Sweetgreen
Annual Report 2011

Plain-text annual report

Annual Report 2011 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 1 1 1 Annual Report 2011 White Mountains, our owners White Mountains Insurance Group, Ltd. Sirius International Insurance Group Ltd. A financial services holding company with A Bermuda-domiciled holding company primary business interests in property and whose operating companies offer capacity casualty insurance and reinsurance. for property, accident & health, trade credit, White Mountains´corporate headquarters and aviation, marine and other exposures. Our its registered office are located in Hamilton, principal operating companies are: Bermuda, and its principal executive office is located in Hanover, New Hampshire. Sirius Inter national Insurance Corporation White Mountains conducts its principal A Swedish-based international reinsurer that businesses through: focuses mainly on property and other short- tailed lines. Sirius International is the largest Sirius International Insurance Group Ltd. reinsurance company in Scandinavia and a Global reinsurance. OneBeacon leading reinsurer in Europe. Sirius Interna- tional’s home office is in Stockholm, and it has branch offices in Australia, Bermuda, Specialty insurance. OneBeacon’s common Copenhagen, Hamburg, Liège, London, shares are listed on the New York Stock Singapore and Zürich. Exchange under the symbol “OB”. White Mountains owns 75% of OneBeacon. Sirius America Insurance Company White Mountains Advisors company that focuses on the property and Investment management with $34 billion of accident & health lines in North and Latin assets under management. America. Sirius America’s home office is in A U.S.-based, international, (re)insurance New York with branch offices in Miami and White Mountains’ common shares are listed Toronto. on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol Sirius Syndicate 1945 “WTM”. Market capitalization as of December A Lloyd’s syndicate that began writing busi- 31, 2011 was $3.4 billion. As of December ness at July 1, 2011 with initial stamp capac- 31, 2011, White Mountains reported total ity of £67 million and focus on accident & assets of $14.1 billion, adjusted shareholders’ health and contingency lines. equity NGM of $4.1 billion, and adjusted book value per share NGM of $542. White Mountains Solutions Inc. A Connecticut-based professional team spe- cializing in opportunistic structured acquisi- tions of run-off property and casualty insur- ance liabilities. The team further enhances transaction returns via effective post-acquisi- tion management of the run-off process. 2 Annual Report 2011 Comments from the President and CEO 2011 was an extraordinarily challeng- underwriting surpluses for every year of the ing year for our industry. Insured losses past decade, with an average combined ratio worldwide topped $100 billion, making it of just 91%. As I have said in annual report the second most expensive in history after after report, this ability to ride the peaks and 2005, with the reinsurance sector shoul- troughs and maintain long-term profitability dering around 50% of the total. All this underpins the stability we offer our clients came at a time when soft rates had already and brokers. eroded margins. 2011 saw some important new corporate Sirius International inevitably felt the developments for Sirius International – more impact of this tough environment. None- of which later. First, however, a brief outline theless, I am pleased to report that we of the main claims events of the year. were able to maintain an underwriting As readers will be aware, it got off to profit, returning a combined ratio of 97%. a terrible start in terms of both the human A small increase in premium income, when and financial consequences of a series of measured on a like-for-like basis, was natural disasters. The flooding in Queens- offset by a rise in claims. Although our land, Australia was quickly followed by the relatively modest surplus in 2011 was eight earthquake in Christchurch, New Zealand. points off our previous result and below The worst was still to come, however, when our long-term average, it represents a Japan was hit by the largest recorded earth- highly commendable achievement in such quake in its history followed by a devastat- difficult times. ing tsunami, which cost tens of thousands We have now achieved an unbroken run of of lives. Although there was then something 3 Annual Report 2011 of a temporary respite, there were sev- tary set out above relate solely to Sirius eral other sizeable natural catastrophes to International’s operations as constituted at come. The flooding in Thailand was the the start of 2011.) most notable, causing extensive disruption In July, meanwhile, Sirius entered the to supply chains. Lloyd’s market for the first time. Syndicate For the record, the Japanese earth- 1945, the number chosen because it was quake and tsunami represented Sirius’ sec- the year our company was founded, writes ond biggest-ever net loss at $79 million, an international book of Accident and whilst the Christchurch earthquake was Health and Contingency business. Its Ac- our fifth biggest at $44 million. The Thai tive Underwriter Mike Dashfield continues flooding came in at $34 million. The fact to be the manager of our London branch that we can report a healthy financial out- based nearby. The diversification into come despite these events owes much to Lloyd’s has proved highly positive, ena- our long-term policy of diversification of bling us to write profitable business that risk, both in terms of geography and class we would otherwise not have seen. of business. In 2010, the benign environ- Looking ahead to the rest of 2012 and ment in the Asia-Pacific region balanced beyond, a top priority is to ensure that the out some big natural catastrophes in Chile arrival of Sirius America benefits custom- and Europe. In 2011, it was the other ers, brokers and shareholders alike – that way around, with the western hemisphere it enables us to provide an enhanced, proving to be relatively uneventful. seamless service. We also continue to Internal reorganisations, although work hard towards the implementation exciting to those involved, can be of little of Solvency II, now put back to January interest to the outside world. It is impor- 2014, where our preparations have made tant to place on record, however, two good progress. major developments that should further The start of 2012 saw some long over- strengthen Sirius International and help us due hardening of the market and, although reach out to new customers. the movement was only modest, our book In the third quarter of 2011 our sister is better rated than it has been for years. company White Mountains Re America As ever, we look ahead confident that we became part of the Sirius group, and now can meet whatever challenges may await trades as Sirius America. This move in- us. I would like to thank all our staff for creases our size by about a third in terms their loyalty and professionalism and, of premium income. Based in New York, above all, our brokers and customers for it writes a book of North American Prop- enabling us to build strong long-term rela- erty book. At the same time we received a tionships. capital infusion of $300 million from our parent company. Together with some or- ganic growth, this brought our regulatory capital up to slightly more than $2 billion. (Please note: the performance of Sirius America will be reflected in next year’s annual report. The statistics and commen- 4 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 Annual Report 2011 At a glance 2011 2010 Net premium income $583 million* $778 million Claims net of reinsurance $419 million* $474 million Underwriting profit $14 million $88 million Combined Ratio 97% 89% Income before tax $68 million $99 million Combined Ratio (Parent) 96% 96% 93% 99% 80% 88% 87% 86% 89% 97% 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 Solvency Capital (Group), MSEK 14,150 10,399 10,455 12,544 12,516 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 *The fall in premium income and claims was a result of lower business volumes from other parts of the White Mountains Group, which were reduced after the sale of Esurance to Allstate Corporation. Net premium income generated by the Sirius Group itself, rather than other White Mountains companies, increased by 7% to $630 million. Claims generated by Sirius rose by 41% to $437 million. 5 Annual Report 2011 Board of Directors’ Report The Board of Directors and Managing and resulted in extensive material damages Director of Sirius International Försäkrings- and thousands of fatal casualties. In the aktiebolag (publ), (Sirius International), USA, two tornadoes in April caused major Corporate Identity Number 516401-8136, destruction and, in August, the hurricane hereby present their annual financial state- Irene hit along the East Coast. Extremely ments for 2011. General information concerning the company heavy rains hit Copenhagen during the month of July, which was followed by flooding and major material damages. During the autumn, Thailand suffered huge Sirius International is active in internatio- flooding in the area around Bangkok after nal insurance and reinsurance. Sirius Inter- a long period of non-stop rain. A number national was established in 1989. of medium-sized aviation losses also took Insurance operations commenced in place during the year. 1945 in Försäkringsaktiebolaget Sirius. In Against the background of these 1989, the reinsurance activities were trans- extraordinary losses, it is satisfying that, ferred to Sirius International. Sirius Inter- in spite of everything, the Company can national has been the Parent Company of report positive results from the insurance the Sirius Group since 1992. operations with a combined ratio under 100%. The contributing factors were stable Development of the Company’s operations, price levels in the majority of markets and income and financial positionent, results and classes of business and positive run-off position of the company results from previous accident years. Sirius 2011 was a year characterized by extensive International has, as of 2011, had a combi- natural disasters and other major claims ned ratio under 100% for ten consecutive events. The year will be remembered, ex- years. pressed in terms of total financial damage, Gross premium income for the Group as the worst year ever. For the insurance amounted to MSEK 5,955 (7,395), respec- industry, the year was the second worst tive MSEK 5,347 (7,395) for the Parent year in history as regards claims, with only Company. The Group’s premium income 2005 seeing a greater level of insurance for own account amounted to MSEK 4,363 claims. The larger claims events during the (5,608), respective MSEK 3,768 (5,608) year can be summarized as: on February for the Parent Company. The decline in 22, and on June 13, New Zealand was premium volume compared with previous hit by two earthquakes in the vicinity of years is due, primarily, to lower business Christchurch. The impacted area was being volumes from companies within the White rebuilt as it was hit by a previous earth- Mountains Group, which is a result of the quake, as late as autumn 2010. On March sale of Esurance to Allstate Corporation. 11, a very strong earthquake hit off Japan’s The Group’s operating profit from the northeast coast. This earthquake measured insurance operations amounted to MSEK a magnitude of 9.0 on the Richter scale 223 (838), respective MSEK 266 (839) for 6 Annual Report 2011 the Parent Company. The combined ratio securities in shares, the yield amounted to amounted to 99% (89%) for the Group and -1.3%, adjusted for exchange rate effects. 97% (89%) for the Parent Company. Realized and unrealized exchange rate 2011 also turned out to be parti- gains, net, amounted to MSEK 126, prima- cularly eventful for Sirius International in rily due to a strengthening of the US Dollar other respects. Our syndicate with Lloyds, against the Swedish krona. During the year, Syndicate 1945, was established and started further exchange rate hedging against the operations on 1 July. The syndicate will USD has been undertaken, whereby the provide, for the time being, primarily Ac- total, nominal hedged sum now amounts to cident & Health insurance. In October, the USD 500 million. This was done to counte- remaining shares in White Mountains Pho- ract the effects of the increased exchange enix (Luxembourg) S.à.r.l. were contributed rate exposure which has arisen due to the and acquired. The company is, thereby, acquisition of White Mountains Phoenix. consolidated as a wholly-owned subsidiary. The portion of the solvency capital which The financial markets were characteri- is exposed to foreign currency after ex- zed by major uncertainty and large fluc- change rate hedging is, largely, unchanged tuations during the year. The accelerated compared to the previous year. debt crisis in Europe, the instable political The investment result, as presented in situation in the Middle East and North the Group’s income statement, amounted Africa, and the consequences of the sub- to a gain of MSEK 444 (449), including ex- stantial natural disasters noted above have change rate gains, net, but before alloca- contributed notably to this uncertainty. tion of interest to the insurance operations. The stock markets in Sweden, Europe and The direct yield amounts to 2.2% (2.6%) the USA noted stable rises during the final and the total yield amounts to 2.2% (0.9%). quarter of the year. On an annual basis, Calculation of the direct yield and total S&P 500 in the USA ended at an unchanged yield takes place according to the Swedish level compared with the previous year. In Financial Supervisory Authority’s recom- Sweden, OMX 30 noted a decline of 14.5%. mendations. The focus and composition of The major continental, European exchanges the investment portfolio is, largely, un- showed declines between 8-17%, whilst changed compared with the previous year. the decline in England landed at 5.6%. The However, the proportion of associated bond portfolios in the USA, Sweden, Ger- companies has been reduced, as the com- many and the UK are the most important. pany, White Mountains Phoenix, is now Interest rate levels on government bonds consolidated as a wholly-owned subsidiary. fell to record levels in these markets. The At the end of the year, the consolidated Company has, in practice, no direct expo- investment portfolio had the following sure to any so-called PIIGS countries in its composition: shares and participations, bond portfolio. 13%, investments in associated companies, Overall, the bond portfolio’s yield 0%, and interest-bearing investments and was 3.2%, adjusted for exchange rate ef- bank funds, 87%. fects. As regards the share portfolio, inclu- Other events regarding the changes in ding investments in associated companies, the Group’s structure are described prima- risk capital companies and derivatives with rily under the section, Ownership. 7 Annual Report 2011 Ownership Ltd, London, UK and White Mountains Pho- Sirius International Försäkringsaktiebolag enix (Luxembourg) S.à.r.l., Luxembourg. (publ) is a wholly-owned subsidiary of In addition, Sirius International has Fund American Holdings AB (Corporate eight branch offices outside Sweden. These Identity Number 556651-1084), Stockholm, are Sirius International Insurance Corpora- Sweden, which is ultimately owned by tion (publ) UK branch, London, UK, Sirius White Mountains Insurance Group Ltd, International Insurance Corporation (publ) Bermuda. Stockholm Zürich branch, Zürich, Switzer- In May, 75 % of the shares in Passa- land, Sirius International Insurance Corpo- ge2Health Ltd, London, Great Britain were ration (publ) Asia branch, Singapore, Sirius acquired. The company operates an insu- International Insurance Corporation (publ) rance agency for a special type of health Labuan branch, Labuan, Malaysia, Sirius care insurance, primarily focused on the International Insurance Corporation (publ) UK market. Belgian branch, Liège, Belgium, Sirius During the month of May, the com- International Danish Branch, filial af Sirius pany, White Mountains Re Capital Ltd, International Försäkringsaktiebolag (publ), London, UK was established. The company Copenhagen, Denmark, Sirius Internatio- is the so-called Corporate Member for the nal Insurance Corporation (publ) Bermuda newly started Syndicate 1945 at Lloyd’s of Branch, Hamilton, Bermuda, Sirius Interna- London. The syndicate started its opera- tional Insurance Corporation (publ) Aus- tions on July 1, and has, thus far, provided tralian Branch, Australia and in Hamburg, primarily Accident & Health insurance/ Germany, where the operations are con- reinsurance. ducted through the agency, Sirius Rückver- In October 2011, Sirius International sicherungs Service GmbH, which provides received and acquired the remainder of insurance on behalf of Sirius International. the outstanding shares in White Mountains During 2001, Sirius Belgium Réassu- Phoenix (Luxembourg) S.à.r.l. The com- rances S.A. (in liquidation), Liège, Belgium pany owns, amongst other entities, Sirius commenced voluntary liquidation procee- America Insurance Company, which imp- dings, as the company had ceased to con- lies that the entire reinsurance operations duct operations. The liquidation remains within White Mountains are now underta- incomplete, as the result of a tax dispute. ken within the Sirius International Group. The outcome of the dispute will not impact At the end of the year 2011, the the company’s financial position. Group comprises the Parent Company The ongoing liquidation of White Sirius International Försäkringsaktiebolag Mountains Re Bermuda Ltd, Hamilton, Ber- (publ) with the subsidiaries Sirius Belgium muda, was completed during January 2012. Réassurances S.A. (in liquidation), Liège, Belgium, Sirius Rückversicherungs Service Significant events during and after the GmbH, Hamburg, Germany, Sirius Inter- financial year national Holdings (NL) BV, Amsterdam, As part of the continuing restructuring Holland, White Mountains Re Bermuda Ltd, work within the Group, on October 7, Hamilton, Bermuda, Passage2Health Ltd, 2011, Sirius International has received and London, UK, White Mountains Re Capital purchased the remaining shares in White 8 Annual Report 2011 Mountains Phoenix (Luxembourg) S.à.r.l. Insurance contracts with insufficient The total transaction amounted to MSEK insurance risk 4,100, whereof MSEK 2,935 was contribu- The Company retains only a few contracts ted by means of an intra-Group transfer. for which insufficient insurance risk is In conjunction with the acquisition, Sirius assessed to exist, and which, thereby, do International received a shareholders’ not qualify as insurance contract. These contribution of USD 436 million. Sirius contracts are classified as investment cont- International had previously owned 22% of racts. For further details, refer to Note 1, the outstanding shares in White Mountains Accounting Principles. Phoenix. The accounting effects of the acquisition are reported in Note 1, Accoun- Expected future developments ting Principles. The underlying profitability in the insu- rance operations is good, despite increased Information regarding risks and factors of competition on the market, and the diver- uncertainty sified investment portfolio is expected to Please refer to Note 1 “Accounting princip- provide a stable yield. However, the stiff les” and Note 2 “Information on risks”. competition implies that stringent require- ments are in place as regards the pricing Financial instruments and risk management and signing of insurance agreements, conti- See Note 1, Accounting Principles, and nued efficiency improvements and weigh- Note 2, Information on Risks. ted risks between the insurance and invest- ment operations in order to ensure long- Remuneration and benefits to senior term profitability. Sirius International’s executives targets for 2012 are to achieve a combined See Note 32, Average number of employ- ratio under 90% and an underwriting return ees, salaries and other remuneration. on capital (UROC) of 11%. 9 Annual Report 2011 Five-year Summary 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 2011 2010 20093) 2008 2007 4,363 4,584 0 225 -3,125 -1,461 223 219 0 320 5,608 5,742 0 214 -3,428 -1,690 838 235 0 879 6,957 6,867 0 369 -4,164 -1,755 1,317 289 0 1,302 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 Net technical provisions Market value on investment assets4) 14,743 26,094 7,221 18,480 7,883 18,449 7,992 16,743 7,001 15,508 Insurance operating result, for own account 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 unrealized capital gains Other adjustment items Total solvency capital Solvency ratio Capital base1) Required solvency capital Group based values2) 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 68% 31% 99% 2% 2% 11,560 2,547 43 0 14,150 324% 13,644 1,755 60% 29% 89% 3% 1% 9,950 2,548 18 0 12,516 223% 11,735 958 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 13,792 1,872 16,315 2,255 17,544 2,373 17,236 2,566 18,482 2,369 2011 2010 2009 2008 2007 3,768 4,037 225 -2,708 -1,239 266 175 -4 321 5,608 5,742 214 -3,421 -1,687 839 -128 -4 522 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 Net technical provisions Market value on investment assets5) 6,922 19,678 7,233 18,155 7,886 18,379 7,992 16,882 7,001 15,508 Insurance operating result, for own account 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 Total solvency capital Solvency ratio Capital base Required solvency capital 1) Includes Sirius International with subsidiaries. 2) Includes Sirius International Insurance Group Ltd. 67% 30% 97% 3% 3% 4,335 9,682 43 14,060 373% 13,648 765 60% 29% 89% 3% 0% 2,564 9,687 18 12,269 219% 11,603 958 61% 25% 86% 2% 3% 2,654 9,691 53 12,398 178% 12,021 1,030 63% 24% 87% 3% 2% 1,295 9,197 18 10,510 188% 9,968 956 57% 31% 88% 5% 3% 1,136 9,217 -15 10,338 178% 9,776 956 3) For the comparison year 2009 IFRS has been applied. Solvency capital and required solvency capital have not been converted. 10 4) Includes investment assets and cash and bank. 5) Includes investment assets and cash and bank. Annual Report 2011 Proposed Appropriation of Earnings For 2011, the Parent Company recorded a result before appropriations and taxes of MSEK 437 (MSEK 707). Net income for the year amounted to a profit of MSEK 321 (MSEK 522). As of December 31, 2011 re- tained earnings in the Group amounted to MSEK 3,625. At the disposal of the General Meet- ing of the Shareholders of the Parent Com- pany Sirius International: - Retained earnings - Unrestricted reserves - Dividend paid, as resolved by the meeting of the shareholders - Received shareholders’ contribution - Group contribution - Net income for the year - Total The Board of Directors and the President propose that the amount is appropriated as follows: - Dividends to owners - Retained earnings - Total SEK in thousands 1,763,987 72,186 -1,143,700 2,935,207 -413,761 320,593 3,534,512 162,700 3,371,812 3,534,512 The company’s financial position does not Regarding the company’s and the Group’s reflect any other view than that the com- results and financial position, please refer to pany can be expected to fulfill its obliga- the attached income statements and balance tions in the short-term, as well as in the sheets, cash flow analyses, report on changes long-term. It is the opinion of the Board in shareholders' equity and accompanying of Directors that the solvency capital of notes. the company as it has been reported in the annual report is adequate in relation to the scope and risks of the operations. 11 Annual Report 2011 ”We were able to maintain an underwriting profit, returning a combined ratio of 97%, in an extraordinarily challenging year for our industry.” 12 Annual Report 2011 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 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 - Share of associated company’s profit/loss Investment income allocated to the technical account Total investment income/expenses Result before taxes Taxes Result after taxes Minority interest Net income for the year Note 2011 2010 3 3 4 5 10 6 7 8 9 15 11 5,955 -1,592 194 27 4,584 7,395 -1,787 46 88 5,742 225 214 -4,190 736 -3,454 -330 659 -3,125 -1,461 223 223 764 196 -132 -465 81 -225 219 -4,428 937 -3,491 -1,595 1,658 -3,428 -1,690 838 838 623 272 -466 -105 125 -214 235 442 1,073 -123 319 1 320 -194 879 - 879 13 Annual Report 2011 Statement of Comprehensive Income - Group January 1 - December 31 (MSEK) Net income for the year Other comprehensive income Items to be reclassified to income statement: - Change of fair value on bonds - Currency translation differences - Tax on items to be reclassified ton income statement Other comprehensive income for the year, net of tax Total comprehensive income for the year 2011 320 98 84 -26 156 476 2010 879 -133 -295 35 -393 486 14 Annual Report 2011 Note 2011 2010 12 13 15 16, 20 17, 20 18, 20 24 25 11 19 21 22 296 47 343 291 22 313 11 2 - 1,021 1,021 3,300 18,819 30 22,149 624 23,805 526 7,585 8,111 2 2,423 274 1,233 189 4,121 47 2,289 2,336 203 471 21 695 2,178 - 2,178 1,808 12,067 273 14,148 1,221 17,549 496 5,556 6,052 5 1,385 72 34 63 1,559 32 1,082 1,114 195 386 26 607 Balance Sheet - Group December 31 (MSEK) ASSETS Intangible assets Goodwill Capitalized software Total intangible assets Investment assets Land and buildings Investments in group companies and participating interests Shares and participations in associated companies Interest bearing investments emitted by, and loans to, group companies Total investments in group companies and participating interests Other financial investments Shares and participations Bonds and other interest bearing investments Derivative financial instruments Total other financial investments Deposits with cedents Total investment assets 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 TOTAL ASSETS 39,411 27,194 15 Annual Report 2011 December 31 Note 2011 2010 ShAREhOLDERS’ EQUITy AND LIABILITIES Shareholders’ equity Share capital (8 million shares of nom. value SEK 100) Additional paid in capital Reserves Retained earnings – restricted Retained earnings – non-restricted, including net income for the year Total shareholders’ equity minority interest Liabilities Technical provisions Provisions for unearned premiums Claims outstanding Total technical provisions Other liabilities Employee benefits Deferred tax liabilities Deposits received from reinsurers Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Other liabilities Accrued expenses and deferred income Total other liabilities 800 4,359 -266 7,135 -468 11,560 800 1,424 -354 7,139 941 9,950 4 - 2,300 20,554 22,854 2,062 11,211 13,273 2 2,820 201 1 805 814 350 5 2,553 151 2 474 593 193 4,993 3,971 24 25, 27 28 11 20, 29 20 TOTAL ShAREhOLDERS’ EQUITy AND LIABILITIES 39,411 27,194 Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collaterals Contingent liabilities Commitments 30 30 30 30 9,751 - 1,458 174 7,668 - - 60 16 Annual Report 2011 Change in shareholders´equity - Group (MSEK) Amount January 1, 2011 Comprehensive income Net profit/loss for the year Other comprehensive income, net after tax Change of fair value on bonds Reclassification within shareholders’ equity Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Capital contribution received 1) Group contribution provided 3) Dividend paid 2) Effects from internal restructuring 5) Total transactions with owners Amount December 31, 2011 Amount January 1, 2010 Comprehensive income Net profit/loss for the year Other comprehensive income, net after tax Change of fair value on bonds Reclassification within shareholders’ equity Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Group contribution provided 3) Dividend paid 2) Total transactions with owners Amount December 31, 2010 Share Additional Reserves Retained Capital 4) paid in capital earnings – restricted 4) Retained earnings – non- restricted Total Share- holders’ equity 800 1,424 -354 7,139 941 9,950 - - - - - - - - - - - 800 - - - - - - 2,935 - - - 2,935 4,359 800 1,424 - - - - - - - - - - - - - - - - - - - 72 -1 84 155 155 - - - -67 -67 - - -4 - -4 -4 - - - - - 320 320 - 5 - 5 72 - 84 - 325 476 - -414 2,935 -414 -1,143 -1,143 -177 -1,734 -244 1,134 -266 7,135 -468 11,560 7,142 610 9,978 2 - -98 37 -295 -356 -356 - - - - -3 - -3 -3 - - - 879 879 - -34 - -34 845 -354 -160 -514 941 -98 - -295 -393 486 -354 -160 -514 9,950 800 1,424 -354 7,139 1) Capital contribution received from Fund American Holdings AB in form of shares in White Mountains Phoenix (Luxembourg) S.à.r.l 2) Dividend paid to the parent company Fund American Holdings AB. 3) Group contribution provided to Fund American Holdings AB and Sirius Insurance Holding Sweden AB. 4) Share capital and Retained earnings – restricted represents the restricted shareholders’ equity. 5) During the fourth quarter 2011 Sirius International received and purchased the remaining shares in White Mountains Phoenix (Luxembourg) S.à.r.l. The shares have therefore been reclassified from associated company to a group company and were consolidated at December 31, 2011 for the first time. The -244 MSEK is the effect from this restructuring. 17 Annual Report 2011 ShARE CAPITAL Specified in number of shares, SEK Issued per 1 January Issued per 31 December 2011 2010 8,000,000 8,000,000 8,000,000 8,000,000 Per 31 December, 2011 the share capital comprised 8,000,000 (8,000,000) ordinary shares. The shares have a nominal value of 100 (100) SEK. ADDITIONAL PAID IN CAPITAL Opening additional paid in capital Capital contribution Closing additional paid in capital RESERvES Fair value reserve Opening fair value reserve Change for the year Closing fair value reserve Tax on fair value reserves Opening tax on fair value reserves Change for the year Closing tax on fair value reserve fair value reserve after tax Opening fair value reserve after tax Change for the year Closing fair value reserve after tax Translation difference Opening translation difference Reclassification within shareholders’ equity Effects from internal restructuring Change for the year Closing translation difference RETAINED EARNINGS - RESTRICTED Opening retained earnings - restricted Change in excess depreciation Closing retained earnings - restricted RETAINED EARNINGS – NON-RESTRICTED Opening retained earnings – non-restricted Net profit/loss for the year Effects from internal restructuring Reclassification within shareholders’ equity Dividend paid Group contribution provided 73.7% Closing retained earnings – non-restricted 2011 2010 1,424 2,935 4,359 1,424 - 1,424 67 98 165 -18 -26 -44 49 72 121 -403 -2 -67 84 -387 7,139 -4 7,135 941 320 -177 5 -1,143 -414 -468 200 -133 67 -53 35 -18 147 -98 49 -145 37 - -295 -403 -7,142 -3 7,139 610 879 0 -34 -160 -354 941 18 Cash flow statement - Group Annual Report 2011 (MSEK) 2011 2010 OPERATING ACTIvITIES Profit/loss before tax Interest income Interest expenses Dividends received Adjustment for non-cash items 1) 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 Acquisition of subsidiary Acquisition of subsidiary, acquired Cash and cash equivalents Net investment of intangible assets Net investments of tangible assets Cash flow from investing activities fINANCIAL ACTIvITIES Dividends received Shareholders contributions’ 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) Depreciations Notes 12, 13, 21 Capital gains on foreign exchange Note 6 Capital losses on foreign exchange Note 8 Capital gains Note 6 Capital losses Note 8 Unrealized gains Note 7 Unrealized losses Note 9 Interest income Note 6 Interest expenses Note 8 Dividends received Note 6 Change in provisions for outstanding claims Note 25 Effects from internal restructuring Translation difference Total 2) The following components are included in cash and cash equivalents: Cash and bank balances Short term investments, equivalent to cash and cash equivalents Total 442 390 -43 113 -796 -65 41 -9 2,153 -770 1,428 2,843 - 76 -45 -28 3 -1,144 - -495 -1,639 1,207 1,082 1,207 2,289 29 -126 - -135 20 -196 465 -390 43 -113 -237 -244 84 -796 955 1,334 2,289 1,073 338 -3 153 -1,045 -32 484 - -3,214 -505 1,315 -1,920 -706 - -14 -30 -751 -160 - -472 -632 -3,302 4,384 -3,302 1,082 20 - 394 -132 10 -272 105 -338 3 -153 -387 - -295 -1,045 300 782 1,082 19 Annual Report 2011 Comments to Cash flow statement Sirius International have per October 7, 2011, trough a internal restructuring within the White Mountains-group received and purchased the remaining shares in White Mountains Phoenix (Luxembourg) S.à.r.l. The total transaction amounted to MSEK 4,100, whereof MSEK 2,935 was received as a group contribution. Of the purchase amount MSEK 1,165, MSEK 44 was paid in cash and MSEK 1,121 was paid in form of other financial assets. The acquired company had Cash and cash equivalents of MSEK 141. The acquired companies’ assets split into: Investment assets MSEK 12,619, Cash and cash equivalents MSEK 141, other operating receivables MSEK 2,819, tax receivables MSEK 1,071 and other operating liabilities of MSEK 10,468. 20 Performance Analysis – Group Annual Report 2011 Analysis of Insurance Result (MSEK) 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 Technical result of insurance operation Of which results from prior years, gross amounts 1) Technical provisions Unearned premiums and remaining risks Outstanding claims Claims adjustment provision Technical provisions Reinsurers’ share of technical provisions Unearned premiums and remaining risks Outstanding claims Reinsurers’ share of technical provisions Premiums earned, for own account Gross premium income Ceded reinsurance premium Change in gross provision for unearned premiums Reinsurers’ share of change in unearned premiums Premiums earned, for own account Claims incurred, for own account Claims paid Reinsurers’ share Claims handling expenses Change in provision for outstanding claims Reinsurers’ share Claims incurred, for own account 1) Defined as result from 2010 and earlier. Direct Swedish risks - Direct Swedish risks - Aviation Financial Direct Assumed Total foreign reinsurance risks 6 - -1 -1 4 -1 -1 -3 - -4 - - - 7 -1 - - 6 -2 - - - 1 -1 1 - - - 1 - - - - - - - - 1 - - - 1 - - - - - - 611 3,966 4,584 18 -386 -290 -47 207 -2,738 -1,170 265 225 -3,125 -1,416 223 -271 -1,919 -2,191 -435 -335 -9 -779 132 81 213 892 -254 -70 43 611 -459 116 -7 -47 11 -1,864 -2,300 -19,692 -20,300 -245 -254 -22,071 -22,854 394 7,504 7,898 5,055 -1,337 264 -16 526 7,585 8,111 5,955 -1,592 194 27 3,966 4,584 -3,559 -4,020 620 -163 -283 647 736 -170 -330 659 -386 -2,738 -3,125 21 Annual Report 2011 22 Annual Report 2011 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 Change in equalization provision Total change in other technical provisions, for own account Operating costs Operating profit/loss of technical account NON-TEChNICAL ACCOUNT Balance of technical account Investment income/expenses Investment income Unrealized gains Investment expenses and charges Unrealized losses Investment income allocated to the technical account Total investment income/expenses Goodwill depreciation Result before appropriations and taxes Appropriations Changes in excess depreciation on intangible assets Result before taxes Taxes Net income for the year Note 2011 2010 3 3 4 26 5 10 6 7 8 9 12 11 5,347 -1,579 249 20 4,037 7,395 -1,787 46 88 5,742 225 214 -3,603 650 -2,953 -420 665 -2,708 -49 -49 -1,239 266 266 515 34 -56 -93 -225 175 -4 437 5 442 -121 321 -4,415 937 -3,478 -1,601 1,658 -3,421 -9 -9 -1,687 839 839 649 184 -642 -105 -214 -128 -4 707 4 711 -189 522 23 Annual Report 2011 Statement of Comprehensive Income – Parent Company January 1 - December 31 (MSEK) Net income for the year Other comprehensive income Items to be reclassified to income statement: - Change of fair value on bonds - Tax on items to be reclassified to income statement Other comprehensive income for the year, net of tax Total comprehensive income for the year Note 2011 321 98 -26 72 393 2010 522 -133 35 -98 424 24 Annual Report 2011 Balance Sheet - Parent Company December 31 (MSEK) ASSETS Intangible assets Goodwill Other intangible assets Total intangible assets Investment assets 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 Derivative financial instruments Total other financial investments Deposits with cedents Total investment assets 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 2011 2010 12 13 14 15 16, 20 17, 20 18 24 25 11 19 21 22 203 45 248 2207 22 229 11 2 7,317 - 7,317 667 9,472 30 1,081 2,058 3,139 874 12,067 24 10,169 12,965 770 18,267 1,221 17,327 529 6,545 7,074 2 1,880 125 41 293 496 5,556 6,052 5 1,384 61 35 262 2,341 1,747 40 1,411 1,451 131 341 20 492 31 979 1,010 194 386 26 606 TOTAL ASSETS 29,873 26,971 25 Annual Report 2011 December 31 Note 2011 2010 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 Equalization provision Total technical provisions Provisions for other risks and expenses Pension provisions Deferred tax liabilities Total provisions for other risks and expenses 800 121 3,093 321 4,335 35 9,647 9,682 1,848 12,087 61 888 800 49 1,193 522 2,564 40 9,647 9,687 2,062 11,211 12 13,996 13,285 7 6 13 9 - 9 23 24 25, 27 26 28 11 Deposits received from reinsurers 173 151 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 1 784 690 2 473 608 1,475 1,083 199 199 192 192 29,873 26,971 8,623 - 1,458 56 7,668 - - 60 20, 29 20 30 30 30 30 26 Annual Report 2011 Change in Shareholders’ Equity – Parent Company (MSEK) Amount January 1, 2011 Transfer of net result from previous year Comprehensive income Net profit/loss for the year Other comprehensive income, net after tax Change of fair value on bonds Total other comprehensive income Total comprehensive income Transactions with owners Capital contribution received 1) Group contribution provided 2) Dividend paid 3) Total transactions with owners Amount December 31, 2011 Amount January 1, 2010 Transfer of net result from previous year Comprehensive income Net profit/loss for the year Other comprehensive income, net after tax Change of fair value on bonds Total other comprehensive income Total comprehensive income Transactions with owners Group contribution provided 2) Dividend paid 3) Total transactions with owners Amount December 31, 2010 Share Capital Other Retained loss for the reserves 4) earnings 4) year 4) Net profit/ 800 49 - - - - - - - - - - - 72 72 72 - - - - 800 121 800 147 - - - - - - - - - - -98 -98 -98 - - - 1,193 522 - - - 522 -522 321 - - 522 321 2,935 -414 -1,144 1,377 3,093 1,217 490 - - - - - - - 321 490 -490 522 - - 490 522 -354 -160 -514 - - - Total Shareholders’ equity 2,564 - 321 72 72 393 2,935 -414 -1,144 1,377 4,335 2,654 - 522 -98 -98 424 -354 -160 -514 800 49 1,193 522 2,564 1) Capital contribution received from Fund American Holdings AB in form of shares in White Mountains Phoenix (Luxembourg) S.à.r.l 2) Group contribution provided to Fund American Holdings AB and Sirius Insurance Holding Sweden AB. 3) Dividend paid to the parent company Fund American Holdings AB. 4) The columns Other reserves, retained earnings and Net profit/loss for the year together represents the non-restricted shareholders’ equity for the parent company. 27 Annual Report 2011 ShARE CAPITAL Specified in number of shares, SEK Issued per 1 January Issued per 31 December 2011 2010 8,000,000 8,000,000 8,000,000 8,000,000 Per December 31, 2011 the share capital comprised 8,000,000 (8,000,000) ordinary shares. The shares have a nominal value of 100 (100) SEK. 2011 2010 67 98 165 -18 -26 44 49 72 121 1,193 522 2,935 -1,144 -414 3,093 200 -133 67 -53 35 -18 147 -98 49 -1,217 490 - -160 -354 1,193 321 522 OThER RESERvES fair value reserve Opening fair value reserve Change for the year Closing fair value reserve Tax on fair value reserves Opening tax on fair value reserves Change for the year Closing tax on fair value reserve fair value reserve after tax Opening fair value reserve after tax Change for the year Closing fair value reserve after tax RETAINED EARNINGS Opening retained earnings Transfer of net result from previous year Capital contribution Dividend paid Group contribution provided 73.7% Closing retained earnings NET PROfIT/LOSS fOR ThE yEAR Net profit/loss for the year 28 Annual Report 2011 Cash flow Statement – Parent Company (MSEK) 2011 2010 OPERATING ACTIvITIES Profit/loss before tax Interest income Interest expenses Dividends received Adjustment for non-cash items 1) 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 Acquisition of subsidiary, effect on liquidity Net investment of intangible assets Net investments of tangible assets Cash flow from investing activities fINANCING ACTIvITIES Shareholders contributions’ paid Capital repayment Dividend paid 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) Depreciations Notes 12, 13, 21 Capital gains on foreign exchange Note 6 Capital losses on foreign exchange Note 8 Capital gains Note 6 Capital losses Note 8 Unrealized gains Note 7 Unrealized losses Note 9 Interest income Note 6 Interest paid Note 8 Dividends received Note 6 Change in provisions for outstanding claims Note 25 Total 2) The following components are included in Cash and cash equivalents: Cash and bank balances Short term investments, equivalent to cash and cash equivalents Total 442 314 -2 1 -547 -63 145 -9 1,406 -855 1,568 2,255 -64 -39 -22 -125 -92 34 - 1,144 -495 -1,697 432 979 432 1,411 33 -130 - -70 - -34 93 -314 2 -1 -126 -547 498 913 1 411 711 337 -3 206 -533 -25 693 - -4,009 -331 949 -2,698 - - -22 -22 - - -160 -472 -632 -3,352 4,331 -3,352 979 -4 - 398 -106 185 -184 105 -337 3 -206 -387 -533 421 558 979 29 Annual Report 2011 Performance analysis - Parent Company Analysis of Insurance Result Direct Swedish Direct Swedish Direct Assumed (MSEK) risks - Aviation risks - Financial foreign risks reinsurance Total 6 - -1 -1 - 4 -1 -1 -3 - - -4 - - - 7 -1 - - 6 -2 - - - 1 -1 1 - - - - 1 - - - - - - - - - 1 - - - 1 - - - - - - 605 3,425 4,037 18 -383 -278 - -38 207 -2,324 -960 -49 299 225 -2,708 -1,239 -49 266 -271 -1,896 -2,168 -416 -332 -10 - -757 132 81 213 868 -254 -52 43 605 -459 116 -7 -44 11 -1,431 -11,611 -132 -61 -1,848 -11,946 -141 -61 -13,235 -13,996 397 6,464 6,861 4,471 -1,324 301 -23 529 6,545 7,074 5,347 -1,579 249 20 3,425 4,037 -2,983 -3,444 534 -152 -376 653 650 -159 -420 665 -383 -2,324 -2,708 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 Claims adjustment provision Equalization provision Technical provisions Reinsurers’ share of technical provisions Unearned premiums and remaining risks Outstanding claims Reinsurers’ share of technical provisions Premiums earned, for own account Gross premium income Ceded reinsurance premium Change in gross provision for unearned premiums Reinsurers’ share of change in unearned premiums Premiums earned, for own account Claims incurred, for own account Claims paid Reinsurers’ share Claims handling expenses Change in provision for outstanding claims Reinsurers’ share Claims incurred, for own account 1) Defined as result from 2010 and earlier. 30 Annual Report 2011 Note 1 • Accounting Principles General information This annual report was issued per December 31, 2011 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, Stock- holm and the Corporate Identity Number is 516401-8136. Compliance with standards and law The Company's annual report has been prepared 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) with the amendments in FFFS 2009:12 and the Swedish Financial Reporting Board RFR 2. The Sirius International Group’s annual report has been prepared in ac- cordance 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) with the amendments in FFFS 2009:12 and FFFS 2011:28, the Swedish Financial Reporting Board RFR 1 Supplementary Accounting Rules for Groups, as well as International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the EU. 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. 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 December 31, 2011 but have not yet come into force. In addition, certain standards, statements and interpretations currently in force have been chan- ged, and certain standards, statements and interpretations have come into force during 2011. 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. New and amended standards applied by the Group None of the IFRS of IFRIC interpretations which are mandatory for the first time for the financial year beginning January 1, 2011 have had any signifi- cant impact on the Group. New standards, amendments and interpretations of existing standards which have not yet entered into force and which have not been early adopted by the Group. • IAS 19 “Employee Benefits”, was amended in June 2011. The amendment implies that the Group will stop applying the "corridor method" and instead recognize all actuarial gains and losses in Other comprehensive income as incurred. Expenses for past employment will be reported immediately. Inte- rest expenses and expected return on plan assets will be replaced by a net interest calculated using the discount rate, based on the net surplus or net deficit in the defined benefit plan. The Group intends to apply the amended standard for the financial year beginning January 1, 2013 and assesses that it will have an adverse effect on shareholders equity of approximately MSEK 4. The standard has not yet been adopted by the EU. • IFRS 9 “Financial instruments” addresses the classification, valuation and accounting of financial assets and liabilities. IFRS 9 was published in November 2009 regarding financial assets and in October 2010 regarding financial liabilities and replaces the parts of IAS 39 which are related to the classification and measurement of financial instruments. IFRS 9 stipulates that financial assets are to be classified in two different categories; valued at fair value or valued at amortized cost. The classification is established the first time that the liability or asset is reported in accordance with the standard, on the basis of the company’s business model and the charac- teristic features in the cash flows according to the agreement. In terms of financial liabilities, there are no major changes compared with IAS 39. The largest change addresses changes in liabilities which are valued at fair value. To such liabilities, the following is applied: the portion of the change in fair value which is attributable to the company’s own credit risk is to be reported in the statement of Other comprehensive income instead of the income statement, so long as this does not result in an accounting mismatch. The Group intends to apply the new standard no later than the financial year beginning on January 1, 2015 and has not yet assessed the effects. The standard has not yet been adopted by the EU. • IFRS 10 “Consolidated financial statements” builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group intends to apply IFRS 10 for the financial year beginning on January 1, 2013 and has not yet assessed the full effects on the financial statements. The standard has not yet been adopted by the EU. • IFRS 12 “Disclosures of Interests in Other entities” includes disclosure re- quirements for subsidiaries, joint arrangements, associated companies and “structured entities” which have not been consolidated. The Group intends to apply IFRS 12 in the financial year starting on January 1, 2013 and is yet to assess the full effect on the financial statements. The standard has not yet been adopted by the EU. • IFRS 13 “Fair value measurement” aims at more consequent and less complex valuations at fair value by providing an exact definition and a com- mon source in IFRS for valuations at fair value and associated disclosures. The requirements do not extend to the area of application for when the fair value should be applied but provides guidance regarding the manner in which it should be applied in areas where other IFRS already require or allow valuation at fair value. The Group has not yet assessed the full effect of IFRS 13 on the financial statements. The Group intends to apply the new standard in the financial year starting on January 1, 2013. The standard has not yet been adopted by the EU. • IAS 32 “Financial instruments: Presentation” and IFRS 7 “Financial instruments: Disclosures”, amendments regarding the offsetting of financial assets and financial liabilities. The amendments provide more detailed cla- rification of when financial assets and financial liabilities may be offset and introduce new disclosure requirements for offset assets and liabilities. The Group has not yet assessed the full effect of the amendments. The Group intends to apply the disclosure requirements in the financial year starting on January 1, 2013 and the more detailed clarification regarding offsetting no later than the financial year beginning January 1, 2014. The amendments have not yet been adopted by the EU. No other of the IFRS or IFRIC interpretations which have not yet entered into force are expected to have any significant impact on the Group. Assessments and estimates in the financial statements The preparation of financial statements in conformity with International Financial Reporting Standards requires the Company’s management to make assessments and estimates, as well as assumptions impacting the 31 Annual Report 2011 application of the accounting principles and the recorded values of assets, provisions, liabilities, income and expenses. These estimates and assump- tions are based on historical experience and a number of other factors con- sidered reasonable in the current situation. 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 outcome 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 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 or 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. 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, forming 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 March 6, 2012. The income statement and balance sheet will be adopted at the General Meeting held in May 2012. 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. Acquisitions of subsidiaries are reported according to the purchase method, as described in IFRS 3, with the exception of intra-group acquisitions of subsidiaries under common control. The application of the purchase method implies requirements for the identifi- cation of the purchaser and the establishment of the acquisition date. The purchase method further implies that the acquisition of subsidia- ries is considered to be a transaction through which the Group indirectly acquires the subsidiary’s assets and assumes its provisions, liabilities and contingent liabilities. The Group acquisition value is determined through an acquisition analysis of the identifiable acquired assets and the assumed provisions and liabilities, as well as any contingent liabilities 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 good- will. When the difference is negative, this is recorded directly in the income statement. The subsidiary’s financial reports are included in the consolida- ted financial statements as of the acquisition date, until such date as the controlling influence is transferred from the Parent Company. As IFRS 3 is not directly applicable on intra-group acquisitions of subsi- diaries under common control, such acquisitions are reported according to the “predecessor accounting method”. This method implies that the acquirer assumes the acquired company’s reported book values as presented in the divested entity’s accounts. Adjustment of the acquired values is to be car- ried out in the case that these accounts are not prepared in accordance with IFRS. Furthermore, the method implies that goodwill is not reported; any possible difference between the consideration paid and the acquired values is reported directly against shareholders equity. Subsidiaries’ financial state- ments are included in the consolidated accounts 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. The Group’s participations in the associate’s net profit after taxes and minority interests, adjusted for any amortization, impairment or dissolution of acquired surplus or deficit value, are reported in the consolidated income statement under the item ”Share of associated companies’ income”. Dividends received from associated companies decrease the book 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. 32 Annual Report 2011 Transactions eliminated on consolidation Receivables and liabilities, income and expenses, and unrealized gains and losses arising on internal transactions between Group companies are eliminated in their entirety when the consolidated financial statements are prepared. Unrealized 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. Unrealized losses are eliminated in the same manner as unrealized gains, but only to the extent there is no write-down requirement. 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 Parent Company’s, including the branch offices, and the Group’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. 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 translation of foreign net investments and the associated effects of the hedging of net investments are recorded in other comprehensive income. Upon disposal of a foreign operation, accumulated translation differences attributable to the operation, less any currency hedging, are realized in the Group’s income statement. Rates for the most important currencies Closing Average USD EUR GBP 6.86 8.91 10.67 6.46 9.02 10.36 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-determined insured event occurs are recorded as insurance contracts. Financial 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 suffi- cient insurance 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, recor- ding 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 Gross premiums written relate to insurance contracts incepted during the financial year, together with any differences between booked premiums for prior financial years and those premiums previously accrued, and include estimates of premiums due but not yet receivable or notified, less an allowance for cancellations. The gross premium income also includes the net of entered and withdrawn premium portfolios. Gross premiums written are stated before deduction of brokerage, taxes, duties levied on premiums and other deductions. Premiums are earned on a pro rata temporis basis over the term of the related contract, except for those contracts where the period of risk differs significantly from the contract period, or where the ex- posure vary during the contract period. In these circumstances, premiums are recognized as earned over the period of risk in proportion to the amount of insurance protection provided. Reinstatement premiums receivable are recognized and fully earned latest when fallen due. Premium revenue cor- responds to the portion of premium income that has been earned. Acquisition costs By acquisition costs are meant such external operating expenses that directly vary with the acquisition or renewal of insurance contracts. The deferred acquisition costs are amortized in the same way as corresponding premiums are earned. Technical provisions Technical provisions consist of the Provisions for unearned premiums and unexpired risks, Provisions for outstanding claims, Claims handling provision and Equalization provision (in the Parent Company). 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 considers both the observed and the forecasted development of relevant costs. These future costs are tested quarterly against the unexposed portion of the premium for the contracts in force and if the latter exceeds the costs, the unexposed portion of the written premium will form an unearned premium reserve. If the future costs exceed the unexposed portion of the written premium, the deferred acquisition costs are written down, but if that is insufficient, an unexpired risk provision will also be set up. The unexposed premium is also in this case recorded as a provision for unearned premium. 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 costs for incurred but, to date, unknown claims and not yet fully reported claims. This amount is an estimate based on historic experience and outcome of claims. The income statement records the change in outstanding claims for the period. Claims adjustment provision The amount of this provision is based on outstanding claims. The provision is equal to a percentage of reported unpaid claims and a percentage of incurred unreported and not yet fully reported claims. The claims handling reserve for catastrophe insurance is calculated in the same way, but with the difference that they are calculated on an average of four to five years for those provisions. The period’s change in the claims adjustment provision is recorded in the income statement within the items Claims handling expen- ses and Operating costs. 33 Annual Report 2011 Deferred acquisition costs for insurance contracts Deferred acquisition costs are only recorded for insurance contracts deemed to generate a margin at least covering the acquisition costs. Sirius only records external deferred acquisition costs. Other costs for insurance contracts are recorded as costs when they arise. Investment expenses and charges Charges on investment assets are recorded under the item Investment expen- ses 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. 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 financial year and amounts recorded as liabilities to the company that have assumed the reinsurance, in accordance with entered reinsuranc agreements. Deductions are made for amounts credited due to portfolio transfers. Adjustments are also made for change in the reinsurer’s share of proportional reinsurance contracts. The premiums are periodized so that costs are allocated to the corresponding period of the insurance cover. All items relating to ceded reinsurance are shown on separate lines in the income statement. The reinsurers’ share of technical provisions are recorded as an asset in the balance sheet and corresponds to the reinsurers’ liability for technical provisions in accordance with entered agreements. The Company assesses any required impairment for assets referring to reinsurance agreements bi- annually. If the recoverable amount is lower than the carrying amount of the asset, the asset is impaired to the recoverable 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 equivalent to the actual total yield from the investment assets belonging to the insurance operations. The weighted average interest rate for 2011 amounted to 3.85%. Applied interest rates % EUR GBP SEK USD 2011 2010 4.99% 0.61% 3.87% 3.75% 2.90% 1.80% 0.50% 4.20% 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, interest income, net foreign exchange gains, reversed impairments and net capital gains. Changes in realized and unrealized 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 amortized cost value and, for other investment assets, it is the historical acquisition value. At the sale of investment assets, previously unrealized chan- ges in value are recognized as adjustment entries under the item Unrealized profits from investment items or Unrealized losses from investment items, as appropriate. As regards interest-bearing securities classified as available-for- sale financial assets, previously unrealized changes in value are recognized as adjustment entries in Other comprehensive income. Capital gains from assets other than investment assets are recorded as Other income. Unrealized 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. Share of associated company´s profit or loss Share of associated company’s profit or loss represents Sirius’ share of the associated company’s result, accounted for according to the equity accoun- ting method. Currency translation effects are recorded in Other comprehen- sive income. 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 in Other comprehensive income, whereupon the pertaining tax effect is recorded in Other comprehensive income. 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 refer- ring 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 participations in subsi- diaries or associated companies that are not expected to be reversed within the foreseeable future are not considered either. The valuation of deferred tax is based on the extent to which underlying assets and liabilities are expected to be realized or settled. Deferred tax is calculated 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 utilized. The value of deferred tax assets is reduced when it is no longer considered likely that they can be utilized. Intangible assets Goodwill Goodwill comprises the amount by which the acquisition cost exceeds the fair value of the Group’s participation in the acquired subsidiary’s or associate’s identifiable net assets at the point in time of the acquisition. Goodwill on the acquisition of subsidiaries is recognized as an intangible asset. Goodwill is tested annually for impairment and is recognized at acquisition cost less accu- mulated impairment losses. Impairment losses of goodwill are not reversed. 34 Annual Report 2011 Profit or loss on the sale of a unit includes the remaining carrying value of goodwill referring to the unit sold. Goodwill is distributed to cash-generating units upon testing of any write-down requirement. Other intangible assets Other intangible assets which have been acquired separately are reported at acquisition cost. Other intangible assets acquired through a business acquisition are reported at fair value as per the acquisition date. Acquired Other intangible assets are capitalized on the basis of the costs arising at the point in time in which the asset in question was acquired and put into operation. These capitalized costs are amortized during the assessed useful life of three years. Self-developed software Costs for maintenance of software are charged at the time at which they arise. Development costs directly attributable to the development and tes- ting of identifiable and unique software products controlled by the Company are reported as intangible assets when the following criteria are fulfilled: • it is technically possible to prepare the software for use, • the Company’s intention is to complete the software and to put it into use, • the conditions for the use of the software are in place, • the manner in which the software can generate probable future economic benefits can be demonstrated, • adequate technical, financial and other resources for the completion of development and for the use of the software are accessible, and • expenditure attributable to the software during its development period can be calculated in a reliable manner. Other development costs, which do not fulfill these criteria, are charged at the time at which they arise. Development costs which have previously been charged are not reported as an asset in the following period. Development costs for software reported as an asset are amortized during their asses- sed useful life, which does not exceed three years. Land and buildings All properties owned by the Company are operational properties and are valued using the acquisition cost method, in accordance with IAS 16. The Company owns three properties located in Sweden and Belgium. Sirius reports its properties in accordance with the acquisition cost method and the capitalized costs are depreciated over 50 years. No depreciation is carried out on land. financial instruments Financial instruments recorded in the balance sheet include, on the asset side, shares and participations, loan receivables, bond and other interest- bearing securities as well as derivatives. Where appropriate, derivatives with negative market value are included among liabilities, other 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 an asset and thus gains or looses control of the asset. Classification and valuation Financial instruments are initially recorded at acquisition value correspon- ding 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 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. 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 in- struments in this category are continually valued at fair value, with changes in value recorded in the income statement. The first sub-group includes deri- vatives with a positive fair value. The second sub-group consists of financial investments in shares and participations, 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 and Bonds and other interest-bearing securities. 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 observa- ble current market transactions in the same instrument. 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 a loss of MSEK 182, while the recorded value per balance sheet date of December 31, 2011 amounted to MSEK 1,111. Loans receivables and Account receivables Account receivables are non-derivative financial assets which are not listed on an active market and with fixed or determinable payments. Accounts receivables are reported in the amounts which are expected to be received, that is, after deductions for bad debt provisions. The major posts are Interest bearing investments emitted by, and loans to, group companies and Other debtors. Available-for-sale financial assets The category available-for-sale financial assets include 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 other comprehensive income, except for changes in value due to impairment or to foreign exchange rate differences on monetary items recorded in the income statement. 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, thereaf- ter, be assessed on an ongoing basis at fair value, to be included in other comprehensive income, until that point in time the instruments in question mature or are disposed. At disposal of the assets, the accumulated profit/ loss is recorded in the income statement. A long-term approach forms the basis for investments in this category, 35 Annual Report 2011 where the yield granted by these instruments at the time of investment is of significance for which investments shall be made. impairment of other assets included in the unit is subsequently performed. The recoverable amount is the highest of fair value less selling expen- Other financial liabilities Borrowings and other financial liabilities, for example, accounts payable, are included in this category. These liabilities are valued at fair value including transaction costs. 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. 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 assumptions forming the basis of the estimation of the impaired amount. The impairment of loans receivable and account receivables, recorded at amortized 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 via Other comprehensive income 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 for equipment such as cars, furniture and computer equipment amounts to 3 - 10 years. Depreciation of tangible and amortization 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 recognized when the reported value of an asset or cash-generating unit exceeds its recoverable amount. An impairment loss is recognized in the income statement. The impairment of assets related to a cash-generating unit is primarily allocated to goodwill. The proportional ses 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. Reversals are 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 amortization 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 recognized 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 Group companies’ pension plans differ. The pension plans are usually financed through payments to insurance companies or managed funds. These payments are determined based on periodic actuarial calculations. The Group has both defined benefit and defined contribution pension plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate legal entity. The Group has no legal or constructive obligations to pay further contributions if this legal entity does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. A characteristic of defined benefit plans is that they indicate a level for the pension benefit an employee receives after retirement, usually based on one or several factors, such as age, duration of employment and salary. The liability reported in the balance sheet regarding defined benefit pension plans is the current value of the defined benefit obligation at the end of the period, reduced with the fair value of the managed assets, with adjust- ments for unreported gains and losses, as well as for unreported costs for service during earlier periods. The defined benefit pension plan obligation is calculated annually by independent actuaries applying the so-called pro- jected unit credit method. The current value of the defined benefit obligation is determined through discounting of expected future cash flows, with the application of the interest rate for first-class mortgage bonds issued in the same currency as that in which the remuneration will be paid, with durations comparable with that of the current pension obligation. Costs referring to service during earlier periods are reported directly in the income statement, unless the changes in the pension plan are condi- tional on the employee remaining employed during a given period (earning period). In this case, the cost referring to service during earlier periods is distributed on a straight-line basis over the earning period. For defined contribution pension plans, the Group pays fees to publicly or privately administered pension insurance plans on an obligatory, contrac- tual or voluntary basis. The Group has no further payment obligations when all fees are paid. The fees are reported as personnel costs at the point in 36 time at which they fall due for payment. Prepaid fees are reported as an asset to the extent that cash repayment or reduction of future payments may benefit the Group. The group has defined benefit plans in Sweden (collective agreement) and Germany which are based on the employees’ pension entitlements and length of employment. In Germany all employees are included in the plan. In Sweden only employees born 1971 or earlier are covered by defined benefit plans and, thus, form part of the FTP2. Furthermore, there are two variations of retirement earlier than at the age of 65. Employees born 1955 and earlier have the possibility to retire between the ages of 62 and 65 according to local agreement. Staff employed before January 1, 2004 have the right to retire from the age of 64. These plans are also defined benefit plans and are reflected in financial statements of both the Group and the Parent Company. Remuneration upon termination of employment Remuneration upon employment of contract is payable when an employee’s em- ployment is terminated by the Group before the normal retirement age or when an employee voluntarily accepts the termination of employment in exchange for such remuneration. The Group reports severance payments when it is demonstrably obliged to terminate employees’ employment in accordance with a detailed formal plan, without possibility of revocation. In the case that the Company has submitted an offer to encourage voluntary termination of employment, the calculation of severance payment is based on the number of employees which it is estimated will accept this offer. Contingent liabilities A contingent liability is recognized 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 a 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, as well as its financial statements in general, has been prepared using the same accounting principles and calculation methods used in the most recent annual report. 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. Goodwill Goodwill represents the difference between acquisition cost for business acqui- sitions and the fair value of acquired assets, assumed liabilities and contingent liabilities. In the Parent Company, goodwill is amortized in accordance with the Swedish Annual Account Act and is reported in the balance sheet on a straight- line basis over the estimated useful life of the asset. The estimated useful life is reviewed annually. The estimated useful life for goodwill, and goodwill arising from the purchase of the net assets of a business, amounts to 20 years. Amortization which deviates from plan is handled as an appropriation and is reported under the heading Difference between reported depreciation/amortization and depreciation/ amortization according to plan. Subsidiaries and associated companies The Parent Company records participations in subsidiaries and associates accor- ding to the cost method. Only dividends which have been received are recognized 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. Annual Report 2011 Taxes Untaxed reserves are recorded in the Parent Company including deferred income tax liabilities. However, untaxed reserves in the consolidated accounts are allocated between deferred income tax liabilities and shareholders' equity. Pensions The Parent Company applies a different form of reporting of defined benefit pension plans than stipulated in IAS 19. The Parent Company’s reporting of defined benefit pension plans follows the Pension Obligations Vesting Act and the regulations of the Swedish Financial Supervisory Authority, as it is stated in RFR 2 that it is not necessary to apply the regulations in IAS 19 regarding defined benefit pension plans in legal entities. Pension costs are reported as Operational expenses in the Parent Company’s income statement and a provi- sion referring to individuals with the option of retiring at the ages of 62 and 64 is found on the line Pension provisions in the Parent Company’s balance sheet. Appropriations and untaxed reserves Appropriations and untaxed reserves are only recorded in the Parent Company. 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 practice, 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 are 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. Acces- sibility is limited to loss coverage and otherwise requires official authorization. Equalization provision The Parent Company’s balance sheet includes an Equalization provision within Technical provisions, and any changes for the period in this provision are reported in the income statement. The amount of the provision is calculated as the equivalent of 150 % of the highest net premium income for Class 14, credit insurance, with equivalent reinsurance, for the five most recent financial years. The provisions for each financial year are equivalent to 75 % of the technical surplus in the credit insurance operations. However, in the consolidated balance sheet, the Equalization 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 Swedish Financial Reporting Board (RFR2). Shareholders’ contributions are recorded directly against shareholders' equity in the receiving entity and in shares and participations in the entity provi- ding the contribution, to the extent that no impairment is required. Group contributions are recorded according to their financial significance. This implies that group contributions provided and received for the purpose of minimizing 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. 37 Annual Report 2011 Note 2 • Information on risks Risk management The company’s Enterprise Risk Management, ERM, is at the heart of Sirius’ thinking. Sirius defines ERM as the discipline by which the company iden- tifies, assesses, controls, monitors, and discloses risks from all sources for the purpose of increasing Sirius’ short- and long-term value to Sirius stakeholders. ERM is an ongoing process with the objective of creating a risk mana- gement culture that emanates from top management and which permeates throughout the entire organization. Sirius strives to maintain a risk culture where employees are aware of and measure, assess and communicate risk as part of their responsibilities. Management’s role includes communicating, implementing, monitoring and nurturing this culture. The objectives of Sirius’ work with ERM are: • Define Sirius’ risk tolerance and develop appropriate operating guidelines consistent with that framework • Optimize profitability within the established risk tolerance framework • Provide clear information for strategic management decisions • Demonstrate strong risk management through a well defined process including identification, quantification, monitoring, and appropriate manage- ment response • Provide stakeholders with transparent risk management information • Comply with Solvency II and other regulatory requirements Risk strategy and the company’s risk appetite Risk strategy and risk appetite comprise the foundation of the risk management processes. Sirius' risk strategy and risk appetite have been established by Sirius’ Board of Directors, which aims to secure a balance between risk, return and capital requirements. As part of the planning pro- cess, strategic limits are explicitly discussed and specified. The strategic risk appetite is expressed either in quantitative terms (e.g., an aggregate risk limit for windstorms in Europe) or in qualitative terms (e.g., in relation to operational risk). From these overall risk appetite statements, operational limits are applied at a detail level throughout the organization in the form of operational risk limits, maximum 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 risk taking and appropriate capitalization • Insurance transactions are expected to yield positive technical results • Active use of retrocessional protections as part of business and capital planning • Reduce risk by proper risk selection and active portfolio diversification • Strong accumulation control • Strong and independent risk control functions • Inspire and motivate employees to further develop their risk management capabilities Risk governance The risk management processes within Sirius are supported by a risk mana- gement infrastructure consisting of the Board of Directors, an experienced management team, various risk committees, risk control functions, policies and procedures, risk models and reporting routines. This is described in further detail in the risk sections below. Sirius’ Board of Directors is ultimately responsible for the company’s risk management strategy, risk tolerances and policies. Sirius’ Management has day-to-day responsibility for all ERM activities. It deploys this responsibility through different risk committees carrying out certain duties. The Risk Management Committee has the objective of formalizing the over- sight of critical risks, including the following risk management processes: • Establishment of risk tolerances • Identification and management of emerging risks • Quantification and subsequent monitoring of exposures • Implementation of risk reduction/reward expansion strategies • Risk reporting Sirius’ independent functions for risk control and compliance are re- sponsible for the monitoring of Sirius’ risks. The functions submit quarterly risk control and compliance reports to the CEO, the Management Group and to the Board of Directors. A summary risk and governance report is submit- ted annually to the Board of Directors. Additionally, ad hoc reporting is done when deemed necessary. Internal Audit fulfils an important role in the independent evaluation of risk management and control systems. This includes the evaluation of the reliability of reporting, the effectiveness and efficiency of operations, and compliance with laws and regulations. The Internal Audit department reports to the Board of Directors. Sirius’ ultimate owner is listed on the New York Stock Exchange and, consequently, is required by the Sarbanes-Oxley Act, Section 404, to express an opinion on the effectiveness 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 retrocessional protections) that Sirius is willing to assume. Sirius divides insurance risk management into two principal areas; underwri- ting 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 goal for all underwriting is to maximize profitability for each selec- ted risk level. The anticipated profitability of each contract which is entered into shall comprise the basic ground for decision making regarding all underwriting. Other underwriting guiding principles include diversification, strong accumulation controls and an active use of reinsurance in order to adjust risks to acceptable risk tolerance levels. At Sirius America the ultimate responsibility for managing these risks is assigned by underwriting unit. For property it is the Property Chief Underwriting Officer, and for A&H it is the Global A&H Head in conjunction with the America Underwriting Manager. They are 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 employed 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 restructuring of under-performing business, or through declining to accept such business. If a larger, catastrophic event occurs, simultaneously impacting a large number of cedants, this may result in a single loss that could offset the expected annual profit, or, even consume a portion of the solvency capital. This catastrophic risk is managed with the assistance of underwriting methods and tools which monitor and control the company’s total aggregate 38 risks, both gross and net. Catastrophe risk is also managed by the effective use of retrocessional protections. 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 guide- lines 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 reviewed at least annually and updated when appropriate. There are several levels of control functions as well as technical systems, which are in place to monitor and control that underwriting policies and procedures are followed. At Sirius International, 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, Risk Control, Compliance and Internal Audit also monitor these control groups, carrying out random inspections/tests, in detail ensuring they use sufficient control. Retrocession Sirius International uses retrocession as a tool to manage risk and has a cen- tralized unit responsible for the purchasing and administration of its outwards reinsurance. The implementation of reinsurance purchases is based on the strategic direction of the inwards portfolio, overall risk tolerances and the search for an optimal portfolio mix. Catastrophe models and capital modeling 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. Sirius has developed a proprietary tool to price and manage accumulations of global property catastrophe risk. The underlying model assumptions are taken from third party catastrophe models and inter- nally developed loss curves. There is a process in place to evaluate and select a model of choice per territory and peril. Based on the new tool, reports and analyses can be produced on an as required 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 stochastically estimated using these models. Aside from the possibility of modeling single events, aggregate claims are also modeled. Sensitivity analyses are undertaken based on a comparison of claims esti- mated by various models, but also through changes to the assumptions applied by the different models, such as, return periods. In addition, Sirius International utilizes a system linked to the underwriting system. In this system, all business is registered and the company’s exposure is measured via a number of predefined catastrophe scenarios. Sirius International and Sirius America also register and monitor total exposed limits to wind and Earthquake losses per country and/or zone. Concentrations and sensitivity analysis The table below shows a summary of the manner in which Sirius analyzes cata- strophe risks, divided by geographical area and return periods. Sirius analyzes catastrophe risks each quarter during the financial year. The figures show the situation at the end of Q4 2011. Through the use of these simulation models, the company can obtain an esti- Sensitivity analysis – losses divided by geographical area and return periods for the Group 1) 2011 2010 Once per 100 years Once per 250 years Once per 100 years Once per 250 years Global – Gross Global – Net 3,667 2,793 Europe – Gross 3,204 Europe – Net US – Gross US – Net 1,348 2,964 2,737 4,509 3,247 4,429 1,854 3,476 3,221 3,331 2,313 3,251 1,320 2,370 2,299 4,424 2,654 4,424 1,729 2,792 2,652 Annual Report 2011 mation of catastrophe risk, both prior to and after retrocession. In addition, to better manage its aggregate exposure to very large catastrophic events, Sirius monitors the maximum net financial impact (“NFI”) it would suffer in the worst aggregate loss year modeled in third-party software, i.e., the 10,000-year global annual aggregate probable maximum loss (PML). The calculation of the NFI begins with the modeled 10,000-year global annual aggre- gate PML and takes account of estimated reinstatement premiums, reinsurance recoverables net of estimated uncollectible balances, and tax benefits. This amount is deducted from Sirius’ planned legal entity comprehensive net income for the year (before any planned losses for catastrophe events) to arrive at the NFI. The NFI does not include the potential impact of the loss events on Sirius' investment portfolio. Within Aviation reinsurance, the company applies another licensed third- party model, ALPS, in which the exposure per Airline Company can be modeled and monitored. Within the insurance classes Accident & Health, Property and Trade Credit, the company has models which it has developed internally. Reserve risk The reserving risk, i.e. the risk that insurance technical provisions will be insuf- ficient to settle incurred and future claims, is foremost handled by actuarial methods and a careful continuous review of reported claims. 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 appro- priate 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-Ferguson method and the Benktander method. A combination of benchmarks and under- writing judgment is used for the most recent years. Regarding run-off results and claims development from previous years please refer also to Note 4 Claims incurred and Note 25 Claims Outstanding, where a specification of claims costs and expenses relating to the current year and prior years is made. The acquisition of Sirius America has entailed an increase of asbestos and environmental claims. These claims are actively managed and have been subject to recurrent in depth analyses, the latest in the third quarter 2010. Reserves for these claims are included at MSEK 1,117 net in the consolidated balance sheet. 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 2011. 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. These operations were accounted for in a way that does not make amounts fully available, thus we show the annual development starting with underwriting year 2005. For the Group, the last diagonal includes claims from the new subsidiaries acquired in 2011. This implies that the table only shows the loss development from the date of acquisition, which is the point of time when controlling influence was obtained. 1) The increase from year 2010 to 2011 can partially be explained by the acquisition of a subsidiary, during the fourth quarter 2011. 39 Annual Report 2011 Group / Claims, 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 5 years later 6 years later 2005 2006 2007 2008 2009 2010 2011 Total 3,265 3,809 3,706 3,680 3,667 3,662 15,848 2,520 3,215 6,902 6,290 7,570 10,718 3,536 4,112 4,107 4,027 7,591 3,594 4,462 4,459 7,733 3,495 5,061 7,948 2,946 7,470 4,271 Current estimate of total claims Total paid 15,848 15,148 10,718 4,920 7,591 7,048 7,733 6,961 7,948 6,914 7,470 4,870 4,271 1,793 Claims outstanding 1) 6,372 700 5,799 543 772 1,035 2,601 2,478 20,299 Claims net of reinsurance 2004 and Underwriting year prior years 2005 2006 2007 2008 2009 2010 2011 Total Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later Current estimate of total claims Total paid 2,729 3,199 3,110 3,100 3,087 3,083 8,407 8,407 7,899 2,238 2,871 2,929 2,911 2,886 5,113 3,114 3,637 3,610 3,530 6,979 3,281 3,930 3,894 7,207 3,009 3,933 6,634 2,399 6,716 3,790 5,113 4,601 6,979 6,480 7,207 6,547 6,634 5,777 6,716 4,408 3,790 1,720 Claims outstanding 1) 5,302 508 511 499 660 857 2,307 2,071 12,715 Parent Company / Claims, gross 2004 and Underwriting year prior years 2005 2006 2007 2008 2009 2010 2011 Total Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later Current estimate of total claims Total paid 3,265 3,809 3,706 3,680 3,667 3,662 3,651 3,651 3,536 2,520 3,215 6,902 6,290 7,570 8,428 3,536 4,112 4,107 4,027 4,007 3,594 4,462 4,459 4,386 3,495 5,061 4,842 2,946 4,588 2,145 8,428 3,035 4,007 3,828 4,386 3,884 4,842 4,047 4,588 2,489 2,145 244 Claims outstanding 1) 962 115 5,393 179 502 795 2,099 1,901 11,946 Claims net of reinsurance 2004 and Underwriting year prior years 2005 2006 2007 2008 2009 2010 2011 Total Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later Current estimate of total claims Total paid 2,729 3,199 3,110 3,100 3,087 3,083 3,072 3,072 2,960 2,238 2,871 2,929 2,911 2,886 2,878 3,114 3,637 3,610 3,530 3,506 3,281 3,930 3,894 3,818 3,009 3,933 3,749 2,399 3,818 1,665 2,878 2,771 3,506 3,365 3,818 3,471 3,749 3,175 3,818 2,028 1,665 171 Claims outstanding 1) 834 112 107 141 347 575 1,790 1,495 5,400 40 1) For reconciliation against Balance Sheet, see Note 25. Annual Report 2011 financial Risk management Officer and the Manager of Investment Accounting and Control. Goals, principles and methods In the company’s operation various types of financial risks arise, such as market risks, credit risks and liquidity risks. In order to limit and control the risk taking in the operations, Sirius’ Board of Directors, being ultimately responsible for the internal control in the company, has determined guidelines for the financial operations. The overall investment objective is to achieve consistent positive returns The company’s investment operations during 2011 yielded a return of 2 percent, expressed in SEK. The duration in the port¬folio with interest-bearing investments at the end of 2011 was 2.15 years which was lower compared to 2010 (2.72 years). During the year, the percentage of equities in the investment portfolio increased to approximately 13 percent. The table below shows the investment assets divided by class of asset, excluding deposits in companies that are reinsured by Sirius. 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 Invest- ments and Owners’ Funds Investments. Policyholder Funds are defined as poli- cyholder liabilities plus statutory minimum capital and surplus, less policyholder assets. Policyholder liabilities are Net Technical Reserves as defined by The Swedish Financial Supervisory Authority (FSA), Finansinspektionen. 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 guidelines also include restrictions on expo- sures due to size, industry and financial strength rating. 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 Currency and Market Risk Committee is responsible for the continuous management of market risks. The development of the market risks is reported within the Currency and Market Risk Committee on a monthly basis. The Com- mittee consists of the Group Chief Financial Officer, the Company Chief Financial Investment assets, division by class of asset, percentage split Group Parent Company 2011 2010 2011 2010 Bonds and other interest-bearing securities 77.93 Shares in Associated companies Shares and participations - whereof venture capital companies Derivatives Cash and bank balances - 12.96 2.09 0.12 8.99 69.31 12.51 10.39 1.73 1.57 6.22 50.12 38.72 3.53 1.24 0.16 7.47 70.64 18.37 5.12 1.76 0.14 5.73 Total 100.00 100.00 100.00 100.00 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 FSA as per December 31, 2011 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 alternatively, that the market value increases as the interest rates decrease. The level of interest rate risk increases with the asset’s duration. The tables below illustrate, in absolute figures, the exposure to interest rate risk in accordance with the risk scenarios per the Traffic Light model as per 31 December. Investment assets, interest rate risk according to the Traffic Light model risk scenarios / Group Exposure (mSEK) Scenario, stress test Corresponding Capital basis points requirements (mSEK) 2011 2010 2011 2010 2011 2010 2011 2010 Assets in SEK Assets in EUR 3,540 4,823 1,406 2,784 Assets in USD and other currencies 13,873 4,368 Total 18,819 11,975 30% 25% 30% - 30% 25% 30% - 49 46 56 - 98 74 99 - 29 26 234 289 130 66 112 308 Investment assets, interest rate risk according to the Traffic Light model risk scenarios / Parent Company Exposure (mSEK) Scenario, stress test Corresponding Capital basis points requirements (mSEK) 2011 2010 2011 2010 2011 2010 2011 2010 Assets in SEK Assets in EUR 3,540 4,823 1,409 2,784 Assets in USD and other currencies 4,550 4,368 Total 9,499 11,975 30% 25% 30% - 30% 25% 30% - 49 46 56 - 98 74 99 - 29 26 82 137 130 66 112 308 41 Annual Report 2011 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 mitigated by a diversification of the share portfolio. The tables below show the equity risk in accordance with the risk scenarios per the Traffic Light model as per December 31. Investment assets, equity risk according to the Traffic Light model risk scenarios / Group Exposure (mSEK) Scenario, stress test Capital requirements (mSEK) Foreign shares and participations 2011 3,300 Foreign stock warrants - Foreign subsidiaries and associated companies - Total 3,300 2010 1,804 249 2,191 4,244 2011 35% - - - 2010 35% 75% 35% - 2011 1,155 - - 2010 632 186 767 1,155 1,585 Investment assets, equity risk according to the Traffic Light model risk scenarios / Parent Company Exposure (mSEK) Scenario, stress test Capital requirements (mSEK) Foreign shares and participations Foreign stock warrants 2011 1,702 - Foreign subsidiaries and associated companies 6,324 Total 8,026 2010 1,804 249 2,191 4,244 2011 35% - 35% - 2010 35% 75% 35% - 2011 596 - 2,213 2,809 2010 632 186 767 1,585 Currency risk Currency risk arises if assets and liabilities in the same foreign currency vary in amounts. The Currency and Market Risk Committee meets at least monthly in order to monitor currency exposure and limit currency risk. Besides that, it is the responsibility of the Currency Committee to review and update the Currency Risk Policy and ensure it is approved by the Board of Directors on a yearly basis. 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 liabilities in foreign currency with corresponding assets within very tight time frames. The company’s total net exposure for currency risk, i.e. inclu- ding both Policyholder and Owners Funds, before and after any hedging by derivatives is shown in the table below. Exchange rate exposure – Investment assets / Group 2011 2010 Shares and participations USD 3,244 EUR 71 Bonds and other interest-bearing securities 14,308 1,471 Other financial investment assets Other assets and liabilities, net Total assets Technical provisions, net Total liabilities and provisions 1,739 2,550 81 325 21,841 1,948 -11,926 -1,400 -11,926 -1,400 Net exposure before financial hedging with derivatives 9,915 548 Nominal value currency forwards Net exposure after financial hedging with derivatives -3,432 6,483 - 548 GBP 20 629 58 23 730 -189 -189 541 - 541 Other - 61 312 71 444 -437 -437 7 - 7 USD 4,182 3,539 715 1,749 EUR 100 2,866 185 130 10 185 3 281 -4,644 -1,578 -4,644 -1,578 5 541 1,703 -1,676 3,865 - 1,703 GBP - 706 30 -29 707 -139 -139 568 - 568 Other - 233 93 46 372 -301 -301 71 - 71 42 Annual Report 2011 In the table below, the effect on the company’s shareholders’ equity and income statement of two stress tests are shown: An unfavorable foreign exchange rate move of 25 basis points, in the respective foreign currencies towards SEK and an unfavorable change to fx rates by 10 percent in the respective foreign currencies towards SEK. The analysis below assumes that the changes in exchange rates do not affect other risk parameters, such as interest rate. The sensitivity analysis takes into consideration existing financial hedges with currency related derivatives. Sensitivity analysis per currency USD EUR GBP Other Total 2011 2010 Change 25 basis points Change 10% Change 25 basis points Change 10% 236 648 203 387 15 55 47 170 12 54 14 57 - 1 - 7 263 758 264 621 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 assets The credit risk in investment assets can be split into credit spread risk and counterparty risk. Credit spread risk in investment assets Credit spread risk results from the sensitivity of the value of fixed interest assets to changes in the level or in the volatility of credits spreads over the risk-free term structure. Assets sensitive to changes in credit spreads may also give rise to others risks, e.g. counterparty default risk, which is not covered below. The tables below show the credit spread risk in accordance with the risk scenarios per the Traffic Light model as per 31 December. Investment assets, credit spread risk according to the Traffic Light model risk scenarios / Group Exposure (mSEK) Average credit Scenario Capital spread impact requirements (mSEK) 2011 2010 2011 2010 2011 2010 2011 2010 Assets in SEK Assets in EUR 852 102 1,262 1,824 Assets in USD and other currencies 9,050 2,543 1,37 2.74 1.82 1.13 -3.4% -1.5% 1.53 -10.3% -6.7% 1.09 -5.5% -3.7% Total 11,164 4,469 1.93 1.30 -5.9% -4.8% 29 130 496 655 2 121 93 216 Investment assets, credit spread risk according to the Traffic Light model risk scenarios / Parent Company Exposure (mSEK) Average credit Scenario Capital spread imapct requirements (mSEK) 2011 2010 2011 2010 2011 2010 2011 2010 Assets in SEK Assets in EUR 852 102 1,264 1,824 Assets in USD and other currencies 3,223 2,543 1.37 2.74 1.77 1.13 -3.4% -1.5% 1.53 -10.3% -6.7% 1.09 -5.7% -3.7% Total 5,339 4,469 2.01 1.30 -6.4% -4.8% 29 130 183 342 2 121 93 216 43 Annual Report 2011 Counterparty risk in investment assets The company’s policy is to allow only investments in securities with high credit quality and therefore the counterparty risk in investment assets is assessed to be relatively limited. The table below shows the exposure of Sirius’ investment assets divided per class of asset. Exposure Group 2011 2010 2011 2010 Group Parent Company Bonds & other interest-bearing assets 19,840 12,067 - Governments 9,151 7,608 - Swedish mortgage institutions - Other Swedish issuers - Other issuers Shares in Associated Companies Shares & participations Derivatives Total 156 697 9,836 - 3,300 30 - 102 4,357 2,178 1,808 273 9,472 4,840 156 697 3,779 7,317 667 30 12,067 7,608 - 102 4,357 3,139 874 24 23,170 16,326 17,486 16,104 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. Group / 2011 Name of security Type of security market value % of financial (mSEK) assets Sirius International Financial Services Loan note to Group Company 1,021 One Beacon Insurance Group Symetra Prospector Offshore Fund Total Capital Canada Ltd Ironshore Inc. Volkswagen Fin Serv NV Swedbank Hypotek AB BMW Finance NV Shering Plough Share Share Share Bond Share Bond Bond Bond Bond 785 501 336 263 188 177 156 156 143 4.3 3.3 2.1 1.4 1.1 0.8 0.7 0.7 0.7 0.6 Total 3,726 15.7 Parent Company / 2011 Name of security Type market value % of financial of security (mSEK) assets WM Phoenix (Luxembourg) S.à.r.l Shares in Subsidiary 6,338 34.7 Sirius International Holdings (NL) BV Shares in Subsidiary 1,005 Share Bond Bond Bond Share Share Bond Bond 336 263 177 156 156 116 112 100 5.5 1.8 1.4 1.0 0.9 0.9 0.6 0.6 0.6 8,759 48.0 Prospector Offshore Fund Total Capital Canada Ltd Volkswagen Fin Serv NV Swedbank Hypotek AB BMW Finance NV Pentelia Ltd Permanent Master Issuer PLC Atlas Copco AB Total 44 Annual Report 2011 Group and Parent Company / 2010 Name of security Type market value % of financial of security (mSEK) assets Symetra Share/Warrant OneBeacon Insurance Group Ltd Prospector Offshore Fund Pentelia Ltd Ironshore Inc Atlas Copco AB JP Morgan Chase BAA Funding Ltdr Casino Guichard Perrach SES Global Americas Holding Total Share Share Share Share Bond Bond Bond Bond Bond 618 561 330 161 106 102 83 71 60 60 4.4 4.0 2.3 1.1 0.7 0.7 0.6 0.5 0.4 0.4 2 152 15.2 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. Credit quality on classes 2011 2010 of investment assets, % AAA AA A BBB CCC Not Total AAA AA A BBB BB Total Bonds and other interest-bearing securities 25 - Swedish government - Swedish mortgage institutions - Other Swedish institutions - Foreign governments - Other foreign issuers 18 100 100 15 12 34 31 - - 84 10 15 51 - - 1 20 - - - - 25 41 Rated 5 - - - - 10 1 - - - - 2 100 100 100 100 100 100 70 100 - 0 95 22 2 0 - 0 0 7 14 0 - 100 5 33 14 0 - 0 0 37 0 0 - 0 0 1 100 100 - 100 100 100 Equity investments, divided by geographical area % Western Europe North America Other Total Group Parent company 2011 2.60 79,13 18.27 100 2010 7.62 81.99 10.39 100 2011 1.04 91.78 7.19 100 2010 7.77 81.77 10.46 100 Interest-bearing investments, divided by geographical areas % Western Europe North America Scandinavia Other Total Interest-bearing investments, divided by sector % Governments Swedish mortgage institutions Other Swedish issuers Other foreign issuers Total Group Parent company 2010 29.02 28.40 40.01 2.57 100 2011 21,44 39,70 37,37 1,49 100 2010 29.02 28.40 40.01 2.57 100 Group Parent company 2010 63.05 - 0.85 36.10 100 2011 51,10 1,65 7,35 39,90 100 2010 63.05 - 0.85 36.10 100 2011 10.84 70.36 17.84 0.96 100 2011 46.12 0.79 3.51 49.58 100 45 Annual Report 2011 Credit risk on receivables with reinsurers are regularly monitored by the company’s Credit Control Committee. The credit risk resulting from reinsurance ceded by Sirius can be divided For IDC companies, a provision is made to a credit risk reserve, which is into two separate components; reinsurers’ share of technical provisions as established based on the company’s Bad Debt Reserving Policy. The credit recorded on an ongoing basis under assets in the balance sheet, and the risk reserve for these bad debts amounted, as per December 31, 2011, potential exposure that would emerge in the event of large claims in the to MSEK 62 for the group, whereof MSEK 44 at Sirius International (2010 insurance portfolio, for example, in the case of a severe European wind- MSEK 56). storm. An event like this would trigger major portions of Sirius’ purchased reinsurance programme. Ageing balances To manage the risk of reinsurer insolvency, Sirius’ Security Commit- Receivables regarding both direct insurance as well as assumed rein- tee assigns and monitors ratings of all counterparties according to Sirius’ surance are followed up on a monthly basis and outwards reinsurance internal rating scale and model for reinsurance counterparty analysis. receivables are followed-up on a quarterly basis. Outstanding receivables Monetary limits are set per counterparty based on the established ratings. are analyzed on the basis of the length of time that has passed since the If the credit worthiness of a retrocessionaire deteriorates into unacceptable due date with the following distribution: Less than 1 month, 1-3 months, status (in bankruptcy, liquidation, insolvent run-off, scheme of arrangement, 3-6 months, 6-9 months, 9-12 months and over 1 year. These analyses or is, by other reasons, deemed to be unable or unwilling to honor its obliga- comprise the basis for various collection activities, as does the supporting tions), the counterparty is classified as an Insolvent or Doubtful Company documentation regarding the assessment of the counterparty’s credit risk (IDC company). Counterparties which are classified as IDC companies status and any write-down requirements. Group Due for <1 month 1-3 months 4-6 months 7-9 months 10-12 months >1 year Total 2 0 1 1 N e t r e c e i v a b l e s 2 0 1 0 N e t r e c e i v a b l e s 5 8 0 1 0 6 1 8 5 5 9 6 0 2 3 - 6 - 8 8 - 6 2 1 0 2 4 1 , 0 3 7 1 9 8 Parent Company Due for <1 month 1-3 months 4-6 months 7-9 months 10-12 months >1 year Total 2 0 1 1 N e t r e c e i v a b l e s 2 0 1 0 N e t r e c e i v a b l e s 1 1 4 1 0 6 5 8 5 9 4 0 2 3 - 6 - 8 - 2 - 6 2 3 5 2 4 4 4 2 1 9 8 In accordance with Sirius International’s policy for write-downs of receiva- bles outstanding for more than 1 year, there is a specific reserve for coun- terparties which are not classified as IDC companies which totals MSEK 7. 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 credit rating distribution for this exposure is shown in the table below. Group Rating – Standard & Poor's A A A A A + A A A A - A + A A - B B B + B B B o r l o w e r S p e c i a l a p p r o v a l I n t e r n a l r e i n s u r a n c e 5 , 2 5 3 T o t a l 8 , 1 1 1 46 2011 2010 Gross Collateral Net Percentage split Gross Collateral Net Percentage split 2 1 0 0 2 4 1 4 5 3 0 7 4 7 0 2 5 3 6 2 8 4 9 4 2 0 0 0 2 0 0 4 6 7 0 9 6 1 1 9 4 , 8 3 1 5 , 1 1 9 2 1 0 0 2 3 9 4 5 3 0 7 4 6 6 1 8 7 6 2 7 5 4 3 0 1 4 2 1 3 0 3 1 4 6 3 1 1 0 5 6 5 2 , 9 9 2 1 0 0 1 2 4 0 6 4 5 6 4 1 3 1 5 2 9 4 1 0 6 3 9 3 4 4 4 , 1 5 6 6 , 0 5 2 0 0 0 0 0 0 6 3 0 1 0 1 0 1 4 , 1 5 6 4 , 3 3 0 1 2 4 0 6 4 5 6 4 1 3 1 5 2 3 1 1 0 6 2 9 2 4 3 0 1 , 7 2 2 2 0 1 1 7 2 1 0 1 1 6 6 9 1 0 0 Annual Report 2011 2011 2010 Gross Collateral Net Percentage split Gross Collateral Net Percentage split 0 0 0 0 0 0 6 6 0 1 1 1 1 9 4 , 8 3 1 5 , 0 2 7 1 1 8 0 1 7 3 4 5 3 0 7 1 0 9 1 5 5 5 9 3 5 8 3 0 1 4 2 1 2 , 0 4 7 2 0 2 1 4 2 3 1 5 6 1 2 4 0 6 4 5 6 4 1 3 1 5 2 9 4 1 0 6 3 9 3 4 4 7 4 1 0 0 4 , 1 5 6 6 , 0 5 2 0 0 0 0 0 0 6 3 0 1 0 1 0 1 4 , 1 5 6 4 , 3 3 0 1 2 4 0 6 4 5 6 4 1 3 1 5 2 3 1 1 0 6 2 9 2 4 3 0 1 , 7 2 2 2 0 1 1 7 2 1 0 1 1 6 6 9 1 0 0 Parent Company Rating – Standard & Poor's A A A A A + A A A A - A + A A - B B B + B B B o r l o w e r S p e c i a l a p p r o v a l 1 1 8 0 1 7 3 4 5 3 0 7 1 0 9 2 2 2 5 9 3 6 9 4 2 0 I n t e r n a l r e i n s u r a n c e 5 , 2 5 3 T o t a l 7 , 0 7 4 The item Internal reinsurance above refers to ceded reinsurance to White Mountains Life Re. This receivable is collateralized with securities pertaining to the underlying liability to the original ceding company. 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’ 2011 Retrocession Program. financial Strength Rating – Standard & Poor's 2011 2010 mSEK Percentage split mSEK Percentage split A A + A A A A - A + A A - B B B + B B B o r l o w e r F u l l y c o l l a t e r a l i z e d S p e c i a l a p p r o v a l T o t a l 0 3 7 4 4 8 9 9 5 3 1 5 2 9 3 0 1 2 7 0 1 8 5 1 2 2 0 1 1 1 5 2 9 5 2 8 4 0 6 4 2 3 6 4 9 5 3 9 9 4 6 1 2 3 1 , 3 3 6 6 0 2 1 6 4 6 8 1 1 7 1 4 2 4 3 3 4 1 0 4 2 3 , 3 3 1 1 0 0 3 , 9 1 0 1 0 0 47 Annual Report 2011 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 match expected payments and receipts of payment (so called asset-liability mana- gement, ALM). This is accomplished through advanced liquidity analysis of financial assets and insurance liabilities. At the end of 2011 the duration of interest-bearing investment assets was 2.15 years and the duration of insurance liabilities was 2.18 years. The liquidity is monitored continuous- ly 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 also provides an illustration of the company’s liquidity situation. The tables below show a more detailed maturity profile for the Group and Parent Company in respect of both financial assets and debts. Liquidity profile – financial assets (Contractual inflows) / 2011 Group On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Group On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total 291 2,957 6,985 8,585 1,021 19,839 - - - - 1,052 2 215 4,226 - - - - 211 - - - - - - - - - - 3,300 - 2 398 70 - - 3,300 2,289 2 2,423 189 224 7,196 8,585 5,791 28,266 1,268 898 7,008 2,893 - 12,067 - - - - 1,302 - 195 2,584 - - - - 24 - - - - - - - - - 2,178 2,057 - 5 -106 32 - 2,178 2,057 1,082 5 1,385 63 221 7,008 2,893 4,166 19,058 - - - - 762 117 9 - - - - 165 31 26 Bonds and other interest-bearing securities (discounted amounts) Shares & participations in associated companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income - - - 2,289 - - - - Total 2,289 1,179 Liquidity profile – financial assets (Contractual inflows) / 2010 Bonds and other interest-bearing securities (discounted amounts) Shares & participations in associated companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income - - - 1,082 - - - - Total 1,082 1,325 48 9,472 7,317 667 1,411 2 1,880 293 151 2,058 874 979 5 1,384 262 26 17,655 Annual Report 2011 Liquidity profile – financial assets (Contractual inflows) / 2011 Parent Company On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Bonds and other interest-bearing securities (discounted amounts) Shares & participations in associated companies and subsidiaries Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income Total - - - 1,411 - - 39 - 1,450 94 2,377 4,088 2,913 - - - - - 172 17 9 292 - - - - 1,026 206 142 3,751 - - - - 235 - - - - - - - - - 7,317 667 - 2 447 31 - 4,323 2,913 8,464 21,193 Liquidity profile – financial assets (Contractual inflows) / 2010 Parent Company On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Bonds and other interest-bearing securities (discounted amounts) Shares & participations in associated companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income - - - 979 - - - - 1,268 898 7,008 2,893 - 12,067 - - - - 165 257 26 - - - - 1,301 - - - - - - 24 - - - - - - - - - 2,058 874 - 5 -106 5 - Total 979 1,716 2,199 7,032 2,893 2,836 Liquidity profile – financial debts (Contractual outflows) / 2011 Group On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income Total - - - - - - - 57 132 189 - 437 701 111 1,249 - - 36 88 124 - - - 19 19 1 368 20 - 389 1 805 814 350 1,970 Liquidity profile – financial debts (Contractual outflows) / 2010 Group On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income Total - - - - - - - 74 69 - 590 481 81 143 1,152 - - 38 42 80 - - - 1 1 2 -116 - - -114 2 474 593 193 1,262 49 Annual Report 2011 Liquidity profile – financial debts (Contractual outflows) / 2011 Parent Company On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income Total - - - - - - - 53 51 - 453 591 112 104 1,156 - - 23 36 59 - - - - - 1 331 23 - 355 1 784 690 199 1,674 Liquidity profile – financial debts (Contractual outflows) / 2010 Parent Company On demand <3 months 3 months –1 year 1-5 years >5 years No duration Total Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income Total - - - - - - - 69 70 - 590 81 500 139 1,171 - - 42 38 80 - - - - - 2 -117 - - -115 2 473 192 608 1,275 Liquidity profile – Technical provisions Estimated claim payments, net, excluding ULAE Group 2011 2010 Parent Company <3 months 3 months–1 year 1-5 year >5 year Total 1,172 647 3,565 1,966 5,433 2,842 3,715 939 <3 months 3 months–1 year 1-5 year >5 year 2011 2010 628 647 1,935 1,966 2,599 2,842 1,113 939 13,885 6,394 Total 6,275 6,394 Operational Risk management 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 fun- ctioning process for operational risk management and shall see themselves as risk managers. The function for Risk Control is a 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. Operational risks within Sirius are identified through regularly conducted risk control and compliance reviews. Operational risks are also identified and managed by defining controls within the processes and through fol- low up and testing of the effectiveness of the key controls. Sirius’ operational risks are always reduced to acceptable levels based on the pre-defined risk appetite. 50 Annual Report 2011 Compliance Risk management Compliance risk is “the risk of legal or regulatory sanctions, material financial loss or loss to reputation that Sirius may suffer as a result of not complying with laws, internal or external regulations and administrative provisions as applicable to Sirius activities.” The responsibility for Sirius’ compliance with internal and external regulation lies with all employees. Compliance risks are identified by all em- ployees on an ad hoc basis and more formally through the risk control and compliance reviews. The Compliance function supports the organization and processes by informing, advising, and monitoring compliance issues throughout the group. Solvency II Sirius is preparing for compliance with the Solvency II regulation. The company has a project in place with several defined subprojects. The sub- projects are covering all three Pillars. The project has a dedicated Project Manager and the company’s group CFO is the chairman of the Steering Group and the sponsor of the project. Solvency II is discussed regularly at Board of Directors (Board) meetings. The group CFO reports to the Board on Solvency II matters, thus ensuring the Board’s involvement and oversight over the Solvency II project. The company’s CRO reports about Solvency II at all Risk Management Com- mittee meetings. During 2011 the Board requested and received an in depth training in Solvency II covering all Pillars. Solvency and Capital requirements Sirius has continued to develop its internal Economic Risk Capital (ERC) model. The objectives for the internal ERC model are: • Stochastically calculate capital needed at the legal entity (operating company) level to be economically solvent over a one year period within some specified probability level • Consolidate quantifiable risks into one model • Produce a realistic distribution of financial outcomes at various return periods • Allocate capital to key risks, business units and lines of business more consistently • Address Solvency II requirements • Produce a streamlined and inclusive view of interdependencies of these risks The practical applications of the internal ERC model include the following: • Assess the amount of capital necessary to support the underwriting and investment operations over the course of a one-year period • Allocate deployed capital in the organization to key underwriting risk areas in order to establish appropriate risk-adjusted pricing targets • Monitor the risk appetite established by the Risk Management Committee • Measurement of key risks and their interaction • Evaluate reinsurance purchases Furthermore, the company uses the internal ERC model for stress testing and scenario analysis and it compares results from the internal ERC model with the Solvency II Standard Formula SCR. Sirius has entered into the Internal Model pre-application review process with the company’s regulator, the Swedish FSA, Finansinspektionen. By participating in this pre-application review process, the company will be well prepared before the final application shall be submitted. The ultimate goal is to gain approval to use the company’s Internal Economic Risk Capital Model for the calculations of the solvency capital requirements under Solvency II. Sirius updated its QIS 5 SCR calculations for year-end 2010 as it was required by the Swedish FSA to participate in the EIOPA stress test, a European Union test of the insurance industry’s resilience to stresses in macroeconomic variables. The results show that Sirius’ current solvency capital is sufficient and prudent, even under stressed market conditions. As a predecessor to Solvency II, the Swedish FSA has established a local solvency regulation, the Traffic Light system. It takes into account the company’s risks in the areas financial risks, insurance risk and operating expense risk. The model results in a total capital net requirement which is compared to solvency capital (the so called “capital buffer”) in order to asses the company’s capital strength. The model is presented on a solo company basis with holdings in subsidiaries modeled with an equity risk charge of 35%. The table below shows the result in accordance with the Traffic Light model as per December 31, 2011 and 2010. Total capital requirement according to the Traffic Light model 2011 2010 Total capital net requirement Capital buffer Surplus 4,691 14,096 9,405 3,626 12,534 8,908 financial Strength Rating The financial strength of Sirius has been rated by Standard & Poor’s, A. M. Best and Moody’s. Group and Parent Company 2011 2010 S&P 1) A.m. Best 2) moody’s 3) S&P 1) A.m. Best 2) moody’s 3) F i n a n c i a l S t r e n g t h R a t i n g O u t l o o k A - S t a b l e A S t a b l e A 3 S t a b l e A - A S t a b l e S t a b l e A 3 S t a b l e 1) "A-" is the seventh highest of twenty-one financial strength ratings assigned by Standard & Poor’s. 2) "A" is the third highest of fifteen financial strength ratings assigned by A.M. Best. 3) "A3" is the seventh highest of twenty-one financial strength ratings assigned by Moody’s. 51 Annual Report 2011 Note 3 • Premium income Premium income, geographical allocation Group Parent Company 2011 2010 2011 2010 Direct insurance, Sweden Direct insurance, other EES Direct insurance, other countries Premiums for accepted reinsurance Premium income before ceded reinsurance Premium for ceded reinsurance Premium income after ceded reinsurance 8 213 655 5,079 5,955 -1,592 4,363 8 197 674 6,516 7,395 -1,787 5,608 8 213 655 4,471 5,347 -1,579 3,768 8 197 674 6,516 7,395 -1,787 5,608 Note 4 • Claims incurred for own account Claims incurred for the year´s operations / Group 2011 2010 Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims -447 35 -832 Change in provision for incurred but not reported claims (IBNR) -1,211 Claims handling expenses Total claims incurred for the year´s operations -170 -2,625 73 0 194 210 0 477 -374 35 -638 -1,001 -170 -952 39 -1,254 -942 -175 -2,148 -3,284 137 0 331 114 0 582 -815 39 -923 -828 -175 -2,702 Claims incurred for previous years´operations / Group 2011 2010 Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims -3,105 -503 1,554 Change in provision for incurred but not reported claims (IBNR) 159 Total claims incurred for previous years´operations -1,895 667 -4 -433 688 918 -2,438 -507 1,121 847 -977 -3,277 -63 1,033 -432 -2,739 800 0 83 1,130 2,013 -2,477 -63 1,116 698 -726 Total claims incurred -4,520 1,395 -3,125 -6,023 2,595 -3 428 Total claims paid / Group 2011 2010 Claims paid Loss portfolios Claims handling expenses Total claims paid Gross Ceded Net Gross Ceded Net -3,552 740 -2,812 -4,229 937 -3,292 -468 -170 -4 0 -472 -170 -24 -175 0 0 -24 -175 -4,190 736 -3,454 -4,428 937 -3,491 Change in provision for outstanding claims / Group 2011 2010 Gross Ceded Net Gross Ceded Net Change in provision for incurred and reported claims 722 Change in provision for incurred but not reported claims (IBNR) -1,052 Total change in provisions for outstanding claims -330 -239 898 659 483 -154 329 -221 -1,374 -1,595 414 1,244 1,658 193 -130 63 52 Annual Report 2011 Claims incurred for the year´s operations / Parent Company 2011 2010 Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims -273 35 -767 Change in provision for incurred but not reported claims (IBNR) -1,074 Claims handling expenses Total claims for the year´s operations -159 -2,238 72 0 194 210 0 476 -201 35 -573 -864 -159 -952 39 -1,254 -942 -175 -1,762 -3,284 137 0 331 114 0 582 -815 39 -923 -828 -175 -2,702 Claims incurred for previous years´operations / Parent Company 2011 2010 Gross Ceded Net Gross Ceded Net Claims paid Loss portfolios Change in provision for incurred and reported claims -2,703 -503 1,355 Change in provision for incurred but not reported claims (IBNR) 66 Total claims incurred for previous years´operations -1,785 582 -4 -400 661 839 -2,121 -3,264 -507 955 727 -946 -63 1,027 -432 -2,732 800 0 83 1,130 2,013 -2,464 -63 1,110 698 -719 Total claims incurred -4,023 1,315 -2,708 -6,016 2,595 -3,421 Total claims paid / Parent Company 2011 2010 Claims paid Loss portfolios Claims handling expenses Total claims paid Gross Ceded Net Gross Ceded Net -2,976 654 -2,322 -4,216 937 -3,279 -468 -159 -4 0 -472 -159 -24 -175 0 0 -24 -175 -3,603 650 -2,953 -4,415 937 -3,478 Change in provision for outstanding claims / Parent Company 2011 2010 Gross Ceded Net Gross Ceded Net Change in provision for incurred and reported claims 588 Change in provision for incurred but not reported claims (IBNR) -1,008 Total change in provision for outstanding claims -420 -205 870 665 383 -138 245 -227 -1,374 -1,601 414 1,244 1,658 187 -130 57 53 Annual Report 2011 Note 5 • Operating costs Specification of income statement item operating costs Group Parent Company 2011 2010 2011 2010 Acquisition costs -1,136 -1,494 -1,015 -1,493 Change in prepaid acquisition costs (+/–) Administrative expenses Provisions and profit shares in ceded reinsurance -42 -573 290 -5 -475 284 -30 -509 315 -5 -473 284 Total operating costs -1,461 -1,690 -1,239 -1,687 Other operating costs Group Parent Company 2011 2010 2011 2010 Operating costs Claims handling expenses included in claims paid -1,461 -170 Asset management costs included in Investment expenses -64 Expenses for land and buildings included in Investment expenses, net Total other operating costs -1 -1,696 -1,690 -175 -53 -5 -1,923 -1,239 -159 -53 -1 -1,452 -1,687 -175 -51 -5 -1,918 Total operating costs per type Group Parent Company 2011 2010 2011 2010 Direct and indirect personnel costs Premises costs Depreciation/amortization Other expenses related to operations Total other operating costs -469 -48 -31 -1,148 -1,696 -429 -50 -17 -1,427 -1,923 -414 -41 -29 -968 -1,452 -418 -48 -16 -1,436 -1,918 Note 6 • Investment income Group Parent Company 2011 2010 2011 2010 Dividend income Foreign shares and participations Interest income Bonds and other interest-bearing securities Other interest income 113 360 30 - of which from financial assets not valued at fair value with changes in value reported in the income statement - Capital gains on foreign exchange, net Capital gains and reversed write-downs (net) Swedish shares Foreign shares Interest-bearing securities Total 126 - 89 46 764 153 313 25 - - - 25 107 623 1 293 21 - 130 - 27 43 515 206 312 25 - - - 6 100 649 54 Annual Report 2011 Note 7 • Unrealised gains on investments Group Parent Company 2011 2010 2011 2010 Foreign shares and participations Derivative financial instruments Total 185 11 196 243 29 272 23 11 34 155 29 184 Note 8 • Investment expenses and charges Group Parent Company 2011 2010 2011 2010 Operating expenses for land and buildings Asset management costs Interest expenses Other interest expenses -1 -64 -43 - of which from financial assets not valued at fair value with changes in value reported in the income statement -37 Capital losses on foreign exchange, net Capital losses Foreign shares and participations Subsidiaries and associated companies Bonds and other interest-bearing securities Derivative financial instruments Total - - - - -24 -132 -5 -54 -3 - -394 - - - -10 -466 -1 -53 -2 - - - - - - -5 -51 -3 - -398 - -185 - - -56 -642 Note 9 • Unrealised losses on investments Group Parent Company 2011 2010 2011 2010 Foreign shares and participations Bonds and other interest-bearing securities Derivatives Total -302 -18 -145 -465 -92 - -13 -105 -82 - -11 -93 -92 - -13 -105 55 Annual Report 2011 Note 10 • Net profit or net loss per category of financial instrument financial assets / Group 2011 financial assets Loan receivables valued at fair financial Available-for and other value in the assets held -sale financial receivables income statement for trading instruments accounts Total Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance Other debts Total 84 - -18 - - - - -157 - - - - - - 488 - - - 66 -157 488 - - - 17 6 -36 -13 84 -157 470 17 6 -36 384 financial assets / Group 2010 financial assets Loan receivables valued at fair financial Available-for and other value in the assets held -sale financial receivables income statement for trading instruments accounts Total SShares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Other debtors Total 328 - - - - 328 - 7 - - - 7 - - 287 - - 287 - - - 19 6 25 328 7 287 19 6 647 financial assets / Parent Company 2011 financial assets identified Loan receivables valued at fair financial Available-for and other value in the assets held -sale financial accounts income statement for trading instruments receivables Total Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance Total -32 - - - -32 - 1 - - - 1 - - 456 - - 456 - - - 16 5 21 -32 1 456 16 5 446 financial assets / Parent Company 2010 financial assets identified Loan receivables valued at fair financial Available-for and other value in the assets held -sale financial accounts income statement for trading instruments receivables Total Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Other debtors Total 276 17 - - - 293 - - - - - - - - 279 - - 279 - - - 19 6 25 276 17 279 19 6 597 The amounts in the table above constitute a specification of the amounts regarding financial instruments which are reported in the income statement as (i) return on capital, income, (ii) unrealized gains, (iii) return on capital, expenses, (iv) unrealized losses, with exception for (a) potential amortization and write-downs, (b) asset mana- gement costs and (c) exchange rate gains/losses. Currency exchange gains amount to 126 (-394) for the Group, of which 256 (-658) refer to exchange rate losses on financial assets. Exchange rate losses on liabilities and other assets amount to -130 (264). 56 Annual Report 2011 Note 11 • Taxes Current tax expense (-)[/tax revenue (+)] Current 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 2011 2010 2011 2010 -147 41 -17 -123 -189 - -5 -194 -147 - 26 -121 -185 - -4 -189 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 2011 2010 2011 2010 Tax according to applicable tax rate for the Parent Company -26.3 % -26.3 % -26.3 % -26.3 % Effects of foreign tax rates Tax effect from non-deductible expenses Tax effect from non-taxable income Current tax regarding previous years Recognition/remeasurement of deductible temporary -0.2 % -12.9 % 8.6 % 9.3 % - -5.3 % 13.5 % 0 % - -1.6 % 0.5 % 0 % - -7.7 % 7.5 % 0 % differences related to prior years -6.3 % 0 % 0 % 0 % Reported effective tax -27.8 % -18.1 % -27.4 % -26.5 % Reported deferred tax receivables and deferred tax liabilities / Group Deferred tax assets Deferred tax liabilities Net 2011 2010 2011 2010 2011 2010 Personnel-related provisions Timing difference on recognition of underwriting result Other provisions Surplus value of securities Safety reserve and accelerated depreciation Tax loss carry forwards 45 361 56 118 - 653 19 - 12 3 - - - -38 -52 -180 -2,550 - - - -4 - 45 323 4 -62 19 - 8 3 -2,549 -2,550 -2,549 - 653 - Net tax receivables/net tax liabilities 1,233 34 -2,820 -2,553 -1,587 -2,519 Reported deferred tax receivables and deferred tax liabilities / Parent Company Deferred tax assets Deferred tax liabilities Net 2011 2010 2011 2010 2011 2010 14 12 - 15 41 20 12 3 - 35 - - -6 - -6 - - - - - 14 12 -6 15 35 20 12 3 - 35 Personnel-related provisions Other provisions Surplus value of securities Tax loss carry forwards Net tax receivables/net tax liabilities Unreported deferred tax receivables Unreported deferred tax receivables for deductible temporary differences and tax loss carry forwards amount to 1 (0) Opening balance Acquisition of subsidiaries Recognized in income statement Recognized in other comprehensive income Tax loss carry forwards Closing balance Group Parent Company 2011 2010 2011 2010 -2,519 -2,549 982 -17 -29 -4 - -5 35 - -1,587 -2,519 35 - 26 -26 - 35 4 - -4 35 - 35 Taxes recognized in shareholders’ equity mainly refer to available-for-sale financial assets -26 (35). 57 Annual Report 2011 Note 12 • Intangible assets Group Parent Company Intangible assets -IT Capitalized Acquired expenditure for intangible development assets Intangible assets -IT Capitalized expenditure for development Acquired intangible assets work Goodwill 1) Total work Goodwill 1) Total Accumulated acquisition value Opening balance January 1, 2010 Acquisitions for the year Closing balance December 31, 2010 Opening balance January 1, 2011 Acquisitions for the year Closing balance December 31, 2011 Accumulated amortization Opening balance January 1, 2010 Depreciation for the year Closing balance December 31, 2010 Opening balance January 1, 2011 Depreciation for the year Closing balance December 31, 2011 Carrying amount Per January 1, 2010 Per December 31, 2010 Per January 1, 2011 Per December 31, 2011 Amortization for the year is included in the following rows of the income statement for 2010: Operating costs Other costs Total Amortization for the year is included in the following rows of the income statement for 2011: Operating costs Other costs Total 71 22 93 93 40 133 -66 -5 -71 -71 -15 -86 5 22 22 47 -5 - -5 -15 - -15 615 - 615 615 5 620 -324 - -324 -324 - -324 291 291 291 296 - - - - - - 686 22 708 708 46 754 -390 -5 -395 -395 -15 -410 296 313 313 343 -5 - -5 -15 - -15 71 22 93 93 38 131 -66 -5 -71 -71 -15 -86 5 22 22 45 -5 - -5 -15 - -15 460 - 460 460 - 460 -248 -4 -252 -252 -4 -257 212 207 207 203 - -4 -4 - -4 -4 531 22 553 553 38 591 -314 -9 -323 -323 -20 -343 217 229 229 248 -5 -4 -9 -15 -4 -19 In the item IT-related intangible assets, acquired licenses and expenses brought forward are included for the development of business-critical systems. For the group, no depreciation is made on goodwill, the -324 is accumulated depreciations per January 1, 2009 when IFRS was adopted. For further information regarding the depreciations, see Note 1, Accounting principles. 1) The Group and Parent Company goodwill derive from the acquired operation in Belgium, which is an identifiable cash generating unit. The amounts refer both to acquisition- and asset deal goodwill and are annually tested for impairment. The projected future cash flows are based on a conservative assessment without any growth of the unit’s earnings, based on historical and future earning patterns. Cash flows are discounted using a discount rate of 1.2 %. The forecasted profit margin is currently equal to a combined ratio of approximately 95 %. 58 Annual Report 2011 Note 13 • Land and Buildings Group and Parent Company Acquisition cost Opening balance January 1, 2010 Closing balance December 31, 2010 Opening balance January 1, 2011 Disposals Acquisitions Closing balance December 31, 2011 Depreciation Opening balance January 1, 2010 Depreciation for the year Closing balance December 31, 2010 Opening balance January 1, 2011 Disposals Depreciation for the year Closing balance December 31, 2011 Carrying amount Per January 1, 2010 Per December 31, 2010 Per January 1, 2011 Per December 31, 2011 18 18 18 -1 10 27 -16 0 -16 -16 1 -1 -16 2 2 2 11 The Parent Company holds three properties, located in Sweden and Belgium. Sirius International accounts for the properties, including building supplies, according to the acquisition value method and the capitalized expenses are depreciated over 50 and 10 years, respectively. No depreciation is performed on land. Note 14 • Shares and participations in Group companies Name of subsidiary Registered offices, country Participating interest, % Passage2Health Ltd London, Great Britain Sirius Rückversicherungs Service GmbH Hamburg, Germany Sirius Belgium Réassurances S.A. Liège, Belgium Sirius International Holdings (NL) B.V. Amsterdam, The Netherlands White Mountains Re Bermuda Ltd Hamilton, Bermuda White Mountains Phoenix (Luxembourg) S.à.r.l Luxembourg White Mountains Re Sirius Capital Ltd London, Great Britain 2011 2010 75 100 100 100 100 100 100 - 100 100 100 100 - - Accumulated acquisition cost Beginning of year Acquisition Disposals Capital contribution Repayment of paid-up capital Reclassification from associated companies Closing balance December 31 Accumulated write-downs Beginning of year Acquisition Disposals Write-downs for the year Closing balance December 31 Carrying amount December 31 Parent Company 2011 2010 1,862 1,185 - 3,028 -35 2,058 8,098 1,252 728 - 388 -506 - 1,862 -781 -596 - - - -781 7,317 - - -185 -781 1,081 59 Annual Report 2011 Subsidiaries' shareholders´equity 2011 Name of subsidiary Shareholders’ equity Shares % Number of shares Book value Profit/loss Passage2Health Ltd, London, Great Britain Sirius Rückversicherungs Service GmbH Hamburg, Germany 16 15 75 Share capital total GBP 6,800 consisting of 20 6,800 shares with nom. GBP 1 per share 100 1 share nom. value EUR 51,129 1 Sirius Belgium Réassurances S.A., (in liquidation) 11 100 Share capital total EUR 1,245,681 consisting 13 Liège, Belgium of 700,000 shares without nom. value -4 4 0 Sirius International Holdings (NL) B.V., 1,005 100 Share capital total EUR 18,000 consisting of 1,124 -159 Amsterdam, The Netherlands 180 shares with nom. EUR 100 per share White Mountains Re Bermuda Ltd, 2 100 Share capital total 120,000 USD consists of Hamilton, Bermuda 120,000 shares nom. USD 1 per share White Mountains Re Sirius Capital Ltd, 1 100 Share capital total GBP 1 consisting of London, Great Britain 1 share with nom. GBP 1 per share 1 0 -1 -1 White Mountains Phoenix (Luxembourg) 6,338 100 Share capital total USD 42,266,200 consisting of 6,158 10 S.à.r.l., Luxembourg 1,690,648 shares with nom. USD 25 per share Total 7,388 7,317 -151 2010 Name of subsidiary Shareholders’ equity Shares % Number of shares Book value Profit/loss Sirius Rückversicherungs Service GmbH, Hamburg, Germany 12 100 1 share nom. value EUR 51,129 Sirius Belgium Réassurances S.A. (in liquidation), 12 100 Share capital total EUR 1,245,681 consisting Liège, Belgium of 700,000 shares without nom. value 0 13 -2 0 Sirius International Holdings (NL) B.V., 1,045 100 Share capital total EUR 18,000 consisting of 1,032 381 Amsterdam, The Netherlands 180 shares with nom. EUR 100 per share White Mountains Re Bermuda Ltd, 36 100 Share capital total USD 120,000 consists of 36 -143 Hamilton, Bermuda 120,000 shares with nom. USD 1 per share Total 1,105 1,081 236 60 Annual Report 2011 Note 15 • Shares and participations in associated companies Carrying amount January 1 Share of associated company’s profit/loss 1) Foreign exchange effect Reclassification of associated company 2) Carrying amount December 31 Carrying amount January 1 Reclassification of associated company 2) Carrying amount December 31 Name of associated companies / 2011 Group 2011 2010 2,178 81 67 -2,236 - 2,185 125 -132 - 2,178 Parent Company 2011 2010 2,058 -2,058 - 2,058 - 2,058 Assets Liabilities Shareholders’ Net income Share of equity capital % White Mountains Phoenix (Luxenbourg) S.à.r.l., Luxemburg Total - - - - - - - - - - Name of associated companies / 2010 Assets Liabilities Shareholders’ Net income Share of White Mountains Phoenix (Luxenbourg) S.à.r.l., Luxemburg 20,166 Total 20,166 11,355 11,335 equity 8,811 8,811 capital % 533 533 24.7 24.7 Number of shares - - Number of shares 2,461,000 2,461,000 1) Refers to the Group's share of income in the associated company White Mountains Phoenix (Luxembourg) S.à.r.l. The translation of the exchange rate difference arising in the conversion to Swedish krona is reported directly against shareholders’ equity. 2) During 2011 Sirius International received and purchased the remaining shares in White Mountains Phoenix (Luxembourg) S.à.r.l. and owns 100 % per December 31, 2011. Consequently, the holding is reclassified to Shares in group companies. Note 16 • Investments in shares and participations Group 3,300 1,808 3,575 1,946 fair value Acquisition cost 2011 2010 2011 2010 fair value Acquisition cost 2011 2010 2011 2010 Parent Company 667 874 783 940 Further information on financial instruments can be found in Note 20. 61 Annual Report 2011 Note 17 • Bonds and other interest-bearing securities fair value Acquisition cost Group 2011 2010 2011 2010 Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total 2,688 156 696 6,463 8,816 4,725 0 102 2,883 4,357 2,632 152 675 6,381 8,640 4,735 0 98 2,886 4,292 18,819 12,067 18,480 12,011 Of which listed 18,731 12,067 18,391 12,011 Difference compared to nominal value Total excess amount Total shortfall 1,111 95 622 40 753 75 549 24 fair value Acquisition cost Parent Company 2011 2010 2011 2010 Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total 2,687 156 696 2,128 3,805 9,472 4,725 0 102 2,883 4,357 12,067 2, 632 4,735 152 675 2,102 3,746 9,307 0 98 2,886 4,292 12,011 Of which listed 9,472 12,067 9,307 12,011 Difference compared to nominal value Total excess amount Total shortfall 503 33 622 40 323 17 549 24 Note 18 • Derivatives Group Parent Company Derivatives 2011 2010 2011 2010 Derivatives with underlying security shares Derivatives with underlying security currency Total - 30 30 249 24 273 - 30 30 - 24 24 Derivatives with underlying security in currency refer to currency hedging of MUSD 500 against SEK. The company has entered into two internal currency hedging agreements with Sirius International Financial Services Ltd (formerly White Mountains Re Financial Services Ltd). The first agreement implies that Sirius International per January 1, 2010 has sold MUSD 250 on the basis of a currency futures transaction with a duration of five years at the exchange rate 7.18. With the help of foreign exchange options, the currency futures transactions are settled on the basis of an exchange rate cap of SEK 11.93 per USD, and an exchange rate floor of SEK 5.11 per USD. The second agreement, as per September 30, 2011, implies that Sirius International has sold another MUSD 250 on the basis of a currency futures transaction with a duration of two years at the exchange rate 7.00. With the help of foreign exchange options, the currency futures transactions are settled on the basis of an exchange rate cap of SEK 11.39 per USD, and an exchange rate floor of SEK 4.86 per USD. Outside these ranges, the company takes no hedging measures. The currency hedge agreements are valued monthly. Derivatives with underlying security in shares are exclusively Symetra warrants. These warrants have been sold during 2011 to a company within the White Mountains Group 62 Annual Report 2011 Note 19 • Other debtors Group Parent Company 2011 2010 2011 2010 Other debtors, group companies 1) Other debtors Total other debtors 2) 2 187 189 - 63 63 244 49 293 201 61 262 1) Group companies are defined as companies within the White Mountains-group. 2) The majority of the receivables have a duration less than three months. Note 20 • Categories of financial assets and liabilitities and their fair values financial Loan assets valued receivables and at fair value Available-for- Total Group 2011 accounts via the income sale financial carrying Acquisition receivables statement assets amount fair value value Shares and participations Derivatives Bonds and other interest-bearing securities Accrued income Other debtors Total - - - 494 189 683 3,300 30 9,347 71 - - - 3,300 30 3,300 30 9,472 18,819 18,819 130 - 695 189 695 189 3,575 12 18,523 695 189 12,748 9,602 23,033 23,033 22,994 financial Loan assets valued receivables and at fair value Available-for- Total Parent Company 2011 accounts via the income sale financial carrying Acquisition receivables statement assets amount fair value value Shares and participations Derivatives Bonds and other interest-bearing securities Accrued income Other debtors Total - - - 362 293 655 667 30 - - - - - 667 30 667 30 9,472 9,472 9,472 130 - 492 293 492 293 783 12 9,333 492 293 697 9,602 10,954 10,954 10,913 63 Annual Report 2011 financial liabilities Group 2011 Other financial Carrying liabilities amount fair value Other liabilities Accrued expenses Total 814 350 814 350 814 350 1,164 1,164 1,164 financial liabilities Parent Company 2011 Other financial Carrying liabilities amount fair value Other liabilities Accrued expenses Total 690 199 889 690 199 889 690 199 889 financial Loan assets valued financial assets Group 2010 receivables and at fair value Available-for- Total accounts via the income sale financial carrying Acquisition receivables statement assets amount fair value value Shares and participations Derivatives Bonds and other interest-bearing securities Accrued income Other debtors Total - - - 607 63 670 1,808 273 - - - - - 1,808 273 1,808 273 12,067 12,067 12,067 - - 607 63 607 63 1,946 266 12,599 607 63 2,081 12,067 14,818 14,818 15,481 financial Loan assets valued financial assets Parent Company 2010 receivables and at fair value Available-for- Total accounts via the income sale financial carrying Acquisition receivables statement assets amount fair value value Shares and participations Derivatives Bonds and other interest-bearing securities Accrued income Other debtors Total - - - 606 262 868 874 24 - - - - - 874 24 874 24 940 7 12,067 12,067 12,067 12,599 - - 606 262 606 262 606 262 898 12,067 13,833 13,833 14,414 financial liabilities Other financial Carrying Group 2010 liabilities amount fair value Other liabilities Accrued expenses Total 593 193 786 593 193 786 593 193 786 financial liabilities Other financial Carrying Parent Company 2010 liabilities amount fair value Other liabilities Accrued expenses Total 608 192 800 608 192 800 608 192 800 64 Annual Report 2011 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 / 2011 Level 1 Level 2 Level 3 Total Shares and participations Derivatives Bonds and other interest-bearing securities Total 1,693 - 4,044 5,737 614 - 14,687 15,301 993 30 88 1,111 3,300 30 18,819 22,149 Group / 2010 Level 1 Level 2 Level 3 Total Shares and participations Derivatives Bonds and other interest-bearing securities Total 935 0 6,234 7,169 344 0 5,833 6,177 529 273 0 802 1,808 273 12,067 14,148 Parent Company / 2011 Level 1 Level 2 Level 3 Total Shares and participations Derivatives Bonds and other interest-bearing securities Total - - 3,228 3,228 348 - 6,244 6,592 319 30 0 349 667 30 9,472 10,169 Parent Company / 2010 Level 1 Level 2 Level 3 Total Shares and participations Derivatives Bonds and other interest-bearing securities Total 0 0 6,234 6,234 345 0 5,833 6,178 529 24 0 553 874 24 12,067 12,965 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 values 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 or 3. 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 deter- mined through the use of exchange rates for forward exchanges on balance sheet date, at which point the resulting value is discounted 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 valuation 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. 65 Annual Report 2011 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). Group / 2011 participations Derivatives Bonds Total Shares and Opening balance January 1, 2011 Total reported profit/loss: -reported in profit/loss for the year 1) Acquired balances Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 3 Transfer into Level 3 FX difference Closing balance December 31, 2011 Profit/loss reported in profit/loss for the year for assets included in the closing 529 -24 985 - -497 - 3 -3 993 273 -158 6 -87 - - -4 30 - - 246 - - -245 88 -1 88 802 -182 1,231 6 -584 -245 91 -8 1,111 balance December 31, 2011 1) -24 -158 - -182 Parent Company / 2011 participations Derivatives Bonds Total Shares and Opening balance January 1, 2011 Total reported profit/loss: -reported in profit/loss for the year 1) Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 3 Transfer into Level 3 Closing balance December 31, 2011 Profit/loss reported in profit/loss for the year for assets included in the closing 529 -33 - -180 - 3 319 24 - 6 - - - 30 balance December 31, 2011 1) -33 - - - - - - - - - 553 -33 6 -180 - 3 349 -33 66 Annual Report 2011 Group / 2010 participations Derivatives Bonds Total Shares and Opening balance January 1, 2010 Total reported profit/loss: • reported in profit/loss for the year 1) • reported in shareholders’ equity Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 3 Transfer into Level 3 Closing balance December 31, 2010 Profit/loss reported in profit/loss for the year for assets included in the closing 323 -12 - 251 -33 - - 529 - 7 - 266 - - - 273 balance December 31, 2010 1) -12 7 - - - - - - - - - 323 -5 - 517 -33 - - 802 -5 Parent Company / 2010 participations Derivatives Bonds Total Shares and Opening balance January 1, 2010 Total reported profit/loss: • reported in profit/loss for the year 1) • reported in shareholders’ equity Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 3 Transfer into Level 3 Closing balance December 31, 2010 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2010 1) 323 -12 0 251 -33 - - 529 - 17 - 7 - - - 24 -12 17 - - - - - - - - - 323 5 0 258 -33 0 0 553 5 1) Reported in net income of financial transactions in profit/loss for the year. Financial instruments classified in Level 3 are to some extent funds valued at NAV-rate. In one of these holdings the board of the fund, in early 2012, informed the investors that the future cash flows may be affected negatively under certain unfavorable scenarios. Such a development would affect the value of the fund negatively. To date, enough information to evaluate the possible negative impact of the scenarios is not available. Sirius will monitor the development carefully and regularly conduct impairment tests of the holding. 67 Annual Report 2011 Note 21 • Tangible assets Acquisition cost Opening balance January 1, 2010 Acquisition Disposals Closing balance December 31, 2010 Opening balance January 1, 2011 Acquisition Acquired balances Disposals Currency reevaluation effect Group Parent Company Equipment Equipment 80 24 -18 86 86 23 59 -16 0 79 24 -18 85 85 23 - -8 - Closing balance December 31, 2011 152 100 Depreciations Opening balance January 1, 2010 Depreciation for the year Disposals Closing balance December 31, 2010 Opening balance January 1, 2011 Acquired balances Depreciation for the year Disposals Currency reevaluation effect Closing balance December 31, 2011 Carrying amount January 1, 2010 December 31, 2010 January 1, 2011 December 31, 2011 Note 22 • Deferred acquisition costs Opening balance Acquired portfolio Capitalization for the year Depreciation/amortization for the year Exchange rate gains/losses Closing balance Note 23 • Untaxed reserves Parent Company Accumulated accelerated depreciation, goodwill and equipment Opening balance January 1 Change for the year Closing balance December 31 Appropriation to safety reserve Opening balance January 1 Change for the year Closing balance December 31 Total 68 -59 -12 17 -54 -54 -52 -13 14 0 -105 21 32 32 47 -59 -12 17 -54 -54 - -13 7 - -60 20 31 31 40 Group Parent Company 2011 2010 2011 2010 386 118 323 -359 3 471 419 - 406 -411 -28 386 386 - 296 -344 3 341 419 - 406 -411 -28 386 2011 2010 40 -5 35 9,647 - 9,647 9,682 44 -4 40 9,647 - 9,647 9,687 Annual Report 2011 Note 24 • Provisions for unearned premiums and unexpired risks Provisions for unearned premiums / Group 2011 Gross Reinsurers’ 2010 Reinsurers’ share Net Gross share Net Opening balance Acquired portfolio Insurance policies signed during period Earned premiums for the period Currency effect Closing balance 1,936 395 1,479 -1,663 35 2,182 Provisions for unexpired risks / Group -403 11 -289 254 -12 -439 2011 Gross Reinsurers’ 1,533 406 1,190 -1,409 23 1,743 2,190 - 2,072 -2,111 -215 1,936 -379 - -419 327 68 -403 1,811 - 1,653 -1,784 -147 1,533 2010 Reinsurers’ share Net Gross share Net Opening balance Current year´s provisions included in profit/loss Previous years´provisions included in profit/loss Currency effect Closing balance 126 - -10 2 118 -93 - 8 -2 -87 33 - -2 0 31 140 - -6 -8 126 -103 - 4 6 -93 37 - -2 -2 33 Provisions for unearned premiums / Parent Company 2011 Gross Reinsurers’ 2010 Reinsurers’ share Net Gross share Net Opening balance Insurance policies signed during period Earned premiums for the period Currency effec Closing balance 1,936 1,487 -1,726 33 1,730 Provisions for unexpired risks / Group -403 -369 341 -11 -442 2011 Gross Reinsurers’ 1,533 1,118 -1,385 22 1,288 2,190 2,071 -2,111 -214 1,936 -379 -419 327 68 -403 1,811 1,652 -1,784 -146 1,533 2010 Reinsurers’ share Net Gross share Net Opening balance Current year´s provisions included in profit/loss Previous years´provisions included in profit/loss Currency effect Closing balance 126 - -10 2 118 -93 - 8 -2 -87 33 - -2 - 31 140 - -6 -8 126 -103 - 4 6 -93 37 - -2 -2 33 69 Annual Report 2011 Note 25 • Claims outstanding Provisions for outstanding claims 2011 2010 Reinsurers´ Reinsurers´ Group Gross share Net Gross share Net 3,707 1,819 5,526 7,426 - 4,982 4,879 9,861 - 6 -852 -3,096 -3,948 - 0 4,130 1,783 5,913 - 6 2,148 3,284 -582 2,702 Opening balance, reported claims Opening balance, incurred but not reported claims (IBNR) Opening balance Acquired portfolio Portfolio transfer WTM Re Bermuda Cost for claims incurred during the current year Change in estimated cost for claims incurred in previous years (close down profit/loss) Claims handling expense 4,831 6,251 11,082 8,475 - 2,625 1,895 170 Paid/transferred to insurance liabilities or other current liabilities 4,020 -1,124 -4,432 -5,556 -1,049 - -477 -918 0 -736 -321 Currency effect Closing balance Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) Provisions for outstanding claims 977 170 3,284 92 2,739 175 4,253 -380 -2,013 0 -937 50 413 20,300 -7,585 12,715 11,082 -5,556 7,882 12,418 -1,454 -6,131 6,428 6,287 4,831 6,251 -1,124 -4,432 2011 Reinsurers´ 2010 Reinsurers´ 726 175 3,316 -330 5,526 3,707 1,819 Parent Company 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 expense Paid/transferred to insurance liabilities or other current liabilities Currency effect Closing balance Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) 4,831 6,251 11,082 2,238 1,785 159 3,444 443 -1,124 -4,432 -5,556 -476 -839 0 -650 -324 11,945 -6,545 4,272 7,673 -908 -5,637 3,707 1,819 5,526 1,762 946 159 2,794 119 5,400 3,364 2,036 4,982 4,879 9,861 3,284 2,732 175 4,240 -380 -852 -3,096 -3,948 -582 -2,013 0 -937 50 11,082 -5,556 4,831 6,251 -1,124 -4,432 4,130 1,783 5,913 2,702 719 175 3,303 -330 5,526 3,707 1,819 Note 26 • Equalisation provision Group Parent Company 2011 2010 2011 2010 Opening balance Release of provision made in prior years Provision for the year Closing balance - - - - - - - - 12 - 49 61 3 -3 12 12 70 Annual Report 2011 Note 27 • Claims handling provision Opening balance Acquired portfolio Release of provision made in prior years Provision for the year Currency effect Closing balance Note 28 • Employee benefits Group Parent Company 2011 2010 2011 2010 129 115 -34 44 0 254 122 - -20 41 -14 129 129 - -28 41 0 142 122 - -20 41 -14 129 Group Parent Company Pension provisions 2011 2010 2011 2010 Pension provision – defined benefit plans Sweden Pension provision – other defined benefit plans Total -4 6 2 -2 7 5 7 - 7 9 - 9 Specification of provisions for employee benefits In a defined benefit plan, the employer guarantees that the employee will receive a defined level of benefit upon retirement, based on one or more factors, such as age, length of service and salary. The group calculates its provisions and expenses based on the conditions of the guaranteed pension obligations, as well as on its own assumptions regarding future development. The provision reported in the balance sheet for defined bene- fit plans is the present value of the defined benefit obligation at the end of the reporting period, less the fair value of plan assets, adjusted for unrecognized actuarial gains and losses, and unre- cognized service costs related to prior periods. Actuarial gains and losses arise if actual outcome deviates from calculated, defined assumptions, or if there is a change in assumptions. The defined pension obligation is calculated annually by independent actuaries, applying the projected unit credit method. The net present value of the obligation is defined by discounting of esti- mated future cash flows, using the interest rate of high quality mortgage bonds that are emitted in the same currency in which the obligations are to be paid, with durations comparable to the duration of the current pension obligation. The group applies the corridor method, implying that actuarial net losses are recorded when the opening balance of actuarial losses exceeds 10% of either the projected benefit obligation or of investment assets. As the actuarial net loss amount does not exceed the corridor amount, there is no surplus to amortize through the income statement during the employees’ remaining period of service. The group has defined benefit plans in Sweden (collective agreement) and Germany which are based on the employees’ pension entitlements and length of employment. In Germany all employees are included in the plan. In Sweden only employees born 1971 or earlier are covered by defined benefit plans and, thus, form part of the FTP2. Furthermore, there are two variations of retirement earlier than at the age of 65. Employees born 1955 and earlier have the possibility to retire between the ages of 62 and 65 according to local agreement. Staff employed before 1 January, 2004 have the right to retire from the age of 64. These plans are also defined benefit plans and are reflected in financial statements of both the Group and the Parent Company. Employees in Sweden born 1972 or later, are covered by a defined contribution plan, FTP1. Employees outside Sweden and Germany are mainly covered by defined contribution plans in which the employer has a responsi- bility for the employees’ pension. Amounts in the balance sheet for defined benefit plans / Group 2011 2010 Defined benefit obligations Fair value of plan assets Sub-total Net cumulative unrecognized actuarial losses Provisions for defined benefit plans 67 -61 6 -4 2 59 -53 6 -1 5 71 Annual Report 2011 Pension cost recognized in the income statement / Group 2011 2010 Current service cost Interest cost Expected return on plan assets Amortization of actuarial net loss Amortization of service cost prior year Pension cost for defined benefit plans Paid premiums, defined contribution plans Total pension cost 1) 1 2 -2 - - 1 70 71 11 3 -2 0 6 18 44 62 1) The pension cost for the year does not include special salary tax, which is disclosed in note 32 in the table ”Remuneration to employees”. Changes in defined benefit obligations / Group 2011 2010 Opening balance pension obligation Current service cost Interest cost, pension obligation Actuarial gains and losses, net Release of obligation by payment Service cost, prior year Transition Exchange differences on foreign plans Closing balance pension obligation 59 1 3 3 -2 - 3 0 67 41 11 3 1 -1 6 - -1 59 Changes in plan assets / Group 2011 2010 Opening balance plan assets at fair value Expected return on plan assets Actuarial gains and losses, net Contributions Release of obligation by payment Exchange differences on foreign plans Closing balance plan assets at fair value 53 2 -1 8 -2 1 61 50 1 0 5 -1 -2 53 The investment assets’ fair value, as per December 31, 2011, is lower than the value of the Group’s defined benefit pension commitments. This is due to the Group having a non-funded com- mitment, for the portion of the Group’s benefit-based pension plans which facilitate retirement between 62 and 65 years of age. Actual retirements are settled when the decision regarding retirement is made. In conjunction with such a decision, the total pension premium is paid to the company’s pension administrator for the period up to 65 years of age. During the year, three indivi- duals have exercised the opportunity to take early retirement. Unrecognized actuarial net loss / Group 2011 2010 Opening balance actuarial net losses Defined benefit obligations The period’s experience effect on actuarial net gains (-)/net losses (+) on pension obligations Amortization of actuarial net gains/losses Plan assets The period’s experience effect on actuarial net gains (-)/net losses (+) on plan assets Amortization of actuarial net gains/losses Closing balance actuarial net losses 1 3 - 0 - 4 - 1 - - - 1 72 Annual Report 2011 Corridor method / Group 2012 2011 2010 Opening balance actuarial net losses Corridor amount Expected remaining service time (years) Gains/losses subject to amortization 4 6 14.7 - 1 5 14.9 - 0 5 15.7 - Actuarial assumptions, percentages / Group 2011 2010 Discount rate, January 1 Discount rate, December 31 Expected return on plan assets Expected salary increases, January 1 Expected salary increases, December 31 Indexation of benefits Indexation of income base amount, January 1 Indexation of income base amount, December 31 Staff turnover 5 % 3.7 % 3 % 2.9 % 2.9 % 1.4 % 2.4 % 2.4 % 3 % 5 % 5 % 3 % 3.5 % 3.5 % 2 % 3 % 3 % 3 % When calculating the expense for defined benefit obligations, as- sumptions are made regarding the future development of factors which may influence the size of expected payments. The discount rate is the interest rate applied to discount the value of expected payments. This rate is fixed applying a market rate with a remain- ing duration equivalent to the pension obligations. The group’s applied discount rate, for the Swedish defined obligations, is based on Swedish mortgage bonds. Assets to secure these pension obligations are invested in a variety of financial instruments by Sirius pension investment manager. The expected return on plan assets mirrors the expec- ted average yearly return on those financial instruments for the remaining duration. Expected future annual salary increases is mirrored by com- position of effects from collective agreements and salary drift. Final benefits according to FTP are governed by Swedish base income amount (inkomstbasbeloppet). Consequently, there is a requirement to assess future base income amounts. Annual pension increases also need to be considered, as these have historically always taken place. Assumptions about the beneficiaries’ life expectancy comply with FFFS 2007:31 (DUS06) and are updated annually. Three-year summary / Group 2011 2010 2009 Defined benefit obligations Fair value of plan assets Total Actuarial gains (-) losses (+) for the year Pension obligations Plan assets Note 29 • Other creditors Creditors arising out of direct insurance -67 61 -6 3 0 -59 53 -6 1 - -41 50 9 - - Group Parent Company 2011 2010 2011 2010 Amounts due to group companies 1) Other debtors Total other creditors 2) 595 219 814 519 74 593 609 81 690 539 69 608 1) Group companies are defined as companies within the White Mountains-group. 2) The majority of the liabilities have a duration less than one year. 73 Annual Report 2011 Note 30 • Contingent liabilities and commitments Group Parent Company Pledged assets for own liabilities and provisions 2011 2010 2011 2010 Bonds and other interest-bearing securities Cash and bank 9,528 223 Assets for which policy holders have preferential rights 9,751 7,553 115 7,668 8,453 170 8,623 7,553 115 7,668 On the basis of the stipulations in Chapter 7, Section 11 of the Insurance Business Act, registered assets amount to MSEK 7,029. 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 insurance commitments are covered by technical provisions in accordance with the Insurance Business Act. Contingent liabilities and other commitments 2011 2010 2011 2010 Group Parent Company Nominal amount Guarantees on behalf of subsidiary Future commitments for investments in private equity companies Total Note 31 • Associated parties 1,458 174 1,632 - 60 60 1,458 56 1,514 - 60 60 Summary of transactions with associated companies within the White mountains Group Group / 2011 Services purchased Receivables Liabilities from associated associated Indemni- associated parties per parties per Premium income, net fication parties December 31 December 31 Sirius America Insurance – assumed reinsurance 2) Sirius America Insurance – ceded reinsurance 2) Sirius America Insurance – administrative services 2) Esurance – assumed reinsurance WM Life Re – ceded reinsurance Sirius Global Services – administrative services 2) Sirius International Holding - administrative services Sirius International Financial Services LLC – financial services Sirius Insurance Holding Sweden AB – group contributions - Fund American Holdings AB – group contributions White Mountains Advisors LLC – financial services White Mountains Capital Inc – administrative services Sirius International Insurance Group Ltd –administrative services Sirius International Group Ltd. – administrative services White Mountains International S.à.r.l. – administrative services OneBeacon Insurance Group Ltd. – dividends Symetra Financial Services Ltd. – dividends 122 -22 - - 42 -209 - - - - - - - - - - - - 21 19 - 44 857 - - - - - - - - - - - - - - 2 - - 5 5 -1 - - 25 - -5 - - 71 12 - - - - 5,253 1) - - 1,021 - - - - 2 - - - - - - - - 16 - 1 13 374 190 11 1 - 3 1 - - Total -151 941 114 6,276 610 74 Annual Report 2011 Parent Company / 2011 Services Premium income, purchased Receivables Liabilities from associated associated Indemni- associated parties per parties per net fication parties December 31 December 31 Sirius America Insurance – assumed reinsurance Sirius America Insurance – ceded reinsurance Sirius America Insurance – administrative services Esurance – assumed reinsurance WM Life Re – ceded reinsurance Sirius Global Services – administrative services Sirius International Holding - administrative services Sirius International Financial Services LLC – financial services Sirius Insurance Holding Sweden AB – group contributions- Fund American Holdings AB – group contributions White Mountains Advisors LLC – financial services Sirius International Holding NL (BV) – anticipated dividend Syndicate 1945 – intra group receivables White Mountains Re Sirius Capital Ltd. – intra group receivables Sirius Rückversicherungs Service GmbH - intra group payables Sirius Belgium Réassurances S.A - intra group payables 147 -25 - - 42 -209 - - - - - - - - - - - 26 22 - 44 857 - - - - - - - - - - - - - 3 - - 7 5 -1 - - 19 - - - - - 499 1 - - 5,253 1) - - - - - - 205 32 7 - - Total -129 949 33 5,997 - - - - 16 2 1 13 374 190 5 - - - 22 1 624 Group and Parent Company / 2010 Services Premium income, purchased Receivables Liabilities from associated associated Indemni- associated parties per parties per net fication parties December 31 December 31 White Mountains Re America – assumed reinsurance White Mountains Re America – ceded reinsurance White Mountains Re America – administrative services Esurance – assumed reinsurance WM Life Re – ceded reinsurance 512 - 56 - 727 -216 White Mountains Re Services – administrative services White Mountains Holding - administrative services White Mountains Re Underwriting Services Ltd. – assumed reinsurance White Mountains Financial Services LLC – financial services Sirius Insurance Holding Sweden AB – group contributions Fund American Holdings AB – group contributions White Mountains Advisors LLC – financial services - - - - - - - - 465 56 - - 713 1,306 - - - - - - - Total 967 184 - - -1 - - -11 -2 - -17 - - -20 -51 819 - - 181 4,093 1) - - - - - - - 5,093 - 7 - - 13 14 - 2 7 323 170 5 541 1) Refers to reinsurer’s share of outstanding claims. 2) Refers to reinsurance and services purchased during 9 months 2011. As of October 1, 2011, all companies within the White Mountains Phoenix (Luxembourg) S.à.r.l. Group are consolidated and the reinsurance and services are eliminated. 75 Annual Report 2011 Note 32 • Average number of employees, salaries and other remuneration Average number of employees / Group men Women Total men Women Total 2011 2010 Parent Company Employees in Subsidiaries Germany UK USA 1) Canada 1) Total 132 140 272 131 136 4 1 20 1 8 1 18 1 12 2 38 2 5 - - - 7 - - - 267 12 - - - 158 168 326 136 143 279 Average number of employees / Parent Company men Women Total men Women Total 2011 2010 Sweden UK Belgium Switzerland Singapore Denmark Bermuda Total 68 22 22 4 5 4 7 70 19 23 5 10 2 11 138 41 45 9 15 6 18 63 23 24 4 5 4 8 70 19 20 5 10 1 11 133 42 44 9 15 5 19 132 140 272 131 136 267 Senior management / Group and Parent Company men Women Total men Women Total 2011 2010 Board and CEO Other senior members of management Total 4 2 6 - - - 4 2 6 3 3 6 1 - 1 4 3 7 1) Average number of employees in USA and Canada for 2011 only refers to the period October 1 – December 31, 2011. 76 Annual Report 2011 Remuneration to employees Group Parent Company 2011 2010 2011 2010 Salaries including bonuses Of which expenses bonus and other similar remunerations Pension expenses • Defined contribution plans • Defined benefit plans (Note 28) Social security contributions, special employer’s contributions on pensions Total 299 52 71 70 1 78 448 273 80 62 43 19 76 411 248 44 68 69 -1 76 392 261 77 56 43 13 76 393 Of which paid remuneration for the year to: Group Parent Company CEO 2011 2010 2011 2010 Salaries including bonuses Of which paid out bonuses Pension expenses •Defined contribution plans •Defined benefit plans Total Board and other senior members of management Salaries including bonuses Of which expenses bonus and other similar remunerations Pension expenses • Defined contribution plans • Defined benefit plans Total 12 8 3 3 - 15 11 6 2 2 - 13 12 8 3 3 - 15 12 7 3 3 - 15 12 8 3 3 - 15 11 6 2 2 - 13 12 8 3 3 - 15 12 7 3 3 - 15 Salaries and remuneration The Board receives remunerations in accordance with the resolutions of the Annual General Meeting. Board fees are not paid to individuals employed in the company. No Board fees were paid in 2010 and 2011. Remuneration policy Sirius International’s remuneration policy is available on the Company’s homepage, which follows FFFS 2009:7. Note 33 • Fees and reimbursements to auditors PriceWaterhouseCoopers (PWC) Audit services Tax counseling Total Group Parent Company 2011 2010 2011 2010 7 1 8 4 1 5 4 1 5 4 1 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. Other services than those included in the audit agreement are classified as audit services in addition to audit agreement, tax counseling and other services. 77 Annual Report 2011 Note 34 • Operational leasing Non-cancellable leases Group Parent Company 2011 2010 2011 2010 Due for payment within one year Due for payment later than one year but within five years Due for payment after five years Total 56 146 25 227 32 40 7 79 31 101 5 137 31 35 7 73 Note 35 • Class analysis Profit/loss per insurance class Group / 2011 Personal marine, fire and other accident and aviation and property Credit Total direct Assumed health transport damage insurance miscellaneous insurance reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Technical result 651 599 -337 -272 -5 -15 75 58 -38 -29 4 -5 83 87 -98 -40 0 -51 0 0 -2 0 0 -2 91 86 -40 -33 0 13 900 830 -515 -374 -1 -60 5,055 5,319 -4,005 -1,385 129 58 Parent Company / 2011 Personal marine, fire and other accident and aviation and property Credit Total direct Assumed health transport damage insurance miscellaneous insurance reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision Technical result 635 596 -335 -264 -4 0 -7 75 58 -38 -30 4 0 -6 83 87 -97 -40 0 0 -50 0 0 -3 0 0 0 -3 82 83 -39 -29 0 0 15 876 824 -512 -363 0 0 -51 4,471 4,772 -3,511 -1,173 53 -49 92 Parent Company / 2010 Personal marine, fire and other accident and aviation and property Credit Total direct Assumed health transport damage insurance miscellaneous insurance reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision Technical result 637 630 -337 -277 -17 0 -1 57 55 -17 -24 -5 0 9 89 79 -33 -39 0 0 7 0 0 -2 0 0 0 -2 96 86 -31 -31 -1 3 26 879 850 -420 -371 -23 3 39 6,516 6,591 -5,596 -1,589 1,192 -12 586 The class analysis is substantially the same for the Group and Parent Company for 2010. Total 5,955 6,149 -4,520 -1,759 128 -2 Total 5,347 5,596 -4,023 -1,536 53 -49 41 Total 7,395 7,441 -6,016 -1,960 1,169 -9 625 78 Annual Report 2011 Stockholm, March 6, 2012 Allan Waters Chairman of the Board of Directors Brian Kensil Lars Ek Göran Thorstensson President & CEO Our Auditors’ Report was submitted on March 6, 2012 Anna Hesselman Authorized Public Accountant Morgan Sandström Authorized Public Accountant 79 Annual Report 2011 Audit Report To the annual meeting of the shareholders of Sirius International Insurance Corpo- ration (publ) corporate identity number 516401-8136 and disclosures in the annual accounts and consolidated accounts. The procedures se- lected depend on the auditor’s judgment, in- cluding the assessment of the risks of material misstatement of the annual accounts and con- solidated accounts, whether due to fraud or error. In making those risk assessments, the Report on the annual accounts auditor considers internal control relevant to and consolidated accounts the company’s preparation and fair presenta- We have audited the annual accounts and con- tion of the annual accounts and consolidated solidated accounts of Sirius International Insur- accounts in order to design audit procedures ance Corporation (publ) for the year 2011. that are appropriate in the circumstances, but Responsibilities of the Board of Directors not for the purpose of expressing an opinion and the Managing Director for the annual ac- on the effectiveness of the company’s internal counts and consolidated accounts control. An audit also includes evaluating the The Board of Directors and the Managing appropriateness of accounting policies used Director are responsible for the preparation and the reasonableness of accounting esti- and fair presentation of these annual accounts mates made by the Board of Directors and the and consolidated accounts in accordance with Managing Director, as well as evaluating the International Financial Reporting Standards, as overall presentation of the annual accounts adopted by the EU, and the Annual Accounts and consolidated accounts. Act for Insurance Companies, and for such We believe that the audit evidence we internal control as the Board of Directors and have obtained is sufficient and appropriate to the Managing Director determine is necessary provide a basis for our audit opinion. to enable the preparation of annual accounts and consolidated accounts that are free from Opinions material misstatement, whether due to fraud or In our opinion, the annual accounts have error. been prepared in accordance with the An- nual Accounts Act for Insurance Companies Auditor’s r esponsibility and present fairly, in all material respects, the Our responsibility is to express an opinion financial position of the parent company as of on these annual accounts and consolidated 31 December 2011 and of its financial per- accounts based on our audit. We conducted formance and its cash flows for the year then our audit in accordance with International ended in accordance with the Annual Ac- Standards on Auditing and generally accepted counts Act for Insurance Companies, and the auditing standards in Sweden. Those standards consolidated accounts have been prepared in require that we comply with ethical require- accordance with the Annual Accounts Act for ments and plan and perform the audit to obtain Insurance Companies and present fairly, in all reasonable assurance about whether the annual material respects, the financial position of the accounts and consolidated accounts are free group as of 31 December 2011 and of their from material misstatement. financial performance and cash flows in ac- An audit involves performing procedures cordance with International Financial Report- to obtain audit evidence about the amounts ing Standards, as adopted by the EU, and the 80 Annual Report 2011 Annual Accounts Act for Insurance Compa- As a basis for our opinion on the Board nies. The statutory administration report is of Directors’ proposed appropriations of the consistent with the other parts of the annual company’s profit or loss, we examined the accounts and consolidated accounts. Board of Directors’ reasoned statement and a We therefore recommend that the annual selection of supporting evidence in order to meeting of shareholders adopt the income be able to assess whether the proposal is in statement and balance sheet for the parent accordance with the Companies Act and the company and the group. Insurance Business Act. As a basis for our opinion concerning dis- Report on other legal and r egulatory charge from liability, in addition to our audit r equir ements of the annual accounts and consolidated ac- In addition to our audit of the annual ac- counts, we examined significant decisions, ac- counts and consolidated accounts, we have tions taken and circumstances of the company examined the proposed appropriations of the in order to determine whether any member of company’s profit or loss and the administra- the Board of Directors or the Managing Direc- tion of the Board of Directors and the Manag- tor is liable to the company. We also examined ing Director of Sirius International Insurance whether any member of the Board of Directors Corporation (publ) for the year 2011. or the Managing Director has, in any other way, acted in contravention of the Companies Responsibilities of the Board of Dir ectors Act, the Insurance Business Act, the Annual and the Managing Dir ector Accounts Act for Insurance Companies or the The Board of Directors is responsible for the Articles of Association. proposal for appropriations of the company’s We believe that the audit evidence we profit or loss, and the Board of Directors and have obtained is sufficient and appropriate to the Managing Director are responsible for provide a basis for our opinion. administration under the Companies Act and the Insurance Business Act. Opinions We recommend to the annual meeting of Auditor’s r esponsibility shareholders that the profit be appropriated in Our responsibility is to express an opinion accordance with the proposal in the statutory with reasonable assurance on the proposed administration report and that the members appropriations of the company’s profit or of the Board of Directors and the Managing loss and on the administration based on our Director be discharged from liability for the audit. We conducted the audit in accordance financial year. with generally accepted auditing standards in Sweden. Stockholm, 6 March, 2012 Anna Hesselman Authorized Public Accountant Morgan Sandström Authorized Public Accountant 81 Annual Report 2011 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 2011. The audited Swedish version is the binding version. 82 Annual Report 2011 83 Annual Report 2011 Sirius was founded in 1945 as a captive by the Swedish industrial group Axel Johnson. Initially the company insured only Johnson fleet vessels and reinsured at Lloyd’s. Over time, Sirius moved into third party business and during the 1970s a global assumed reinsurance account was developed. By 1978 Sirius had become one of the largest reinsurance companies in Sweden with premiums of about $40 million. In 1985, the Johnson group ran into financial difficulties and reluctantly sold Sirius to the Swedish indus- trial group ASEA, later to become ABB. Premium volume was now around $180 million, nearly all written on a proportional basis. In 1990 Göran Thorstensson became CEO of Sirius. The company added non-proportional business and improved profitability. Sirius gradually emerged as a leading excess of loss reinsurer. By 2000, Sirius was the only major Nordic reinsurer. Merely 15 years earlier, some 35-40 Nordic compa- nies were writing assumed reinsurance accounts; alas, without sustainable results. In 2004, history then repeated itself as Sirius’ second owner also ran into financial difficulties, enabling White Mountains to acquire Sirius for $428 million and record a gain of $111 million. In 2011 on July 1 the wholly owned Syndicate 1945 started to underwrite. In the autumn Sirius America (former White Mountains Re America) became part of the Sirius Group. A combination of strong underwriting controls and uniquely experienced management – most of the team has been with the company for more than 20 years – has allowed Sirius to outperform the reinsur- ance industry over an extended period. Nearly all of Sirius’ customers have been business partners for a long time, many for more than 40 years. The company’s philosophy has always been to write for profit only – every company says so but few walk the walk. Management has no volume targets, avoids legacy problems by maintaining a strong balance sheet, and always sticks to what it knows. Since the acquisition by White Mountains, Sirius has an average combined ratio of 86% and cumulative underwriting profits in excess of $500 million. This long-term track record is perhaps unparalleled. 84 Annual Report 2011 Art and pr oduction: Studio Ringvall 85 

Continue reading text version or see original annual report in PDF format above