the share- solidated accounts as well as evaluating the holders of Sirius International Insurance overall presentation of information in the an- Corporation (publ) Corporate identity nual accounts and consolidated accounts. As number 516401-8136. a basis for our opinion concerning discharge We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the managing director of Sirius International Insurance Corporation (publ) for the year 2009. These accounts and the ad- ministration of the company and the applica- tion of the Annual Accounts Act for Insurance Companies when preparing the annual ac- counts and the consolidated accounts are the responsibility of the board of directors and the managing director. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administra- tion based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of ma- terial misstatement. An audit includes examin- ing, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when from liability, we examined significant deci- sions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, act- ed in contravention of the Insurance Business Act, the Annual Accounts Act for Insurance Companies or the Articles of Association. We believe that our audit provides a rea- sonable basis for our opinion set out below. The annual accounts and the consolidat- ed accounts have been prepared in accord- ance with the Annual Accounts Act for Insur- ance Companies and give a true and fair view of the company’s and the group’s financial position and results of operations in accord- ance with generally accepted accounting prin- ciples in Sweden. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We recommend to the general meeting of shareholders that the income statement and balance sheet for the company and the group be adopted, that the profit be dealt with in accordance with the proposal in the admin- istration report and that the members of the board of directors and the managing director be discharged from liability for the financial preparing the annual accounts and the con- year. S t o c k h o l m , March 10, 2 0 10 Catarina Ericsson Authorized Public Accountant Anna Hesselman Authorized Public Accountant 66 Annual Report 2009 DEFINITIONS Combined Ratio Net claims incurred in relation to net premiums earned and operating expenses (both commissions and own expenses) in relation to net premiums earned. Net Technical Provisions Total technical provisions (premium & claims provisions) less reinsurers’ share of technical provisions. Solvency Capital Total of shareholders’ equity + deferred taxes (or untaxed reserves in the parent company) + excess values of investment assets. Solvency Ratio Solvency capital in relation to net premium income. This is an unaudited translation of Sirius International Annual Report 2009. The audited Swedish version is the binding version. 67 Annual Report 2009 hEAD OFFICE Sirius International Insurance Corporation (publ) SE-113 96 Stockholm, Sweden. Visiting address: Birger Jarlsgatan 57B Telephone: +46 8 458 5500 Telefax: +46 8 458 5599 (Reinsurance) +46 8 458 5595 (Corp. Accounting & Control) Sirius International Insurance Corporation (publ) Belgian Branch Mont Saint Martin 62B/2 BE-4000 Liège, Belgium Telephone: +32 4 220 8611 Telefax: +32 4 232 1999 (Underwriting) +32 4 232 1998 (Accounting/Claims) +32 4 232 1994 (Finance) Sirus Internationl Insurance Corporation (publ) Bermuda Branch hamilton hMJx, Bermuda Visiting address; 14 Wesley Street; 5th floor Telephone: +1 441 278 3140 +1 441 278 3145 Telefax: Sirius International Danish Branch, filial av Sirius International Försäkringsaktiebolag (publ), Sverige Nyhavn 43, 2nd floor DK-1051 Copenhagen, Denmark Telephone: +45 88 807 100 Telefax: +45 88 807 111 www.siriusaviationinsurance.com Sirius Rückversicherungs Service Gmbh Neuer Wall 52/Entrance: Bleichenbrücke 1-7 DE-20354 hamburg, Germany Telephone: +49 40 30 95 19-0 Telefax: +49 40 30 95 19-21 Sirius International Insurance Corporation (publ) UK Branch The London Underwriting Centre, 3 Minster Court, Mincing Lane London EC3R 7DD, Great Britain Telephone: +44 20 7617 4900 +44 20 7617 4919 Telefax: Sirius International Insurance Corporation (publ) (Asia Branch) Singapore 24 Raffles Place #10-01/02, Clifford Centre 048 621 Singapore, Singapore Telephone: +65 6435 0052 +65 6435 0053 Telefax: Sirius International Insurance Corporation (publ) Labuan Branch c/o MNI Offshore Insurance (L) Ltd Level 11 (B) Block 4 Office Tower Financial Park Labuan Complex Jalan Merdeka 87000 FT Labuan, Malaysia Telephone: +60 87 417 672 73 Telefax: +60 87 417 675 Sirius International Insurance Corporation (publ) Stockholm, Zurich Branch P.O. Box 2807 Ch-8022, Zurich, Switzerland Visiting address: Dreikönigstrasse 12 Telephone: +41 43 443 0180 +41 43 443 0189 Telefax: www.siriusgroup.com Art and production: Studio Ringvall 68 

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