HEAD OFFICE Sirius International Insurance Corporation (publ) SE-113 96 Stockholm, Sweden Visiting address: Birger Jarlsgatan 57B Telephone: +46 8 458 5500 Telefax: +46 8 458 5599 (Reinsurance) +46 8 458 5595 (Corp. Accounting & Control) Sirius International Insurance Corporation (publ) Belgian Branch Mont Saint Martin 62B/2 BE-4000 Liège, Belgium Telephone: +32 4 220 8611 Telefax: +32 4 232 1999 (Underwriting) +32 4 232 1998 (Accounting/Claims) +32 4 232 1994 (Finance) Sirius International Insurance Corporation (publ) Bermuda Branch Hamilton HMJX, Bermuda Visiting address: 14 Wesley Street; 5th floor Telephone: +1 441 278 3140 Telefax: +1 441 278 3145 Sirius International Danish Branch, filial af Sirius International Försäkringsaktiebolag (publ), Sverige Nyhavn 43, 2nd floor DK-1051 Copenhagen, Denmark Telephone: +45 88 807 100 Telefax: +45 88 807 111 www.siriusaviationinsurance.com Sirius Rückversicherungs Service GmbH Neuer Wall 52/Entrance: Bleichenbrücke 1-7 DE-20354 Hamburg, Germany Telephone: +49 40 30 95 19-0 Telefax: +49 40 30 95 19-21 Sirius International Insurance Corporation (publ) UK Branch The London Underwriting Centre, 3 Minister Court, Mincing Lane London EC3R, 7DD, Great Britain Telephone: +44 20 7617 4900 Telefax: +44 20 7617 4919 Sirius International Insurance Corporation (publ) Asia Branch, Singapore 24 Raffles Place #10-01/02, Clifford Centre 048 621 Singapore, Singapore Telephone: +65 6435 0052 Telefax: +65 6435 0053 Sirius International Insurance Corporation (publ) Labuan Branch c/o MNI Offshore Insurance (L) Ltd Level 11 (B) Block 4 Office Tower Financial Park Labuan Complex Jalan Merdeka 87000 FT Labuan, Malaysia Telephone: +60 87 417 672 73 Telefax: +60 87 417 675 Sirius International Insurance Corporation (publ) Stockholm, Zurich Branch P.O. Box 2807 CH-8022, Zurich, Switzerland Visiting address: Dreikönigstrasse 12 Telephone: +41 43 443 0180 Telefax: +41 43 443 0189 www.siriusgroup.com 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 3 CONTENTS White Mountains Insurance Group Comments from the President and CEO Board of Directors’ Report Income Statement - Group Statement of Comprehensive Income - Group Balance Sheet - Group Change in Shareholders’ Equity - Group Cash flow Statement - Group Performance Analysis – Group Income Statement – Parent Company Statement of Comprehensive Income – Parent Company Balance Sheet – Parent Company Change in Shareholders’ Equity – Parent Company Cash flow Statement – Parent Company Performance Analysis – Parent Company Note 1 Accounting principles Note 2 Information on risks Note 3 Premium income Note 4 Claims incurred, for own account Note 5 Operating costs Note 6 Investment income Note 7 Unrealized gains and losses on investments Note 8 Investment expenses and charges Note 9 Net profit or net loss per category of financial instruments Note 10 Taxes Note 11 Intangible assets Note 12 Land and buildings Note 13 Shares and participations in group companies Note 14 Investments in shares and participations Note 15 Bonds and other interest-bearing securities Note 16 Derivative financial instruments Note 17 Other debtors Note 18 Categories of financial assets and liabilities and their fair value Note 19 Tangible assets Note 20 Deferred acquisition costs Note 21 Untaxed reserves Note 22 Provisions for unearned premiums and unexpired risks Note 23 Claims reserve Note 24 Equalization provision Note 25 Claims handling provision Note 26 Employee benefits Note 27 Other creditors Note 28 Contingent liabilities and commitments Note 29 Associated parties Note 30 Average number of employees, salaries and other remunerations Note 31 Fees and reimbursements to auditors Note 32 Operational leasing Note 33 Class analysis Audit report Definitions History 1 3 5 11 12 13 15 17 18 19 20 21 23 25 26 27 35 50 50 52 53 53 53 54 55 56 57 58 59 60 60 61 61 66 66 67 67 68 68 68 69 71 71 72 75 76 76 77 79 81 82 249007_Sirius_arsredovisning_2013_OMSLAG.indd 1 2014-04-08 08.57 Annual report 2013 sirius international insurance corporation – annual report 2013 White Mountains, our owners White Mountains Insurance Group, Ltd. A financial services holding company with primary business interests in property and casualty insurance and reinsurance. White Mountains´corporate headquarters and its registered office are located in Hamilton, Bermuda, and its principal executive office is located in Hanover, New Hampshire. White Mountains conducts its principal businesses through: Sirius International Insurance Group, Ltd. Global reinsurance. OneBeacon Specialty insurance. OneBeacon’s common shares are listed on the New York Stock Exchange under the symbol “OB”. White Moun- tains owns 75% of OneBeacon. HG Global U.S. municipal bond reinsurance. White Mountains Advisors Investment management with $34 billion of assets under management. White Mountains’ common shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange under the sym- bol “WTM”. Market capitalization as of December 31, 2013 was $3.7 billion. As of December 31, 2013, White Mountains reported total assets of $12.1 billion, adjusted shareholders’ equityNGM of $3.9 billion, and adjusted book value per shareNGM of $642. Sirius International Insurance Group, Ltd. A Bermuda-domiciled holding company whose operating compa- nies offer capacity for property, accident & health, trade credit, avi- ation, marine and other exposures. Our principal operating com- panies are: Sirius International Insurance Corporation A Swedish-based international reinsurer that focuses mainly on property and other short-tailed lines. Sirius International is the lar- gest reinsurance company in Scandinavia and a leading reinsurer in Europe. Sirius International’s home office is in Stockholm, and it has offices in Australia, Bermuda, Copenhagen, Hamburg, Liège, London, Singapore and Zürich. Sirius America Insurance Company A U.S.-based, international, (re)insurance company that focuses on the property and accident & health lines in North and Latin America. Sirius America’s home office is in New York with branch offices in Miami and Toronto. Sirius Syndicate 1945 A Lloyd’s syndicate that began writing business at July 1, 2011 with initial stamp capacity of £93 million and focus on accident & health, contingency, property and marine. White Mountains Solutions Inc. A Connecticut-based professional team specializing in opportu- nistic structured acquisitions of run-off property and casualty insu- rance liabilities. The team further enhances transaction returns via effective post-acquisition management of the run-off process. Sirius Capital markets In May 2013, responding to the growing trend of capital markets participation in business traditionally written by the reinsurance in- dustry, Sirius Group announced the formation of a dedicated team – Sirius Capital Markets (“SCM”) – to lead its strategic initiative in this important arena. The SCM platform consists of Sirius Capital Markets (Bermuda) Ltd., a Bermuda licensed insurance manager, Sirius Capital Markets, LLC, a Delaware limited liability company, both of which registered as an investment adviser with the SEC (with effect in November 2013), and Alstead Reinsurance Ltd., a newly formed Bermuda exempted company. SCM will offer insti- tutional investors products linked to property catastrophe risk. 1 2 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 Annual Report 2012 Although 2012 was better than our Comments from the President & CEO part of a pattern of profitability. We have long-term average, it should be seen as now returned positive figures for every business. Sirius America has since added direct Ac- cident and Health to its book, and we see this becoming an important pillar of the one of the last eleven years, even when We appear to be further away from im- things have been difficult. In the period I am pleased to report another very successful year for the Sirius International group. Profits rose substantially, aided by a benign since 1997 our combined ratio has been environment for the reinsurance industry as a whole. Market 93%. As I have said before, this stability is conditions remain challenging with continued soft pricing. I am confident, however, that our well-proven teams and cautious tional a reliable long-term trading partner. underwriting approach will continue to hold us in good stead. one of the factors that make Sirius Interna- At $1,197 m, premium income was flat in comparison with last year if one The amount of claims from natural catastrophes was significantly lower than average last year. The biggest losses centred on includes Sirius America for the full year, Germany. Floods there and in neighbouring countries cost Sirius reflecting our selective underwriting and $27 million, whilst hail storms in July came in at $17 million. Bad the shortage of profitable opportunities in weather in the Nordic countries towards the end of 2013 also had a what continues to be a soft market. The significant impact. increase in profits was driven by a drop in claims. The only two losses of any size It is worth recording that we have now made an underwriting profit in every one of the ten years since becoming part of the White were from storm Sandy (nearly $100 m) Mountains Group. In that time our combined ratio has averaged and the drought in Mid-West United States 86% so, although the 2013 year was better than average, it was by no means exceptional. It was part of a long-term pattern of profitabili- As ever, our diversity and spread of ty that makes Sirius a stable business partner for our clients. risk have made possible our consistently ($35 million). In terms of how we operate, things have settled down after a period strong performance. Whereas in 2011 a of restructuring, including the successful integration of what is benign loss experience in the western now Sirius America into the group. One of the main developments hemisphere kept us profitable at a time of in 2013 was at Lloyd’s, where we have started work on the creation heavy losses elsewhere, this time it was of a managing agency, due to go live in July 2014, to oversee our Syndicate. The main benefit of an Integrated Lloyd’s Vehicle, as the arrangement is known, will be a significant reduction in our cost 1945 completed its first full year in good base and so an increase in our competitiveness. Our new Lloyd’s operation Syndicate the other way around. plementation of Solvency II than we were this time last year, now that the measure We continue, meanwhile, to be well advanced in our preparations for Solvency II. It looks increasingly likely that this measure will come into force in January 2016. Whatever the date, we shall be ready. has been put back yet again, probably at least to 2016. We continue, though, to be eventually arrive. well prepared for the changes when they Looking ahead, rates remain too low for us to relax our standards. Despite rises in a few areas, we saw a thinning of margins overall at the end-of-year renewal season. Our consistency shows that we can Looking ahead to the rest of 2013, we prosper even when times are tough, as they were in 2011. Noneth- eless, market conditions dictate a continued emphasis on the disciplined underwriting that is the source of our strength. saw a very small increase in rates overall at the end-of-year renewal after taking into account the usual variations between different classes and geographies. Yet it is very difficult to see the hard market re- turning in the immediate future. The rein- surance industry continues to attract new For me personally 2014 will be momentous. I shall be stepping down as CEO of Sirius International in March after 24 years in my current role, staying on as chairman until the end of the year. I am delighted that my colleague Monica Cramér Manhem will be taking over the helm. Her deep and long-standing experience of our business and our values makes her perfectly suited to lead the company. She will have the support of the same well-established team that has made Sirius the company it is today. In particular, Nonetheless, our track record speaks Chief Underwriting Officer Jan Onselius and Group CFO Lars Ek have, between them, been with the company for more than six decades. for itself and justifies our confidence that entrants, and there is already too much we can meet whatever challenges may capital chasing too little premium. lie ahead. As ever, I would like to thank all our staff for their loyalty and profes- I thank all our staff for their loyalty and professionalism over the years and, last but not least, our customers and brokers. It has been a pleasure to be of service. sionalism, and our brokers and customers for enabling us to build strong long-term relationships for our mutual benefit. shape, achieving the primary objective of Last year, I reported that Sirius America had added direct Accident modest profitable growth. We have now and Health to its book. Since then, this line has taken off and added our London Marine book and some become an important pillar of the business. For the group Property business to the portfolio, which generally, though, it has been enough to maintain our successful already included Accident and Health and formula based on long-term relationships and responsible underwriting. All territories and classes of business performed well, contributing to an outstanding result. The integration of Sirius America into Contingency. the group has gone to plan. Last year I wrote that a top priority was to ensure that their arrival benefited customers, bro- kers and shareholders alike, enabling us to provide an enhanced, seamless service. I believe this objective has been achieved. G Ö R A N T H O R S T E N S S O N Göran Thorstensson P R E S I D E N T & C E O President & CEO 3 3 AT A GLANCE (PARENT) 2013 2012 Net premium income Claims net of reinsurance Underwriting profit Combined Ratio Income before tax $525 million $249 million $119 million 78% $327 million $595 million $315 million $122 million 80% $182 million COMBINED RATIO (PARENT) 93% 99% 97% 88% 87% 86% 89% 80% 80% 78% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOLVENCY CAPITAL (GROUP), MSEK 8 780 9 364 9 893 10 399 10 455 16 011 16 191 12 544 12 516 14 150 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 Board of Directors’ Report The Board of Directors and Managing Director of Sirius International Försäkringsaktiebolag (publ), (Sirius Internatio- nal), Corporate Identity Number 516401-8136, hereby present the Annual Report for 2013. General information regarding the company Sirius Sirius International operates within international insurance and reinsurance. Sirius International was established in 1989. However, the operations were initially started within Sirius Insurance in 1945. In 1989, the reinsurance operations were transfer- red to Sirius International. Sirius International has been the Parent Company in the Group since 1992. Development of the Company’s operations, income and financial position The year 2013 was a positive one for the industry, primarily because it represented yet another year without any major claims arising from natural disasters such as earthquakes, hurricanes, storms and floods. Though these types of claims have arisen, their extent has been limited compared with previous years and the outcome has been relatively limited for Sirius International. The following claims events represent a summary of the major claims impacting the Company’s insurance portfolio. At the end of June and beginning of July, Central Europe was hit by severe flooding after persistent rainfall. The countries which were hit the hardest were Germany, Austria, Slovakia and Hungary, and the outcome of the damage, in terms of its financial cost to the Company, is estimated at approxi- mately MSEK 176. In July, Germany suffered hailstorms which caused significant damage, for which the outcome for the Compa- ny is estimated at approximately MSEK 119. In October, Typhoon Fitow made landfall in southeast China, causing a substantial level of destruction. The costs to the Company are estimated to total ap- proximately MSEK 52. The storm Ivar which caused major damage to forest properties in Norrland (Sweden) in December, is estimat- ed to have resulted in claims of MSEK 24 for own account. The major claims from natural disasters during previous years developed favorably during the year, resulting in a positive run-off result for 2013. The price levels of the insurance portfolio for the current year have been satisfactory for the majority of markets and insurance classes. The portion of the insurance portfolio, which was renewed at the beginning of 2014, was exposed to a certain amount of price pressure, with falling prices in certain markets and insurance classes. Overall, the pricing for 2014 is deemed to be satisfactory. In 2013, the operation of Syndicate 1945 at Lloyd’s has developed well. The Syndicate has successfully signed new, profitable business through Lloyd’s sales channels and, during the year, additional classes, primarily ceded property and shipping reinsurance, have been added to the portfolio. A reorganization is planned for later this year, whereby the administration of the Syndicate will be handled under its own management in a newly-formed subsidiary, Sirius International Managing Agency Ltd., which is wholly-owned by Sirius International. In the sub-subsidiary, Sirius America Insurance Company, the integration process, mainly focusing on systems alignment, and business and administration processes, has progressed successfully during the year and this work will continue in 2014. Gross premium income amounted to MSEK 7,445 (8,081) for the Group and MSEK 5,173 (5,779) for the Parent Company. The Group’s premium income for own account amounted to MSEK 5,729 (6,304), and MSEK 3,423 (4,014) for the Parent Company. For the Group the premium volume was 8% lower compared to previous year, and 10% lower for the Parent Company. The decrease in premium volume compared with the previous year is due to a more fierce competition in the market, where certain business quotations were deemed to have insufficient pricing to meet the company’s criteria for profitability. The decreases have been noted, primarily, within Accident & Health insurance, certain types of property reinsurance and Aviation reinsurance. The Group’s operating profit from insurance operations amounted to MSEK 1,008 (1,057) and to MSEK 829 (1,104) for the Parent Company. The combined ratio amounted to 83% (90%) for the Group and 78% (80%) for the Parent Company. The strong insu- rance operating result is very gratifying and reflects the Company’s successful strategy, with a well-diversified insurance portfolio and good spread of risk. During 2013 stock markets was broadly strengthened, Dow Jones ended at +26.5%, OMX 30 at +20.7%, Nikkei 225 at +56.7% and DAX at +25.5%. The Eurozone has seen a significant recovery during the year, with the economies of the crisis-stricken countries of Spain, Portugal, and Ireland experiencing an upturn, partly because of the ECB having guaranteed to provide emergency loans to countries in need of such guarantees. Germany has generated a large budget surplus which has also contributed to a strong development in Europe. The British economy has also recovered more rapidly than expected, despite still having one of the largest budget deficits of the G20 countries. The American stock markets have experienced a positive trend, with Dow Jones experiencing its most positive development in a decade, and these stock markets are believed to have recovered completely from the market crash in 2008. The Japanese stock markets have benefitted from the so-called 5 sirius international insurance corporation – annual report 2013 “Abenomics” economic measures, which resulted in the yen dropping significantly against the USD, flooding the market with cheap funding. The export-heavy sectors have benefitted from these developments, as shown by a sharp increase in share prices. The markets in the USA, Sweden, Germany and the UK are the most important for the Group’s bond portfolio. The interest levels on three and five-year government bonds in the USA, Sweden and the UK increased in 2013 in the range of 40 to 100 interest basis points. In Germany, the interest rates remained virtually unchanged. Overall, yield on the bond portfolio was 0.8% adjusted for exchange rate effects. As regards the share portfolio, including investments in Hedge Funds and Private Equity investments, the yield amounted to 34.4%, adjusted for exchange rate effects. The realized and unrealized exchange rate result, net after currency hedging and including translation differences from foreign subsidiaries, amounted to a loss of MSEK 15. The exchange rate loss is due to the strengthening of the SEK against the USD, which was partially offset by a weakening of SEK against GBP and EUR. Exchange rate hedging against the USD has been undertaken to the same extent as previous year and the total nominal hedged amount is continuing to be MUSD 600. Per year end the portion of the solvency capital that is exposed to foreign currency is somewhat lower than during the previous year. The Investment result for the Group including unrealized gains and losses from the bond portfolio accounted for in Other compre- hensive income but before allocation of interest to the insurance operations, shows a profit of MSEK 1,255 (1,413). The Group’s direct yield was 2.0% (2.3%) and the total yield was 3.6% (5.4%). The direct and total yields are calculated according to the recommendations of The Swedish Financial Supervisory Authority. The investment portfolio’s concentration and composition are largely unchanged compared with the previous year. At year-end, the consolidated investment portfolio had the following composition: Bonds and other interest bearing securities 72%, Shares and participations 18%, Bank funds 9% and Currency related derivatives 1%. Other events regarding the changes in the Group’s structure are described primarily under the section “Ownership structure” below. ownership structure Sirius International Försäkringsaktie- bolag (publ) is a wholly-owned subsidiary of Fund American Holdings AB (Corporate Identity Number 556651-1084), Stockholm, Sweden. Fund American Holdings AB is a wholly-ow- ned subsidiary of Sirius Insurance Holding Sweden AB (Corporate Identity Number 556635-9724), Stockholm, Sweden, which is the ultimate entity in the Swedish Group structure and which is, in turn, owned by White Mountains Insurance Group Ltd, Hamil- ton, Bermuda. At the end of the year 2013, the Group comprised the Parent Company, Sirius International Försäkringsaktiebolag (publ), with the subsidiaries Sirius Belgium Réassurances S.A. (in liquidation), Liège, Belgium; Sirius Rückversicherungs Service GmbH, Hamburg, Germany; Sirius International Holdings (NL) B.V., Amsterdam, Holland; Passage2Health Ltd., London, United Kingdom; White Mountains Re Sirius Capital Ltd., London, United Kingdom; Sirius International Managing Agency Ltd., London, United Kingdom, WM Phoenix (Luxembourg) S.à r.l., Luxemburg; White Sands Holdings (Luxembourg) S.à r.l., Luxemburg and S.I. Holdings (Luxembourg) S.à r.l., Luxemburg. In addition, Sirius International has eight branch offices outside Sweden. These are Sirius International Insurance Corporation (publ) UK branch, London, United Kingdom; Sirius International Insurance Corporation (publ) Stockholm Zürich branch, Zürich, Switzerland; Sirius International Insurance Corporation (publ) Asia branch, Singapore; Sirius International Insurance Corporation (publ) Labuan branch, Labuan, Malaysia; Sirius International Insurance Corporation (publ) Belgian branch, Liège, Belgium; Sirius International Danish Branch, filial af Sirius International Försäkringsaktiebolag (publ), Copenhagen, Denmark; Sirius International Insurance Corporation (publ) Bermuda Branch, Hamilton, Bermuda and Sirius International Insurance Corpora- tion (publ) Australian Branch, Australia. In Hamburg, Germany, the operations are conducted through the agency, Sirius Rückver- sicherungs Service GmbH, which provides insurance on behalf of Sirius International. During 2001, Sirius Belgium Réassurances S.A. (in liquidation), Liège, Belgium commenced voluntary liquidation proceedings, as the company had ceased to conduct operations. The liquidation remains incomplete, as the result of a tax dispute. The outcome of the dispute will not impact the company’s financial position. Significant events during and after the financial year On January 25, 2013, Sirius International acquired, through an intra-Group transaction, all of the shares in the company, S.I. Holdings (Luxembourg) S.à r.l. from White Sands Holdings (Luxembourg) S.à r.l. In conjunction with the transaction, the shares in White Sands Holdings (Luxembourg) S.à r.l have been written down in an amount of MSEK 699. On the same date, Sirius International contributed new capital to S.I. Holdings (Luxem- bourg) S.à r.l. amounting to MSEK 1,954, in exchange for preferential shares in the company. In September and October, additional capital, MSEK 180, was injected into S.I. Holdings (Luxembourg) S.à r.l. 6 sirius international insurance corporation – annual report 2013 In May, the subsidiary, Sirius International Managing Agency Ltd., was established in London, United Kingdom. The company has been formed to act as Managing Agent for Syndicate 1945 at Lloyd’s and, in 2014, to assume the administration of the Syndicate, which is presently handled by an external party. In September, the remaining minority interest of 25% in Passage2health Ltd., London, United Kingdom, was acquired. Consequently, the company now constitutes a wholly-owned subsidiary. In September, Sirius International Holdings (NL) B.V., Amsterdam, the Netherlands, executed a capital repayment totaling MSEK 58. In October, a major contract involving ceded Japanese life reinsurance was transferred to another company within the White Mountains Group. The contract had a ceded retrocession level of 100%, and, consequently, the transfer was made without any impact on results. Technical provisions received and issued decreased by MSEK 915 in conjunction with the transaction. In December, Sirius International’s subsidiaries WM Phoenix (Luxembourg) S.à r.l. and S.I. Holdings (Luxembourg) S.à r.l. declared dividends of MSEK 866 and MSEK 84 respectively. Furthermore, in December, at Extra general meetings of sharehol- ders of Sirius International, additional dividends were declared of MSEK 1,332. Sirius International’s CEO, Göran Thorstensson, is due to retire on March 1, 2014, although he will continue to hold Board positions within the Sirius International Group. The Board of Directors has appointed Monica Cramér-Manhem as new CEO. Information regarding risks and factors of uncertainty See Note 1, Accounting Principles, and Note 2, Information on Risks. Financial instruments and risk management See Note 1, Accounting Principles, and Note 2, Information on Risks. Remuneration and benefits to senior executives See Note 30, Average number of employees, salaries and other remuneration. Insurance contracts with insufficient insurance risk The Company retains only a few contracts in which insufficient insurance risk is assessed to exist, and which, thereby, do not qualify as insurance contract. These contracts are classified as investment contracts. For further details, refer to Note 1, Accounting Principles. Expected future developments The underlying profitability in the insurance operations is good, de- spite increased competition on the market, and the diversified in- vestment portfolio is expected to provide a stable yield. However, the fierce competition requires stringent pricing and underwriting, continued efficiency improvements and sound balancing of risks between the insurance and investment operations, in order to en- sure long-term profitability. Sirius International’s targets for 2014 are to achieve a combined ratio under 90% and an Underwriting Return On Capital (UROC) of 11%. 7 Five-year summary GROUP (MSEK) Net premium income Net premiums earned Allocated investment return Net claims incurred Operating costs Other operating costs Insurance operating result Investment operating result Net income for the year Net technical provisions Market value on investment assets5) Insurance operating profit, 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 base 1) Required solvency capital Group based values 2) Capital base Solvency requirement 2013 20124) 2011 2010 20093) 5,729 5,675 101 —2,748 —1,977 —43 1,008 1,352 1,956 12,198 23,906 48% 35% 83% 2% 4% 13,879 2,302 10 — 16,191 283% 15,006 1,687 15,689 1,687 6,304 6,293 547 —3,692 —2,002 —89 1,057 784 2,83 13,347 25,601 59% 32% 90% 2% 5% 13,828 2,128 55 — 16,011 254% 15,185 1,621 17,698 1,621 4,363 4,584 225 —3,125 —1,461 — 223 219 320 14,743 26,094 68% 31% 99% 2% 2% 11,560 2,547 43 — 14,150 324% 13,644 1,755 13,792 1,872 5,608 5,742 214 —3,428 —1,690 — 838 235 879 7,221 18,480 60% 29% 89% 3% 1% 9,950 2,548 18 — 12,516 223% 11,735 958 16,315 2,255 6,957 6,867 369 —4,164 —1,755 — 1,317 289 1,302 7,883 18,449 61% 25% 86% 2% 3% 9,945 2,548 53 —2 12,544 180% 12,149 1,030 17,544 2,350 1) Include Sirius International with subsidiaries. 2) Include WM Caleta (Gibraltar) Ltd. For 2011—2009 the Group-based values include Sirius International Insurance Group Ltd. 3) Comparison year 2009 has been converted to comply with IFRS. Solvency capital and required solvency capital have not been converted. 4) Comparison year 2012 has been converted per January 1, 2012 in order to apply IAS 19. Solvency capital and required solvency capital have not been converted. 5) Includes Investment assets and Cash and bank balances. 8 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 PARENT COMPANY (MSEK) Net premium income Net premiums earned Allocated investment return Net claims incurred Operating costs Other operating costs Insurance operating result Investment operating result Other expenses Net income for the year Net technical provisions Market value on investment assets5) Insurance operating profit, 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) Include Investment assets and Cash and bank balances. 2013 20124) 2011 2010 20093) 3,423 3,485 55 —1,623 —1,086 —2 829 1,329 —28 1,266 5,557 19,241 47% 31% 78% 9% 6% 4,576 10,462 12 15,050 440% 14,237 851 4,014 4,196 280 —2,126 —1,220 —1 1,104 129 —4 932 6,048 20,692 51% 29% 80% 1% 2% 5,117 9,672 54 14,843 370% 14,265 710 3,768 4,037 225 —2,708 —1,239 — 266 175 —4 321 6,922 19,678 67% 30% 97% 3% 3% 4,335 9,682 43 14,060 373% 13,648 765 5,608 5,742 214 —3,421 —1,687 — 839 —128 —4 522 7,233 18,155 60% 29% 89% 3% 0% 2,564 9,687 18 12,269 219% 11,603 958 6,957 6,867 369 —4,164 —1,761 — 1,311 —139 —17 490 7,886 18,379 61% 25% 86% 2% 3% 2,654 9,691 53 12,398 178% 12,021 1,030 9 sirius international insurance corporation – annual report 2013 Proposed appropriation of profits For 2013, the Parent Company recorded income of MSEK 2,130 (MSEK 1,229) before appropriations and taxes. Net income for the year amounted to MSEK 1,266 (MSEK 932). As of December 31, 2013 retained earnings in the Group amounted to MSEK 4,919. The following profits are at the disposal of the general meeting of shareholders in the Parent Company Sirius International: (SEK in thousands) Retained earnings Non-Restricted reserves Dividends paid, as resolved by the general meeting of shareholders and extraordinary general meeting of shareholders –1,656,686 1,266,183 Net income for the year 4,317,157 –150,302 Total 3,776,352 The Board of Directors and the President propose that the amount be appropriated as follows: Dividend to the owner To be carried forward Total 643,000 3,133,352 3,776,352 The Company’s financial position does not give rise to any assessment other than that the Company can be expected to fulfill its obligations in both the short-term and in the long-term. It is the opinion of the Board of Directors that the solvency capital of the Company, as it has been reported in the annual report, is adequate in relation to the scope and risks of the operations. Regarding the Company’s and the Group’s results and financial position, please refer to the attached income statements and balance sheets, cash flow statements and statements of changes in shareholders’ equity, with accompanying notes. 10 sirius international insurance corporation – annual report 2013 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 Other 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 Investment income allocated to the technical account Total investment income/expenses RESULT BEFORE TAXES Taxes NET INCOME FOR THE YEAR Net income attributable to: Owner of the parent Minority interest TOTAL Note 2013 2012 3 3 4 4 5 5 9 6 7 8 10 7,445 —1,716 —29 —25 5,675 101 —4,935 861 —4,074 3,841 —2,515 —2,748 —1,977 —43 1,008 1,008 1,126 582 —255 —101 1,352 2,360 —404 1,956 1,956 — 1,956 8,081 —1,777 —47 36 6,293 547 —5,261 763 —4,498 2,673 —1,867 —3,692 —2,002 —89 1,057 1,057 1,047 652 —368 —547 784 1,841 987 2,828 2,830 —2 2,828 11 sirius international insurance corporation – annual report 2013 Statement of Comprehensive Income – Group JANUARY 1 — DECEMBER 31 (MSEK) Net income for the year Other comprehensive income Items not to be reclassified to income statement: — Actuarial gains and losses on defined benefit pension plans — Tax on items not to be reclassified to income statement Items to be reclassified to income statement: — Change of fair value on bonds — Currency revaluation effects — Tax on items to be reclassified to income statement Items reclassified to income statement: — Change of fair value on bonds — Tax on items reclassified to income statement Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Comprehensive income attributable to: Owner of the parent Minority interest TOTAL Note 26 10 10 10 2013 1,956 6 —1 —80 —100 25 —118 25 —243 1,713 1,713 — 1,713 2012 2,828 —1 0 184 —413 —36 —102 26 —342 2,487 2,489 —2 2,487 12 sirius international insurance corporation – annual report 2013 Balance Sheet – Group DECEMBER 31 (MSEK) ASSETS Intangible assets Goodwill Other intangible assets Total intangible assets Investment assets Land and buildings Interest bearing investments emitted by, and loans to, group companies 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 Note 2013 2012 11 12 14,18 15,18 16,18 22 23 10 17, 18 19 18 20 291 165 456 13 475 4,097 16,460 273 20,830 590 21,908 502 2,239 2,741 105 1,869 298 2,324 144 4,740 57 1,998 2,055 156 446 32 634 291 124 415 13 966 3,567 18,235 326 22,128 543 23,650 524 4,942 5,466 105 1,993 330 2,668 312 5,408 54 1,951 2,005 191 439 19 649 32,534 37,593 13 sirius international insurance corporation – annual report 2013 Balance Sheet – Group, cont. DECEMBER 31 (MSEK) SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity Shareholders’ equity attributable to the owner of the parent — 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 attributable to the owner of the parent Minority interest Total shareholders’ equity Liabilities Technical provisions — Provisions for unearned premiums — Claims outstanding Total technical provisions Other liabilities — Employee benefits — Current tax liabilities — 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 Note 2013 2012 800 5,317 —812 8,160 414 13,879 — 13,879 2,209 12,730 14,939 7 24 2,340 410 59 310 188 378 3,716 800 5,318 —564 7,544 724 13,822 2 13,824 2,201 16,612 18,813 11 14 2,422 158 48 582 1,400 321 4,956 22 23, 25 26 10 18, 27 18 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 32,534 37,593 Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collaterals Contingent liabilities Commitments 28 28 28 28 7,967 — 1,930 140 8,870 — 1,970 161 14 sirius international insurance corporation – annual report 2013 Change in Shareholders’ Equity – Group (MSEK) Share Capital 4) Additional paid in capital Reserves Retained earnings — restric- ted 4) Retained earnings — non-res- tricted TOTAL Minority interest Amount January 1, 2013 800 5,318 —564 7,544 724 13,822 Comprehensive income Net profit/loss for the year Change in untaxed reserves Other comprehensive income, after tax Change of fair value on bonds Change defined benefit pension plans Currency revaluation effects Total other comprehensive income Total comprehensive income Transactions with owners Acquisition of minority share Dividend paid 2) Total transactions with owners — — — — — — — — — — — — — — — — — —1 — —1 — — —154 — —94 —248 —248 — — — AMOUNT DECEMBER 31, 2013 800 5,317 —812 8,160 Amount January 1, 2012 Transition to IAS 19 R Adjusted Amount January 1, 2012 Comprehensive income Net profit/loss for the year Other comprehensive income, after tax Change of fair value on bonds Change defined benefit pension plans Reclassification within shareholders’ equity Currency revaluation effects Total other comprehensive income Total comprehensive income Transactions with owners Capital contribution received 1) Group contribution provided 3) Dividend paid 2) Total transactions with owners 800 — 800 4,359 — 4,359 — — — — — — — — — — — — — — — — — — 959 — — 959 5,318 —266 — —266 — 72 — 43 —413 —298 —298 — — — — 7,135 — 7,135 — — — 409 — 409 409 — — — — —564 7,544 TOTAL SHARE- HOLDERS’ EQUITY 13,824 1,956 — —154 5 —94 —243 1,713 —2 —1,656 —1,658 13,879 11,564 —4 11,560 2 — — — — — — — —2 — —2 — 4 — 4 — 616 — — — — 1,956 —616 — 5 — 5 616 1,345 — — — 1 —1,656 —1,656 414 —468 —4 —472 1,956 — —154 5 —94 —243 1,713 0 —1,656 —1,656 13,879 11,560 —4 11,556 2,830 2,830 —2 2,828 — —1 —452 — —453 2,377 — —528 —653 —1,181 724 72 —1 0 —413 —342 2,488 959 —528 —653 —222 13,822 — — — 0 0 —2 — — — — 2 72 —1 0 —413 —342 2,486 959 —528 —653 —222 13,824 AMOUNT DECEMBER 31, 2012 800 1) Capital contributions received from Fund American Holdings AB in form of shares in White Sands Holdings (Luxembourg) S.à r.l. and shares in Symetra Financial Corporation. 2) Dividend paid to the parent company Fund American Holdings AB. The dividend is equal to 207 SEK (82 SEK) per share. 3) Group contribution provided to Fund American Holdings AB and Sirius Insurance Holding Sweden AB. 4) Share capital and Retained earnings — restricted represents the Group’s restricted shareholders’ equity. 15 sirius international insurance corporation – annual report 2013 Change in Shareholders’ Equity – Group, cont. (MSEK) SHARE CAPITAL Specified in number of shares Issued per January 1 Issued per December 31 Per December 31, 2013 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 Reclassification within shareholders’ equity 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 Effect from change in tax rate 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 Change for the year CLOSING TRANSLATION DIFFERENCE RETAINED EARNINGS — RESTRICTED Opening retained earnings — restricted Effect from change in tax rate Change for the year CLOSING RETAINED EARNINGS — RESTRICTED RETAINED EARNINGS — NON-RESTRICTED Opening retained earnings — non-restricted Effects from transition to IAS 19 R Net profit/loss for the year Change in safety reserve and other restricted reserves Change defined benefit pension plans Reclassification within shareholders’ equity Effect from change in tax rate Dividend paid Group contribution provided (73.7%) CLOSING RETAINED EARNINGS — NON-RESTRICTED 16 2013 2012 8,000,000 8,000,000 8,000,000 8,000,000 2013 2012 5,318 —1 — 5,317 247 —198 49 —54 — 44 —10 193 —154 39 —757 — —94 —851 7,544 — 616 8,160 724 — 1 956 —616 5 1 — —1 656 — 414 4,359 — 959 5,318 165 82 247 —44 7 —17 —54 121 72 193 —387 43 —413 —757 7,135 416 —7 7,544 —468 —4 2 830 — —1 —36 — —653 —528 724 sirius international insurance corporation – annual report 2013 Cash flow Statement – Group (MSEK) 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 financial investments Change in other operating receivables Change in other operating liabilities Cash flow from operating activities Investing activities Acquisition of subsidiary, acquired Cash and cash equivalents Net investment of intangible assets Net investments of tangible assets Cash flow from investing activities Financing activities Dividends 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 Translation difference on Cash and cash equivalents CASH AND CASH EQUIVALENTS AT END OF YEAR 2) 1) Specification of non-cash items: Depreciations Capital losses on foreign exchange Capital gains Capital losses Unrealized gains Unrealized losses Interest income Interest expenses Dividends received Change in provisions for outstanding claims Pension provisions Effects from internal restructuring 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 Note 2013 2012 2,360 408 —2 88 —262 —47 2,545 1,318 2,967 —6,291 539 — —75 —27 —102 —161 —160 —321 116 1,951 116 —68 1,999 58 214 —630 — —763 181 —408 2 —88 1,171 1 — —262 1,184 815 1,999 1,842 514 —3 81 —30 —39 2,365 609 2,772 —5,130 616 1 —102 —33 —134 —163 —557 —720 —238 2,289 —238 —100 1,951 50 260 —453 73 —652 — —514 2 —81 1,290 3 —8 —30 483 1,468 1,951 11, 12, 19 8 6 8 7 7 6 8 6 23 17 sirius international insurance corporation – annual report 2013 Performance Analysis – Group (MSEK) ANALYSIS OF INSURANCE RESULT 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 2012 and earlier. Direct Swedish risks — aviation Direct Swedish risks — Financial Direct foreign risks Assumed reinsurance TOTAL 3 — —3 0 0 —3 —1 —1 0 —2 0 1 1 4 —1 0 0 3 —3 1 — 0 —1 —3 1 — 0 0 1 0 —1 0 — —1 0 — 0 1 0 0 0 1 0 — — 0 — 0 772 6 —423 —350 5 —447 —557 —441 —14 4,899 95 —2,322 —1,670 1,002 1,530 —1,650 —12,047 —227 —1,012 —13,924 264 108 372 1,280 —498 —46 36 772 —638 219 —14 —56 66 —423 238 2,130 2,368 6,160 —1,217 17 —61 4,899 —4,111 641 —169 3,897 —2,580 —2,322 5,675 101 —2,748 —2,020 1,008 1,080 —2,209 —12,489 —241 —14,939 502 2,239 2,741 7,445 —1,716 —29 —25 5,675 —4,752 861 —183 3,841 —2,515 —2,748 18 sirius international insurance corporation – annual report 2013 Income Statement – Parent Company JANUARY 1 — DECEMBER 31 (MSEK) Note 2013 2012 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 Operating costs Other operating costs Change in equalization provision OPERATING PROFIT/LOSS OF TECHNICAL ACCOUNT NON-TECHNICAL ACCOUNT Balance of technical account Investment income/expenses Investment income Unrealized gains Investment expenses and charges Investment income allocated to the technical account Total investment income/expenses Goodwill depreciation Result before appropriations and taxes Appropriations Change in accelerated depreciations Provision to safety reserve Result before taxes Taxes NET INCOME FOR THE YEAR 3 3 4 4 5 5 24 9 6 7 8 11 21 10 5,173 —1,750 82 —20 3,485 55 —2,716 728 —1,988 2,672 —2,307 —1,623 —1,086 —2 — 829 5,779 —1,765 152 30 4,196 280 —3,258 684 —2,574 2,167 —1,719 —2,126 —1,220 —1 —25 1,104 829 1,104 2,232 65 —913 —55 1,329 —28 2,130 10 —800 1,340 —74 1,266 467 363 —421 —280 129 —4 1,229 9 — 1,238 —306 932 19 sirius international insurance corporation – annual report 2013 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 Items to be reclassified to income statement: — Change of fair value on bonds — Tax on items reclassified to income statement Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Note 10 10 2013 1,266 —79 17 —114 25 —151 1,115 2012 932 184 —36 —102 26 72 1,004 20 sirius international insurance corporation – annual report 2013 Balance Sheet – Parent Company DECEMBER 31 (MSEK) ASSETS Intangible assets Goodwill Other intangible assets Total intangible assets Investment assets Land and buildings Shares and participations in group 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 TOTAL ASSETS Note 2013 2012 11 12 13 14, 18 15, 18 16, 18 22 23 10 17, 18 19 18 20 170 63 233 13 10,330 399 6,564 273 7,236 557 18,136 501 1,403 1,904 16 1,414 177 34 250 1,891 40 1,105 1,145 87 244 32 363 198 55 253 13 8,254 549 10,041 326 10,916 554 19,737 517 3,985 4,502 28 1,582 276 20 202 2,108 50 955 1,005 124 266 19 409 23,672 28,015 21 sirius international insurance corporation – annual report 2013 Balance Sheet – Parent Company, cont. DECEMBER 31 (MSEK) Note 2013 2012 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 Accumulated accelerated depreciations 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 Deposits received from reinsurers Creditors Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Other creditors Total creditors Accrued expenses and deferred income TOTAL SHAREHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collaterals Contingent liabilities Commitments 800 42 2,468 1,266 4,576 15 10,447 10,462 1,488 5,887 86 7,461 11 47 58 401 2 350 133 485 229 800 193 3,192 932 5,117 25 9,647 9,672 1,580 8,885 86 10,550 9 98 107 328 1 730 1,325 2,056 185 23,672 28,015 6,691 — 1,930 49 7,701 — 1,970 53 21 22 23, 25 24 26 10 18, 27 18 28 28 28 28 22 sirius international insurance corporation – annual report 2013 Change in Shareholders’ Equity – Parent Company (MSEK) Share Capital Other Reserves 4) Retained earnings 4) Net profit/ loss for the year 4) TOTAL SHARE HOLDERS’ EQUITY Amount January 1, 2013 800 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 Dividend paid 3) Total transactions with owners AMOUNT DECEMBER 31, 2013 Amount January 1, 2012 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 1) Group contribution provided 2) Dividend paid 3) Total transactions with owners — — — — — — — 800 800 — — — — — — — — — AMOUNT DECEMBER 31, 2012 800 193 — — —151 —151 —151 — — 42 121 — — 72 72 72 — — — — 193 3,192 932 932 —932 5,117 — — — — — —1,656 —1,656 2,468 3,093 321 — — — — 959 —528 —653 —222 3,192 1,266 1,266 — — 1,266 — — 1,266 321 —321 932 — — 932 — — — — 932 —151 —151 1,115 —1,656 —1,656 4,576 4,335 — 932 72 72 1,004 959 —528 —653 —222 5,117 1) Capital contribution received from Fund American Holdings AB in form of shares in White Sands Holdings (Luxembourg) S.à r.l. and shares in Symetra Financial Corporation. 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. Dividend is equal to SEK 207 (SEK 82) per share. 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. 23 sirius international insurance corporation – annual report 2013 Change in Shareholders’ Equity – Parent Company, cont. (MSEK) SHARE CAPITAL Specified in number of shares Issued per January 1 Issued per December 31 Per December 31, 2013 the share capital comprised 8,000,000 (8,000,000) ordinary shares. The shares have a nominal value of 100 (100) SEK. 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 Effect from change in tax rate 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 2013 2012 8,000,000 8,000,000 8,000,000 8,000,000 247 —193 54 —54 — 42 —12 193 —151 42 3,192 932 — —1,656 — 2,468 165 82 247 —44 7 —17 —54 121 72 193 3,093 321 959 —653 —528 3,192 1,266 932 24 sirius international insurance corporation – annual report 2013 Cash flow Statement – Parent Company (MSEK) 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 financial investments Change in other operating receivables Change in other operating liabilities Cash flow from operating activities Investing activities Net investment of intangible assets Net investments of tangible assets Cash flow from investing activities Financing activities 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 Translation difference on Cash and cash equivalents CASH AND CASH EQUIVALENTS AT END OF YEAR2) 1) Specification of non-cash items: Depreciations Capital losses on foreign exchange Capital gains Capital losses Unrealized gains Unrealized losses Interest income Interest paid Dividends received Change in provisions for outstanding claims Pension provisions Total 1) The following components are included in Cash and cash equivalents: Cash and bank balances Short term investments, equivalent to cash and cash equivalents Total Note 2013 2012 2,130 171 —2 1,667 —878 3 3,091 —137 2,871 —5,242 583 —41 —11 —52 —11 —161 —160 —332 199 955 199 —49 1,105 83 214 —392 701 —170 105 —170 2 —1,667 416 1 —878 315 790 1,105 1,228 265 —2 — 300 —167 1,624 —254 3,023 —4,009 384 —37 —33 —70 — —163 —557 —720 —406 1,411 —406 —50 955 73 262 —203 160 —363 — —265 3 — 631 2 300 238 716 955 11,12,19 8 6 8 7 7 6 8 6 23 25 sirius international insurance corporation – annual report 2013 Performance Analysis – Parent Company (MSEK) ANALYSIS OF INSURANCE RESULT 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 equalization provision 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 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 2012 and earlier. Direct Swedish risks — aviation Direct foreign risks Assumed reinsurance TOTAL 3 — —2 — — 1 —3 —1 —1 0 — —2 0 1 1 4 —1 0 0 3 —3 1 — 0 0 —2 486 4 —223 —241 — 26 —346 —367 —294 —10 — —671 181 67 248 795 —335 22 4 486 —442 170 —9 27 31 —223 2,996 51 —1,398 —847 — 802 1,397 —1,120 —5,460 —122 —86 —6,788 320 1,335 1,655 4,374 —1,414 60 —24 2,996 —2,130 557 —132 2,645 —2,338 —1,398 3,485 55 —1,623 —1,088 — 829 1,048 —1,488 —5,755 —132 —86 —7,461 501 1,403 1,904 5,173 —1,750 82 —20 3,485 —2,575 728 —141 2,672 —2,307 —1,623 26 Note 1 – Accounting principles GENERAL INFORMATION This annual report was issued per December 31, 2013 and refers to Sirius International Försäkringsaktiebolag (publ), both the Group and the Parent Company, which is an insurance company with its registered offices in Stock- None of the IFRS of IFRIC interpretations which are mandatory for the first time for the financial year beginning 1 January 2013 have had any significant impact on the consolidated income statement or consolidated balance sheet nor, if applicable, the Parent Company’s income statement or balance sheet. 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 A number of new standards and interpretations come into effect for financial holm. The address of the head office is Birger Jarlsgatan 57B, Stockholm and years beginning after 1 January 2013 and have not been applied in the prepar- the Corporate Identity Number is 516401-8136. The Group’s ultimate owner is ation of these financial statements. None of these are expected to have any White Mountains Insurance Group Ltd., Hamilton, Bermuda. The Group writes significant impact on the Group’s financial statements, with the exception of property and casualty insurance and reinsurance, see Note 33 Class analysis the following: for further information. 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 guidelines on Annual Reports in Insurance Companies (FFFS 2008:26) with the amend- ments in FFFS 2009:12, FFFS 2011:28 and FFFS 2013:6 as well as the Swedish Financial Reporting Board RFR 2. The Sirius International Group’s annual report has been prepared in accord- ance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), as well as the Swedish Financial Supervisory Authority’s regulations and general guidelines on Annual Reports in Insurance Companies (FFFS 2008:26) with the amendments in FFFS 2009:12, FFFS 2011:28 and FFFS 2013:6, 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 acqui- sition 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 classified as financial assets valued at fair value via the income statement or as available-for-sale financial assets. CHANGES TO STANDARDS, STATEMENTS AND INTERPRETATIONS The Annual Report per December 31, 2013 has been prepared in accord- ance with standards, statements and interpretations that have come into force during the year. Furthermore, a number of standards, statements and interpretations have been published but have not yet come into force. Below follows a summary and a preliminary assessment of the effect these standards, statements and interpretations have and may have on the Company’s financial reports. Changes other than those given below are not deemed relevant, alter- natively are not expected to affect the Group’s financial reports. New and amended standards applied by the Group Amendment to IFRS 7 “Financial instruments: Disclosures” regarding disclos- ures related to the offsetting of assets and liabilities. The amendment includes requirements for new disclosures to facilitate comparison between those companies preparing their financial statements according to IFRS and those preparing their financial statements according to US GAAP. The amendment also contributes to increased clarity as to how the companies handle credit exposure. IFRS 13 “Fair value measurement” aims at more consequent and less complex valuations at fair value by providing an exact definition and a common source in IFRS for valuations at fair value and associated disclosures. The standard provides guidance regarding valuations at fair value for all types of assets and liabilities, both financial and non-financial. The requirements do not extend 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. IAS 19 “Employee Benefits”, was amended in June 2011. Expenses for past employment will be reported immediately. Interest expenses and expected return on managed 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 effect of the amendment on the financial statements is presented in Note 26. IFRS 9 “Financial Instruments” addresses the classification, valuation and accounting of financial liabilities and assets. IFRS 9 was published in November 2010 regarding financial assets and in October 2011 regarding financial liab- ilities 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 amortised 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 characteristic 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 com- pany’s own credit risk is to be reported in Other comprehensive income instead of Net profit/loss, so long as this does not result in an accounting mismatch. The Group has not yet assessed the effects of the standard, but will evaluate the effects of the remaining phases of IFRS 9 when they have been completed by the IASB. 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 1 January 2014 and has not yet assessed the full effects on the financial statements. IFRS 11 “Joint Arrangements”, focuses on the rights and obligations incum- bent on entities that jointly control an arrangement, rather than on the legal form of the arrangement. There are two types of joint arrangements, joint operations and joint ventures. A joint operation is an arrangement in which the parties with joint control have rights to the assets and obligations for the liabil- ities relating to that arrangement. Joint operations are accounted for according to the party’s relative share of jointly controlled assets, liabilities, revenue and expenses. A joint venture is an arrangement in which the parties with joint control have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity accounting method, as the option to account for joint ventures using proportionate consolidation has been removed. IFRS 12 “Disclosures of Interests in Other entities” includes disclosure requirements for subsidiaries, joint arrangements, associated companies and “structured entities” which have not been consolidated. The Group intends to apply IFRS 12 for the financial year beginning on 1 January 2013 and is yet to assess the full effect on the financial statements. IFRIC 21 “Levies” provides guidance on the reporting of an obligation to pay a tax or fee which is not income tax. The interpretation sets out the criteria for the identification of an obligating event triggering an obligation to pay the tax or fee and when a liability should, therefore, be recognised. The Group intends to apply IFRIC 12 for the financial year beginning on 1 January 2014 and is yet to assess the full effect on the financial statements. 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 or, if applicable, the Parent Company. ASSESSMENTS AND ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with International Finan- cial Reporting Standards requires the Company’s management to make assess- ments and estimates, as well as assumptions impacting the application of the accounting principles and the recorded values of assets, provisions, liabilities, income and expenses. These estimates and assumptions are based on historical experience and a number of other factors considered reasonable in the current situation. The results of these estimates and assumptions are, subsequently, 27 sirius international insurance corporation – annual report 2013 Note 1 – Cont. 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. CONSOLIDATION PRINCIPLES Subsidaries Subsidiaries are companies in which the Parent Company has a controlling Estimates and assumptions are reviewed on a regular basis. Changes in influence. The term “controlling influence” refers to the direct or indirect estimates are recorded in the period in which the change is made if the change right to formulate a company’s financial and operative strategies with the only affects that period, or the period in which the change is made as well as intention of receiving financial benefit. Acquisitions of subsidiaries are reported future periods, if such change affects both current and future periods. according to the purchase method, as described in IFRS 3, with the exception of Significant assessments in the application of the Accounting principles have intra-group acquisitions of subsidiaries under common control. The application been made in conjunction with the decision to report financial instruments of the purchase method implies requirements for the identification of the pur- at fair value, as well as in conjunction with the decision to classify insurance chaser and the establishment of the acquisition date. The purchase method fur- 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 that are insurance contracts have been subject to assess- ment 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 undertake 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 insurance 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 outcomes 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 finan- cial instruments with limited liquidity. Such instruments may, therefore, require further assessments, depending on the uncertainty of the market situation. ther implies that the acquisition of subsidiaries is considered to be a trans action through which the Group indirectly acquires the subsidiary’s assets and as- sumes 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 goodwill. When the difference is negative, this is recorded directly in the income statement. The subsidiary’s financial reports are included in the consolidated 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 business combination under common control, such acquisitions are reported according to the “pre- decessor accounting method” or at fair value. The “Predecessor accounting 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 carried out in the case that these accounts are not pre- pared 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. Intra-group business combinations are valued and accounted for according to IFRS 3. Subsi- diaries’ financial statements 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 For a sensitivity analysis of interest- and equity risk, see note 2 Information on point in time when the significant influence ceases. risks. 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 Directors on February 28, 2014. The income statement and balance sheet will be adopted at the General Meeting held in May 2014. Transactions eliminated on consolidation Receivables and liabilities, income and expenses, and unrealized gains and losses arising on internal transactions between Group companies are elimin- ated 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, in- 28 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 Note 1 – Cont. cluding 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 Technical provisions Technical provisions consist of the Provisions for unearned premiums and valuation of assets, provisions and liabilities in foreign currency. Exchange rate unexpired risks, Provisions for outstanding claims, claims handling provision fluctuations are recorded net in the income statement on the lines, Investment, and equalization provision (in the Parent Company). income or Investment, expenses. Provision for unearned premiums and unexpired risks Financial statements of foreign operations Assets and liabilities in foreign operations, including goodwill and other Group In the balance sheet, this provision consists of amounts corresponding to the Company’s liability for claims, administrative expenses and other costs during surplus and deficit values, are translated from the functional currency of the the remainder of the contract period for policies in force. “Policies in force” foreign operation to the Group’s reporting currency, Swedish kronor, at the refers to insurance policies in accordance with entered agreements irrespec- exchange rate prevailing on the balance sheet date. Income and expenses tive if they wholly or in part relates to later insurance period. In calculating in foreign operations are translated into Swedish kronor at an average rate these provisions, an estimate is made of anticipated costs for any claims that that approximates the exchange rates prevailing at the date of the respective may occur during the remaining terms of these insurance policies, as well as transactions. Translation differences arising in the translation of foreign net administrative expenses for this period. The estimation of costs is based on the investments and the associated effects of the hedging of net investments are Company’s own experience and considers both the observed and the forecasted recorded in other comprehensive income. Upon disposal of a foreign operation, development of relevant costs. accumulated translation differences attributable to the operation, less any These future costs are tested quarterly against the unexposed portion of currency hedging, are realized in the Group’s income statement. the premium for the contracts in force and if the latter exceeds the costs, the Rates for the most important currencies USD EUR GBP Closing rates Average rates 6.43 8.86 10.65 6.52 8.66 10.20 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 insur- ance 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. Fin- ancial instruments are contracts which do not transfer any material insurance risk from the policyholder to the Company. The Company has issued a policy entailing a mandatory test of whether sufficient insurance risk exists in written contracts for classification as insurance contracts. This test builds upon defini- tions in accordance with IFRS 4. For contracts or groups of contracts classified as insurance contracts, recording and valuation are carried out in accordance with previously applied principles. For contracts or groups of contracts which are not classified as insurance contracts, recording and valuation are conduc- ted according to IAS 39, Financial Instruments or according to IAS 18, Revenue. Accounting 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 significant- ly from the contract period, or where the exposure 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. Re- instatement premiums receivable are recognized and fully earned latest when fallen due. Premium revenue corresponds to the portion of premium income that has been earned. Acquisition costs By acquisition costs are meant such external operating expenses, such as commissions, 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. unexposed portion of the written premium will form an unearned premium re- serve. 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. The income statement recognizes the change in provision for unearned premium reserve and unex- pired risks. Provision for outstanding claims This balance sheet item comprises of estimated nominal 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 al- ready been paid, on the basis of receipt of claims payment advices. This amount also includes estimated nominal 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 recognizes the change in provision for 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 expenses and Operating costs. 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. 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. 29 sirius international insurance corporation – annual report 2013 Note 1 – Cont. method. Currency translation effects are recorded in Other comprehensive Ceded reinsurance As premiums for ceded reinsurance are recorded amounts paid during the income. financial year and amounts recorded as liabilities to the company that have assumed the reinsurance, in accordance with entered reinsurance agree- INCOME TAX Income taxes are accounted according to IAS 12 and consist of current tax and ments. Deductions are made for amounts credited due to portfolio transfers. deferred tax. Income taxes are recorded in the income statement, except when Adjustments are also made for change in the reinsurer’s share of proportional the underlying transaction is recorded in Other comprehensive income, reinsurance contracts. The premiums are periodized so that costs are allocated whereupon the pertaining tax effect is recorded in Other comprehensive to the corresponding period of the insurance cover. All items relating to ceded income. 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 Current tax Current tax is tax to be paid or received regarding the current year, with provisions in accordance with entered agreements. The Company assesses any application of the tax rates which have been enacted or practically enacted at required impairment for assets referring to reinsurance agreements bi-annu- balance sheet date, which also includes the adjustment of current tax referring ally. If the recoverable amount is lower than the carrying amount of the asset, to previous periods. 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 tech- Deferred tax 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 differ- ences arising at the initial recording of goodwill and the initial recording of as- nical account on the basis of average technical provisions for the Company’s sets and liabilities that are not business acquisitions and which did not affect ei- own account, less deductions for net receivables in insurance operations. This ther net profit/loss or taxable profit/loss at the transaction date. Furthermore, capital base is allocated per currency. The transferred investment return is temporary differences referring to participations in subsidiaries or associated calculated on the basis of an interest rate per currency equivalent to the actual companies that are not expected to be reversed within the foreseeable future total yield from the investment assets belonging to the insurance operations. are not considered either. The valuation of deferred tax is based on the extent The weighted average interest rate for 2013 amounted to 0.9%. to which underlying assets and liabilities are expected to be realized or settled. Applied interest rates % EUR GBP SEK USD 2013 1.68% 1.96% 0.80% 0.70% 2012 10.35% 8.75% 1.65% 3.85% Investment income The item Investment income refers to yield from investment assets and com- prises rental income from land and buildings, dividends from shares and parti- cipations, including dividends from shares in Group companies, interest income, net foreign exchange gains, reversed impairments and net capital gains. Investment expenses and charges Charges on investment assets are recorded under the item Investment ex- penses and charges. The item comprises operating costs for land and buildings, asset management costs, interest expense, net foreign exchange losses, depre- ciations and impairments and net capital losses. 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 ac- quisition value. At the sale of investment assets, previously unrealized changes 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 accounting 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. The Group recognizes deferred tax assets on each closing day to the extent that it is probable that they can be used against future taxable income. This is based on assumptions on future profitability and earnings. If these assumptions change it could imply future reductions in deferred tax assets. Estimating fu- ture earnings, historical experience and assumptions of the future development of the underlying asset is considered. 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 test- ed annually for impairment and is recognized at acquisition cost less accumu- lated impairment losses. Impairment losses of goodwill are not reversed. 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 acqui- sition 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. Accounting of an intangible asset is based on it useful life. An intangible asset with a finite useful life is amortized while an intangible asset with an indefinite is not amortized but is impaired annually. Establishing the useful life is based on an analysis of each acquired intangible asset. The amortized amount of an intangible asset is periodized over the useful life. 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 testing of identifiable and unique software products controlled by the Company are repor- ted 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 30 Note 1 – Cont. — expenditure attributable to the software during its development period can the valuation methods employed are based on market data, while company-spe- be calculated in a reliable manner. cific information is used to the least degree possible. The Company regularly calibrates valuation methods and tests their validity by comparing the outcome Other development costs, which do not fulfill these criteria, are charged at of the valuation methods with prices from observable current market transac- the time at which they arise. Development costs which have previously been tions in the same instrument. charged are not reported as an asset in the following period. Development costs The total effect in the Income Statement for the year, and the values in the for software reported as an asset are amortized during their assessed useful December 31, 2013 balance sheet, for financial instruments valued at fair value life, which does not exceed five years. Licenses Licenses, acquired or otherwise received, are accounted as an intagible asset in accordance with IAS 38. by using valuation techniques based on assumptions that are neither supported by the prices from observable current market transactions in the same instru- ments, nor based on available observable market information, is disclosed in Note 18. LAND AND BUILDINGS All properties owned by the Company are operational properties and are valued Debtors, Loans receivables and pre-payments and accrued income This category includes non-derivative financial assets which are not listed on an active market and with fixed or determinable payments. These assets are using the acquisition cost method, in accordance with IAS 16. The Company held at amortized cost. These assets are reported in the amounts which are owns three properties located in Sweden and Belgium. Sirius reports its prop- expected to be received, that is, after deductions for bad debt provisions. The erties in accordance with the acquisition cost method and the capitalized costs major posts are Interest bearing investments emitted by, and loans to, group are depreciated over 50 years. No depreciation is carried out on land. companies and Other debtors. FINANCIAL INSTRUMENTS Financial instruments recorded in the balance sheet include, on the asset side, Available-for-sale financial assets The category available-for-sale financial assets include financial assets not shares and participations, loan receivables, bond and other interest-bearing classified in any other category or financial assets that the Company has securities as well as derivatives. Where appropriate, derivatives with negative initially chosen to classify in this category. The holding of bonds and other inter- market value are included among liabilities, other liabilities and shareholders’ est-bearing securities is recorded here. Assets in this category are continuously equity. valued at fair value with changes in value recorded in other comprehensive Acquisitions and disposals of financial assets are recorded on trade date, the income, except for changes in value due to impairment or to foreign exchange date upon which the Company commits to acquire or dispose an asset and thus rate differences on monetary items recorded in the income statement. Fur- gains or looses control of the asset. Classification and valuation Financial instruments are initially recorded at acquisition value corresponding thermore, interest on interest-bearing instruments is recorded in accordance with the effective interest method in the income statement. As regards these instruments, any transaction costs will be included in the acquisition value when initially reported, and will, thereafter, be assessed on an ongoing basis at to the fair value of the instrument plus transaction costs, except in the case of fair value, to be included in other comprehensive income, until that point in time instruments belonging to the category Financial assets recorded at fair value the instruments in question mature or are disposed. At disposal of the assets, via the income statement, which are recorded at fair value exclusive of transac- the accumulated profit/loss is recorded in the income statement. tion costs. A financial instrument is classified when it is initially reported, based A long-term approach forms the basis for investments in this category, upon the purpose for which the instrument was acquired. This classification where the yield granted by these instruments at the time of investment is of determines the manner in which the financial instrument will be valued after significance for which investments shall be made. initial recording, as described below. Financial assets valued at fair value via the income statement This category consists of two sub-groups: financial assets held for trading and 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 other financial assets that the Company had initially designated on initial rec- transaction costs and are subsequently accounted at amortized cost. ognition as an asset to be measured at fair value trough the income statement (according to the so-called Fair Value Option). Fair Value Option is used in order to reduce mismatch between valuation and accounting of financial assets. (i.e. Financial guarantees Financial guarantee agreements are recorded as insurance contracts in ac- accounting mismatch). Financial instruments in this category are continually cordance with the accounting principles described in the section Accounting of valued at fair value, with changes in value recorded in the income statement. insurance contracts, above. The first sub-group includes derivatives with a positive fair value. The first sub-group includes derivatives with a positive fair value. The second sub-group consists of financial investments in bonds and other interest-bearing securities along with shares and participations, with the exception of shares in subsidiar- Write-downs of financial instruments Impairment testing of financial assets At each reporting date, the Company assesses whether there exists any ies or associated companies. 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 Classification and valuation Financial instruments listed on an active market For financial instruments listed on an active market, fair value is determined 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 as- on the basis of the asset’s listed bid rate at balance sheet date, with no added sets in question are considered to be doubtful. Objective evidence is constituted transaction costs (e.g. commission) at the time of acquisition. A financial both of observable conditions which have arisen and which have a negative instrument is considered to be listed in an active market if listed prices are impact on the possibility of recovering the acquisition cost, and of significant or easily accessible on a stock exchange, with a trader, broker, trade association, extended reductions of the fair value of a financial investment classified as an company supplying current price information or supervisory authority and available-for-sale financial asset. these prices represent actual and regularly occurring market transactions un- der business-like conditions. Possible future transaction costs from a disposal are not considered. These instruments are included in the balance sheet items Reversal of impairment An impairment is reversed if an indication exists both that the impairment Shares and participations and Bonds and other interest-bearing securities. The predominant proportion of the Company’s financial instruments has been 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 assigned a fair value with prices quoted on an active market. impairment of loans receivable and account receivables, recorded at amortized cost, is reversed if a later increase of the recoverable amount can be objectively Financial instruments not listed on an active market If the market for a financial instrument is not active, the Company establishes related to an event occurring after the impairment has been performed. The impairment of interest-bearing instruments, classified as availa- the fair value by means of various valuation techniques. As far as is possible, ble-for-sale financial assets, is reversed via Other comprehensive income if 31 sirius international insurance corporation – annual report 2013 Note 1 – Cont. fair value increases and this increase can objectively be related to an event plans is the current value of the defined benefit obligation at the end of the occurring after the write-down was carried out. period, reduced with the fair value of the managed assets, with adjustments for LEASED ASSETS All lease agreements are classified and recorded in the Group and Parent Com- actuarial gains and losses. The defined benefit pension plan obligation is calcu- lated annually by independent actuaries applying the so-called projected unit credit method. The current value of the defined benefit obligation is determined pany as operational leases. In operational leasing, the leasing fee is expensed through discounting of expected future cash flows, using interest rates deter- over the duration of the lease, on the basis of the benefit received, which can mined by current market interest rates. The market rates take into account the differ from the amount paid as a leasing fee during the year. caracteristics of the defined pension obligaton, both in terms of duration and TANGIBLE ASSETS Tangible assets are recorded at acquisition value after deduction for accumu- The service cost for current year is recognized in the Income Statement. Costs referring to service during earlier periods are reported directly in the lated depreciation and any impairment, with a supplement for any appreciation. income statement, unless the changes in the pension plan are conditional on In disposal or sale, gains and losses are recorded net in operating cost. Depre- the employee remaining employed during a given period (earning period). In ciation takes place systematically over the estimated useful lives of the assets. this case, the cost referring to service during earlier periods is distributed on Estimated useful lives for equipment such as cars, furniture and computer a straight-line basis over the earning period. Actuarial gains and losses on the equipment amounts to 3—10 years. defined benefit obligation and the fair value on the plan assets are recognized the currency in which the remuneration will be paid. in Other comprehensive income (OCI). 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 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, indication of an impairment requirement exists, the asset’s recoverable amount form part of the FTP2. is estimated in accordance with IAS 36. Furthermore, there are two variations of retirement earlier than at the age An impairment loss is recognized when the reported value of an asset or of 65. Employees born 1955 and earlier have the possibility to retire between cash-generating unit exceeds its recoverable amount. An impairment loss is the ages of 62 and 65 according to local agreement. Staff employed before recognized in the income statement. The impairment of assets related to a January 1, 2004 have the right to retire from the age of 64. These plans are cash-generating unit is primarily allocated to goodwill. The proportional impair- also defined benefit plans and are reflected in financial statements of both the ment of other assets included in the unit is subsequently performed. Group and the Parent Company. The recoverable amount is the highest of fair value less selling expenses and For defined contribution pension plans, the Group pays fees to publicly or value in use. In the calculation of value in use, future cash flow is discounted by privately administered pension insurance plans on an obligatory, contractual or a discount factor that considers the risk-free interest rate and the risk associat- voluntary basis. The Group has no further payment obligations when all fees are ed with the specific asset. Reversal of impairment An impairment is reversed if an indication exists both that the impairment paid. The fees are reported as personnel costs at the point in 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. requirement no longer exists and that a change has taken place in the assump- tions forming the basis of the estimation of the recoverable amount. However, Remuneration upon termination of employment Remuneration upon employment of contract is payable when an employee’s the impairment of goodwill is never reversed. Reversals are only performed to employment is terminated by the Group before the normal retirement age the degree that the asset’s reported value after reversal does not exceed the or when an employee voluntarily accepts the termination of employment in reported value that should have been reported, with deduction for depreciation exchange for such remuneration. The Group reports severance payments when or amortization when appropriate, if no impairment had been carried out. it is demonstrably obliged to terminate employees’ employment in accordance DIVIDENDS Dividends are recorded as liabilities after approval of the dividend by the 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 General Meeting of Shareholders. employees which it is estimated will accept this offer. OTHER PROVISIONS A provision is recognized in the balance sheet when the Company has an exist- CONTINGENT LIABILITIES A contingent liability is recognized when there is a possible obligation which ing legal or constructive obligation as a result of past events, when it is likely arises from past events and whose existence is solely confirmed by one or more that an outflow of resources will be required to settle the obligation and when uncertain future events, or when there is a commitment which is not recorded the amount can be estimated reliably. In cases in which the date of payment has as a liability or provision due to the fact that it is unlikely that an outflow of a material effect, the amount of the provision is calculated via the discounting resources will be required. 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 PARENT COMPANY’S ACCOUNTING PRINCIPLES The Parent Company’s annual report, as well as its financial statements in gen- eral, has been prepared using the same accounting principles and calculation methods used in the most recent annual report. financed through payments to insurance companies or managed funds. These payments are determined based on periodic actuarial calculations. The Group Differences between accounting principles in the Group and the Parent Company The differences between the accounting principles in the Group and the Parent has both defined benefit and defined contribution pension plans. A defined con- Company are presented below. The accounting principles stated below for the tribution plan is a pension plan under which the Group pays fixed contributions Parent Company have been consistently applied for all periods presented in the into a separate legal entity. The Group has no legal or constructive obligations Parent Company’s financial statements, unless stated otherwise. 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 Goodwill Goodwill represents the difference between acquisition cost for business acqui- sitions and the fair value of acquired assets, assumed liabilities and contingent a level for the pension benefit an employee receives after retirement, usually liabilities. In the Parent Company, goodwill is amortized in accordance with the based on one or several factors, such as age, duration of employment and salary. Swedish Annual Account Act and is reported in the balance sheet on a straight- The liability reported in the balance sheet regarding defined benefit pension line basis over the estimated useful life of the asset. The estimated useful life is 32 sirius international insurance corporation – annual report 2013 Note 1 – Cont. reviewed annually. The estimated useful life for goodwill, and goodwill arising made to untaxed reserves are recorded in the income statement under the from the purchase of the net assets of a business, amounts to 20 years. Amor- heading Appropriations. The accumulated value of the provisions is recorded in tization which deviates from plan is handled as an appropriation and is reported the balance sheet under the heading Untaxed Reserves. under the heading Difference between reported depreciation/amortization and A total of 22% of the untaxed reserves can be considered as a deferred tax depreciation/amortization according to plan. liability and 78% as shareholders’ equity. The deferred tax liabilities can be Subsidiaries and associated companies The Parent Company records participations in subsidiaries and associates described as an interest-free liability with a non-defined duration. In the group accounts, 22% of the untaxed reserves are allocated to deferred tax liabilities and 78% to shareholders’ equity. In an assessment of financial strength, the to- according to the cost method. Only dividends which have been received are tal value of the untaxed reserves is considered risk capital, as any losses can be recognized as income, provided that such dividends derive from profits earned covered, to a large extent, by the dissolution of untaxed reserves without taxes subsequent to the acquisition. Dividend amounts exceeding this earned profit becoming payable. The largest item attributable to untaxed reserves refers to are considered as repayment of the investment and reduce the carrying value the safety reserve. The safety reserve forms a collective security-conditioned of the participations. reinforcement of the technical provisions. Accessibility is limited to loss cover- In the Parent company’s financial statements transaction costs are capital- age and otherwise requires official authorization. ized in the balance sheet and are added to the total acquisition amount booked as shares in subsidiaries. In the consolidated accounts transaction costs are expensed according to IFRS 3. 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 Anticipated dividends Anticipated dividends from subsidiaries are recorded in those cases in which the 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 Parent Company has the sole right to make decisions regarding the amount of insurance, with equivalent reinsurance, for the five most recent financial years. the dividend and the Parent Company has reached a decision on the dividend’s The provisions for each financial year are equivalent to 75% of the technical amount before the Parent Company has published its financial statements. surplus in the credit insurance operations. However, in the consolidated balance sheet, the Equalization provision is allocated into deferred tax liabilities and Taxes Untaxed reserves are recorded in the Parent Company including deferred in- shareholders’ equity. come tax liabilities. However, untaxed reserves in the consolidated accounts are allocated between deferred income 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). Pensions The Parent Company applies a different form of reporting of defined benefit Shareholders’ contributions are recorded directly against shareholders’ equity in the receiving entity and in shares and participations in the entity pension plans than stipulated in IAS 19. The Parent Company’s reporting of providing the contribution, to the extent that no impairment is required. defined benefit pension plans follows the Pension Obligations Vesting Act and Group contributions are recorded according to their financial significance. the regulations of the Swedish Financial Supervisory Authority, as it is stated This implies that group contributions provided and received for the purpose of in RFR 2 that it is not necessary to apply the regulations in IAS 19 regarding minimizing the Group’s total taxes are recorded directly against retained earn- defined benefit pension plans in legal entities. Pension costs are reported as ings, with a deduction for the current tax effects of the contribution. Operational expenses in the Parent Company’s income statement and a provi- Group contributions which can be seen as the equivalent of a dividend are sion referring to individuals with the option of retiring at the ages of 62 and 64 reported as a dividend. This implies that group contributions received and their is found on the line Pension provisions in the Parent Company’s balance sheet. current tax effects are recorded in the income statement. Group contributions Appropriations and untaxed reserves Appropriations and untaxed reserves are only recorded in the Parent Company. 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 Taxation legislation in Sweden gives companies the option of decreasing earnings, with consideration for current tax effects. The contributor records the taxable income for the year by making provisions to untaxed reserves. When group contribution and its current tax effects as investments in participations applicable, untaxed reserves are set off against fiscal loss deductions or be- in the Group companies, to the extent that impairments are not required. come subject to taxation upon resolution. In accordance with Swedish practice, changes in untaxed reserves are recorded in the income statement. Provisions 33 sirius international insurance corporation – annual report 2013 34 sirius international insurance corporation – annual report 2013 Note 2 – Information on risks RISK MANAGEMENT The company’s Enterprise Risk Management, ERM, is at the heart of Sirius’ and compliance reports to the CEO, the Management Group and 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 directly to the thinking. Sirius defines ERM as the discipline by which the company identifies, Board of Directors. assesses, controls, monitors, and discloses risks from all sources for the pur- Sirius’ ultimate owner is listed on the New York Stock Exchange and, con- pose of increasing Sirius’ short- and long-term value to its stakeholders. sequently, is required by the Sarbanes-Oxley Act, Section 404, to express an ERM is an ongoing process with the objective of creating a risk management opinion on the effectiveness of internal control over financial reporting execut- culture that emanates from top management and which permeates throughout ed during the year. As part of this assessment, a thorough documentation and the entire organization. Sirius strives to maintain a risk culture where employ- evaluation of all processes and controls leading up to the annual report have ees are aware of and measure, assess and communicate risk as part of their been undertaken. This work has enabled Sirius to demonstrate compliance with responsibilities. Management’s role includes communicating, implementing, the requirements of the Act. 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 man- agement response — Provide stakeholders with transparent risk management information — Comply with current Solvency II standards and with all regulatory requirements RISK STRATEGY AND THE COMPANY’S RISK TOLERANCE Risk strategy and risk tolerance comprise the foundation of the risk manage- ment processes. Sirius’ risk strategy and risk tolerance 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 process, strategic limits are explicitly discussed and specified. The strategic risk tolerance is ex- pressed 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 tolerance statements, risk limits are applied at a detailed level throughout the organization in the form of maximum risk exposure, retroces- sion 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 INSURANCE RISK MANAGEMENT Goals, principles and methods A clear focus on managing insurance risks is vital for Sirius’ continued success. 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; under- writing risk and reserve risk. Underwriting risk Underwriting risk refers to premium and accumulation assessment, which is de- fined as premium risk and catastrophe risk, respectively. The underwriting 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 selected risk level. The anticipated profitability of each contract which is entered into shall comprise the basic ground for decision making regarding all underwriting. Other underwriting guiding principles include diversification, strong accu- mulation 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 as- signed 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. Sirius America is governed by similar underwriting guidelines as Sirius International, as appropriate. The insurance premiums for assumed business are to cover expected losses and expenses as well as provide a reasonable return on deployed capital. The premium risk is therefore associated with any possible level of losses deviating from expected levels. The premium risk is generally managed through the application of pricing models and underwriting procedures, but also through a restructuring of under-performing business, or through declining to accept — Reduce risk by proper risk selection and active portfolio diversification such business. — Strong accumulation control — Strong and independent control functions — Motivate employees to further develop their risk management capabilities RISK GOVERNANCE The risk management processes within Sirius are supported by a risk man- If a larger, catastrophic event occurs, simultaneously impacting a large number of cedants, this may result in a single loss that could offset the ex- pected 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 risks, both gross and net. Catastrophe risk is also managed by the effective use of retrocessional agement infrastructure consisting of the Board of Directors, an experienced protections. management team, various risk committees, control functions, policies and In order to ensure consistency in the underwriting process, all underwriting procedures, risk models and reporting routines. This is described in further within Sirius complies with specific rules and procedures. Detailed underwriting detail in the risk sections below. guidelines comprise the framework for all risk acceptances, and these guide- Sirius’ Board of Directors is ultimately responsible for the company’s risk lines contain sections regarding, for example, limits, underwriting authorities management strategy, risk tolerances and policies and Sirius’ management has and restricted business. A Four-Eyes underwriting system, that is, a system in the day-to-day responsibility for all ERM activities. To deploy these responsibili- which at least two individuals participate in each decision, is applied for the ties, different risk committees carry out certain pre-defined duties. majority of the business. The underwriting guidelines are reviewed at least annually and updated when appropriate. The Risk Management Committee has the objective of formalizing the oversight There are several levels of control functions as well as technical systems, of critical risks, including the following risk management processes: which are in place to monitor and control that underwriting policies and proce- — Establishment of risk tolerances — Identification and management of emerging risks — Quantification and subsequent monitoring of exposures dures are followed. At Sirius International, there is an underwriting control unit reporting to the Chief Underwriting Officer. This group focuses in detail on how the business is underwritten and that the underwriters follow issued policies — Implementation of risk reduction/reward expansion strategies and procedures. Another group controls the underwriting system and ensures — Risk reporting it is used correctly and that input data is accurate. Finally, Risk Control, Compli- ance and Internal Audit also monitor these control groups, carrying out random Sirius’ functions for risk control and compliance are responsible for the inde- inspections/tests, in detail ensuring they use sufficient control. pendent monitoring of Sirius’ risks. The functions submit quarterly risk reports 35 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 Note 2 – Cont. Retrocession Sirius International uses retrocessional reinsurance as a tool to manage net risk In addition, to manage its aggregate exposure to very large catastrophe events, among other measures Sirius has been monitoring the largest net and has a centralized unit responsible for the purchasing and administration financial impact (“NFI”) that third-party models predict it would suffer based on of its outwards reinsurance. The implementation of reinsurance purchases is the extreme tail of the modeled losses. Sirius monitors multiple indicators of based on the strategic direction of the inwards portfolio, overall risk tolerances catastrophe tail risk to measure its financial exposure to such scenarios. Sirius and the search for an optimal portfolio mix. Catastrophe models and capital focuses on monitoring NFI TVaR, including the 100, 250, 500 and 1,000 year modeling tools are used in the analytical and decision making process. return periods in order to manage the potential impact of remote events on the Sirius financial position. The calculation of the NFI begins with the modeled Sensitivity to risks attributable to insurance agreements Within the insurance operations, natural catastrophe exposure (wind, flooding, TVaR PML and takes account of estimated reinstatement premiums, reinsur- ance recoverables net of estimated uncollectible balances, and tax benefits. and earthquakes) constitutes the company’s greatest risk. In order to manage This amount is deducted from Sirius’ planned legal entity comprehensive net this catastrophe risk, and the resulting accumulated risks, the company utilizes income for the year (before any planned losses for catastrophe events) to arrive a number of different models. In 2012, Sirius started using a new proprietary at the NFI. The NFI does not include the potential impact of the loss events on property underwriting and pricing tool (“GPI”), which consolidates and reports Sirius’ investment portfolio. on all its worldwide property exposures. GPI is used to calculate individual and Within Aviation reinsurance, the company applies another licensed third-par- aggregate PMLs by statistical blending of multiple third-party and proprietary ty model, ALPS, in which the exposure per airline company can be modeled and models. There is a process in place to evaluate and select a model of choice monitored. Within the insurance classes Accident & Health, Property and Trade per territory and peril. Based on the new tool, reports and analyses can be pro- Credit, the company has models which it has developed internally. duced 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 RESERVE RISK The reserving risk, i.e. the risk that insurance technical provisions will be in- using these models. Aside from the possibility of modeling single events, multi- sufficient to settle incurred and future claims, is foremost handled by actuarial ple occurrences within one calendar year are also modeled. methods and a careful continuous review of reported claims. Sensitivity analyses are undertaken based on a comparison of claims esti- Provisions are made to obtain a correct balance sheet and match revenues mated by various models, but also through changes to the assumptions applied and costs with the period in which they emerged. The amount of the provision by the different models, such as, return periods. shall correspond to the amount that is required to fulfill all expected obligations In addition, Sirius utilizes a system linked to the underwriting system. In this and reflect the best knowledge available to Sirius. Acknowledged and appropri- system, all business is registered and the company’s exposure is measured via a ate methods are used in these estimations. number of predefined catastrophe scenarios. Sirius supports its decisions on provisions by a combination of several Sirius also registers and monitors total exposed limits to wind and earth- actuarial methods, such as the Chain Ladder method, the Bornhuetter-Ferguson quake losses per country and/or zone. method and the Benktander method. A combination of benchmarks and under- writing judgment is used for the most recent years. Concentrations and sensitivity analysis The table below shows a summary of the manner in which Sirius analyzes Regarding run-off results and claims development from previous years please refer also to Note 4 Claims incurred and Note 23 Claims Reserve, where catastrophe risks, divided by geographical area and return periods. Sirius ana- a specification of claims costs and expenses relating to the current year and lyzes catastrophe risks each quarter during the financial year. The figures show prior years is made. the situation at the end of Q4 2012 and 2013. SENSITIVITY ANALYSIS — LOSSES DIVIDED BY GEOGRAPHICAL AREA AND RETURN PERIODS FOR THE GROUP The Group has asbestos and environmental claims amounting to MSEK 1,240 (1,231) net in the Group balance sheet. These claims are actively managed and are subject to recurrent in depth analyses, the latest during the second half of 2013. 2013 2012 Once per 100 years Once per 250 years Once per 100 years Once per 250 years Global — Gross Global — Net Europe — Gross Europe — Net US — Gross US — Net 3,691 3,242 3,026 1,595 3,234 3,134 4,243 3,605 3,987 2,039 3,665 3,558 3,734 3,169 3,108 1,432 3,277 3,103 4,206 3,641 4,019 1,865 3,725 3,590 Through the use of these simulation models, the company can obtain an estima- tion of catastrophe risk, both prior to and after retrocession. 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 2013. 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. Generally development of runoff portfolios are included only after they are acquired. 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. 36 sirius international insurance corporation – annual report 2013 Note 2 – Cont. GROUP CLAIMS, GROSS UNDERWRITING YEAR Estimated claims: At the close of the calendar year 2004 and prior years 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later Current estimate of total claims Total paid 2005 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL 3,070 3,613 3,509 3,484 3,472 3,467 14,439 14,452 14,412 14,412 14,009 2,409 2,995 5,544 5,123 6,000 8,581 7,245 4,931 4,931 4,654 3,369 3,895 3,887 3,813 6,890 6,859 6,853 3,405 4,215 4,210 7,092 7,058 7,042 3,307 4,771 7,189 7,063 7,003 2,822 6,892 6,778 6,737 3,986 5,374 5,312 2,586 3,642 2,786 6,853 6,566 7,042 6,667 7,003 6,620 6,737 5,855 5,312 4,479 3,642 2,190 2,786 446 CLAIMS OUTSTANDING 1) 5,257 403 277 287 375 383 882 833 1,452 2,340 12,489 CLAIMS, NET OF REINSURANCE UNDERWRITING YEAR 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 7 years later 8 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 4,361 PARENT COMPANY CLAIMS , GROSS UNDERWRITING YEAR Estimated claims: At the close of the calendar year 2004 and prior years 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later Current estimate of total claims Total paid 2,559 3,039 2,948 2,938 2,926 2,922 7,914 7,473 7,442 7,442 7,113 329 2,131 2,700 2,751 2,734 2,711 4,797 4,585 4,540 4,540 4,279 2,954 3,432 3,404 3,330 6,563 6,250 5,938 5,938 5,679 261 259 3,097 3,704 3,669 6,782 6,185 6,091 6,091 5,758 333 2,832 3,690 6,218 5,875 5,821 5,821 5,478 343 2,286 6,249 6,037 6,002 3,539 4,814 4,601 2,231 3,080 1,943 6,002 5,233 4,601 3,868 3,080 1,864 1,943 297 769 733 1,216 1,646 10,250 2005 2006 2007 2008 2009 2010 2011 2012 2013 TOTAL 3,070 3,613 3,509 3,484 3,472 3,467 3,457 3,456 3,446 3,446 3,399 2,409 2,995 5,544 5,123 6,000 6,590 5,306 2,993 2,993 2,937 3,369 3,895 3,887 3,813 3,794 3,780 3,777 3,405 4,215 4,210 4,148 4,148 4,131 3,307 4,771 4,563 4,486 4,452 3,777 3,688 4,131 3,892 4,452 4,180 CLAIMS OUTSTANDING 1) 724 47 56 89 239 272 CLAIMS, NET OF REINSURANCE UNDERWRITING YEAR 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 7 years later 8 years later Current estimate of total claims Total paid 2,559 3,039 2,948 2,938 2,926 2,922 2,912 2,911 2,902 2,902 2,857 2,131 2,700 2,751 2,734 2,711 2,704 2,696 2,696 2,696 2,656 2,954 3,432 3,404 3,330 3,307 3,294 3,293 3,097 3,704 3,669 3,603 3,610 3,599 2,832 3,690 3,516 3,501 3,478 2,822 4,285 4,147 4,124 4,124 3,431 693 2,286 3,533 3,389 3,370 2,020 3,142 2,802 1,638 2,379 2,132 2,802 2,036 2,379 1,312 2,132 329 766 1,067 1,803 5,756 1,550 2,405 2,090 1,282 1,818 1,311 CLAIMS OUTSTANDING 1) 647 45 40 63 168 196 568 665 832 1,129 4,353 1) For reconciliation against Balance Sheet, see Note 23. 37 3,293 3,230 3,599 3,431 3,478 3,282 3,370 2,802 2,090 1,425 1,818 986 1,311 182 sirius international insurance corporation – annual report 2013 Note 2 – Cont. FINANCIAL RISK MANAGEMENT Goals, principles and methods In the company’s operation various types of financial risks arise, such as market The Currency and Market Risk group is responsible for the continuous management of market risks. The development of the market risks is reported within the Currency and Market Risk group on a monthly basis. The group risks, credit risks and liquidity risks. In order to limit and control the risk taking consists of Chief Financial Officers and Investment Officers from Sirius Interna- in the operations, Sirius’ Board of Directors, being ultimately responsible for tional and Sirius America. The Currency and Market Risk group is reporting to the internal control in the company, has determined guidelines for the financial the Investment Committee of Sirius. operations. The company’s investment operations during 2013 yielded a total return of The overall investment objective is to achieve consistent positive returns and 3.6 percent (5.7 percent in 2012), expressed in SEK. The duration in the port- to maximize long-term after-tax return on invested assets within prudent levels folio with interest-bearing investments at the end of 2013 was 2.2 years which of risk, through a diversified portfolio of high-quality fixed income and equity was lower compared to 2012 (2.6 years). During the year, only minor changes investments. between different asset classes have been made. The table below shows the Sirius makes an important distinction between Policyholder Funds Invest- investment assets divided by class of asset, excluding deposits in companies ments and Owners’ Funds Investments. Policyholder Funds are defined as that are reinsured by Sirius. policyholder liabilities plus statutory minimum capital and surplus, less policy- holder assets. Policyholder liabilities are Net Technical Reserves as defined by INVESTMENT ASSETS, DIVISION BY CLASS OF ASSET, PERCENTAGE SPLIT 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 GROUP PARENT COMPANY 2013 2012 2013 2012 Bonds and other interest- bearing securities 72.67 76.67 34.60 49.90 Shares in associated companies — — 54.46 Shares and participations 17.58 14.24 — whereof venture capital companies Derivatives Cash and bank balances 2.79 1.17 8.57 1.72 1.30 7.79 2.10 0.40 1.44 7.40 41.01 2.73 0.52 1.62 4.74 risk, currency risk and other price risk, primarily equity risk. TOTAL 100.00 100.00 100.00 100.00 38 sirius international insurance corporation – annual report 2013 Note 2 – Cont. Below, the company’s exposure and sensitivity to the respective market risks market value increases as the interest rates decrease. The level of interest rate are described. The descriptions are made on the basis of the company’s re- risk increases with the asset’s duration. The tables below illustrate, in absolute porting of the Traffic Light model to the Swedish FSA as per December 31, 2013 figures, the exposure to interest rate risk in accordance with the risk scenarios with its sensitivity analyses in the form of stress tests and subsequent capital per the Traffic Light model as per December 31, 2013 and December 31, 2012. As requirements. of December 31, 2013 new guidelines for the computation of Interest Rate Risk were implemented by the Swedish FSA. 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 INVESTMENT ASSETS, INTEREST RATE RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS EXPOSURE (MSEK) SCENARIO, STRESS TEST CORRESPONDING BASIS POINTS CAPITAL REQUIREMENTS (MSEK) GROUP Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL 2013 3,049 1,492 12,394 16,935 2012 2,689 1,470 14,076 18,235 2013 2012 2013 2012 2013 2012 100 bp 100 bp 100 bp 30% 25% 30% — 100 100 100 46 33 53 — 77 41 263 381 35 19 209 263 EXPOSURE (MSEK) SCENARIO, STRESS TEST CORRESPONDING BASIS POINTS CAPITAL REQUIREMENTS (MSEK) PARENT COMPANY Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL 2013 2,059 1,467 3,038 6,564 2012 2,690 1,471 5,885 10,046 2013 2012 2013 2012 2013 2012 100 bp 100 bp 100 bp 30% 25% 30% 100 100 100 46 33 53 — 56 40 83 179 35 19 88 142 Equity Risk The equity risk is the risk that the market value of equity securities will mitigated by a diversification of the equity securities portfolio. The tables decrease as a result of factors related to the external economic climate and below show the equity risk in accordance with the risk scenarios per the Traf- factors related specifically to the company in question. Equity risks are mainly fic Light model as per December 31, 2013 and December 31, 2012. INVESTMENT ASSETS, EQUITY RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS EXPOSURE (MSEK) SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) GROUP Foreign shares and participations Foreign stock warrants Foreign subsidiaries and associated companies 2013 4,097 — — 2012 3,567 — — 2013 35% — — TOTAL 4,097 3,567 2012 35% — — — 2013 1,434 — — 2012 1,248 — — 1,434 1,248 PARENT COMPANY Foreign shares and participations Foreign stock warrants Foreign subsidiaries and associated companies TOTAL EXPOSURE (MSEK) SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2013 2,027 5,854 7,881 2012 1,820 — 7,052 8,872 2013 35% 35% 2012 35% — 35% — 2013 709 2,049 2,758 2012 637 — 2,468 3,105 39 sirius international insurance corporation – annual report 2013 Note 2 – Cont. Currency Risk Currency risk arises if assets and liabilities in the same foreign currency vary in and exposure related to Owners’ Funds. Sirius’ net Policyholder Funds exposure for currency risk is marginal as the objective for managing currency risk is to amounts. match net insurance liabilities in foreign currency with corresponding assets on The Currency and Market Risk group meets at least monthly in order to timely basis. The Group’s total net exposure for currency risk, i.e. including both monitor currency exposure and limit currency risk. In addition, it is the Policyholder and Owners’ Funds, before and after any hedging by derivatives is responsibility of the group to review and update the Currency Risk Policy and shown in the table below (the table is only presented for the Group since the ensure it is approved by the Investment Committee and the Board of Directors exchange rate exposure, at large, is the same for the Parent Company and the on an annual basis. Group since the subsidiaries are treated on a look through basis where the Sirius’ total net currency exposure is divided into two categories, exposure subsidiaries’ valuation and exposure is taken into consideration). related to Policyholder Funds, which is matched with the corresponding assets, 2013 2012 USD EUR GBP Other USD EUR GBP Other EXCHANGE RATE EXPOSURE — INVESTMENT ASSETS GROUP Shares and participations Bonds and other interest-bearing securities Other financial investment assets Other assets and liabilities, net TOTAL ASSETS 3,937 11,940 1,282 2,141 29 1,519 164 159 — 633 18 7 19,300 1,871 658 Technical provisions, net —9,379 —1,475 TOTAL LIABILITIES AND PROVISIONS —9,379 —1,475 Net exposure before financial hedging with derivatives 9,921 396 Nominal value currency forwards NET EXPOSURE AFTER FINANCIAL HEDGING WITH DERIVATIVES —3,860 6,061 —5 391 —264 —264 394 — 394 — 294 315 128 737 —498 —498 239 3,526 14,109 1,309 2,304 21,248 —10,401 —10,401 10,847 — —3,945 239 6,902 37 1,579 86 230 1,932 —1,295 —1,295 637 44 681 — 664 32 —31 665 —243 —243 422 —20 402 — 526 291 100 917 —736 —736 181 — 181 In the table below, the effect on the company’s shareholders’ equity and income The analysis below assumes that the changes in exchange rates do not affect statement of two stress tests are shown: An unfavorable foreign exchange rate other risk parameters, such as interest rate. The sensitivity analysis takes into move of 25 basis points, in the respective foreign currencies towards SEK and consideration existing financial hedges with currency related derivatives. an unfavorable change to fx rates by 10 percent in the respective foreign currencies towards SEK. SENSITIVITY ANALYSIS PER CURRENCY GROUP 3 Change 25 basis points 1 0 2 Change 10% 2 Change 25 basis points 1 0 2 Change 10% USD 236 606 266 690 EUR GBP Other TOTAL 11 39 20 68 9 39 10 40 — 24 — 18 256 708 296 816 40 sirius international insurance corporation – annual report 2013 Note 2 – Cont. CREDIT RISK Credit risk, or counterparty risk, refers to the risk that the company will not Credit spread risk in investment assets Credit spread risk results from the sensitivity of the value of fixed income receive agreed payment and/or will make a loss due to the counterparty’s ina- assets to changes in the level or in the volatility of credits spreads over the bility to fulfill its obligations. A substantial portion of the credit risk to which the risk-free term structure. Assets sensitive to changes in credit spreads may also company is exposed, arises as a result of established reinsurance agreements. give rise to other risks, e.g. counterparty default risk, which is not covered Credit risk in investment assets The credit risk in investment assets can be split into credit spread risk and counterparty risk. below. The tables below show the credit spread risk in accordance with the risk scenarios per the Traffic Light model as per December 31, 2013 and December 31, 2012. INVESTMENT ASSETS, CREDIT SPREAD RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS GROUP Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL EXPOSURE (MSEK) AVERAGE CREDIT SPREAD SCENARIO IMPACT 2013 1,248 982 9,810 12,040 2012 2013 2012 2013 791 1,304 9,557 11,652 0.71 1.14 1.04 1.02 1.04 1.24 1.13 1.14 —1.8% —4.7% —2.8% —2.9% 2012 —2.5% —4.6% —3.2% —3.3% EXPOSURE (MSEK) AVERAGE CREDIT SPREAD SCENARIO IMPACT PARENT COMPANY 2013 2012 2013 2012 2013 Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL 366 958 2,297 3,621 791 1,304 4,284 6,379 0.64 1.14 1.22 1.12 1.04 1.24 1.22 1.21 —2.8% —4.8% —4.0% —4.1% 2012 —2.5% —4.6% —3.4% —3.6% CAPITAL REQUIREMENTS (MSEK) 2013 2012 22 46 275 343 20 61 304 385 CAPITAL REQUIREMENTS (MSEK) 2013 2012 10 45 92 147 20 61 147 228 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. Bonds and other interest-bearing assets — Governments — Swedish mortgage institutions — Other Swedish issuers — Other issuers Shares in associated Companies Shares and participations Derivatives TOTAL GROUP PARENT COMPANY 2013 16,935 4,365 — 466 12,104 — 4,097 273 21,305 2012 18,235 6,763 0 791 10,681 — 3,567 326 22,128 2013 6,564 2,925 — 366 3,273 10,330 399 273 17,566 2012 10, 041 4,004 0 791 5,246 8,254 549 326 19,170 41 sirius international insurance corporation – annual report 2013 Note 2 – Cont. The table below lists the ten largest holdings. The table excludes government bonds and other similar interest-bearing securities but includes corporate bonds, shares and participations in associated companies. Type of security Market value (MSEK) % of financial assets GROUP 2013 Name of security Symetra Financial Corporation OneBeacon Insurance Group Share Share Sirius International Financial Services Loan note to Group company Sirius International Financial Services Currency Derivative Total Capital Canada Ltd Ironshore JP Morgan Volkswagen Fin Serv. NV BMW Finance NV Porsche Innovative Lease TOTAL PARENT COMPANY 2013 Bond Share Bond Bond Bond Bond 1,373 746 475 275 260 200 199 177 152 151 4,008 6.27 3.40 2.17 1.25 1.18 0.91 0.91 0.81 0.69 0.69 18.28 Name of security Type of security Market value (MSEK) % of financial assets WM Phoenix (Luxembourg) S.à r.l. Shares in Subsidiary S.I. Holdings (Luxembourg) S.à r.l. Shares in Subsidiary Sirius International Holdings (NL) B.V. Shares in Subsidiary Sirius International Financial Services Currency derivative Silver Arrow SA Global Drive ABN Amro Bank NV Chase Issuance Trust PPG Industries Ingersoll-Rand Co Ltd TOTAL Bond Bond Bond Bond Bond Bond 6,158 2,834 1,311 275 133 67 61 53 52 51 10,995 33.95 15.62 7.23 1.51 0.73 0.37 0.34 0.29 0.29 0.28 60.61 42 sirius international insurance corporation – annual report 2013 Note 2 – Cont. GROUP 2012 Name of security Type of security Market value (MSEK) % of financial assets Sirius International Financial Services Loan note to Group company Symetra Financial Corporation OneBeacon Insurance Group Prospector Offshore Fund Share Share Share Sirius International Financial Services Currency Derivative Total Capital Canada Ltd Ironshore Rio Tinto Fin USA Ltd Volkswagen Fin Serv. NV Volkswagen Auto Loan Enh Trust TOTAL PARENT COMPANY 2012 Bond Share Bond Bond Bond 966 949 662 346 326 264 197 178 178 177 4 243 4.4 4.3 3.0 1.6 1.5 1.2 0.9 0.8 0.8 0.8 19.3 Name of security Type of security Market value (MSEK) % of financial assets WM Phoenix (Luxembourg) S.à r.l. Sirius International Holdings (NL) B.V. Shares in Subsidiary Shares in Subsidiary White Sands Holdings (Luxembourg) S.à r.l. Shares in Subsidiary Prospector Offshore Fund Share Sirius International Financial Services Currency derivative Total Capital Canada Ltd Volkswagen Fin Serv NV BMW Finance NV Electrolux AB Citigroup Inc TOTAL Bond Bond Bond Bond Bond 6,158 1,369 714 346 326 264 178 155 143 134 9,787 32.1 7.1 3.7 1.8 1.7 1.4 0.9 0.8 0.8 0.7 51.0 43 sirius international insurance corporation – annual report 2013 Note 2 – Cont. The tables below show fixed income investments and equity investments per also presented per sector (the table is only presented for the Group since the geographical area and credit rating classes. Fixed income investments are distribution, at large, is the same for the Parent Company). CREDIT QUALITY ON CLASSES OF INVESTMENT ASSETS, % GROUP 2013 AAA AA A BBB CCC rated TOTAL AAA AA A BBB CCC rated TOTAL 2013 Not 2012 Not Bonds and other interest-bearing securities — Swedish government — Swedish mortgage institutions — Other Swedish institutions — Foreign governments — Other foreign issuers 29 100 100 0 24 17 23 18 29 — — — 76 18 — — — — — — — — 24 39 1 — — — — 1 1 — — — — 1 100 100 100 0 100 100 27 100 — — 31 20 28 — — 34 69 9 18 — — 48 — 27 27 — — 18 — 44 — — — — — — — — — — — — EQUITY INVESTMENTS, DIVIDED BY GEOGRAPHICAL AREA, % GROUP PARENT COMPANY Western Europe North America Other TOTAL INTEREST-BEARING INVESTMENTS, DIVIDED BY GEOGRAPHICAL AREA, % Western Europe North America Scandinavia Other TOTAL INTEREST-BEARING INVESTMENTS, DIVIDED BY SECTOR, % Governments Swedish mortgage institutions Other Swedish issuers Other foreign issuers TOTAL 2013 2.15 89.74 8.11 100 GROUP 2013 16.77 69.22 13.77 0.24 100 GROUP 2013 26.52 2.83 0 70.65 100 2012 2.95 85.04 12.01 100 2012 11.36 71.00 14.75 2.89 100 2012 37.09 0 4.34 58.57 100 2013 10.50 89.34 0.16 100 PARENT COMPANY 2013 32.13 35.89 0.61 31.37 100 PARENT COMPANY 2013 44.57 5.58 0 49.85 100 100 100 — 100 100 100 2012 15.85 6.13 78.02 100 2012 20.64 47.40 26.78 5.18 100 2012 39.88 0 7.88 52.24 100 Credit risk on receivables with reinsurers The credit risk resulting from reinsurance ceded by Sirius can be divided into Ageing balances Receivables regarding both direct insurance as well as assumed and ceded re- two separate components; reinsurers’ share of technical provisions as recorded insurance are followed up on a semi annual basis. Outstanding receivables are on an ongoing basis under assets in the balance sheet, and the potential expo- analyzed on the basis of the length of time that has passed since the due date sure that would emerge in the event of large claims to the insurance portfolio, with the following distribution: Less than 1 month, 1—3 months, 3—6 months, 6—9 which would occur for example, in the case of a severe European windstorm. months, 9—12 months and over 1 year. These analyses comprise the basis for An event such as this would trigger recoveries from major portions of Sirius’ various collection activities, as does the supporting documentation regarding outwards reinsurance program. the assessment of the counterparty’s credit risk status and any write-down Sirius’ Security Committee is responsible for managing the risk of reinsurer requirements. insolvency. To mitigate this risk, the financial condition of our reinsurers is reviewed twice per year and periodically monitored. The credit risk reserve for bad debts amounted, as per December 31, 2013, to MSEK 60 for the Group, whereof MSEK 30 at Sirius International (2012 MSEK 58 for the Group, MSEK 38 at Sirius International). 44 sirius international insurance corporation – annual report 2013 Note 2 – Cont. GROUP 2013 2012 Due for <1 Month 1—3 Months 4—6 Months 7—9 Months 10—12 Months >1 Year TOTAL Net receivables Net receivables 538 556 66 79 26 36 5 8 3 8 91 132 729 819 PARENT COMPANY Due for <1 Month 1—3 Months 4—6 Months 7—9 Months 10—12 Months >1 Year TOTAL 2013 2012 Net receivables Net receivables 124 276 23 34 18 11 2 5 2 3 58 62 227 391 In accordance with Sirius International’s policy for write-downs of receivables outstanding for more than 1 year, there is a specific reserve for counterparties Retrocession credit risk Reinsurers’ share of technical provisions consists of outstanding claims which are not classified as IDC companies (Insolvent and Doubtful Companies) including IBNR reserves, as well as a provision for unearned premiums and which totals MSEK 6 (6) at December 31, 2013. remaining risks. The credit rating distribution for this exposure is shown in the table below. RATING — STANDARD & POOR’S OR EQUIVALENT GROUP Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2013 2012 AAA AA+ AA AA— A+ A A— BBB+ BBB or lower Special approval Internal reinsurance TOTAL 392 0 454 108 308 159 434 149 312 425 0 2,741 0 0 17 10 0 7 0 0 101 75 0 210 392 0 437 98 308 152 434 149 211 350 0 14 0 17 4 11 6 16 5 11 16 0 2,531 100 162 75 367 108 290 214 316 101 632 355 0 0 1 0 0 1 19 0 182 115 2,845 5,466 2,845 3,164 162 75 366 108 290 213 297 101 450 240 0 2,302 3 1 7 2 5 4 6 2 12 6 52 100 PARENT COMPANY Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2013 2012 AAA AA+ AA AA— A+ A A— BBB+ BBB or lower Special approval Internal reinsurance TOTAL 0 0 238 108 308 47 497 148 133 425 0 1,904 0 0 9 10 0 0 0 0 0 74 0 93 0 0 230 98 308 47 497 148 133 350 0 1,811 0 0 13 6 16 2 26 8 7 22 0 100 0 75 156 108 290 66 403 91 113 355 0 0 0 0 0 0 19 0 10 115 2,845 4,502 2,845 2,989 0 75 156 108 290 66 384 91 103 240 0 1,514 0 2 3 2 6 1 9 2 3 8 63 100 45 sirius international insurance corporation – annual report 2013 Note 2 – Cont. In October 2013 the collateralized reinsurance with White Mountains Life Re The table below describes the assumed liabilities from Retrocessionaires was transferred to another company in the White Mountains Group. (excluding costs for reinstatements) and the distribution of credit ratings for Except for the credit exposure above, reported as an asset in the balance Sirius’ 2013 Retrocession Program. (The table represents the Parent Company sheet, significant credit losses can potentially arise from unusually large and since external reinsurance, at large, does not exist in other parts of the Group). infrequent events. STANDARD & POOR’S OR EQUIVALENT PARENT COMPANY Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2013 2012 AA+ AA AA— A+ A A— BBB+ BBB or lower Special approval TOTAL 0 231 705 1,364 72 199 83 67 630 3,351 0 0 0 0 0 21 8 34 124 187 0 231 705 1,364 72 178 75 33 506 3,164 0 7 21 41 2 6 2 2 19 100 0 96 873 825 103 620 53 54 284 2,908 0 0 0 0 0 7 3 12 77 99 0 96 873 825 103 613 50 42 207 0 3 30 28 4 21 2 2 10 2,809 100 LIQUIDITY RISK Liquidity risk is the risk that the company will have difficulties fulfilling payment assets and insurance liabilities. At the end of 2013 the duration of interest- bearing investment assets was 2.2 years (2.6 years at the end of 2012) and the obligations, mainly those related to insurance liabilities. Liquidity risk can also duration of insurance liabilities was 4.5 years (4.2 years at the end of 2012). The be expressed as the risk of loss or impaired earning potential as a result of the liquidity is monitored continuously and stress tests are performed for different company not being able to fulfill payment obligations in due time. Liquidity scenarios. The company’s claims payment capabilities are further strengthened risks arise as assets and debts including derivatives instruments have different with its high portion of cash and bank deposits of the total investment assets. durations. The cash flow analysis also provides an illustration of the company’s liquidity The company’s strategy for dealing with liquidity risk aims to match expect- situation. ed payments and receipts of payment (so called asset-liability management, The tables below show a more detailed maturity profile for the Group and ALM). This is accomplished through advanced liquidity analysis of financial Parent Company in respect of both financial assets and debts. 46 sirius international insurance corporation – annual report 2013 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL ASSETS (CONTRACTUAL INFLOWS) GROUP 2013 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 Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income TOTAL GROUP 2012 Bonds and other interest-bearing securities (discounted amounts) Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income TOTAL — — 1,998 — — — — 1,998 449 1,306 9,285 5,420 — 16,460 — — — 305 9 — 763 — — 85 1,516 25 186 3,118 — — — — 89 2 — — — — 21 — 4,097 — 20 48 — — 4,097 1,998 105 1,869 144 188 9,376 5,441 4,165 24,861 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — 1,951 — 311 — — 2,262 746 — — — 45 132 — 923 762 — — 77 1,589 68 208 2,704 9,781 6,946 — — — 50 69 2 — — — 1 — — — 3,567 — 28 —4 43 — 18,235 3,567 1,951 105 1,993 312 210 9,902 6,947 3,634 26,373 LIQUIDITY PROFILE — FINANCIAL ASSETS (CONTRACTUAL INFLOWS) PARENT COMPANY 2013 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration Bonds and other interest-bearing securities (discounted amounts) Shares & participations in Group companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income — — — 1,105 — — — — 86 577 4,221 1,680 — — — — — — — — — — — 1,430 10 117 — — — — — 73 2 — — — — — — — — 10,330 399 — 16 —16 167 — TOTAL 6,564 10,330 399 1,105 16 1,414 250 119 TOTAL 1,105 86 2,134 4,296 1,680 10,896 20,197 PARENT COMPANY 2012 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 Group companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income — — — 955 — — 77 — 36 587 6,734 2,684 — — — — — — — — — — — 1,605 56 141 — — — — — 69 2 — — — — — — — — 8,254 549 — 28 —23 — — 10,041 8,254 549 955 28 1,582 202 143 TOTAL 1,032 36 2,389 6,805 2,684 8,808 21,754 47 sirius international insurance corporation – annual report 2013 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL DEBTS (CONTRACTUAL OUTFLOWS) GROUP 2013 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL GROUP 2012 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL PARENT COMPANY 2013 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL PARENT COMPANY 2012 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — — — — — — — 1 1 56 196 177 257 686 — — — 100 100 — — 11 19 30 3 114 — 1 118 59 310 188 378 935 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — —26 — —26 — — 110 110 41 189 1,426 101 1,757 — — — 90 90 — — — 19 19 7 393 — 1 401 48 582 1,400 321 2,351 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — — — — — — — — — — 236 101 170 507 — — — 57 57 — — — — — 2 114 32 2 150 2 350 133 229 714 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — — — — — — — 104 104 — 337 1,325 35 1,697 — — — 45 45 — — — — — 1 393 — 1 395 1 730 1,325 185 2,241 LIQUIDITY PROFILE — TECHNICAL PROVISIONS Estimated claim payments, net, excluding ULAE GROUP PARENT COMPANY <3 months 3 months — 1 year 1—5 year >5 year TOTAL <3 months 3 months — 1 year 1—5 year >5 year TOTAL 2013 2012 791 1,038 2,397 3,144 4,429 4,658 3,466 3,469 11,083 12,309 418 552 1,276 1,684 2,081 2,219 1,122 907 4,897 5,362 48 sirius international insurance corporation – annual report 2013 Note 2 – Cont. OPERATIONAL RISK MANAGEMENT Sirius has defined operational risks as “The risk of loss arising from inadequate SOLVENCY AND CAPITAL REQUIREMENTS Sirius has continued to develop its internal Economic Risk Capital (ERC) model. or failed internal processes, personnel or systems or from external events. The objectives for the internal ERC model are: Operational risk includes legal risk and excludes risks arising from strategic — Stochastically calculate capital needed to be economically solvent over a decisions, as well as reputation risks”. one year period within specified probability level All employees within Sirius are responsible for the contribution to a well — Consolidate quantifiable risks into one model functioning process for operational risk management and shall see themselves — Produce a realistic distribution of financial outcomes at various return as risk managers. The function for Risk Control is responsible for developing periods and improving the operational risk management methodology and thereby — Allocate capital to key risks, business units and lines of business supporting the organization and the process owners with the tools needed to — Produce a streamlined and inclusive view of interdependencies of these manage these risks. risks Operational risks within Sirius are identified through reviews and the report- ing of incidents. Operational risks are also identified and managed by defining The practical applications of the internal ERC model include the following: controls within the processes and through follow up and testing of the effective- — Assess the amount of capital necessary to support the underwriting and ness of the key controls. investment operations over the course of a one-year period Sirius always aims at reducing the operational risks to acceptable levels. — Allocate deployed capital in the organization to key underwriting risk areas COMPLIANCE RISK MANAGEMENT Compliance risk is “the risk of legal or regulatory sanctions, material financial in order to establish appropriate risk-adjusted pricing targets — Monitor the risk according to the risk tolerance levels established by the Board of Directors loss or loss to reputation that Sirius may suffer as a result of not complying — Measurement of key risks and their interaction with laws, internal or external regulations and administrative provisions as — Evaluate reinsurance purchases applicable to Sirius activities.” The responsibility for Sirius’ compliance with internal and external regula- Furthermore, the company uses the internal ERC model for stress testing and tion lies with all employees. Compliance risks are identified by all employees scenario analysis and it compares results from the internal ERC model with the on an ad hoc basis and more formally through the reviews. The Compliance Solvency II Standard Formula SCR. Sirius aims at maintaining a capital base cor- function supports the organization and processes by informing, advising, and responding to not less than an A-rating level as defined by the rating agencies. monitoring compliance issues throughout the Group. Sirius has during 2013 continued with the Internal Model pre-application review process with the Swedish FSA. By participating in this pre-application SOLVENCY II Sirius is preparing for compliance with the upcoming Solvency II regulation. The 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 company has a project in place with several defined subprojects. The subpro- Internal Economic Risk Capital Model for the calculations of the solvency capital jects are covering all three Pillars. The project has a dedicated Project Manager requirements under Solvency II. and the company’s Group Chief Financial Officer (Group CFO) is the chairman of As a predecessor to Solvency II, the Swedish FSA has established a local sol- the Steering Group and the sponsor of the project. vency regulation, the Traffic Light system. It takes into account the company’s Solvency II is discussed regularly at Board of Directors (Board) meetings. risks in the areas financial risks, insurance risk and operating expense risk. The The Group CFO reports to the Board on Solvency II matters, thus ensuring the model results in a total capital net requirement which is compared to solvency Board’s involvement and oversight over the Solvency II project. capital (the so called “capital buffer”) in order to assess 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, 2013 and 2012. TOTAL CAPITAL REQUIREMENT ACCORDING TO THE TRAFFIC LIGHT MODEL Total capital net requirement Capital buffer SURPLUS 2013 3,256 14,889 11,633 2012 4,065 14,973 10,908 FINANCIAL STRENGTH RATING The financial strength of Sirius has during 2013 been rated by Standard & Poor’s and A. M. Best. GROUP AND PARENT COMPANY S&P 1) A.M. Best 2) Moody’s 3) S&P 1) A.M. Best 2) Moody’s 3) 2013 2012 Financial Strength Rating Outlook A— Stable A Stable n/a n/a A— Stable A Stable A3 Stable 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. 49 sirius international insurance corporation – annual report 2013 Note 3 – Premium income PREMIUM INCOME, GEOGRAPHICAL ALLOCATION Direct insurance, Sweden Direct insurance, other EES Direct insurance, other countries Premiums for assumed reinsurance Premium income before ceded reinsurance Premium for ceded reinsurance PREMIUM INCOME AFTER CEDED REINSURANCE GROUP 2013 5 355 925 6,160 7,445 —1,716 5,729 Note 4 – Claims incurred, for own account CLAIMS INCURRED FOR THE YEAR’S OPERATIONS GROUP Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Claims handling expenses TOTAL CLAIMS INCURRED FOR THE YEAR’S OPERATIONS 2013 Gross Ceded —486 35 —1,366 —970 —183 —2,970 150 0 522 164 0 836 CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS 2012 4 339 915 6,823 8,081 —1,777 6,304 Net —336 35 —844 —806 —183 PARENT COMPANY 2013 4 170 625 4,374 5,173 —1,750 3,423 2012 Gross Ceded —474 41 —695 —1,729 —176 64 0 117 177 0 2012 3 221 736 4,819 5,779 —1,765 4,014 Net —410 41 —578 —1,552 —176 —2,134 —3,033 358 —2,675 GROUP Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) 2013 2012 Gross Ceded Net Gross Ceded —4,258 —43 1,468 4,709 681 30 —432 2 769 —3 577 —13 1 036 1 940 —614 —4,341 —311 1,127 3,970 445 699 0 —191 —1,970 —1,462 Net —3,642 —311 936 2,000 —1,017 TOTAL CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS 1 876 —2 490 TOTAL CLAIMS INCURRED —1 094 — 1 654 —2 748 —2,588 —1,104 —3,692 TOTAL CLAIMS PAID GROUP Claims paid Loss portfolios Claims handling expenses TOTAL CLAIMS PAID 50 Gross —4,744 —8 —183 —4,935 2013 2012 Ceded Net Gross Ceded 831 30 0 861 —3,913 22 —183 —4,074 —4,815 —270 —176 —5,261 763 0 0 763 Net —4,052 —270 —176 —4,498 sirius international insurance corporation – annual report 2013 Note 4 – Cont. CHANGE IN PROVISION FOR OUTSTANDING CLAIMS GROUP Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) TOTAL CHANGE IN PROVISIONS FOR OUTSTANDING CLAIMS 2013 Gross Ceded 102 90 3,739 —2,605 3,841 —2,515 CLAIMS INCURRED FOR THE YEAR’S OPERATIONS PARENT COMPANY Gross Ceded 2013 Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) Claims handling expenses TOTAL CLAIMS FOR THE YEAR’S OPERATIONS —366 35 —1,246 —544 —141 —2,262 147 0 522 144 0 813 Net 358 448 806 Net —296 40 —427 —821 —128 —1,632 Net 192 1,134 1,326 Net —219 35 —724 —400 —141 —12 710 779 2012 Gross Ceded 432 2,241 2,673 —74 —1,793 —1,867 2012 Gross Ceded 66 0 122 170 0 358 —362 40 —549 —991 —128 —311 679 3,028 899 —1,449 —1,990 —1,651 —2,497 CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS PARENT COMPANY Gross Ceded Net Gross Ceded Net 2013 2012 Claims paid Loss portfolios Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) TOTAL CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS —2,201 —43 550 31 1,002 —292 3,460 —2,681 2,218 —2,392 —174 618 0 —131 —1,880 —1,393 —1,879 —311 548 1,148 —494 TOTAL CLAIMS INCURRED —44 —1,579 —1,623 —1,091 —1,035 —2,126 2013 2012 Ceded Net Gross Ceded TOTAL CLAIMS PAID PARENT COMPANY Claims paid Loss portfolios Claims handling expenses TOTAL CLAIMS PAID Gross —2,567 —8 —141 —2,716 697 31 0 728 CHANGE IN PROVISION FOR OUTSTANDING CLAIMS PARENT COMPANY Change in provision for incurred and reported claims Change in provision for incurred but not reported claims (IBNR) TOTAL CHANGE IN PROVISION FOR OUTSTANDING CLAIMS 2013 Gross Ceded —244 2,916 230 —2,537 2,672 —2,307 —1,870 23 —141 —1,988 Net —14 379 365 —2,859 —271 —128 —3,258 684 0 0 684 2012 Gross Ceded 130 2,037 2,167 —9 —1,710 —1,719 Net —2,175 —271 —128 —2,574 Net 121 327 448 51 sirius international insurance corporation – annual report 2013 Note 5 – Operating costs SPECIFICATION OF INCOME STATEMENT ITEM OPERATING COSTS GROUP PARENT COMPANY Acquisition costs Change in prepaid acquisition costs (+/—) Administrative expenses Provisions and profit shares in ceded reinsurance (—) TOTAL OPERATING COSTS OTHER OPERATING COSTS Operating costs Claims handling expenses included in claims paid Asset management costs included in Investment expenses Expenses for land and buildings included in Investment expenses, net Other operating costs 2013 —1,538 12 —887 436 —1,977 GROUP 2013 —1,977 —183 —86 —2 —43 TOTAL OTHER OPERATING COSTS —2,292 TOTAL OPERATING COSTS PER TYPE Direct and indirect personnel costs Premises costs Depreciation/amortization Other expenses related to operations TOTAL OTHER OPERATING COSTS GROUP 2013 —752 —67 —59 —1,413 —2,292 2012 —1,615 —6 —783 402 —2,002 2012 —2,002 —192 —79 —2 —89 —2,364 2012 —691 —68 —52 —1,553 —2,364 2013 —952 —21 —541 428 —1,086 PARENT COMPANY 2013 —1,086 —140 —43 —2 —2 —1,273 PARENT COMPANY 2013 —492 —44 —56 —681 —1,273 2012 —1,045 —58 —517 400 —1,220 2012 —1,220 —144 —44 —2 —1 —1,411 2012 —432 —44 —49 —886 —1,411 52 sirius international insurance corporation – annual report 2013 Note 6 – Investment income Dividend income from: Foreign shares and participations Interest income Bonds and other interest-bearing securities Other interest income — of which from financial assets not valued at fair value with changes in value reported in the income statement Capital gains on foreign exchange, net Capital gains and reversed write-downs (net) Foreign shares Group and associated companies Interest-bearing securities Derivatives TOTAL RETURN ON CAPITAL, INCOME GROUP 2013 88 344 64 — — 264 99 119 148 1,126 2012 80 455 59 — — — 199 254 — 1,047 PARENT COMPANY 2013 1,667 154 19 — — 130 — 114 148 2,232 2012 — 248 16 — — — 101 102 — 467 In the group accounts, gains from acquisition of subsidiaries have been realized and accounted in accordance with IFRS 3. Note 7 – Unrealized gains and losses on investments GROUP 2013 2012 2013 2012 PARENT COMPANY Foreign shares and participations Bonds and other interest-bearing securities Derivative financial instruments Gain on Currency TOTAL UNREALIZED GAINS AND LOSSES ON INVESTMENTS 614 —128 —53 149 582 Note 8 – Investment expenses and charges Operating expenses for land and buildings Asset management costs Interest expenses Other interest expenses Capital losses on foreign exchange, net Capital losses Foreign shares and participations Group and associated companies Derivatives TOTAL GROUP 2013 —2 —86 —2 —165 — — — —255 334 25 293 — 652 2012 —2 —79 —3 —211 —71 — —2 —368 —52 — —53 170 65 PARENT COMPANY 2013 —2 —43 —2 —165 — —701 — —913 70 — 293 — 363 2012 —2 —44 —3 —212 —138 —20 —2 —421 53 sirius international insurance corporation – annual report 2013 Note 9 – Net proÿ t or net loss per category of ÿ nancial instruments FINANCIAL ASSETS GROUP 2013 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL PARENT COMPANY 2013 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL GROUP 2012 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL PARENT COMPANY 2012 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL Financial assets valued at fair value in the income statement Financial assets held for trading Available-for-sale financial instruments Loan receivables and other accounts receivables 685 — 107 — — 792 — 148 — — — 148 — — 92 — — 92 — — — 12 17 29 Financial assets valued at fair value in the income statement Financial assets held for trading Available-for-sale financial instruments Loan receivables and other accounts receivables 1,745 — — — — 1,745 — 148 — — — 148 — — 92 — — 92 — — — 11 8 19 Financial assets valued at fair value in the income statement Financial assets held for trading Available-for-sale financial instruments Loan receivables and other accounts receivables 541 — 383 — — 924 — 291 — — — 291 — — 492 — — 492 — — — 13 13 26 TOTAL 685 148 199 12 17 1,061 TOTAL 1,745 148 92 11 8 2,004 TOTAL 541 291 875 13 13 1,733 Financial assets valued at fair value in the income statement Financial assets held for trading Available-for-sale financial instruments Loan receivables and other accounts receivables TOTAL 13 — — — — 13 — 291 — — — 291 — — 448 — — 448 — — — 13 3 16 13 291 448 13 3 768 The amounts in the table above constitute a specification of the amounts re- Currency exchange gains amount to 83 (80) for the Group, of which 168 garding financial instruments which are reported in the income statement as (i) (-97) refer to exchange rate losses on financial assets. Exchange rate losses on return on capital, income, (ii) unrealized gains, (iii) return on capital, expenses, liabilities and other assets amount to 85 (177). (iv) unrealized losses, with exception for (a) potential amortization and write- downs, (b) asset management costs and (c) exchange rate gains/losses. 54 sirius international insurance corporation – annual report 2013 Note 10 – Taxes INCOME TAX RECOGNIZED IN INCOME STATEMENT Current tax expenses Current tax adjustment attributable to previous years Deferred taxes TOTAL TAX EXPENSE (—)/REVENUE (+) GROUP PARENT COMPANY 2013 —79 —9 —316 —404 2012 —206 26 1,167 987 2013 —97 1 22 —74 RECONCILIATION OF EFFECTIVE TAX Reconciliation of effective income tax rate for the Group and Parent Company to the Swedish income tax rate: Tax according to applicable tax rate for the Parent Company Effects of foreign tax rates Effects from change in tax rates Tax effect from non-deductible expenses Tax effect from non-taxable income Current tax regarding previous years Recognition of tax loss carry-forwards related to previous years and timing differences REPORTED EFFECTIVE TAX GROUP 2013 —22% —2.5% —0.1% —7.2% 13.7% —0.2% 1.2% —17.1% 2012 —26.3% —1.2% 23.0% —1.4% 7.1% —1.6% 54.0% 53.6% PARENT COMPANY 2013 —22% — — —12.1% 27.9% — 0.7% —5.5% 2012 —202 —2 —102 —306 2012 —26.3% — 0.4% —1.1% 2.2% —0.2% 0.3% —24.7% On November 21, 2012 the Swedish Parliament decided to reduce the corporate tax rate from 26.3 percent to 22 percent applicable from January 1, 2013. The new tax rate has affected the calculation of deferred tax assets and liabilities on December 31, 2012. REPORTED DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES GROUP 2013 2012 2013 2012 DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES 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 DEFERRED TAX BALANCES Netting of deferred assets/liabilities DEFERRED TAX BALANCES, NET 53 211 10 — 4 2,268 2,546 —222 2,324 39 266 9 — 3 2,351 2,668 — 2,668 — — —57 —199 —2,306 — —2,562 222 2,340 — — —57 —233 —2,132 — —2,422 — —2,422 NET 2013 53 211 —47 —199 —2,302 2,268 —16 — —16 2012 39 266 —48 —233 —2,129 2,351 246 — 246 Deferred tax assets are only recognized to the extent that realization of the related tax benefit through future taxable profits is probable. Significant tax loss carry-forwards are related to countries with long or indefinite periods of utilization, mainly the US and Luxembourg. The most part of the deferred tax assets and liabilities will not be recognized within 12 months. PARENT COMPANY 2013 2012 2013 2012 DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES Personnel-related provisions Other provisions Surplus value of securities DEFERRED TAX BALANCES 26 8 — 34 12 8 — 20 — — —47 —47 — — —98 —98 NET 2013 26 8 —47 —13 2012 12 8 —98 —78 55 sirius international insurance corporation – annual report 2013 Note 10 – Cont. UNRECOGNIZED DEFERRED TAX ASSETS The Group has unrecognized deferred tax assets related to tax loss carry- forwards 360 (359). CHANGES IN DEFERRED TAX Opening balance Acquisition of subsidiaries Recognized in income statement Recognized in other comprehensive income Tax loss carry-forwards CLOSING BALANCE GROUP 2013 246 6 —316 48 — —16 2012 —1,587 656 1,167 —11 21 246 PARENT COMPANY 2013 2012 —78 — 22 43 — —13 35 — —102 —11 — —78 Taxes recognized in other comprehensive income mainly refer to available- for-sale financial assets 44 (—11). Note 11 – Intangible assets GROUP PARENT COMPANY Intangible assets — IT Capitalized expenditure for development work Acquired intangible assets — Goodwill Other acquired intangible assets Intangible assets — IT Capitalized expenditure for development work Acquired intangible assets Goodwill TOTAL TOTAL Accumulated acquisition value Opening balance January 1, 2012 Acquisitions for the year Impairment for the year Reclassification of goodwill Currency revaluation effects CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Acquisition for the year Currency revaluation effects CLOSING BALANCE DECEMBER 31, 2013 Accumulated amortization and impairment Opening balance January 1, 2012 Depreciation for the year Reclassification of goodwill CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2013 Carrying amount Per January 1, 2012 PER DECEMBER 31, 2012 Per January 1, 2013 PER DECEMBER 31, 2013 131 37 — — 0 168 168 41 — 209 —86 —28 — —114 —114 —32 —146 45 54 54 63 620 — —5 —43 — 572 572 — — 572 —324 — 43 —281 —281 — —281 296 291 291 291 2 67 — — — 69 69 34 —1 102 — — — — — — — 2 69 69 102 754 104 —5 —43 0 810 810 75 —1 883 —410 —28 43 —395 —395 —32 —427 343 415 415 456 131 37 — — — 168 168 41 — 460 — — — — 460 460 — — 209 460 —86 —28 — —114 —114 —32 —257 —4 — —261 —261 —28 —146 —289 45 54 54 63 203 199 199 170 591 37 — — — 628 628 41 — 669 —343 —32 — —375 —375 —60 —435 248 253 253 233 56 sirius international insurance corporation – annual report 2013 Note 11 – Cont. Amortization and impairment for the year is included in the following rows of the income statement for 2012: Operating costs Other costs TOTAL Amortization for the year is included in the following rows of the income statement for 2013: Operating costs Other costs TOTAL GROUP PARENT COMPANY Intangible assets — IT Capitalized expenditure for development work Acquired intangible assets — Goodwill Other acquired intangible assets Intangible assets — IT Capitalized expenditure for development work Acquired intangible assets Goodwill TOTAL TOTAL —28 — —28 —32 — —32 —5 — —5 — — — — — — — — — —33 — —33 —32 — —32 —28 — —28 —32 — —32 — —4 —4 — —28 —28 —28 —4 —32 —32 —28 —60 The Group and Parent Company goodwill derive from the acquired operation in include insurance licenses, for a number of American states, identified at the Belgium, which is an identifiable cash generating unit. The amounts refer both acquisition of subsidiaries. The licenses have been valued at fair vaule by an to acquisition- and asset deal goodwill and are annually tested for impairment. independent advisory firm and are deamed to have an indefinite useful life and The projected future cash flows have been discounted to present value and are are tested annually for impairment. based on a conservative assessment without any growth of the unit’s earnings, based on historical and future earning patterns. The discount rate has been For the group, no depreciation is made on goodwill, the MSEK 281 is ac- determined based on a market rate of return, i.e. WACC. The forecasted profit cumulated depreciations up to January 1, 2009 when IFRS was adopted. The margin is currently equal to a combined ratio of approximately 95%. write-down for year 2012 of MSEK 5 is a write-down of goodwill for the holding in Passage2Health Ltd. For further information regarding depreciation, see IT-related intangible assets include acquired licenses and capitalized expens- Note 1, Accounting principles. es for development of business-critical systems. Other intangible assets mainly Note 12 – Land and buildings GROUP AND PARENT COMPANY Accumulated acquisition cost Opening balance January 1, 2012 Acquisitions CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Acquisitions CLOSING BALANCE DECEMBER 31, 2013 Accumulated depreciation Opening balance January 1, 2012 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2013 Carrying amount Per January 1, 2012 PER DECEMBER 31, 2012 Per January 1, 2013 PER DECEMBER 31, 2013 27 3 30 30 1 31 —16 —1 —17 —17 —1 —18 11 13 13 13 The Parent Company holds three properties, located in Sweden and Belgium. wSirius 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. 57 sirius international insurance corporation – annual report 2013 Note 13 – Shares and participations in group companies NAME OF SUBSIDIARY REGISTERED OFFICES, COUNTRY PARTICIPATING INTEREST, % 2013 2012 Passage2Health Ltd. London, Great Britain Sirius Rückversicherungs Service GmbH Hamburg, Germany Sirius Belgium Réassurances S.A. Sirius International Holdings (NL) B.V. Liège, Belgium Amsterdam, The Netherlands S.I. Holdings (Luxembourg) S.à r.l. Luxembourg Sirius International Managing Agency Ltd. London, Great Britain WM Phoenix (Luxembourg) S.à r.l. Luxembourg White Mountains Re Sirius Capital Ltd. London, Great Britain White Sands Holdings (Luxembourg) S.à r.l. Luxembourg Accumulated acquisition cost Beginning of year Acquisitions Liquidations Capital contributions Repayment of paid-up capital End of year Accumulated impairments Beginning of year Liquidations Impairment for the year End of year CARRYING AMOUNT DECEMBER 31 100 100 100 100 100 100 100 100 100 PARENT COMPANY 2013 8,870 701 — 2,134 —58 11,647 —616 — —701 —1,317 10,330 75 100 100 100 — — 100 100 100 2012 8,098 — —185 959 —2 8,870 —781 185 —20 —616 8,254 Write down of shares in subsidiaries is related to the holdings in White Sands Holdings (Luxembourg) S.à r.l. and of Passage2Health Ltd. which has been written down with MSEK 699 and MSEK 2, respectively. 58 sirius international insurance corporation – annual report 2013 Shareholders’ equity Shares, % Number of shares Book value Profit/loss Note 13 – Cont. SUBSIDIARIES’ SHAREHOLDERS’ EQUITY 2013 Name of subsidiary Passage2Health Ltd. Sirius Rückversicherungs Service GmbH Sirius Belgium Réassurances S.A. Sirius International Holdings (NL) B.V. S.I. Holdings (Luxembourg) S.à r.l. 0 22 12 1,591 2,827 Sirius International Managing Agency Ltd. 0 White Mountains Re Sirius Capital Ltd. WM Phoenix (Luxembourg) S.à r.l. —83 5,886 White Sands Holdings (Luxembourg) S.à r.l. 17 TOTAL 2012 Name of subsidiary Passage2Health Ltd. Sirius Rückversicherungs Service GmbH Sirius Belgium Réassurances S.A. Sirius International Holdings (NL) B.V. White Mountains Re Sirius Capital Ltd. WM Phoenix (Luxembourg) S.à r.l. 10,272 Shareholders’ equity 6 23 11 1,306 36 6,281 White Sands Holdings (Luxembourg) S.à r.l. 2 TOTAL 7,665 100 100 100 100 100 100 100 100 100 Share capital total £6,800 consisting of 6,800 shares with nom. value £1 per share Share capital total €51,129 consisting of 1 share with nom. value €51,129 Share capital total € 700,000 shares without nom. value 1,245,681 consisting of Share capital total €18,000 consisting of 180 shares with nom. value €100 per share Share capital total SEK 105,693,172 consisting of 105,693,172 shares with nom. value SEK1 Share capital total £1 consisting of 1 share with nom. value £1 per share Share capital total £1 consisting of 1 share with nom. value £1 per share Share capital total $42,266,200 consisting of 1,690,648 shares with nom. value $25 per share Share capital total SEK 145,055 consisting of 145,055 shares with nom. value SEK1 0 1 13 1,311 2,833 0 0 6,158 14 10,330 —6 4 0 414 97 — —47 541 698 1,701 Shares, % Number of shares Book value Profit/loss 75 100 100 100 100 100 100 Share capital total £6,800 consisting of 6,800 shares with nom. value £1 per share Share capital total €51,129 consisting of 1 share with nom. value €51,129 Share capital total €1,245,681 consisting of 700,000 shares without nom. value Sha Share capital total €18,000 consisting of 180 shares with nom. value €100 per share Share capital total £1 consisting of 1 share with nom. value £1 per share Share capital total $42,266,200 consisting of 1,690,648 shares with nom. value $25 per share Share capital total SEK 145,055 consisting of 145,055 shares with nom. value SEK1 0 1 13 1,369 0 6,158 714 8,254 —10 4 0 119 36 347 —1 495 Note 14 – Investments in shares and participations Fair value Acquisition cost GROUP 2013 4,097 3,441 2012 3,567 3,527 PARENT COMPANY 2013 399 496 2012 549 613 Further information on financial instruments can be found in Note 18. 59 sirius international insurance corporation – annual report 2013 Note 15 – Bonds and other interest-bearing securities FAIR VALUE ACQUISITION COST GROUP Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers TOTAL Of which listed Difference compared to nominal value Total excess amount Total shortfall PARENT COMPANY Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers TOTAL Of which listed Difference compared to nominal value Total excess amount Total shortfall 2013 1,801 466 0 2,565 11,628 16,460 16,397 666 38 FAIR VALUE 2013 1,693 366 0 1,232 3,273 6,564 6,564 337 19 2012 1,175 0 791 5,588 10,681 18,235 18,235 1,154 24 2012 1,175 0 791 2,829 5,246 10,041 10,041 640 6 2013 1,799 471 0 2,618 11,601 16,489 16,426 663 29 ACQUISITION COST 2013 1,691 369 0 1,277 3,280 6,617 9,793 277 14 2012 1,148 0 764 5,541 10,345 17,798 17,798 812 3 2012 1,148 0 764 2,803 5,078 9,793 9,793 398 1 Note 16 – Derivative ÿn ancial instruments Currency derivatives, Sirius International Financial Services Ltd. Other derivatives, Endurance TOTAL GROUP 2013 275 —2 273 2012 2013 2012 PARENT COMPANY 326 — 326 275 —2 273 326 — 326 The table above show gross positions with individual counterparties in excess Trough foreign exchange options, the currency futures transactions are set- of MSEK 0,5. tled on the basis of an exchange rate cap and exchange rate floor (average rate Currency derivatives of nominal MUSD 600 against SEK mainly concern 5.11 SEK/USD and 11.44 SEK/USD). The remaining average term is 20 months. contracts with internal counterparties. The company has entered into three The currency hedge agreements are valued monthly at fair value via the internal currency hedging agreements with Sirius International Financial income statement. Services LTD, in order to adjust the company’s currency exposure against USD Currency hedging with external counterparts occurs to a limited extent for in accordance with established limits. the currencies USD, EUR and GBP. 60 sirius international insurance corporation – annual report 2013 Note 17 – Other debtors Other debtors, group companies 1) Other debtors TOTAL2) 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. GROUP 2013 — 144 144 2012 127 185 312 PARENT COMPANY 2013 167 83 250 2012 125 77 202 Note 18 – Categories of ÿ nancial assets and liabilities and their fair value FINANCIAL ASSETS GROUP 2013 Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL GROUP 2012 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets — — — 478 144 622 4,097 273 7,813 46 — — — 8,647 110 — Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL — — — 459 379 838 3,567 326 8,193 66 — 12,152 — — 10,041 124 — 10,165 12,229 8,757 21,608 21,608 20,720 Total carrying amount 4,097 273 16,460 634 144 Fair value Acquisition value 4,097 273 16,460 634 144 3,441 12 16,489 634 144 Total carrying amount 3,567 326 18,234 649 379 23,155 Fair value Acquisition value 3,567 326 18,234 649 379 23,155 3,527 16 18,162 649 379 22,733 61 sirius international insurance corporation – annual report 2013 Note 18 – Cont. FINANCIAL ASSETS PARENT COMPANY 2013 Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL PARENT COMPANY 2012 Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets — — — 276 250 526 399 273 — — — — — 6,564 87 — 672 6,651 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets — — — 285 202 487 549 326 — — — 875 — — 10,041 124 — 10,165 Total carrying amount 399 273 6,564 363 250 7,849 Total carrying amount 549 326 10,041 409 202 11,527 Fair value Acquisition value 399 273 6,564 363 250 7,849 496 12 6,617 363 250 7,738 Fair value Acquisition value 549 326 10,041 409 202 11,527 613 16 10,159 409 202 11,399 1) Derivatives are classified as Financial instruments held for trading. FINANCIAL LIABILITIES GROUP 2013 Other liabilities Accrued expenses TOTAL Other financial liabilities Carrying amount Fair value GROUP 2012 Other financial liabilities Carrying amount Fair value 188 378 566 188 378 566 188 378 566 Other liabilities Accrued expenses TOTAL 1,400 1,400 1,400 321 1,721 321 1,721 321 1,721 PARENT COMPANY 2013 Other financial liabilities Carrying amount Fair value PARENT COMPANY 2012 Other financial liabilities Carrying amount Fair value Other liabilities Accrued expenses TOTAL 133 229 362 133 229 362 133 229 362 Other liabilities Accrued expenses TOTAL 1,325 185 1,510 1,325 185 1,510 1,325 185 1,510 62 sirius international insurance corporation – annual report 2013 Note 18 – Cont. 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 determi- nation 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 2013 Level 1 Level 2 Level 3 TOTAL GROUP 2012 Level 1 Level 2 Level 3 TOTAL Shares and participations Derivatives Bonds and other interest- bearing securities 3,237 — 9 — 851 273 4,097 Shares and participations 273 Derivatives 2,324 — 363 — 879 326 3,566 326 4,245 12,152 63 16,460 Bonds and other interest-bearing securities 4,220 14,015 — 18,235 TOTAL 7,482 12,161 1,187 20,830 TOTAL 6,544 14,378 1,205 22,127 PARENT COMPANY 2013 Shares and participations Derivatives Level 1 Level 2 Level 3 TOTAL PARENT COMPANY 2012 Level 1 Level 2 Level 3 TOTAL 314 — 9 — 76 273 399 273 Shares and participations Derivatives — — 360 — 189 326 549 326 Bonds and other interest-bearing securities 3,144 3,420 — 6,564 Bonds and other interest-bearing securities 3,190 6,851 — 10,041 TOTAL 3,458 3,429 349 7,236 TOTAL 3,190 7,211 515 10,916 The fair value of financial instruments traded on an active market is based on Specific valuation techniques applied in valuing financial instruments include: the listed price on balance sheet date. A market is seen to be active in cases — Listed market prices or broker listings for similar instruments. where listed prices from a stock exchange, broker, industry group, pricing — Fair value of interest swaps is determined as the current value of estimated service or supervisory authority are easily accessible, and where these prices future cash flows, based on observable yield curves. represent genuine, regularly-occurring market transactions conducted at arm’s — Fair value for currency forward exchange agreements is determined length. The listed market price applied in determining the fair value of instru- through the use of exchange rates for forward exchanges on balance sheet ments that are to be found in Level 1 is the current buying-rate date, at which point the resulting value is discounted to current value. Fair values of financial instruments which are not traded on an active market — Other techniques, such as the calculation of discounted cash-flows, are are determined with the aid of valuation techniques. This procedure applies, applied in determining fair value for any financial instruments not covered as far as possible, such market information as is available, while information by the above techniques. 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 instru- All fair values determined with the aid of these valuation techniques are to be ment is to be found in Level 2 or 3. Currency derivatives are included in level 3 found in Level 2. due to their long duration. 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. 63 sirius international insurance corporation – annual report 2013 Note 18 – Cont. The tables 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 2 and 3). GROUP 2013 Opening balance January 1, 2013 Total reported profit/loss: — reported in profit/loss for the year 1) Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 2 Transfer into Level 2 Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2013 1) PARENT COMPANY 2013 Opening balance January 1, 2013 Total reported profit/loss: — reported in profit/loss for the year 1) Acquisition cost, purchase Proceeds of sale, sales Transfer from Level 2 Transfer into Level 2 CLOSING BALANCE DECEMBER 31, 2013 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2013 1) GROUP 2013 Opening balance January 1, 2013 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 Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2013 1) Shares and participations Derivatives 363 40 21 —404 —12 — — 9 40 — — — — — — — — — Shares and participations Derivatives 360 40 21 —400 —12 9 40 — — — — — — — — Bonds 14,015 —305 12,833 —14,410 — 88 —68 12,152 —305 Bonds 6,851 —75 3,739 —7,098 — 3 3,420 —75 TOTAL 14,378 —265 12,854 —14,814 —12 88 —68 12,161 —265 TOTAL 7,211 —35 3,760 —7,498 —12 3 3,429 —35 Shares and participations Derivatives Bonds TOTAL 879 16 192 —260 — —3 27 851 16 326 95 — —148 — — — 273 95 — — 63 — — — — 63 — 1,205 111 255 —408 — —3 27 1,187 111 1) Reported in net income of financial transactions in profit/loss for the year. 64 sirius international insurance corporation – annual report 2013 Note 18 – Cont. PARENT COMPANY 2013 Opening balance January 1, 2013 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, 2013 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2013 1) GROUP 2012 Opening balance January 1, 2013 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 Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2012 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2012 1) PARENT COMPANY 2012 Opening balance January 1, 2013 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, 2012 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2012 1) Shares and participations Derivatives Bonds TOTAL 189 5 34 —150 —2 — 76 5 326 95 — —148 — — 273 95 — — — — — — — — 515 100 34 —298 —2 — 349 100 Shares and participations Derivatives Bonds TOTAL 993 —46 53 —82 — — —39 879 —46 30 294 — 2 — — — 326 294 88 6 — —89 — — —5 0 6 1,111 254 53 —169 — — —44 1,205 254 Shares and participations Derivatives Bonds TOTAL 319 —118 — —12 — — 189 —118 30 294 — 2 — — 326 294 — — — — — — — — 349 176 — —10 — — 515 176 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. 65 sirius international insurance corporation – annual report 2013 Note 19 – Tangible assets Accumulated acquisition cost Opening balance January 1, 2012 Acquisition Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Acquisition Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Accumulated depreciation Opening balance January 1, 2012 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2012 Opening balance January 1, 2013 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Carrying amount Per January 1, 2012 PER DECEMBER 31, 2012 Per January 1, 2013 PER DECEMBER 31, 2013 Group Equipment Parent Company Equipment 154 34 —9 —3 176 176 29 —16 —1 188 —107 —25 8 2 —122 —122 —26 15 1 —131 47 54 54 57 100 32 —8 — 124 124 13 —16 — 121 —60 —21 7 — —74 —74 —22 15 — —81 40 50 50 40 Note 20 – Deferred acquisition costs Opening balance Acquired portfolio Capitalization for the year Depreciation/amortization for the year Currency revaluation effect CLOSING BALANCE GROUP PARENT COMPANY 2013 2012 2013 2012 439 0 423 —411 —5 446 471 0 351 266 — 219 —357 —240 —26 439 —1 244 341 — 252 —310 —17 266 sirius international insurance corporation – annual report 2013 Note 21 – Untaxed reserves PARENT COMPANY Accumulated depreciation in excess of plan Opening balance January 1 Change for the year — goodwill Change for the year — tangible assets CLOSING BALANCE DECEMBER 31 Appropriation to safety reserve Opening balance January 1 Change for the year CLOSING BALANCE DECEMBER 31 TOTAL 2013 2012 25 —4 —6 15 9,647 800 10,447 10,462 35 —4 —6 25 9,647 — 9,647 9,672 Net 1,743 0 20 —106 1,657 Note 22 – Provisions for unearned premiums and unexpired risks PROVISIONS FOR UNEARNED PREMIUMS 2013 GROUP Gross Reinsurers’ share Opening balance Acquired portfolio Change in provision Currency revaluation effect CLOSING BALANCE 2,120 0 34 —21 2,133 PROVISIONS FOR UNEXPIRED RISKS —463 0 21 —4 —446 Net 1,657 0 55 —25 1,687 2012 Gross Reinsurers’ share 2,182 3 78 —143 2,120 —439 —3 —58 37 —463 GROUP Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2013 2012 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 81 —5 0 76 —61 4 1 —56 PROVISIONS FOR UNEARNED PREMIUMS 2013 PARENT COMPANY Gross Reinsurers’ share Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 1,498 —77 —9 1,412 —456 16 —5 —445 20 —1 1 20 Net 1,042 —61 —14 967 118 —31 —6 81 —87 22 4 —61 2012 Gross Reinsurers’ share 1,730 —121 —111 1,498 —442 —52 38 —456 31 —9 —2 20 Net 1,288 —173 —73 1,042 PROVISIONS FOR UNEXPIRED RISKS PARENT COMPANY Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2013 2012 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 82 —5 —1 76 —61 4 1 —56 21 —1 0 20 118 —31 —5 82 —87 22 4 —61 31 —9 —1 21 67 sirius international insurance corporation – annual report 2013 Note 23 – Claims reserve GROUP Gross Reinsurers’ share 2013 Opening balance, reported claims Opening balance, incurred but not reported claims (IBNR) OPENING BALANCE Acquired portfolio Cost for claims incurred — current year Cost for claims incurred — prior years Claims handling expense Paid claims Currency revaluation effect CLOSING BALANCE Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) 7,264 9,101 16,365 330 2,856 —1,762 183 4,752 —365 12,489 7,255 5,234 Net 5,905 5,518 11,423 241 2,134 614 183 3,891 —88 10,250 5,723 —1,359 —3,583 —4,942 —89 —722 2,376 0 —861 277 —2,239 —1,532 —707 4,527 2012 Gross Reinsurers’ share 7,882 12,418 20,300 190 3,003 —415 176 5,085 —1,452 16,365 7,264 9,101 —1,454 —6,131 —7,585 —91 —359 1,463 0 —763 867 —4,942 —1,359 —3,583 PARENT COMPANY Gross Reinsurers’ share 2013 Opening balance, reported claims Opening balance, incurred but not reported claims (IBNR) OPENING BALANCE Cost for claims incurred — current year Cost for claims incurred — prior years Claims handling expense Paid claims Currency revaluation effect CLOSING BALANCE Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) 3,985 4,768 8,753 2,262 —2,218 141 2,575 —326 5,755 4,198 1,557 —861 —3,124 —3,985 —813 2,392 0 —728 275 —1,403 —1,107 —296 Net 3,124 1,644 4,768 1,449 174 141 1,847 —51 4,352 3,091 1,261 2012 Gross Reinsurers’ share 4,272 7,673 11,945 1,990 —899 128 3,130 —1,025 8,753 3,985 4,768 —908 —5,637 —6,545 —358 1,393 0 —684 841 —3,985 —861 —3,124 Note 24 – Equalization provision Note 25 – Claims handling provision Net 6,428 6,287 12,715 99 2,644 1,048 176 4,322 —585 11,423 5,905 5,518 Net 3,364 2,036 5,400 1,632 494 128 2,446 —184 4,768 3,124 1,644 PARENT COMPANY 2013 2012 Opening balance Provision of the year CLOSING BALANCE 86 — 86 61 25 86 GROUP PARENT COMPANY 2013 2012 2013 2012 247 4 —59 48 1 241 254 16 —66 51 —8 247 132 0 —34 32 2 132 142 0 —39 31 —2 132 Opening balance Acquired portfolio Release of provision made in prior years Provision for the year Currency revaluation effect CLOSING BALANCE 68 sirius international insurance corporation – annual report 2013 Note 26 – Employee beneÿ ts DEFINED BENEFIT PLANS Pension obligations covered by plan assets Plan assets at fair value SURPLUS (—) DEFICIT (+) Pension obligations not covered by plan assets PROVISION FOR DEFINED BENEFIT PENSION PLANS, NET GROUP 2013 74 —78 —4 11 7 2012 74 —69 2 9 11 PARENT COMPANY 2013 2012 — — — 11 11 — — — 9 9 Group defined benefit plans In a defined benefit plan, the employer guarantees that the employee will re- 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 ceive a defined level of benefit upon retirement, based on one or more factors, employees born 1971 or earlier are covered by defined benefit plans and, thus, such as age, length of service and salary. The group calculates its provisions form part of the FTP2. Paid pension premiums are mainly funded with Skandia and expenses based on the conditions of the guaranteed pension obligations, as Liv for employees in Sweden and with Allianz for employees in Germany. The well as on its own assumptions regarding future development. lion share of the plan assets are funded with Skandia Liv where the assets are The provision reported in the balance sheet for defined benefit plans is invested in Swedish bonds (35%), Swedish and foreign shares (29%), real-es- the present value of the defined benefit obligation at the end of the reporting tate (10%), private equity (7%) and in other investment assets (19%). period, less the fair value of plan assets, adjusted for actuarial gains and losses Furthermore, there are two variations of retirement earlier than at the age recognized in Other Comprehensive Income. Actuarial gains and losses arise if of 65. Employees born 1955 and earlier have the possibility to retire between actual outcome deviates from calculated, defined assumptions, or if there is a the ages of 62 and 65 according to local agreement. Staff employed before change in assumptions. The defined pension obligation is calculated annually by 1 January, 2004 have the right to retire from the age of 64. These plans are independent actuaries, applying the projected unit credit method. The net pres- also defined benefit plans and are reflected in financial statements of both the ent value of the pension obligation is defined by discounting of estimated future Group and the Parent Company. cash flows, using interest rates that are based on the same currency in which Employees in Sweden born 1972 or later, are covered by a defined contribu- the obligations are to be paid and with durations comparable to the duration of tion plan, FTP1. the current pension obligation. Other assumptions used to determine the pen- Employees outside Sweden and Germany are mainly covered by defined sion obligation and the fair value of the plan assets are disclosed in this note. contribution plans in which the employer has a responsibility for the employees’ The group has defined benefit plans in Sweden (collective agreement) and pension. PENSION COST RECOGNIZED IN THE INCOME STATEMENT GROUP Current service cost Interest cost on pension obligation Interest income on plan assets PENSION COST FOR DEFINED BENEFIT PLANS Paid premiums, defined contribution plans TOTAL PENSION COST 1) 1) The pension cost for the year does not include special salary tax, which is disclosed in note 30 in the table “Remuneration to employees”. CHANGES IN DEFINED BENEFIT OBLIGATIONS GROUP Opening balance pension obligation Effect of changed accounting principle IAS 19R Current service cost Interest cost on pension obligation Actuarial gains and losses recognized in OCI Release of obligation by payment Tax Currency revaluation effect CLOSING BALANCE PENSION OBLIGATION 2013 2012 7 3 —3 7 65 72 8 2 —2 8 51 59 2013 2012 80 — 7 3 —2 —3 —1 1 85 67 1 8 2 6 —4 — 0 80 69 sirius international insurance corporation – annual report 2013 Note 26 – Cont. CHANGES IN PLAN ASSETS GROUP Opening balance plan assets at fair value Interest income on plan assets Contributions Actuarial gains and losses recognized in OCI Release of obligation by payment Currency revaluation effect CLOSING BALANCE PLAN ASSETS AT FAIR VALUE The plan assets’ fair value, as per December 31, 2013, is lower than the value of the Group’s defined benefit pension commitments. The Group has per Decem- ber 31, 2013 a net obligation of MSEK 7 (11). This is due to the Group having a non-funded commitment, for the portion of the Group’s benefit-based pension plans which facilitate retirement between 62 and 65 years of age. Actual retire- ments are settled when the decision regarding retirement is made. In conjunc- tion 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, no employees have exercised the opportunity to take early retirement. CHANGES IN ACTUARIAL GAINS/LOSSES RECOGNIZED IN OCI, PRE-TAX GROUP Opening balance actuarial gains/losses Effect of changed accounting principle IAS 19R Current year change in actuarial gains (—)/losses (+) on pension obligation Current year change in actuarial gains (—)/losses (+) on plan assets CLOSING BALANCE ACTUARIAL GAINS/LOSSES Opening balance 2012 is adjusted for the effect of changed accounting principle IAS 19 R per Jan 1, 2012. ACTUARIAL ASSUMPTIONS GROUP Discount rate Price inflation Expected salary increases Indexation of benefits Indexation of income base amount Staff turnover 2013 2012 69 3 5 4 —4 1 78 61 2 4 4 —2 0 69 2013 2012 6 — —2 —4 0 2013 3.6% 1.5% 3.0% 1.5% 2.5% 3.0% 3 1 6 —4 6 2012 3.3% 1.5% 3.0% 1.5% 2.5% 3.0% When calculating the expense for defined benefit obligations, assumptions are Expected future annual salary increases is mirrored by composition of made regarding the future development of factors which may influence the size effects from collective agreements and salary drift. Final benefits according of expected payments. The discount rate is the interest rate applied to discount to FTP are governed by Swedish base income amount (inkomstbasbeloppet). the value of expected payments. This rate is fixed applying a market rate with Consequently, there is a requirement to assess future base income amounts. a remaining duration equivalent to the pension obligations. The discount rate Annual pension increases also need to be considered, as these have historically applied for the Swedish defined obligations, is based on high quality Swedish always taken place. mortgage bonds, issued in the same currency in which the future benefits will Assumptions about the beneficiaries’ life expectancy comply with FFFS be settled and with durations comparable to the current benefit obligation. The 2007:31 (DUS06) and are updated annually. When establishing the value of German pension obligation is discounted with a discount rate, stipulated by defined benefit obligations, according to IFRS, it is common practice in Sweden German statutory regulations, taking into account both the underlying currency to comply with the above mentioned instruction from the Swedish Financial and the duration of the pension obligation. The expected duration of the pen- Supervisory Authority. sion obligations is 17 years (19 years). 70 sirius international insurance corporation – annual report 2013 Note 27 – Other creditors Amounts due to group companies 1) Other debtors TOTAL 2) 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. GROUP 2013 28 160 188 2012 1,231 169 1,400 PARENT COMPANY 2013 51 82 133 Note 28 – Contingent liabilities and commitments PLEDGED ASSETS FOR OWN LIABILITIES AND PROVISIONS GROUP PARENT COMPANY Bonds and other interest-bearing securities Cash and bank ASSETS FOR WHICH POLICY HOLDERS HAVE PREFERENTIAL RIGHTS 2013 7,809 158 7,967 On the basis of the stipulations in Chapter 7, Section 11 of the Insurance Busi- ness Act, registered assets amount to MSEK 5,488. 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 Nominal amount Guarantees on behalf of subsidiary Future commitments for investments in private equity companies TOTAL GROUP 2013 1,930 140 2,070 2012 8,675 195 8,870 2012 1,970 161 2,131 2013 6,571 120 6,691 PARENT COMPANY 2013 1,930 49 1,979 2012 1,257 68 1,325 2012 7,559 142 7,701 2012 1,970 53 2,023 71 sirius international insurance corporation – annual report 2013 Note 29 – Associated parties SUMMARY OF TRANSACTIONS WITH ASSOCIATED COMPANIES WITHIN THE WHITE MOUNTAINS GROUP GROUP 2013 Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities White Mountains Life Re Ltd. — ceded reinsurance —126 —2,542 Sirius International Financial Services LLC — financial services White Mountains Advisors LLC — financial services White Mountains Capital Inc — administrative services White Mountains Insurance Group — administrative services Sirius International Insurance Group Ltd. — administrative services White Schoals Re ltd. — administrative services Sirius International Group Ltd. — administrative services HG Global Ltd. — administrative services HG Re Ltd. — administrative services White Mountains International S.à r.l. — administrative services Split Rock Insurance Ltd. — administrative services OneBeacon Insurance Group Ltd. — liability insurance and dividends Symetra Financial Corporation — dividends TOTAL PARENT COMPANY 2013 Sirius America Insurance Company — assumed reinsurance Sirius America Insurance Company — ceded reinsurance Star Re Ltd. — ceded reinsurance Syndicate 1945 — assumed reinsurance White Mountains Life Re Ltd. — ceded reinsurance Sirius America Insurance Company — administrative services Sirius Global Services LLC — administrative services Sirius Capital Markets Bermuda Ltd. — administrative services Sirius International Holdings Ltd. — administrative services Sirius International Financial Services LLC — financial services HG Global Ltd. — administrative services HG Re Ltd. — administrative services Split Rock Insurance Ltd — administrative services White Mountains Advisors LLC — financial services Sirius International Holding (NL) B.V. — dividends Star Re Ltd. — intra—group receivables Passage2Health Ltd. — intra—group receivables White Mountains Re Sirius Capital Ltd. — intra—group receivables Syndicate 1945 — intra group receivables White Sands Holdings (Luxembourg) S.à r.l. — dividends S.I. Holdings (Luxembourg) S.à r.l. — dividends/receivables WM Phoenix (Luxembourg) S.à r.l. — dividends Sirius Rückversicherungs Service GmbH — intra—group payables Sirius Belgium Réassurances S.A — intra—group payables OneBeacon Insurance Group Ltd. — liability insurance — — — — — — — — — — — — — — — — — — — — — — — — — — —126 —2,542 — 146 —39 1 2 16 1 — 1 1 — 1 40 16 186 — — — — — — — — — — — 1 — — 1 — 19 9 — — — — 5 — — 1 — — — 34 Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities 138 —2 —82 17 —126 —3 —3 — —5 —2,542 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 7 —22 1 —3 146 1 1 1 —17 13 1 — — 63 699 84 866 —25 — —1 329 3 — 4 — — 3 — — — — — 1 — — — 4 10 67 — 87 — — — — — — — — — 1 — — — 19 — — — 3 — — — — — — — — 31 1 — 55 TOTAL —55 —2,553 1,815 508 72 sirius international insurance corporation – annual report 2013 Note 29 – Cont. GROUP 2012 Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities White Mountains Life Re Ltd. — ceded reinsurance —213 —1,582 Sirius International Holding — administrative services Sirius International Financial Services LLC — financial services Sirius Insurance Holding Sweden AB — group contributions and short—term receivables Fund American Holdings AB — group contributions and dividends White Mountains Advisors LLC — financial services White Mountains Capital Inc — administrative services White Mountains Insurance Group — administrative services Scandinavian Reinsurance Company Ltd. — 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. — liability insurance and dividends Symetra Financial Corporation — dividends TOTAL — — — — — — — — — — — — — — — — — — — — — — — — — — —213 —1,582 — —3 — — — —41 3 2 2 14 — — 40 20 37 2,845 1) — 1,292 49 — — — 2 — — — — — — 14 — 16 533 680 4 — — — — 25 1 — — 4,188 1,273 Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities PARENT COMPANY 2012 Sirius America Insurance Company — assumed reinsurance Sirius America Insurance Company — ceded reinsurance Sirius America Insurance Company — administrative services White Mountains Life Re Ltd. — ceded reinsurance Sirius International Holdings Ltd. — administrative services Sirius International Financial Services LLC — financial services Sirius Insurance Holding Sweden AB — group contributions and short—term receivables Fund American Holdings AB — group contributions and dividends White Mountains Advisors LLC — financial services Scandinavian Reinsurance Company Ltd. — administrative services 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 OneBeacon Insurance Group Ltd. — liability insurance 185 —4 0 —213 — — — — — — — — — — — —318 21 0 —1,582 — — — — — — — — — — — TOTAL —32 —1,879 1) Refers to reinsurer’s share of outstanding claims. — — —5 — —3 — — — —21 2 — — —24 — —1 —52 210 — — 2,8451) — 326 49 — — — 69 7 — — — — 89 —4 14 1 16 533 680 4 — — — 26 1 — 3,506 1,360 73 74 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 Note 30 – Average number of employees, salaries and other remunerations AVERAGE NUMBER OF EMPLOYEES GROUP Parent Company Germany UK USA Canada TOTAL 2013 2012 Men Women TOTAL Men Women TOTAL 141 4 0 60 5 210 145 9 2 58 2 216 286 13 2 118 7 426 136 4 2 59 4 205 143 9 2 55 2 211 279 13 4 114 6 416 PARENT COMPANY Men Women TOTAL Men Women TOTAL 2013 2012 Sweden UK Belgium Switzerland Singapore Denmark Bermuda TOTAL SENIOR MANAGEMENT GROUP AND PARENT COMPANY Board and CEO Other senior members of management TOTAL REMUNERATIONS TO EMPLOYEES Salaries including bonuses Of which expenses bonus and other similar remunerations Pension expenses — Defined contribution plans — Defined benefit plans (Note 26) Social security contributions, special employer’s contributions on pensions TOTAL 74 25 23 4 4 5 6 141 72 20 24 5 11 2 11 145 146 45 47 9 15 7 17 286 71 23 23 4 4 5 6 136 71 20 24 5 10 2 11 143 142 43 47 9 14 7 17 279 2013 2012 Men Women TOTAL Men Women TOTAL 6 1 7 — — — GROUP 2013 553 203 72 65 7 99 724 6 1 7 2012 520 147 59 51 8 78 657 4 2 6 — — — PARENT COMPANY 2013 329 114 61 60 1 93 483 4 2 6 2012 302 87 49 47 2 72 423 75 sirius international insurance corporation – annual report 2013 Note 30 – Cont. OF WHICH PAID REMUNERATIONS FOR THE YEAR TO: CEO 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 GROUP 2013 2012 2013 2012 PARENT COMPANY 16 12 3 3 — 19 14 8 3 3 — 17 18 14 3 3 — 21 14 9 2 2 — 16 16 12 3 3 — 19 14 8 3 3 — 17 18 14 3 3 — 21 14 9 2 2 — 16 Salaries and remuneration The Board receives remunerations in accordance with the resolutions of the Remuneration policy Sirius International’s remuneration policy is available on the Company’s Annual General Meeting. Board fees are not paid to individuals employed in the homepage, which follows FFFS 2011:2. company. No board fees were paid in 2012 and 2013. Note 31 – Fees and reimbursements to auditors PwC Audit assignment Tax counseling Other services TOTAL GROUP 2013 2012 2013 2012 PARENT COMPANY 11 1 1 13 11 1 1 13 5 1 0 6 4 1 1 6 Audit assignment refers to the examination of the annual report and accounting records, as well as the administration of the Board of Directors and Managing Director, 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. Note 32 – Operational leasing NON-CANCELLABLE LEASES Due for payment within one year Due for payment later than one year but within five years Due for payment after five years TOTAL 76 GROUP 2013 2012 2013 2012 PARENT COMPANY 49 126 112 287 45 129 51 225 33 71 1 105 31 74 3 108 sirius international insurance corporation – annual report 2013 Note 33 – Class analysis PROFIT/LOSS PER INSURANCE CLASS GROUP 2013 Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance TECHNICAL RESULT Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance 1,022 975 —585 —384 —12 —6 86 80 —52 —48 —4 —24 101 106 —47 —47 — 12 76 78 —27 —32 —1 18 1,285 1,239 —711 —511 —17 0 6,160 6,177 —383 —1,944 —2,943 907 PARENT COMPANY 2013 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision TECHNICAL RESULT GROUP 2012 Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance TECHNICAL RESULT 650 635 —343 —266 —7 — 19 76 76 —50 —46 —4 — —24 57 84 —35 —36 — — 13 16 26 1 —11 —1 — 15 799 821 —427 —359 —12 — 23 4,374 4,434 383 —1,152 —2,914 —2,926 — 751 — 774 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance 970 885 —499 —377 —44 —35 88 81 —44 —37 4 4 110 94 —64 —42 — —12 89 87 —47 —43 — —3 1,257 1,147 —654 —499 —40 —46 6,824 6,887 —1,934 —2,027 —2,369 557 PARENT COMPANY 2013 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision TECHNICAL RESULT 723 736 —412 —303 —42 — —21 88 81 —44 —37 4 — 4 110 95 —64 —42 — — —11 39 51 —5 —27 — — 19 960 963 —525 —409 —38 — —9 4,819 4,968 —566 —1,198 —2,346 —25 833 TOTAL 7,445 7,416 —1,094 —2,455 —2,960 907 TOTAL 5,173 5,255 —44 —1,511 TOTAL 8,081 8,034 —2,588 —2,526 —2,409 511 TOTAL 5,779 5,931 —1,091 —1,607 —2,384 —25 824 77 sirius international insurance corporation – annual report 2013 Stockholm, February 28, 2014 Allan Waters Chairman of the Board of Directors Brian Kensil Jeffrey Davis Jan Onselius Göran Thorstensson President & CEO Lars Ek Our Auditors’ Report was submitted on February 28, 2014 Catarina Ericsson Authorised Public Accountant Morgan Sandström Authorised Public Accountant 78 Our Auditors’ Report was submitted on February 28, 2014 Catarina Ericsson Authorised Public Accountant Morgan Sandström Authorised Public Accountant sirius international insurance corporation – annual report 2013 For translation purposes only Audit report To the annual meeting of the shareholders of Sirius Internatio- nal Insurance Corporation (publ), corporate identity number 516401-8136. Report on other legal and regulatory requirements We have audited the annual accounts and consolidated accounts of Sirius International Insurance Corporation (publ) for the year 2013. Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act for Insurance Companies, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally ac- cepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgment, in- cluding the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act for Insurance Companies and present fairly, in all material respects, the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act for In- surance Companies. The consolidated accounts have been prepared in ac- cordance with the Annual Accounts Act for Insurance Companies and present fairly, in all material respects, the financial position of the group as of 31 December 2013 and of their financial performance and cash flows for the year ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act for Insurance Companies. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company’s profit or loss and the administration of the Board of Directors and the Managing Director of Sirius International Insurance Corporation (publ) for the year 2013. Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act and the Insurance Business Act. Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors’ proposed appropria- tions of the company’s profit or loss, we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act and the Insurance Business Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Insurance Business Act, the Annual Accounts Act for Insurance Companies or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Stockholm, February 28, 2014 Catarina Ericsson Authorized Public Accountant Morgan Sandström Authorized Public Accountant 79 80 sirius international insurance corporation – annual report 2013 sirius international insurance corporation – annual report 2013 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 2013. The audited Swedish version is the binding version. 81 sirius international insurance corporation – annual report 2013 History 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 85% and more than $750 million in underwriting profits. This long-term track record is perhaps unparalleled. 82 83 sirius international insurance corporation – annual report 2013 cover photo: patrik brynielsson art and production: vitt grafiska ab