Annual report 2014 1 sirius international insurance corporation – annual report 2014 CONTENTS White Mountain, our owners Comments from the President and CEO Board of Directors’ Report Five-year summary 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 2 1 3 5 8 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 68 68 69 69 70 70 70 71 73 73 74 76 77 77 78 80 81 82 sirius international insurance corporation – annual report 2014 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’ common shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange under the symbol “WTM”. Market capitalization as of December 31, 2014 was $3.8 billion. As of December 31, 2014, White Mountains reported total assets of $10.5 billion, adjusted shareholders’ equity of $4.0 billion, and adjusted book value per share of $665. 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: onebeacon Specialty insurance. OneBeacon’s common shares are listed on the New York Stock Exchange under the symbol “OB”. White Mountains owns 75% of OneBeacon. hg global U.S. municipal bond reinsurance. white mountains advisors Investment management with $34 billion of assets under management. sirius international insurance group, ltd. Global reinsurance. Sirius International Insurance Group, Ltd. A Bermuda-domiciled holding company whose operating companies offer insurance and reinsurance capacity for property, accident & health, aviation and space, trade credit, marine, agriculture and other exposures. Our principal operating companies are: sirius international insurance corporation A Swedish-based international reinsurer that focuses mainly on property and other short-tailed lines. Sirius International is the largest 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 current stamp capacity of £105 million and focus on accident & health, contingency, property and marine. white mountains solutions inc. A Connecticut-based professional team specializing in opportunistic structured acquisitions of run-off property and casualty insurance liabilities. The team further enhances transaction returns via effective post-acquisition management of the run-off process. 1 sirius international insurance corporation – annual report 2014 2 sirius international insurance corporation – annual report 2014 Sirius Annual Report 2014 It gives me great pleasure to introduce my first annual report since succeeding Göran Thorstensson as President and CEO of Sirius International in March 2014. Many of the messages you will hear from me will have a familiar ring to them. Sirius marks its 70th anniversary in 2015 and, as a well-established company, our strategy continues to build and develop on what we already have rather than make eye-catching changes. 2014 was another successful year for the Sirius Group. Our underwriting result of $189 million was up 29.4 % on 2013, with gross written premium remaining almost stable at $1117 million. Our combined ratio fell to 78 %, with all classes of business operating profitably. 2014 was a particularly benign year for catastrophe losses for the reinsurance industry globally. Our largest claims during the year came from India, where there was extensive flooding in Kashmir during September followed by Cyclone Hudhud in the eastern part of the country in October. Together these two events cost our group $26 million net of outward reinsurance. Snow storms in Japan and bad weather in parts of Europe also had an impact, albeit much smaller. Even with the qualification that losses were relatively modest, last year’s performance was a tribute to the professionalism and dedication of our staff; and it was part of a pattern going back a long time. Sirius has an impressive record of prospering whatever the conditions. We have made an underwriting profit for every one of the past ten years, returning a combined ratio for the decade of under 90 %. Having worked for the group since 1985 - and over the years spent much time talking to staff, clients and brokers - I am convinced that our people and corporate culture are central to our long-term success as a company in an ever-changing market environment. Skilled, disciplined underwriting is an essential element of the formula, but that is just part of the story. A willingness to put our clients at the centre of what we do, to get inside their minds and understand their needs, to be flexible, to go the extra mile in ensuring that our products contribute positively to our clients’ risk management, and then to provide a prompt and efficient service. These are some of the ingredients that enable Sirius to punch above its weight and develop long-term business relationships to the benefit of all parties. Intangible they may be, but these qualities are nonetheless our hallmarks. I would also like to highlight briefly two important areas of operation where there have been significant changes in the past few years. Our presence at Lloyd’s continues to grow, especially in the Accident and Health arena. Last July we successfully completed the final steps in setting up our own managing agency to oversee our syndicate there, resulting in a fully integrated Lloyd’s Vehicle. This platform will reduce our cost base and promote future growth. Sirius America, now fully integrated into the group, has also continued to expand profitably and successfully, especially in Accident and Health but also in the property segment. Looking ahead, there are many challenges. Next January 2016 will see the arrival of the long-awaited Solvency II reforms. We believe we are well prepared for this change, and do not anticipate that it will affect the service we provide. In other respects, 2015 will be a challenging year. Margins are even lower than before, with all classes of business being squeezed at the year-end renewal. I believe we have the relationships and the staff to handle whatever may lie ahead, and we look forward to continuing to work with our clients and brokers to our mutual benefit. Finally, I would like to express my gratitude to all those, both internally and externally, who have helped me transition into my new role with their goodwill, support and willingness to share their thoughts. I would like to mention especially Göran Thorstensson, who successfully managed the position of CEO at Sirius for longer than most people could remember, creating the strong founda- tions of the group we see today. He is a hard act to follow, but has been as generous and helpful as it is possible to be in easing me into the job. Together with the entire Sirius staff, I look forward to working hard to continue to build the Sirius brand and reputation in an ever-changing and challenging marketplace. monica cramér manhem President & CEO 3 sirius international insurance corporation – annual report 2014 AT A GLANCE 2014 2013 Net premium income Claims net of reinsurance Underwriting profit Combined Ratio Income before tax COMBINED RATIO $867 million $357 million $189 million 78 % $320 million $879 million $421 million $146 million 83 % $362 million 89 % 90 % 99 % 83 % 78 % 2010 2011 2012 2013 2014 SOLVENCY CAPITAL, MSEK 12,516 14,150 16,011 16,191 17,954 2010 2011 2012 2013 2014 4 sirius international insurance corporation – annual report 2014 Board of Directors’ Report The Board of Directors and the President and Chief Executi- ve Officer of Sirius International Försäkringsaktiebolag (publ), (Sirius International), Corporate Identity Number 516401-8136, hereby present the Annual Report for 2014. general information regarding the company 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 transferred 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 2014 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. According to preliminary estimates from external experts, total insured losses from natural catastrophes and man-made disas- ters were USD 34 billion, down 24 % compared to the previous year. The benign outcome as regards major claims for the industry as a whole is also evident in the claims incurred for Sirius International. The following claims events represent a summary of the major claims impacting the Company’s insurance portfolio during 2014. In the first quarter Japan was gripped by extreme winter conditions and heavy snow, in the second quarter Germany was hit by heavy thunderstorms and in the third quarter France, Benelux and Bul- garia suffered from hailstorms. In late September and early October two major catastrophes occurred in India. The regions Jammu and Kashmir were hit by extensive flooding from the river Jhelum. In Mid-October the cyclone Hudhud made landfall on the east coast which caused significant damage. For Sirius International these events are estimated to have resulted in claims of approximately MSEK 300 for own account. The major claims from natural disasters during previous years de- veloped favorably during 2014, resulting in a positive run-off result for the year. 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 2015, was exposed to a certain amount of price pres- sure, with falling prices in certain markets and insurance classes. For the overall portfolio, the pricing for 2015 is deemed to be satisfactory. In 2014, the operation of Syndicate 1945 at Lloyd’s has developed well. The Syndicate has successfully signed new, profitable business through Lloyd’s sales channels. From July 1 the administration of the Syndicate is handled by Sirius International Managing Agency Ltd, which is wholly-owned by Sirius International. For the US operations conducted in 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 2015. Gross premium income amounted to MSEK 7,637 (7,445) for the Group and MSEK 4,910 (5,173) for the Parent Company. The Group’s premium income for own account amounted to MSEK 5,930 (5,729), and MSEK 3,281 (3,423) for the Parent Company. For the Group the premium volume was 3 % higher compared to the previous year, and 4 % lower for the Parent Company. It is satisfying to note an increase in the premium volume for the Group compared with the previous year despite the fierce competition in the market. Increased volumes are noted in all classes of business written in Syndicate S1945 at Lloyd’s coupled with increased premium volume from the class Accident and Health written by Sirius America Insurance Company. The reduction in premium volume for the Parent Company is foremost due to the fact that renewed business is, to a larger extent than before, written by Syndicate S1945, hence a shift between Parent and Group. In addition there were reduced volumes in Credit and Property reinsurance. The Group’s operating profit from insurance operations amounted to MSEK 1,549 (1,008) and to MSEK 1,028 (829) for the Parent Company. The combined ratio amounted to 78 % (83 %) for the Group and 75 % (78 %) for the Parent Company. The strong insurance operating result is very gratifying and reflects the Company’s successful strategy, with a well-diversified insurance portfolio and good spread of risk. During 2014 stock markets was broadly strengthened, Dow Jones ended at +7.5 %, OMX 30 at + 9.9 %, Nikkei 225 at +7.1 % and DAX at +2.7 %. The FTSE 100 in UK closed somewhat lower than previous year with a decline of – 2.7 %. The global economy has not recovered as desired during 2014 and many countries are still struggling with the aftermath from the recent financial crisis. On a global basis, GDP grew by 2.6% which was below expectation. The US and UK economy has developed strongly with positive employment statistics. The recovery in Europe and Japan is moving at a slower pace with effects from the financial crisis still being evident. The SEK has weakened against most major currencies, foremost against USD which became 20.8% stronger during 2014. Also GBP and EUR got stronger against SEK during the year, increasing by 13.6% and 6.4% respectively. 5 sirius international insurance corporation – annual report 2014 The markets in the US, Sweden, Germany and the UK are the most important ones for the Group’s bond portfolio. The interest levels on three and five-year government bonds in Sweden have come down significantly during the year with decreases of 120 to 170 basis points. In the US, the interest rate in the three year tenor increased 30 basis points whereas the interest rate in the five year tenor fell about 10 basis points. The UK interest rates came down in the range of 25 to 70 basis points, while the corresponding interest rates for EURO Bonds remained virtually unchanged. Overall, yield on the bond portfolio was 3.0 % adjusted for exchange rate effects. As regards the equity portfolio, including investments in Hedge Funds and Private Equity investments, the yield amounted to 13.8 %, adjusted for exchange rate effects. The realized and unrealized exchange rate result, including currency hedging and translation differences from foreign subsidiaries, amounted to a profit of MSEK 1,722. The exchange rate gain is due to the weakening of the SEK against the USD, 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 remains at 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 recognized in Other Compre- hensive Income, but before allocation of interest to the insurance operations, shows a profit of MSEK 1,056 (1,255). The Group’s direct yield was 2.3 % (2.0 %) and the total yield was 4.7 % (3.6 %). 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, excluding currency related derivatives, had the following composition: Bonds and other interest bearing securities 68 %, Shares and participations 20 %, Bank funds 12 %. Unrealized losses on currency derivatives amounted to MSEK 493 at year end. On March 1, 2014 the Board of Directors of Sirius International appointed Monica Cramér Manhem as the new President and Chief Executive Officer of Sirius International, after the previous President and Chief Executive Officer Göran Thorstensson’s retirement. In December Sirius International Holdings (NL) B.V., executed a capital repayment totaling MSEK 1,041. Furthermore, additional capital of MSEK 975 was injected to S.I. Holdings (Luxembourg) S.à r.l. During the year a review of the parameters used for impairment testing of Intangible Assets, Goodwill, has been made. The review resulted in an increase of the modelled cost of capital, which lead to an impairment of Acquisition Goodwill of MSEK 265 in the Group. Other events regarding the changes in the Group’s structure are described primarily under the section “Ownership structure” below. ownership structure Sirius International Försäkringsaktiebolag (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-owned 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, Hamilton, Bermuda. At the end of the year 2014, the Group comprised of 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. 6 sirius international insurance corporation – annual report 2014 significant events during and after the financial year There are no other significant events to disclose in addition to what has been covered in the preceding sections above. 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 insur- ance risk is assessed to exist, and which, thereby, do not qualify as in- surance contracts. These contracts are classified as investment con- tracts. 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 invest- ment portfolio is expected to provide a stable yield. However, the fierce competition requires stringent pricing and underwriting, con- tinued efficiency improvements and sound balancing of risks between the insurance and investment operations, in order to ensure long-term profitability. Sirius International’s targets for 2015 are to achieve a combined ratio under 92% and an Underwriting Return on Capital (UROC) of 10%. 7 sirius international insurance corporation – annual report 2014 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 assets4) 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 2014 2013 20123) 2011 2010 5,930 5,952 313 —2,445 —2,218 —53 1,549 637 1,688 13,081 26,824 41 % 37 % 78 % 2 % 5 % 15,651 2,301 2 — 17,954 303 % 16,863 1,787 17,842 1,787 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 2,830 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 1) Include Sirius International with subsidiaries. 2) Include WM Caleta (Gibraltar) Ltd. For 2011-2010 the Group-based values include Sirius International Insurance Group Ltd. 3) Comparison year 2012 has been converted per January 1, 2012 in order to apply IAS 19 R. Solvency capital and required solvency capital have not been converted. 4) Includes Investment assets and Cash and bank balances. 8 sirius international insurance corporation – annual report 2014 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 assets1) 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. 2014 2013 2012 2011 2010 3,281 3,358 179 —1,298 —1,208 — 1,028 575 —28 1,386 5,627 19,526 39 % 36 % 75 % 5 % 4 % 4,456 10,459 — 14,914 455 % 14,035 835 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 9 sirius international insurance corporation – annual report 2014 proposed appropriation of profits For 2014, the Parent Company recorded income of MSEK 1,575 (MSEK 2,130) before appropriations and taxes. Net income for the year amounted to MSEK 1,386 (MSEK 1,266). As of December 31, 2014 retained earnings in the Group amounted to MSEK 6,693. 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 Net income for the year Total 10 3,776,352 71,177 -1,577,774 1,385,580 3,655,335 The Board of Directors and the president propose that the amount be appropriated as follows: Dividend to the owner To be carried forward Total 777,370 2,877,965 3,655,335 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. sirius international insurance corporation – annual report 2014 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 and losses — Investment expenses and charges Investment income allocated to the technical account Total investment income/expenses RESULT BEFORE TAXES Taxes NET INCOME FOR THE YEAR Note 2014 2013 3 3 4 4 5 5 9 6 7 8 10 7,637 —1,707 37 —15 5,952 313 —4,633 995 —3,638 1,155 37 —2,445 —2,218 —53 1,549 1,549 1,222 88 —360 —313 637 2,186 —498 1,688 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 11 sirius international insurance corporation – annual report 2014 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 translation differences — 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 Note 26 10 10 2014 1,688 —7 1 205 1,585 —47 —99 22 1,660 3,348 2013 1,956 6 —1 —80 —100 25 —118 25 —243 1,713 12 sirius international insurance corporation – annual report 2014 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 Shares and participations in associated 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 2014 2013 11 12 14,18 15,18 16,18 22 23 10 17, 18 19 18 20 26 198 224 12 213 122 5,186 17,935 25 23,146 627 24,120 595 2,584 3,179 192 2,302 108 2,143 221 4,966 55 3,198 3,253 152 544 36 732 291 165 456 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 36,474 32,534 13 sirius international insurance corporation – annual report 2014 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 Technical provisions Provisions for unearned premiums Claims outstanding Total Technical provisions Provisions for other risks and expenses Employee benefits Current tax liabilities Deferred tax liabilities Other provisions Total provisions for other risks and expenses Liabilities Deposits received from reinsurers Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Derivatives Other liabilities Accrued expenses and deferred income Total liabilities Note 2014 2013 800 5,317 854 8,158 522 15,651 2,635 13,625 16,260 14 38 2,288 453 2,793 451 105 457 494 205 58 1,770 800 5,317 —812 8,160 414 13,879 2,209 12,730 14,939 7 24 2,340 330 2,701 410 59 310 — 188 48 1,015 22 23, 25 26 10 16, 18 18, 27 18 TOTAL SHAREHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES 36,474 32,534 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 8,982 — 3,350 132 7,967 — 1,930 140 14 sirius international insurance corporation – annual report 2014 Change in Shareholders’ Equity – Group (MSEK) Share Capital 1) Additional paid in capital Reserves Retained earnings — restric- ted 1) Retained earnings — non— restricted TOTAL Minority interest TOTAL SHARE- HOLDERS’ EQUITY Amount January 1, 2014 800 5 317 —812 8 160 414 13 879 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 translation differences Total other comprehensive income Total comprehensive income Transactions with owners Dividend paid 2) Total transactions with owners AMOUNT DECEMBER 31, 2013 Adjusted Amount January 1, 2013 Comprehensive income Net profit/loss for the year Change in untaxed reserve Other comprehensive income, after tax Change of fair value on bonds Change defined benefit pension plans Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Acquisition of minority share Dividend paid 2) Total transactions with owners — — — — — — — — — 800 800 — — — — — — — — — — — — — — — — — — — — — 81 — 1 585 1 666 1 666 — — — —2 — — — — —2 — — 5 317 854 8 158 1 688 3 — —6 — —6 1 685 — 1 577 —1 577 522 1 688 1 81 —6 1 585 1 660 3 349 —1 577 —1 577 15 651 5 318 —564 7 544 724 13 822 — — — — — — — —1 — —1 — — —154 — —94 —248 —248 — — — — 616 — — — — 1 956 —616 — 5 — 5 616 1 345 — — — 1 —1 656 —1 656 414 1 956 — —154 5 —94 —243 1 713 0 —1 656 —1 656 13 879 AMOUNT DECEMBER 31, 2013 800 5 317 —812 8 160 1) Share capital and Retained earnings – restricted represents the restricted shareholders’ equity. 2) Dividend paid to the parent company Fund American Holdings AB. The dividend is equal to 197 SEK (207 SEK) per share. — — — — — — — — — — — 2 — — — — — — — —2 — —2 — 13 879 1 688 1 81 —6 1 585 1 660 3 349 —1 577 —1 577 15 651 13 824 1 956 — —154 5 —94 —243 1 713 —2 —1 656 —1 658 13 879 15 sirius international insurance corporation – annual report 2014 Change in Shareholders’ Equity – Group, cont. (MSEK) SHARE CAPITAL Specified in number of shares Issued per January 1 Issued per December 31 Per 31 December, 2014 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 CLOSING ADDITIONAL PAID IN CAPITAL RESERVES Fair value reserve Opening fair value reserve Change for the year Closing fair value reserve Tax on fair value reserves Opening tax on fair value reserves Change for the year Closing tax on fair value reserve Fair value reserve after tax Opening fair value reserve after tax Change for the year CLOSING FAIR VALUE RESERVE AFTER TAX Translation difference Opening translation difference Change for the year CLOSING TRANSLATION DIFFERENCE RETAINED EARNINGS — RESTRICTED Opening retained earnings — restricted Change for the year OPENING RETAINED EARNINGS – RESTRICTED RETAINED EARNINGS — NON—RESTRICTED Opening retained earnings – non—restricted Net profit/loss for the year Change in safety reserve and other restricted reserves Change defined benefit pension plans Reclassification within shareholders’ equity Dividend paid CLOSING RETAINED EARNINGS – NON—RESTRICTED 2014 2013 8,000,000 8,000,000 8,000,000 8,000,000 20142014 2013 5,317 — 5,317 49 105 154 —10 —24 —34 39 81 120 —851 1,585 734 8,160 —2 8,158 414 1,688 3 —6 — —1,577 522 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 16 sirius international insurance corporation – annual report 2014 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 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 gains on foreign exchange 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 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 2014 2013 2,186 363 —4 208 —1,318 —32 1,403 44 —686 114 875 —46 —20 —66 —41 — —41 768 1,999 768 431 3,198 324 —385 — —334 264 —844 756 —363 4 —208 —529 —3 —1,318 766 2,432 3,198 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 11, 12, 19 6 8 6 8 7 7 6 8 6 23 17 sirius international insurance corporation – annual report 2014 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 2013 and earlier. Direct Swedish risks — Property Direct Swedish risks — Aviation Direct foreign risks Assumed reinsurance TOTAL — — —2 — —2 —2 —1 — —3 — — — 2 — —2 — 0 —1 — — —1 — —2 4 — —2 — 2 —1 —1 —1 — —2 — 1 1 4 — — — 4 —2 — — — — —2 889 23 —535 —404 —27 —408 —734 —683 —18 5,059 290 —1,907 —1,814 1,628 —685 —1,898 —12,679 —243 —1,435 —14,820 291 202 493 1,591 —641 —63 2 889 304 2,381 2,685 6,040 —1,066 102 —17 5,059 5,952 313 —2,446 —2,218 1,601 —1,094 —2,635 —13,364 —261 —16,260 595 2,584 3,179 7,637 —1,707 37 —15 5,952 —763 —3,680 —4,446 309 —21 —137 77 686 —166 1,293 —40 995 —187 1,155 37 —535 —1,907 —2,446 18 sirius international insurance corporation – annual report 2014 Income Statement – Parent Company JANUARY 1 — DECEMBER 31 (MSEK) Note 2014 2013 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 and losses — 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 10 4,910 —1,629 107 —30 3,358 179 —2,806 869 —1,937 597 42 —1,298 —1,208 — —3 1,028 5,173 —1,750 82 —20 3,485 55 —2,716 728 —1,988 2,672 —2,307 —1,623 —1,086 —2 — 829 1,028 829 1,457 —528 —175 —179 575 —28 1,575 — 3 1,578 —192 1,386 2,232 65 —913 —55 1,329 —28 2 130 —800 10 1,340 —74 1,266 19 sirius international insurance corporation – annual report 2014 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 2014 1,386 182 —40 —91 20 71 1,457 2013 1,266 —79 17 —114 25 —151 1,115 20 sirius international insurance corporation – annual report 2014 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 Shares and participations in associated companies Other financial investments — Shares and participations — Bonds and other interest—bearing securities — Derivative financial instruments Total other financial investments Deposits with cedents Total investment assets Reinsurers’ share of technical provisions Provisions for unearned premiums Claims outstanding Total reinsurers’ share of technical provisions Debtors Debtors arising out of direct insurance operations Debtors arising out of reinsurance operations Current tax receivables Deferred tax receivables Other debtors Total debtors Other assets Tangible assets Cash and bank balance Total other assets Prepayments and accrued income Accrued interest Deferred acquisition costs Other prepayments and accrued income Total prepayments and accrued income TOTAL ASSETS Note 2014 2013 11 12 13 14, 18 15, 18 16, 18 22 23 10 17 19 18 20 22 80 102 12 10,268 122 494 6,970 25 7,489 604 18,495 582 1,610 2,192 36 1,603 — 41 225 1,905 37 1,525 1,562 90 279 35 404 170 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 24,660 23,672 21 sirius international insurance corporation – annual report 2014 Balance Sheet – Parent Company, cont. DECEMBER 31 (MSEK) Note 2014 2013 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 Current tax liabilies Deferred tax liabilities Other provisions 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 Derivative financial instruments 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 800 113 2,157 1,386 4,456 12 10,447 10,459 1,691 6,039 89 7,819 14 9 — 263 286 419 4 505 494 164 1,167 54 800 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 24,660 23,672 6,748 — 3,350 31 6,691 — 1,930 49 21 22 23, 25 24 26 10 16, 18 18, 27 18 28 28 28 28 22 sirius international insurance corporation – annual report 2014 Change in Shareholders’ Equity – Parent Company (MSEK) Share Capital Other Reserves 1) Retained earnings 1) Net profit/ loss for the year 1) TOTAL SHARE HOLDERS’ EQUITY Amount January 1, 2014 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 2) Total transactions with owners AMOUNT DECEMBER 31, 2014 Amount January 1, 2013 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 2) Total transactions with owners — — — — — — — 800 800 — — — — — — — AMOUNT DECEMBER 31, 2013 800 42 — — 71 71 71 — — 113 193 — — —151 —151 —151 — — 42 2,468 1,266 1,266 —1,266 4,576 0 — — — — —1,577 —1,577 2,157 3,192 932 — — — — —1,656 —1,656 2,468 1,386 1,386 — — 1,386 — — 1,386 932 —932 1,266 — — 1,266 — — 1,266 71 71 1,457 —1,577 —1,577 4,456 5,117 — 1,266 —151 —151 1,115 —1,656 —1,656 4,576 1) The columns Other reserves, Retained earnings and Net profit/loss for the year together represents the non-restricted shareholders’ equity for the parent company. 2) Dividend paid to the parent company Fund American Holdings AB. Dividend is equal to SEK 197 (SEK 207) per share. 23 sirius international insurance corporation – annual report 2014 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 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 Dividend paid CLOSING RETAINED EARNINGS NET PROFIT/LOSS FOR THE YEAR NET PROFIT/LOSS FOR THE YEAR 2014 2013 8,000,000 8,000,000 8,000,000 8,000,000 54 91 145 —12 —20 —32 42 71 113 2,468 1,266 —1,577 2,157 247 —193 54 —54 42 —12 193 —151 42 3,192 932 —1,656 2,468 1,386 1,266 24 sirius international insurance corporation – annual report 2014 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 Financing activities Net investment of intangible assets Net investments of tangible assets Cash flow from investing activities Investing 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 YEAR 2) 1) Specification of non-cash items: Depreciations Capital gains on foreign exchange 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 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 2014 2013 1,574 164 —4 756 —598 —80 1,812 —352 —533 —466 461 —48 —19 —67 —4 —41 — —45 349 1,105 349 71 1,525 202 —450 — —158 120 —228 756 —164 4 —756 73 4 —598 273 1,252 1,525 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 —171 2 —1,667 416 1 —878 315 790 1,105 11,12,19 6 8 6 8 7 7 6 8 6 23 25 sirius international insurance corporation – annual report 2014 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 underwriting year 2013 and earlier. Direct Swedish risks — property Direct Swedish risks — aviation Direct foreign risks Assumed reinsurance TOTAL — — —2 — — —2 — —2 —1 — — —3 — — — 2 — —2 — 0 —1 — — —1 — —2 3 — —2 — — 1 —1 —1 —1 — — —2 — 1 1 4 —1 — — 3 —2 — — — — —2 457 19 —226 —258 — —8 —221 —461 —334 —11 — —806 179 61 240 816 —336 —21 —2 457 2,898 160 —1,068 —950 —3 1,037 —740 —1,227 —5,553 —139 —89 —7,008 403 1,548 1,951 4,088 —1,292 130 —28 2,898 3,358 179 —1,298 —1,208 —3 1,028 —962 —1,691 —5,889 —150 —89 —7,819 582 1,610 2,192 4,910 —1,629 107 —30 3,358 —397 —2,257 —2,657 170 —9 17 —7 699 —140 581 49 869 —149 597 42 —226 —1,068 —1,298 26 sirius international insurance corporation – annual report 2014 Note 1 – Accounting principles GENERAL INFORMATION This annual report was issued per December 31, 2014 and refers to Sirius 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 years beginning after 1 January 2014 and have not been applied in the prepa- ration of these financial statements. None of these are expected to have any significant impact on the Group’s financial statements, with the exception of International Försäkringsaktiebolag (publ), both the Group and the Parent the following: Company, which is an insurance company with its registered offices in Stock- IFRS 9 “Financial Instruments” addresses the classification, measurement holm. The address of the head office is Birger Jarlsgatan 57B, Stockholm and and recognition of financial assets and liabilities. The complete version of IFRS the Corporate Identity Number is 516401-8136. The Group’s ultimate owner is 9 was issued in July 2014. It replaces the guidance in IAS 39 which are related White Mountains Insurance Group Ltd., Hamilton, Bermuda. The Group writes to the classification and measurement of financial instruments. IFRS 9 retains property and casualty insurance and reinsurance, see Note 33 Class analysis but simplifies the mixed measurement model and establishes three primary for further information. COMPLIANCE WITH STANDARDS AND LAW The Company’s annual report has been prepared in accordance with the measurement categories for financial assets; amortized cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), as well as the at fair value through P&L with the irrevocable option at the inception to 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- present changes in fair value in OCI and no recycling is made at disposal of the instrument. There is now a new expected credit losses model that replaces the incurred loss impairment model. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value ance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), through P&L. The standard is effective for accounting periods beginning on or as well as the Swedish Financial Supervisory Authority’s regulations and after January 1, 2018. Early adoption is permitted. The group is yet to assess general guidelines on Annual Reports in Insurance Companies (FFFS 2008:26) IFRS 9’s full impact. with the amendments in FFFS 2009:12, FFFS 2011:28 and FFFS 2013:6, the No other of the IFRS or IFRIC interpretations which have not yet entered into Swedish Financial Reporting Board RFR 1 Supplementary Accounting Rules for force are expected to have any significant impact on the Group or, if applicable, Groups, as well as International Financial Reporting Standards (IFRS) and IFRIC the Parent Company. 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- 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, sition cost, with the exception of certain financial assets and liabilities which are income and expenses. These estimates and assumptions are based on historical valued at fair value. Financial assets and liabilities valued at fair value consist of experience and a number of other factors considered reasonable in the current derivative instruments, financial assets classified as financial assets valued at situation. The results of these estimates and assumptions are, subsequently, 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, 2014 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- used to assess the recorded values of assets, provisions and liabilities which are not otherwise clearly apparent from other sources. Actual outcome can deviate from these estimates and assessments. Estimates and assumptions are reviewed on a regular basis. Changes in esti- mates are recorded in the period in which the change is made if the change only affects that period, or the period in which the change is made as well as future periods, if such change affects both current and future periods. Significant assessments in the application of the Accounting principles have been made in conjunction with the decision to report financial instruments at fair value, as well as in conjunction with the decision to classify insurance natively are not expected to affect the Group’s financial reports. contracts as insurance or investment contracts. New and amended standards applied by the Group IFRS 10 “Consolidated Financial Statements” builds on existing principles by identifying the concept of control as the determining factor in whether an 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 entity should be included within the consolidated financial statements. The insurance risk in excess of five percent should be deemed significant and the standard provides additional guidance to assist in the determination of control contract is thus classified as insurance. where this is difficult to assess. All agreements that are insurance contracts have been subject to assess- IFRS 11 “Joint Arrangements”, focuses on the rights and obligations incum- ment regarding whether they signify a transfer of significant insurance risk, bent on entities that jointly control an arrangement, rather than on the legal so that they can also be presented as insurance contracts in the accounts. In form of the arrangement. There are two types of joint arrangements, joint the case of certain agreements which are a combination of risk and savings, operations and joint ventures. A joint operation is an arrangement in which the the Company has been obligated to undertake an assessment of the contracts parties with joint control have rights to the assets and obligations for the liabili- which can be considered to signify a transfer of significant insurance risk. The ties relating to that arrangement. Joint operations are accounted for according amount of the insurance risk has been assessed through a consideration of to the party’s relative share of jointly controlled assets, liabilities, revenue whether there exists one or more scenarios with commercial implications in and expenses. A joint venture is an arrangement in which the parties with joint which the insurance company would be liable to pay significant further benefits control have rights to the net assets of the arrangement. Joint ventures are in excess of the amount which would have been paid had the insured event accounted for using the equity accounting method, as the option to account for never occurred. joint ventures using proportionate consolidation has been removed. Certain contracts include an option for the contract holder to insure IFRS 12 “Disclosures of Interests in Other entities” includes disclosure themselves in the future. The Company does not consider such options, in requirements for subsidiaries, joint arrangements, associated companies and themselves, to constitute a material insurance risk. “structured entities” which have not been consolidated. None of the IFRS standards that are mandatory for the first time regarding the accounting year beginning January 1, 2014 has had any significant impact on the P&L or Balance Sheet for the Group. 27 sirius international insurance corporation – annual report 2014 Note 1 – Cont. Important sources of uncertainty in estimates The Company makes assessments and estimates forming the basis for the Associated companies Associated companies are those companies in which the Group has a valuation of certain assets, provisions and liabilities. These assessments and significant, but not controlling, influence over the operational and financial valuations are made on an ongoing basis and are based on previous experience administration, usually through the holding of participations between 20% and future expected outcomes. Technical provisions 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 The Company’s accounting principles for insurance contracts are described implies that the value of the shares in the associated company, reported in the below. The Company’s most critical accounting estimate concerns insurance Group, corresponds to the Group’s share of the associated companies’ equity technical provisions. This estimate is based on historical experience and other and Group goodwill and any other remaining amount of positive or negative relevant factors considered as reasonable. Even if the applied methods and group adjustment in consolidation. The Group’s participations in the associate’s employed parameters are assessed as correct, future outcomes may deviate net profit after taxes and minority interests, adjusted for any amortization, im- from the expected value. pairment or dissolution of acquired surplus or deficit value, are reported in the The process applied for the determination of central assumptions, forming consolidated income statement under the item ”Share of associated companies’ the basis for the valuation of the provisions, is described in Note 2. income”. Dividends received from associated companies decrease the book value of the investment. Determination of fair value of financial instruments When the Group’s share of reported losses in an associated company The valuation methods described below have been applied in the valuation exceeds the book value of the Group’s participations in the company, the value of financial assets and liabilities for which there is no observable market price. of the participations is reduced to zero. The equity method is applied up to the There may be some uncertainty as regards the observed market price for finan- point in time when the significant influence ceases. cial instruments with limited liquidity. Such instruments may, therefore, require further assessments, depending on the uncertainty of the market situation. For a sensitivity analysis of interest- and equity risk, see note 2 Information on risks. Transactions eliminated on consolidation Receivables and liabilities, income and expenses, and unrealized gains and loss- Company management has discussed the development, selection and es arising on internal transactions between Group companies are eliminated disclosure of significant accounting principles and estimates of the Group and of in their entirety when the consolidated financial statements are prepared. Unre- the Parent Company, as well as discussing the application of these principles and alized gains arising from transactions with associated companies and joint ven- estimates. The specified accounting principles have been consistently applied to tures are eliminated to the extent corresponding to the Group’s participating all periods presented in the financial statements, unless stated otherwise below. interest in the company. Unrealized losses are eliminated in the same manner APPROVAL The annual accounts were approved for publication by the Board of Directors on March 5, 2015. The income statement and balance sheet will be adopted at the General Meeting held in May 2015. CONSOLIDATION PRINCIPLES Subsidaries Subsidiaries are companies in which the Parent Company has a controlling as unrealized gains, but only to the extent there is no write-down requirement. FOREIGN CURRENCY Transactions in foreign currency Transactions in foreign currency are translated to the functional currency at the exchange rate prevailing on transaction date. The Parent Company’s, including the branch offices, and the Group’s, functional currency is the Swed- ish krona and the closing rate on the balance sheet date has been used in the valuation of assets, provisions and liabilities in foreign currency. Exchange rate influence. The term “controlling influence” refers to the direct or indirect fluctuations are recorded net in the income statement on the lines, Investment, right to formulate a company’s financial and operative strategies with the income or Investment, expenses. intention of receiving financial benefit. Acquisitions of subsidiaries are reported according to the purchase method, as described in IFRS 3, with the exception of intra-group acquisitions of subsidiaries under common control. The application Financial statements of foreign operations Assets and liabilities in foreign operations, including goodwill and other Group of the purchase method implies requirements for the identification of the surplus and deficit values, are translated from the functional currency of the purchaser and the establishment of the acquisition date. The purchase method foreign operation to the Group’s reporting currency, Swedish kronor, at the further implies that the acquisition of subsidiaries is considered to be a transac- exchange rate prevailing on the balance sheet date. Income and expenses tion through which the Group indirectly acquires the subsidiary’s assets and as- in foreign operations are translated into Swedish kronor at an average rate sumes its provisions, liabilities and contingent liabilities. The Group acquisition that approximates the exchange rates prevailing at the date of the respective value is determined through an acquisition analysis of the identifiable acquired transactions. Translation differences arising in the translation of foreign net assets and the assumed provisions and liabilities, as well as any contingent investments and the associated effects of the hedging of net investments are liabilities concurrent with the acquisition. In the case of business acquisitions recorded in other comprehensive income. Upon disposal of a foreign operation, in which the acquisition cost exceeds the net value of the acquired assets and accumulated translation differences attributable to the operation, less any assumed provisions and liabilities and contingent liabilities, the difference is currency hedging, are realized in the Group’s income statement. 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 Rates for the most important currencies 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 at fair value are valued and accounted for according to IFRS 3. Subsidiaries’ financial statements are included in the consolidated accounts from the date of acquisition until the date upon which the controlling influence ceases. USD EUR GBP Closing rates Average rates 7.77 9.43 12.10 6.84 9.08 11.27 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. Fi- nancial instruments are contracts which do not transfer any material insurance 28 sirius international insurance corporation – annual report 2014 Note 1 – Cont. risk from the policyholder to the Company. The Company has issued a policy Claims adjustment provision entailing a mandatory test of whether sufficient insurance risk exists in written The amount of this provision is based on outstanding claims. The provision is contracts for classification as insurance contracts. This test builds upon defini- equal to a percentage of reported unpaid claims and a percentage of incurred tions in accordance with IFRS 4. For contracts or groups of contracts classified unreported and not yet fully reported claims. The claims handling reserve for as insurance contracts, recording and valuation are carried out in accordance catastrophe insurance is calculated in the same way, but with the difference that with previously applied principles. For contracts or groups of contracts which they are calculated on an average of four to five years for those provisions. The are not classified as insurance contracts, recording and valuation are conduct- period’s change in the claims adjustment provision is recorded in the income ed according to IAS 39, Financial Instruments or according to IAS 18, Revenue. statement within the items Claims handling expenses and Operating costs. Accounting of insurance contracts Revenue recognition/Premium income Gross premiums written relate to insurance contracts incepted during the 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 financial year, together with any differences between booked premiums for external deferred acquisition costs. Other costs for insurance contracts are prior financial years and those premiums previously accrued, and include recorded as costs when they arise. 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 Provision adequacy testing The Company’s applied accounting and valuation principles for the balance deduction of brokerage, taxes, duties levied on premiums and other deductions. sheet items Deferred acquisition costs, Provisions for unearned premiums Premiums are earned on a pro rata temporis basis over the term of the related and Unexpired risks automatically entail testing of whether the provisions are contract, except for those contracts where the period of risk differs significant- sufficient with regard to expected future cash flows. 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- Operating costs All operating costs are allocated in the income statement according to their instatement premiums receivable are recognized and fully earned latest when functional nature, acquisition, claims adjustment, administration, commission fallen due. Premium revenue corresponds to the portion of premium income and profit shares in ceded reinsurance, investment expenses and in certain cases, 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. Technical provisions Technical provisions consist of the Provisions for unearned premiums and other technical costs. Changes in technical provisions for insurance contracts are recorded in the income statement under each heading. Payments to policyhold- ers, due to insurance contracts or incurred claims, during the financial year, are recorded as claims paid, regardless of when the claim was incurred. Ceded reinsurance As premiums for ceded reinsurance are recorded amounts paid during the financial year and amounts recorded as liabilities to the company that have assumed the reinsurance, in accordance with entered reinsurance agree- ments. Deductions are made for amounts credited due to portfolio transfers. unexpired risks, Provisions for outstanding claims, claims handling provision Adjustments are also made for change in the reinsurer’s share of proportional and equalization provision (in the Parent Company). reinsurance contracts. The premiums are periodized so that costs are allocated to the corresponding period of the insurance cover. All items relating to ceded Provision for unearned premiums and unexpired risks reinsurance are shown on separate lines in the income statement. In the balance sheet, this provision consists of amounts corresponding to the The reinsurers’ share of technical provisions are recorded as an asset in Company’s liability for claims, administrative expenses and other costs during the balance sheet and corresponds to the reinsurers’ liability for technical the remainder of the contract period for policies in force. “Policies in force” provisions in accordance with entered agreements. The Company assesses any refers to insurance policies in accordance with entered agreements irrespec- required impairment for assets referring to reinsurance agreements semi- tive if they wholly or in part relates to later insurance period. In calculating annually. If the recoverable amount is lower than the carrying amount of the these provisions, an estimate is made of anticipated costs for any claims that asset, the asset is impaired to the recoverable amount and the impairment is may occur during the remaining terms of these insurance policies, as well as recorded in the income statement. administrative expenses for this period. The estimation of costs is based on the Company’s own experience and considers both the observed and the forecasted development of relevant costs. These future costs are tested quarterly against the unexposed portion of the premium for the contracts in force and if the latter exceeds the costs, the REPORTING OF INVESTMENT RETURN Investment income allocated to the technical account Investment return is transferred from the non-technical account to the tech- unexposed portion of the written premium will form an unearned premium re- nical account on the basis of average technical provisions for the Company’s serve. If the future costs exceed the unexposed portion of the written premium, own account, less deductions for net receivables in insurance operations. This the deferred acquisition costs are written down, but if that is insufficient, an capital base is allocated per currency. The transferred investment return is unexpired risk provision will also be set up. The unexposed premium is also in calculated on the basis of an interest rate per currency equivalent to the actual this case recorded as a provision for unearned premium. The income statement total yield from the investment assets belonging to the insurance operations. recognizes the change in provision for unearned premium reserve and unex- The weighted average interest rate for 2014 amounted to 2.69%. 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. Applied interest rates % EUR GBP SEK USD 2014 7.31 % 6.65 % 4.44 % 2.12 % 2013 1.68 % 1.96 % 0.80 % 0.70 % 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 partic- ipations, including dividends from shares in Group companies, interest income, net foreign exchange gains, reversed impairments and net capital gains. 29 sirius international insurance corporation – annual report 2014 Note 1 – Cont. Investment expenses and charges Charges on investment assets are recorded under the item Investment expens- Other intangible assets Other intangible assets which have been acquired separately are reported at es and charges. The item comprises operating costs for land and buildings, acquisition cost. Other intangible assets acquired through a business acquisi- asset management costs, interest expense, net foreign exchange losses, depre- tion are reported at fair value as per the acquisition date. Acquired Other intan- ciations and impairments and net capital losses. gible 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 Changes in realized and unrealized gains and losses For investment assets valued at acquisition value, capital gain comprises the 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 useful life is positive difference between sale price and book value. For investment assets not amortized but is tested annually for impairment. Establishing the useful valued at fair value, a capital gain is the positive difference between sale price life is based on an analysis of each acquired intangible asset. The amortized and acquisition value. For interest-bearing securities, acquisition value is the amount of an intangible asset is periodized over the useful life. amortized cost value and, for other investment assets, it is the historical acqui- sition value. At the sale of investment assets, previously unrealized changes in value are recognized as adjustment entries under the item Unrealized profits Self-developed software Costs for maintenance of software are charged at the time at which they arise. from investment items or Unrealized losses from investment items, as appro- Development costs directly attributable to the development and testing of priate. As regards interest-bearing securities classified as available-for-sale identifiable and unique software products controlled by the Company are repor- financial assets, previously unrealized changes in value are recognized as ted as intangible assets when the following criteria are fulfilled: adjustment entries in Other comprehensive income. Capital gains from assets — it is technically possible to prepare the software for use, other than investment assets are recorded as Other income. — the Company’s intention is to complete the software and to put it into use, Unrealized gains and losses are recorded net per asset class. Changes due — the conditions for the use of the software are in place, to exchange rate fluctuations are recorded as exchange rate gains or exchange — the manner in which the software can generate probable future economic rate losses under the item Investment income/expenses. benefits can be demonstrated, Share of associated company’s profit or loss Share of associated company’s profit or loss represents Sirius’ share of the — adequate technical, financial and other resources for the completion of development and for the use of the software are accessible, and — expenditure attributable to the software during its development period associated company’s result, accounted for according to the equity accounting can be calculated in a reliable manner. method. Currency translation effects are recorded in Other comprehensive income. INCOME TAX Income taxes are accounted according to IAS 12 and consist of current tax and Other development costs, which do not fulfill these criteria, are charged at the time at which they arise. Development costs which have previously been charged are not reported as an asset in the following period. Development deferred tax. Income taxes are recorded in the income statement, except when costs for software reported as an asset are amortized during their assessed the underlying transaction is recorded in Other comprehensive income, useful life, which does not exceed five years. whereupon the pertaining tax effect is recorded in Other comprehensive income. Current tax Current tax is tax to be paid or received regarding the current year, with application of the tax rates which have been enacted or practically enacted at balance sheet date, which also includes the adjustment of current tax referring to previous periods. Deferred tax Deferred tax is calculated according to the balance sheet method on the basis Licenses Licenses, acquired or otherwise received, are accounted as an intagible asset in accordance with IAS 38. LAND AND BUILDINGS All properties owned by the Company are operational properties and are valued using the acquisition cost method, in accordance with IAS 16. The Company owns three properties located in Sweden and Belgium. Sirius reports its prop- erties in accordance with the acquisition cost method and the capitalized costs of temporary differences between the book values of assets and liabilities and are depreciated over 50 years. No depreciation is carried out on land. 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- FINANCIAL INSTRUMENTS sets and liabilities that are not business acquisitions and which did not affect ei- Financial instruments recorded in the balance sheet include, on the asset ther net profit/loss or taxable profit/loss at the transaction date. Furthermore, side, shares and participations, loan receivables, bond and other inter- temporary differences referring to participations in subsidiaries or associated est-bearing securities as well as derivatives. Where appropriate, derivatives companies that are not expected to be reversed within the foreseeable future with negative market value are included among liabilities, other liabilities and are not considered either. The valuation of deferred tax is based on the extent shareholders’ equity. to which underlying assets and liabilities are expected to be realized or settled. Acquisitions and disposals of financial assets are recorded on trade date, the Deferred tax is calculated with the application of the tax rates and regulations date upon which the Company commits to acquire or dispose an asset and thus that have been enacted or practically enacted as per balance sheet date. gains or losses control of the asset. 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 Classification and valuation Financial instruments are initially recorded at acquisition value corresponding change it could imply future reductions in deferred tax assets. Estimating fu- to the fair value of the instrument plus transaction costs, except in the case of ture earnings, historical experience and assumptions of the future development instruments belonging to the category Financial assets recorded at fair value 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- via the income statement, which are recorded at fair value exclusive of transac- tion costs. A financial instrument is classified when it is initially reported, based upon the purpose for which the instrument was acquired. This classification determines the manner in which the financial instrument will be valued after initial recording, as described below. Financial assets valued at fair value via the income statement This category consists of two sub-groups: financial assets held for trading and other financial assets that the Company had initially designated on initial rec- lated impairment losses. Impairment losses of goodwill are not reversed. Profit ognition as an asset to be measured at fair value trough the income statement or loss on the sale of a unit includes the remaining carrying value of goodwill (according to the so-called Fair Value Option). Fair Value Option is used in order referring to the unit sold. Goodwill is distributed to cash-generating units upon to reduce mismatch between valuation and accounting of financial assets. (i.e. testing of any write-down requirement. accounting mismatch). Financial instruments in this category are continually 30 sirius international insurance corporation – annual report 2014 Note 1 – Cont. valued at fair value, with changes in value recorded in the income statement. The first sub-group includes derivatives with a positive fair value. The first Financial guarantees Financial guarantee agreements are recorded as insurance contracts in ac- sub-group includes derivatives with a positive fair value. The second sub-group cordance with the accounting principles described in the section Accounting of consists of financial investments in bonds and other interest-bearing securities insurance contracts, above. along with shares and participations, with the exception of shares in subsidiar- ies or associated companies. Calculation of fair value Financial instruments listed on an active market For financial instruments listed on an active market, fair value is determined Write-downs of financial instruments Impairment testing of financial assets At each reporting date, the Company assesses whether there exists any objective evidence indicating that a financial asset or group of assets requires impairment as a consequence of one or several events occurring after the asset on the basis of the asset’s listed bid rate at balance sheet date, with no added is reported for the first time and that these loss-making events have an impact transaction costs (e.g. commission) at the time of acquisition. A financial on the estimated future cash flows from the asset or group of assets. If there is instrument is considered to be listed in an active market if listed prices are objective evidence indicating that an impairment requirement may exist, the as- easily accessible on a stock exchange, with a trader, broker, trade association, sets in question are considered to be doubtful. Objective evidence is constituted company supplying current price information or supervisory authority and both of observable conditions which have arisen and which have a negative these prices represent actual and regularly occurring market transactions un- impact on the possibility of recovering the acquisition cost, and of significant or der business-like conditions. Possible future transaction costs from a disposal extended reductions of the fair value of a financial investment classified as an are not considered. These instruments are included in the balance sheet items available-for-sale financial asset. Shares and participations and Bonds and other interest-bearing securities. The predominant proportion of the Company’s financial instruments has been assigned a fair value with prices quoted on an active market. Reversal of impairment An impairment is reversed if an indication exists both that the impairment requirement no longer exists and that a change has taken place in the Financial instruments not listed on an active market If the market for a financial instrument is not active, the Company establishes assumptions forming the basis of the estimation of the impaired amount. The impairment of loans receivable and account receivables, recorded at amortized the fair value by means of various valuation techniques. As far as is possible, cost, is reversed if a later increase of the recoverable amount can be objectively the valuation methods employed are based on market data, while company-spe- related to an event occurring after the impairment has been performed. cific information is used to the least degree possible. The Company regularly The impairment of interest-bearing instruments, classified as availa- calibrates valuation methods and tests their validity by comparing the outcome ble-for-sale financial assets, is reversed via Other comprehensive income if of the valuation methods with prices from observable current market transac- fair value increases and this increase can objectively be related to an event tions in the same instrument. occurring after the write-down was carried out. The total effect in the Income Statement for the year, and the values in the December 31, 2014 balance sheet, for financial instruments valued at fair value by using valuation techniques based on assumptions that are neither supported by LEASED ASSETS All lease agreements are classified and recorded in the Group and Parent Com- the prices from observable current market transactions in the same instruments, pany as operational leases. In operational leasing, the leasing fee is expensed nor based on available observable market information, is disclosed in Note 18. over the duration of the lease, on the basis of the benefit received, which can differ from the amount paid as a leasing fee during the year. Loans receivables and accounts receivables Loans receivables and accounts receivables are non-derivative financial assets which are not listed on an active market and with fixed or determinable TANGIBLE ASSETS Tangible assets are recorded at acquisition value after deduction for accumu- payments. These assets are measured at amortized cost. Amortized cost is lated depreciation and any impairment, with a supplement for any appreciation. determined by using the effective interest method at time of acquisition. Loans In disposal or sale, gains and losses are recorded net in operating cost. Depre- receivables and accounts receivables are reported in the amounts which are ciation takes place systematically over the estimated useful lives of the assets. expected to be received, that is, after deductions for bad debt provisions. The Estimated useful lives for equipment such as cars, furniture and computer major posts are Interest bearing investments emitted by, and loans to, group equipment amounts to 3 - 10 years. companies and Other debtors. Available-for-sale financial assets The category available-for-sale financial assets include financial assets not classified in any other category or financial assets that the Company has 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 initially chosen to classify in this category. The holding of bonds and other inter- indication of an impairment requirement exists, the asset’s recoverable amount est-bearing securities is recorded here. Assets in this category are continuously is estimated in accordance with IAS 36. valued at fair value with changes in value recorded in other comprehensive An impairment loss is recognized when the reported value of an asset or income, except for changes in value due to impairment or to foreign exchange cash-generating unit exceeds its recoverable amount. An impairment loss is rate differences on monetary items recorded in the income statement. Fur- recognized in the income statement. The impairment of assets related to a thermore, interest on interest-bearing instruments is recorded in accordance cash-generating unit is primarily allocated to goodwill. The proportional impair- with the effective interest method in the income statement. As regards these ment of other assets included in the unit is subsequently performed. instruments, any transaction costs will be included in the acquisition value The recoverable amount is the highest of fair value less selling expenses and when initially reported, and will, thereafter, be assessed on an ongoing basis at value in use. In the calculation of value in use, future cash flow is discounted by fair value, to be included in other comprehensive income, until that point in time a discount factor that considers the risk-free interest rate and the risk associat- the instruments in question mature or are disposed. At disposal of the assets, ed with the specific asset. the accumulated profit/loss is recorded in the income statement. A long-term approach forms the basis for investments in this category, where the yield granted by these instruments at the time of investment is of Reversal of impairment An impairment is reversed if an indication exists both that the impairment significance for which investments shall be made. Other financial liabilities Borrowings and other financial liabilities, for example, accounts payable, are 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, the impairment of goodwill is never reversed. Reversals are only performed to the degree that the asset’s reported value after reversal does not exceed the included in this category. These liabilities are valued at fair value including reported value that should have been reported, with deduction for depreciation transaction costs and are subsequently accounted at amortized cost. or amortization when appropriate, if no impairment had been carried out. 31 sirius international insurance corporation – annual report 2014 Note 1 – Cont. DIVIDENDS Dividends are recorded as liabilities after approval of the dividend by the 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 financed through payments to insurance companies or managed funds. These payments are determined based on periodic actuarial calculations. The Group 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. 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 to Parent Company’s financial statements, unless stated otherwise. 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 Goodwill Goodwill represents the difference between acquisition cost for business acqui- plan. A characteristic of defined benefit plans is that they indicate a level for the sitions and the fair value of acquired assets, assumed liabilities and contingent pension benefit an employee receives after retirement, usually based on one or liabilities. In the Parent Company, goodwill is amortized in accordance with several factors, such as age, duration of employment and salary. the Swedish Annual Account Act and is reported in the income statement on The liability reported in the balance sheet regarding defined benefit pension a straight-line basis over the estimated useful life of the asset. The estimated plans is the current value of the defined benefit obligation at the end of the useful life is reviewed annually. The estimated useful life for goodwill, and period, reduced with the fair value of the managed assets, with adjustments for goodwill arising from the purchase of the net assets of a business, amounts to actuarial gains and losses. The defined benefit pension plan obligation is calcu- 20 years. Amortization which deviates from plan is handled as an appropriation lated annually by independent actuaries applying the so-called projected unit and is reported under the heading Difference between reported depreciation/ credit method. The current value of the defined benefit obligation is determined amortization and depreciation/amortization according to plan. through discounting of expected future cash flows, using interest rates deter- mined by current market interest rates. The market rates take into account the caracteristics of the defined pension obligaton, both in terms of duration and the currency in which the remuneration will be paid. Subsidiaries and associated companies The Parent Company records participations in subsidiaries and associates according to the cost method. Only dividends which have been received are The service cost for current year is recognized in the Income Statement. recognized as income, provided that such dividends derive from profits earned Costs referring to service during earlier periods are reported directly in the subsequent to the acquisition. Dividend amounts exceeding this earned profit income statement, unless the changes in the pension plan are conditional on are considered as repayment of the investment and reduce the carrying value the employee remaining employed during a given period (earning period). In of the participations. this case, the cost referring to service during earlier periods is distributed on In the Parent company’s financial statements transaction costs are capital- a straight-line basis over the earning period. Actuarial gains and losses on the ized in the balance sheet and are added to the total acquisition amount booked defined benefit obligation and the fair value on the plan assets are recognized as shares in subsidiaries. In the consolidated accounts transaction costs are in Other comprehensive income (OCI). expensed according to IFRS 3. 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 Anticipated dividends Anticipated dividends from subsidiaries are recorded in those cases in which the employees born 1971 or earlier are covered by defined benefit plans and, thus, Parent Company has the sole right to make decisions regarding the amount of form part of the FTP2. the dividend and the Parent Company has reached a decision on the dividend’s Furthermore, there are two variations of retirement earlier than at the age amount before the Parent Company has published its financial statements. of 65. Employees born 1955 and earlier have the possibility to retire between the ages of 62 and 65 according to local agreement. Staff employed before January 1, 2004 have the right to retire from the age of 64. These plans are Taxes Untaxed reserves are recorded in the Parent Company including deferred in- also defined benefit plans and are reflected in financial statements of both the come tax liabilities. However, untaxed reserves in the consolidated accounts are Group and the Parent Company. allocated between deferred income tax liabilities and shareholders’ equity. For defined contribution pension plans, the Group pays fees to publicly or privately administered pension insurance plans on an obligatory, contractual or voluntary basis. The Group has no further payment obligations when all fees are Pensions The Parent Company applies a different form of reporting of defined benefit paid. The fees are reported as personnel costs at the point in time at which they pension plans than stipulated in IAS 19. The Parent Company’s reporting of fall due for payment. Prepaid fees are reported as an asset to the extent that defined benefit pension plans follows the Pension Obligations Vesting Act and cash repayment or reduction of future payments may benefit the Group. the regulations of the Swedish Financial Supervisory Authority, as it is stated Remuneration upon termination of employment Remuneration upon termination of employment is payable when an employee’s employment is terminated by the Group before the normal retirement age or when an employee voluntarily accepts the termination of employment in exchange for such remuneration. The Group reports severance payments when it is demonstrably obliged to terminate employees’ employment in accordance with a detailed formal plan, without possibility of revocation. In the case that in RFR 2 that it is not necessary to apply the regulations in IAS 19 regarding defined benefit pension plans in legal entities. Pension costs are reported as Operational expenses in the Parent Company’s income statement and a provi- sion referring to individuals with the option of retiring at the ages of 62 and 64 is found on the line Pension provisions in the Parent Company’s balance sheet. 32 sirius international insurance corporation – annual report 2014 Note 1 – Cont. Appropriations and untaxed reserves Appropriations and untaxed reserves are only recorded in the Parent Company. The provisions for each financial year are equivalent to 75% of the technical surplus in the credit insurance operations. However, in the consolidated balance Taxation legislation in Sweden gives companies the option of decreasing sheet, the Equalization provision is allocated into deferred tax liabilities and taxable income for the year by making provisions to untaxed reserves. When shareholders’ equity. applicable, untaxed reserves are set off against fiscal loss deductions or be- come subject to taxation upon resolution. In accordance with Swedish practice, changes in untaxed reserves are recorded in the income statement. Provisions Group contributions and shareholders’ contributions for legal entities The Company reports group contributions and shareholders’ contributions in made to untaxed reserves are recorded in the income statement under the accordance with the Swedish Financial Reporting Board (RFR2). heading Appropriations. The accumulated value of the provisions is recorded in Shareholders’ contributions are recorded directly against shareholders’ the balance sheet under the heading Untaxed Reserves. equity in the receiving entity and in shares and participations in the entity A total of 22% of the untaxed reserves can be considered as a deferred tax providing the contribution, to the extent that no impairment is required. liability and 78% as shareholders’ equity. The deferred tax liabilities can be Group contributions are recorded according to their financial significance. described as an interest-free liability with a non-defined duration. In the group This implies that group contributions provided and received for the purpose of accounts, 22% of the untaxed reserves are allocated to deferred tax liabilities minimizing the Group’s total taxes are recorded directly against retained earn- and 78% to shareholders’ equity. In an assessment of financial strength, the to- ings, with a deduction for the current tax effects of the contribution. tal value of the untaxed reserves is considered risk capital, as any losses can be Group contributions which can be seen as the equivalent of a dividend are covered, to a large extent, by the dissolution of untaxed reserves without taxes reported as a dividend. This implies that group contributions received and their becoming payable. The largest item attributable to untaxed reserves refers to current tax effects are recorded in the income statement. Group contributions the safety reserve. The safety reserve forms a collective security-conditioned provided and their current tax effects are recorded directly against retained reinforcement of the technical provisions. Accessibility is limited to loss cover- earnings. In the receiving entity, group contributions which can be seen as the age and otherwise requires official authorization. equivalent of a shareholders’ contribution are directly recorded in retained Equalization provision The Parent Company’s balance sheet includes an Equalization provision within Technical provisions, and any changes for the period in this provision are reported in the income statement. The amount of the provision is calculated as the equivalent of 150% of the highest net premium income for Class 14, credit insurance, with equivalent reinsurance, for the five most recent financial years. earnings, with consideration for current tax effects. The contributor records the group contribution and its current tax effects as investments in participations in the Group companies, to the extent that impairments are not required. 33 sirius international insurance corporation – annual report 2014 34 sirius international insurance corporation – annual report 2014 Note 2 – Information on risks Sirius’ functions for risk control and compliance are responsible for the inde- pendent monitoring of Sirius’ risks. The functions submit quarterly risk reports and compliance reports to the CEO, the Management Group and to the Board of Directors. Additionally, ad hoc reporting is done when deemed necessary. RISK MANAGEMENT The company’s Enterprise Risk Management, ERM, is at the heart of Sirius’ Internal Audit fulfils an important role in the independent evaluation of risk management and control systems. This includes the evaluation of the reliability thinking. Sirius defines ERM as the discipline by which the company identifies, of reporting, the effectiveness and efficiency of operations, and compliance assesses, controls, monitors, and discloses risks from all sources for the pur- with laws and regulations. The Internal Audit department reports directly to the pose of increasing Sirius’ short- and long-term value to its stakeholders. Board of Directors. ERM is an ongoing process with the objective of creating a risk management Sirius’ ultimate owner is listed on the New York Stock Exchange and, con- culture that emanates from top management and which permeates throughout sequently, is required by the Sarbanes-Oxley Act, Section 404, to express an the entire organization. Sirius strives to maintain a risk culture where employ- opinion on the effectiveness of internal control over financial reporting execut- ees are aware of and measure, assess and communicate risk as part of their ed during the year. As part of this assessment, a thorough documentation and responsibilities. Management’s role includes communicating, implementing, evaluation of all processes and controls leading up to the annual report have monitoring and fostering this culture. been undertaken. This work has enabled Sirius to demonstrate compliance with the requirements of the Act. 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 all 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. The aim is 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 expressed either in quantitative terms (e.g., an aggregate risk limit for windstorms in Europe) or in qualitative terms (e.g., in relation to operational risk). From these overall risk 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/moderate risk taking and adequate capitalization — Reduce risk by proper risk selection and active portfolio diversification — All insurance transactions are expected to yield positive technical results — Active use of retrocession as part of business and capital planning — Positive investment returns through a diversified portfolio of high quality debt and equity investments — Strong accumulation control — Strong and independent control functions — Motivate employees to further develop their risk management capabilities 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 underwriting decision shall comprise the basics of all underwriting. Other underwriting guiding principles include diversification, strong accumulation controls and an active use of rein- surance 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, active use of retrocession or through declining to accept such business. If a larger, catastrophic event occurs, simultaneously impacting a large number of cedants, this may result in a single loss that could offset the 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 RISK GOVERNANCE The risk management processes within Sirius are supported by a risk man- 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 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 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 — Quantification and subsequent monitoring of exposures 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 annually and updated when appropriate. — 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 inspections/tests, in detail ensuring they use sufficient control. 35 sirius international insurance corporation – annual report 2014 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 financial and has a centralized unit responsible for the purchasing and administration impact (“NFI”) that third-party models predict it would suffer based on the of its outwards reinsurance. The implementation of reinsurance purchases is 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 and reflect the best knowledge available to Sirius. Acknowledged and appropri- this system the company’s exposure is measured via a number of predefined ate methods are used in these estimations. 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-Fer¬- quake losses per country and/or zone. guson method and the Benktander method. A combination of benchmarks and underwriting judgment is used for the most recent years. Concentrations and sensitivity analysis Through the use of the simulation models, discussed in the previous section, the Regarding run-off results and claims development from previous years please refer also to Note 4 Claims incurred and Note 23 Claims Outstanding, company can obtain an estimation of catastrophe risk, both prior to and after where a specification of claims costs and expenses relating to the current year retrocession. and prior years is made. The table below shows a summary of the manner in which Sirius analyzes The Group has asbestos and environmental claims amounting to MSEK 1,498 catastrophe risks, divided by geographical area and return periods. Sirius ana- (1,240) net in the Group balance sheet. These claims are actively managed and lyzes catastrophe risks each quarter during the financial year. The figures show are subject to in depth analyses, the latest during the second half of 2013. The the situation at the end of Q4 2013 and 2014. increase during 2014 is to a large extent driven by changes in fx, but also by a negative runoff result. SENSITIVITY ANALYSIS — LOSSES DIVIDED BY GEOGRAPHICAL AREA AND RETURN PERIODS FOR THE GROUP 2014 2013 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 4,345 3,923 3,192 1,458 3,993 3,846 5,054 4,687 4,063 1,803 4,756 4,573 3,691 3,242 3,026 1,595 3,234 3,134 4,243 3,605 3,987 2,039 3,665 3,558 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 2014. 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. 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 2014 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 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 5,694 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 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 4,757 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 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 727 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 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 653 1) For reconciliation against Balance Sheet, see Note 23. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TOTAL 3,502 4,251 4,029 4,076 4,070 4,067 17,326 17,340 17,294 17,271 17,271 16,891 380 2,905 3,562 3,354 3,418 3,412 3,409 9,442 9,078 8,959 8,860 8,860 8,553 307 2,785 3,497 5,876 5,806 6,732 9,763 8,427 5,883 5,861 5,861 5,577 285 2,488 3,159 3,272 3,243 3,215 5,736 5,480 5,428 5,406 5,406 5,132 274 3,929 4,728 4,715 4,622 8,342 8,308 8,301 8,280 8,280 7,998 281 3,476 4,214 4,175 4,083 7,992 7,620 7,243 7,220 7,220 6,968 253 3,983 4,951 4,940 8,418 8,383 8,365 8,325 8,325 7,991 334 3,644 4,364 4,315 8,072 7,357 7,244 7,214 7,214 6,921 293 3,862 5,576 8,491 8,352 8,283 8,199 8,199 7,908 291 3,336 4,330 7,375 6,971 6,908 6,842 3,250 8,077 7,949 7,900 7,735 7,735 7,153 582 2,663 7,353 7,126 7,084 6,914 4,666 6,074 6,250 5,910 5,910 5,496 413 4,197 5,686 5,645 5,308 3,259 4,316 4,090 4,090 3,246 844 2,999 3,717 3,453 3,175 4,722 2,779 4,722 2,672 2,779 569 2,050 2,210 13,364 2,277 3,301 1,986 6,842 6,577 265 6,914 6,423 490 5,308 4,951 357 3,453 2,787 666 3,301 1,813 1,488 1,986 357 1,629 10,779 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TOTAL 3,502 4,251 4,029 4,076 4,070 4,067 4,056 4,054 4,043 4,042 4,042 4,002 40 2,905 3,562 3,354 3,418 3,412 3,409 3,398 3,395 3,386 3,384 3,384 3,348 37 2,785 3,497 5,876 5,806 6,732 7,357 6,084 3,542 3,540 3,540 3,488 51 2,488 3,159 3,272 3,243 3,215 3,207 3,198 3,198 3,199 3,199 3,156 44 3,929 4,728 4,715 4,622 4,601 4,587 4,585 4,589 4,589 4,499 90 3,476 4,214 4,175 4,083 4,057 4,045 4,045 4,051 4,051 3,985 66 3,983 4,951 4,940 4,861 4,867 4,848 4,805 4,805 4,611 195 3,644 4,364 4,315 4,232 4,246 4,233 4,191 4,191 4,058 134 3,862 5,576 5,318 5,238 5,201 5,146 5,146 4,956 190 3,336 4,330 4,110 4,104 4,077 4,024 4,024 3,891 133 3,250 4,927 4,770 4,742 4,647 4,647 4,209 438 2,663 4,071 3,927 3,903 3,791 2,291 3,378 3,219 3,042 3,042 2,597 445 1,794 2,544 2,424 2,249 2,100 2,763 2,616 2,616 1,968 648 1,707 2,115 1,952 2,367 3,260 1,846 3,260 1,713 1,547 1,846 327 1,518 5,889 1,472 2,054 1,212 3,791 3,458 333 2,249 1,862 387 1,952 1,482 470 2,054 1,047 1,007 1,212 198 1,015 4,279 37 sirius international insurance corporation – annual report 2014 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 manage- ment of market risks. The development of the market risks is reported within the Currency and Market Risk group on a monthly basis. The group consists of risks, credit risks and liquidity risks. In order to limit and control the risk taking CFO’s and investment officers from Sirius International and Sirius America. The in the operations, Sirius’ Board of Directors, being ultimately responsible for Currency and Market Risk group is reporting to the Investment Committee of the internal control in the company, has determined guidelines for the financial Sirius. operations. The company’s investment operations during 2014 yielded a total return of The overall investment objective is to achieve consistent positive returns and 4.7 percent (3.6 percent in 2013), expressed in SEK. The duration in the port¬fo- to maximize long-term after-tax return on invested assets within prudent levels lio with interest-bearing investments at the end of 2014 was 2.1 years which was of risk, through a diversified portfolio of high-quality fixed income and equity slightly lower compared to 2013 (2.2 years). During the year, only minor chang- investments. es 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 Bonds and other interest- bearing securities Shares in associated companies Shares and participations — whereof venture capital companies Derivatives Cash and bank balances GROUP PARENT COMPANY 2014 2013 2014 2013 68.02 72.67 35.77 0.46 19.44 1.73 0.09 11.99 — 53.31 17.58 2.79 1.17 8.57 2.53 0.50 0.13 8.26 34.60 54.46 2.10 0.40 1.44 7.40 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 2014 Note 2 – Cont. Below, the company’s exposure and sensitivity to the respective market risks are described. The descriptions are made on the basis of the company’s re- Interest Rate Risk The company is exposed to the risk that the market value on its fixed-interest porting of the Traffic Light model to the Swedish FSA as per December 31, 2014 assets decreases as market interest rates increase, or alternatively, that the with its sensitivity analyses in the form of stress tests and subsequent capital market value increases as the interest rates decrease. The level of interest rate requirements. risk increases with the asset’s duration. The tables below illustrate, in absolute figures, the exposure to interest rate risk in accordance with the risk scenarios per the Traffic Light model as per December 31, 2014 and December 31, 2013. INVESTMENT ASSETS, INTEREST RATE RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS GROUP Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL PARENT COMPANY Assets in SEK Assets in EUR Assets in USD and other currencies TOTAL EXPOSURE (MSEK) SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2014 2,506 1,540 13,889 17,935 EXPOSURE (MSEK) 2014 2,056 1,540 3,374 6,970 2013 3,049 1,492 12,394 16,935 2013 2,059 1,467 3,038 6,564 2014 100 bp 100 bp 100 bp 2013 100 bp 100 bp 100 bp 2014 2013 60 40 297 397 77 41 263 381 SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2014 100 bp 100 bp 100 bp 2013 100 bp 100 bp 100 bp 2014 2013 53 40 102 195 56 40 83 179 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 be- decrease as a result of factors related to the external economic climate and low show the equity risk in accordance with the risk scenarios per the Traffic factors related specifically to the company in question. Equity risks are mainly Light model as per December 31, 2014 and December 31, 2013. INVESTMENT ASSETS, EQUITY RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS GROUP Foreign shares and participations Foreign subsidiaries and associated companies TOTAL PARENT COMPANY Foreign shares and participations Foreign subsidiaries and associated companies Total EXPOSURE (MSEK) SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2014 5,186 122 5,308 EXPOSURE (MSEK) 2014 3,544 7,103 10,647 2013 4,097 — 4,097 2013 2,027 5,854 7,881 2014 35 % 35 % 2013 35 % — 2014 1,815 43 1,858 2013 1,434 — 1,434 SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2014 35 % 35 % 2013 35 % 35 % 2014 1,240 2,487 3,727 2013 709 2,049 2,758 39 sirius international insurance corporation – annual report 2014 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, 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 5,230 12,837 2,328 2,716 15 — 1,505 1,315 156 —121 34 74 23,111 1,555 1,423 Technical provisions, net Total liabilities and provisions —10,500 —1,372 —10,500 —1,372 Net exposure before financial hedging with derivatives 12,611 183 —260 —260 1,163 2014 2013 USD EUR GBP Other USD EUR GBP Other — 264 285 128 677 —503 —503 174 3,937 11,940 1,282 2,141 19,300 -9,379 -9,379 9,921 29 1,519 164 159 1,871 -1,475 -1,475 396 —5 391 — 633 18 7 658 -264 -264 394 — 394 — 294 315 128 737 -498 -498 239 — 239 Nominal value currency forwards NET EXPOSURE AFTER FINANCIAL HEDGING WITH DERIVATIVES —4,666 7,945 —6 177 — — —3,860 1,163 174 6,061 In the table below, the effect on the company’s shareholders’ equity and The analysis below assumes that the changes in exchange rates do not affect income statement of two stress tests are shown: An unfavorable foreign other risk parameters, such as interest rate. The sensitivity analysis takes into exchange rate move of 25 basis points, in the respective foreign currencies consideration existing financial hedges with currency related derivatives. towards SEK and an unfavorable change to fx rates by 10 percent in the respective foreign currencies towards SEK. SENSITIVITY ANALYSIS PER CURRENCY GROUP 4 Change 25 basis points 1 0 2 Change 10% 3 Change 25 basis points 1 0 2 Change 10% USD 256 795 236 606 EUR GBP Other TOTAL 5 18 11 39 24 116 9 39 — 17 — 24 285 946 256 708 40 sirius international insurance corporation – annual report 2014 Note 2 – Cont. CREDIT RISK Credit risk, or counterparty risk, refers to the risk that the company will not Credit risk in investment assets Credit spread risk results from the sensitivity of the value of fixed income assets receive agreed payment and/or will make a loss due to the counterparty’s ina- to changes in the level or in the volatility of credits spreads over the risk-free bility to fulfill its obligations. A substantial portion of the credit risk to which the term structure. Assets sensitive to changes in credit spreads may also give rise to company is exposed, arises as a result of established reinsurance agreements. others risks, e.g. counterparty default risk, which is not covered below. The tables Credit risk in investment assets The credit risk in investment assets can be split into credit spread risk and counterparty risk. below show the credit spread risk in accordance with the risk scenarios per the Traffic Light model as per December 31, 2014 and December 31, 2013. INVESTMENT ASSETS, CREDIT SPREAD RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS EXPOSURE (MSEK) AVERAGE CREDIT SPREAD SCENARIO IMPACT CAPITAL REQUIREMENTS (MSEK) GROUP 2014 Assets with Credit risk – all currencies 13,087 2013 12,040 2014 2013 2014 2013 2014 2013 0.94 1.02 —3.0 % —2.9 % 397 343 PARENT COMPANY Assets with Credit risk – all currencies EXPOSURE (MSEK) 2014 4,523 2013 3,621 AVERAGE CREDIT SPREAD SCENARIO IMPACT 2014 2013 2014 1.07 1.12 —4.5 % 2013 —4.1 % CAPITAL REQUIREMENTS (MSEK) 2014 2013 205 147 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 2014 18,148 3,236 486 — 14,426 122 5,186 25 23,481 2013 16,935 4,365 — 466 12,104 — 4,097 273 21,305 2014 6,970 1,896 386 — 4,688 10,390 494 25 17,879 2013 6,564 2,925 — 366 3,273 10,330 399 273 17,566 41 sirius international insurance corporation – annual report 2014 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. GROUP 2014 Name of security Symetra Financial Corporation OneBeacon Insurance Group Swedbank Hypotek AB Discover Card Master Trust Total Capital Canada Ltd Ford Credit Floor Plan Master Ironshore Holding Santander Chase Issuance Trust American Express Credit Master Total PARENT COMPANY 2014 Type of security Market value (MSEK) % of financial assets Share Share Bond Bond Bond Bond Share Bond Bond Bond 2,016 923 491 322 287 284 280 269 258 256 8.36 3.83 2.03 1.33 1.19 1.18 1.16 1.11 1.07 1.06 5,386 22.32 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 Swedbank Hypotek AB Bond Sirius International Holdings (NL) B.V. Shares in Subsidiary Total Capital Canada Ltd Bond BE Reinsurance Ltd MLSSS Ltf GE Mortgage Securities Trust Porsche Coventry Bldg Society TOTAL Shares in Associated Company Share Bond Bond Bond 6,158 3,809 386 269 222 122 67 65 65 61 11,224 33.29 20.59 2.09 1.45 1.20 0.66 0.36 0.35 0.35 0.33 60.67 42 sirius international insurance corporation – annual report 2014 Note 2 – Cont. GROUP 2013 Name of security Type of security Market value (MSEK) % of financial assets 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. S.I. Holdings (Luxembourg) S.à r.l. Sirius International Holdings (NL) B.V. Shares in Subsidiary Shares in Subsidiary 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 43 sirius international insurance corporation – annual report 2014 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 2014 Not 2013 Not Bonds and other interest-bearing securities — Swedish government — Swedish mortgage institutions — Other Swedish institutions — Foreign governments — Other foreign issuers 22 100 100 0 20 13 26 18 33 — — — 78 24 — — — 1 — — — 1 22 40 — — — — — — 1 — — — — 1 100 100 100 0 100 100 29 100 100 0 24 17 23 18 29 — — — 76 18 — — — — — — — — 24 39 1 — — — — 1 1 — — — — 1 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 2014 3.88 95.84 0.28 100 GROUP 2014 17.93 71.20 9.46 1.41 100 GROUP 2014 18.04 2.71 0 79.25 100 2013 2.15 89.74 8.11 100 2013 16.77 69.22 13.77 0.24 100 2013 26.52 2.83 0 70.65 100 2014 7.61 92.26 0.13 100 PARENT COMPANY 2014 40.50 34.37 21.49 3.64 100 PARENT COMPANY 2014 27.20 5.54 0 67.26 100 100 100 100 0 100 100 2013 10.50 89.34 0.16 100 2013 32.13 35.89 0.61 31.37 100 2013 44.57 5.58 0 49.85 100 Credit risk on receivables with reinsurers The credit risk resulting from reinsurance ceded by Sirius can be divided into Ageing balances Receivables related to direct insurance as well as assumed and ceded rein- two separate components; reinsurers’ share of technical provisions as recorded surance 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 requirements Sirius’ Security Committee is responsible for managing the risk of reinsurer for bad debts provisions. insolvency. To mitigate this risk, the financial condition of our reinsurers is reviewed bi-annually and periodically monitored. The credit risk reserve for bad debts amounted, as per December 31, 2014, to MSEK 73 for the Group, whereof MSEK 31 at Sirius International (2013 MSEK 60 for the Group, MSEK 30 at Sirius International). 44 sirius international insurance corporation – annual report 2014 Note 2 – Cont. GROUP 2014 2013 Due for <1 Month 1-3 Months 4-6 Months 7-9 Months 10-12 Months >1 Year TOTAL Net receivables Net receivables 644 538 82 66 32 26 6 5 2 3 103 91 869 729 PARENT COMPANY Due for <1 Month 1—3 Months 4—6 Months 7—9 Months 10—12 Months >1 Year TOTAL 2014 2013 Net receivables Net receivables 149 124 33 23 23 18 2 2 1 2 40 58 248 227 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 7 (6) at December 31, 2014. 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 2014 2013 AAA AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 446 264 357 449 263 495 82 304 519 3,179 0 0 7 12 17 7 28 0 96 147 314 0 446 257 344 432 257 467 82 208 372 0 14 8 11 14 8 16 3 10 16 392 0 454 108 308 159 434 149 312 425 2,865 100 2,741 0 0 17 10 0 7 0 0 101 75 210 392 0 437 98 308 152 434 149 211 350 14 0 17 4 11 6 16 5 11 16 2,531 100 PARENT COMPANY Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2014 2013 AAA AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 0 240 199 321 210 512 78 113 519 2,192 0 0 7 12 0 0 0 0 0 147 166 0 0 233 187 321 210 512 78 113 372 2,026 0 0 11 9 15 10 23 4 5 23 100 0 0 238 108 308 47 497 148 133 425 1,904 0 0 9 10 0 0 0 0 0 74 93 0 0 230 98 308 47 497 148 133 350 1,811 0 0 13 6 16 2 26 8 7 22 100 45 sirius international insurance corporation – annual report 2014 Note 2 – Cont. Significant credit losses can potentially arise from unusually large and infre- quent events. The table below describes the assumed liabilities from Retrocessionaires (excluding costs for reinstatements) and the distribution of credit ratings for Sirius’ 2014 Retrocession Program. (The table represents the Parent Company since external reinsurance, at large, does not exist in other parts of the Group). STANDARD & POOR’S OR EQUIVALENT PARENT COMPANY Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2014 2013 AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 148 1,016 2,105 142 378 87 39 760 4,675 0 0 0 33 0 0 19 42 186 280 0 148 1,016 2,072 142 378 68 —3 574 4,395 0 3 23 47 3 9 2 0 13 100 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 LIQUIDITY RISK Liquidity risk is the risk that the company will have difficulties fulfilling payment sets and insurance liabilities. At the end of 2014 the duration of interest-bearing investment assets was 2.1 years (2.2 years at the end of 2013) and the duration obligations, mainly those related to insurance liabilities. Liquidity risk can also of insurance liabilities was 5.0 years (4.5 years at the end of 2013). The liquidity be expressed as the risk of loss or impaired earning potential as a result of the is monitored continuously and stress tests are performed for different scenar- company not being able to fulfill payment obligations in due time. Liquidity ios. The company’s claims payment capabilities are further strengthened with risks arise as assets and debts including derivatives instruments have different 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 as- Parent Company in respect of both financial assets and debts. 46 sirius international insurance corporation – annual report 2014 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL ASSETS (CONTRACTUAL INFLOWS) GROUP 2014 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 TOTAL GROUP 2013 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 — — — 3,198 — — — — 853 1,971 8,228 6,883 — — — 148 659 — — — — — — 1,532 114 188 — — — — 40 84 1 — — — — — 22 — — 122 5,186 — 44 72 — — 17,935 122 5,186 3,198 192 2,303 220 189 3,198 1,660 3,805 8,353 6,905 5,424 29,345 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — 1,998 — — — — 1,998 449 1,306 9,285 5,420 — — — 305 9 — 763 — — 85 1,516 25 186 3,118 — — — — 89 2 — — — — 21 — — 4,097 — 20 48 — — 16,460 4,097 1,998 105 1,869 144 188 9,376 5,441 4,165 24,861 LIQUIDITY PROFILE — FINANCIAL ASSETS (CONTRACTUAL INFLOWS) PARENT COMPANY 2014 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL PARENT COMPANY 2013 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration 2,514 3,133 2,310 11,085 21,369 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 TOTAL — — — 1,525 — — — — 1,525 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 — — — — — — — — 183 — — 802 — — — — — — — 619 1,010 3,031 2,310 — — — — 1,376 4 124 — — — — 40 61 1 — — — — — — — 86 577 4,221 1,680 — — — — 1,430 10 117 2,134 — — — — — 73 2 — — — — — — — — 10,390 494 — 36 5 160 — 6,970 10,390 494 1,525 36 1,604 225 125 TOTAL 6,564 10,330 399 1,105 16 1,414 250 119 — 10,330 399 — 16 —16 167 — TOTAL 1,105 86 4,296 1,680 10,896 20,197 47 sirius international insurance corporation – annual report 2014 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL DEBTS (CONTRACTUAL OUTFLOWS) GROUP 2014 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL GROUP 2013 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL PARENT COMPANY 2014 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 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — — — — — — — — — 97 348 193 348 986 — — 2 135 137 — — 14 22 36 8 109 — 6 123 105 457 209 511 1,282 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 — — — — — — — — — — — 396 122 238 756 — — — 73 73 — — 14 — 14 4 109 43 6 162 4 505 179 317 1,005 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 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 2014 2013 812 791 2,485 2,397 4,348 4,429 4,115 3,466 11,760 11,083 403 418 1,247 1,276 2,013 2,081 1,230 1,122 4,893 4,897 48 sirius international insurance corporation – annual report 2014 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 as risk managers. The function for Risk Control is responsible for developing return 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 manage these risks. these 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 targetss — 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- tion lies with all employees. Compliance risks are identified by all employees on an ad hoc basis and more formally through the reviews. The Compliance function supports the organization and processes by informing, advising, and monitoring compliance issues throughout the Group. SOLVENCY II Sirius is preparing for compliance with the upcoming Solvency II regulation. The company has a project in place with several defined subprojects. The subpro- jects are covering all three Pillars. The project has a dedicated Project Manager and the company’s Group Chief Financial Officer (Group CFO) is the chairman of the Steering Group and the sponsor of the project. Solvency II is discussed regularly at Board of Directors (Board) meetings. The Group CFO reports to the Board on Solvency II matters, thus ensuring the Board’s involvement and oversight over the Solvency II project. Furthermore, the company uses the internal ERC model for stress testing and scenario analysis and it compares results from the internal ERC mod- el with the Solvency II Standard Formula SCR. Sirius aims at maintaining a capital base corresponding to not less than an A-rating level as defined by the rating agencies. Sirius has during 2014 continued with the Internal Model pre-applica- tion review process with the Swedish FSA. By participating in this pre-ap- plication review process, the company will be well prepared before the final application shall be submitted. The ultimate goal is to gain approval to use the company’s Internal Economic Risk Capital Model for the calcu- lations of the solvency capital requirements under Solvency II. As a predecessor to Solvency II, the Swedish FSA has established a lo- cal solvency regulation, the Traffic Light system. It takes into account the company’s risks in the areas financial risks, insurance risk and operating expense risk. The model results in a total capital net requirement which is compared to solvency capital (the so called “capital buffer”) in order to 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, 2014 and 2013. TOTAL CAPITAL REQUIREMENT ACCORDING TO THE TRAFFIC LIGHT MODEL Total capital net requirement Capital buffer SURPLUS 2014 4,215 16,528 12,313 2013 3,256 14,889 11,633 FINANCIAL STRENGTH RATING The financial strength of Sirius has during 2014 been rated by Standard & Poor’s and A. M. Best. GROUP AND PARENT COMPANY Financial Strength Rating Outlook 2013 S&P 1) A— Stable A.M. Best 2) A Stable 2012 S&P 1) A— Stable A.M. Best 2) A 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. 49 sirius international insurance corporation – annual report 2014 GROUP PARENT COMPANY 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 2014 6 249 1,342 6,040 7,637 —1,707 5,930 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 CLAIMS INCURRED FOR PREVIOUS 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) TOTAL CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS TOTAL CLAIMS INCURRED 2014 Gross Ceded —526 43 —1,142 —909 —186 —2,720 Gross —3,917 —47 1,660 1,546 —758 —3,478 149 0 361 197 0 707 2014 Ceded 841 5 -336 —186 324 1,031 2013 5 355 925 6,160 7,445 —1,716 5,729 Net —377 43 —781 —712 —186 2014 6 130 686 4,088 4,910 —1,629 3,281 2013 Gross Ceded —486 35 —1,366 —970 —183 150 0 522 164 0 836 —2,013 —2,970 Net —3,076 —42 1,324 1,360 —434 —2,447 Gross —4,258 —43 1,468 4,709 1,876 —1,094 2013 Ceded 681 30 -432 2,769 —2,490 — 1,654 TOTAL CLAIMS PAID GROUP Claims paid Loss portfolios Claims handling expenses TOTAL CLAIMS PAID 50 2014 2013 Gross Ceded Net Gross Ceded —4,443 —4 —186 —4,633 990 5 0 995 —3,453 1 —186 —3,638 —4,744 -8 —183 —4,935 831 30 0 861 2013 4 170 625 4,374 5,173 —1,750 3,423 Net —336 35 —844 —806 —183 —2,134 Net —3,577 —13 1,036 1,940 —614 —2,748 Net —3,913 22 —183 —4,074 sirius international insurance corporation – annual report 2014 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 CLAIMS INCURRED FOR THE YEAR’S OPERATIONS 2014 Gross Ceded 518 637 1,155 25 11 36 2014 PARENT COMPANY Gross Ceded 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 —355 43 —932 —505 —149 —1,898 123 0 335 154 0 612 Net 543 648 1,191 Net —232 43 —597 —351 —149 2013 Gross Ceded 102 3,739 3,841 90 —2,605 —2,515 2013 Gross Ceded —366 35 —1,246 —544 —141 —1,286 —2,262 CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS PARENT COMPANY Gross Ceded Net Gross Ceded 2014 2013 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 2,298 —47 1,187 847 —311 TOTAL CLAIMS INCURRED —2,209 740 6 —295 —152 299 911 —1,558 —41 892 695 —12 —1,298 —2,201 —43 1,002 3,460 2,218 —44 147 0 522 144 0 813 550 31 —292 —2,681 —2,392 TOTAL CLAIMS PAID PARENT COMPANY Gross Ceded Net Gross Ceded 2014 2013 Claims paid Loss portfolios Claims handling expenses TOTAL CLAIMS PAID 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 —2,653 —4 —149 —2,806 863 6 0 869 2014 Gross Ceded 255 342 597 40 2 42 —1,790 2 —149 —1,937 Net 295 344 639 Net 192 1,134 1,326 Net —219 35 —724 —400 —141 —1,449 Net —1,651 —12 710 779 —174 Net —1,870 23 —141 —1,988 —1,579 —1,623 —2,567 —8 —141 —2,716 697 31 0 728 2013 Gross Ceded Net —244 2,916 2,672 230 —2,537 —2,307 —14 379 365 51 sirius international insurance corporation – annual report 2014 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 2014 —1,711 10 —898 381 —2,218 GROUP 2014 —2,218 —186 —89 —3 —53 TOTAL OTHER OPERATING COSTS —2,549 TOTAL OPERATING COSTS PER TYPE Direct and indirect personnel costs Premises costs Depreciation/amortization Other expenses related to operations TOTAL OTHER OPERATING COSTS GROUP 2014 —816 —68 —59 —1,607 —2,549 2013 —1,538 12 —887 436 —1,977 2013 —1,977 —183 —86 —2 —43 —2,292 2013 —752 —67 —59 —1,413 —2,292 2014 —973 —9 —570 344 —1,208 PARENT COMPANY 2014 —1,208 —149 —48 —3 — —1,408 PARENT COMPANY 2014 —547 —46 —55 —760 —1,408 2013 —952 —21 —541 428 —1,086 2013 —1,086 —140 —43 —2 —2 —1,273 2013 —492 —44 —56 —681 —1,273 52 sirius international insurance corporation – annual report 2014 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 GROUP 2014 2013 2014 PARENT COMPANY 208 326 38 — 316 142 4 136 52 88 344 64 — — 264 99 119 148 1,126 756 146 18 — 379 15 — 91 52 2013 1,667 154 19 — — 130 — 114 148 TOTAL RETURN ON CAPITAL, INCOME 1,222 In the group accounts, gains from acquisition of subsidiareis have been realized and accounted in accordance with IFRS 3. Note 7 – Unrealized gains and losses on investments Foreign shares and participations Bonds and other interest—bearing securities Derivative financial instruments Gain on Currency TOTAL UNREALIZED GAINS AND LOSSES ON INVESTMENTS GROUP 2014 332 —14 —742 512 88 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 Group and associated companies Goodwill impairment TOTAL GROUP 2014 —3 —89 —4 — — —264 —360 2013 614 —128 —53 149 582 2013 —2 —86 —2 —165 — — —255 1,457 2,232 PARENT COMPANY 2014 —14 — —742 228 —528 PARENT COMPANY 2014 —3 —48 —4 — — —120 —175 2013 —52 — —53 170 65 2013 —2 —43 —2 —165 —701 — —913 53 sirius international insurance corporation – annual report 2014 Note 9 – Net profit or net loss per category of financial instruments FINANCIAL ASSETS GROUP 2014 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL PARENT COMPANY 2014 Shares and participations Derivative financial instruments Bonds and other interest-bearing securities Deposits with cedants Cash and bank balance TOTAL 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 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 643 — 143 — — 786 — 96 — — — 96 — — 342 — — 342 — — — 13 6 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 757 — — — — 757 — 52 — — — 52 — — 342 — — 342 — — — 11 7 18 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 TOTAL 643 96 485 13 6 1,243 TOTAL 757 52 342 11 7 1,169 TOTAL 685 148 199 12 17 1,061 TOTAL 1,745 148 92 11 8 2,004 The amounts in the table above constitute a specification of the amounts re- Currency exchange gains/losses amount to 137 (-83) for the Group, of which 514 garding financial instruments which are reported in the income statement as (i) (-168) refer to exchange rate gains/losses on financial assets. Exchange rate return on capital, income, (ii) unrealized gains, (iii) return on capital, expenses, gains/losses on liabilities and other assets amount to -377 (85). (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 2014 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 2014 —279 20 —239 —498 2013 —79 —9 —316 —404 2014 —234 — 42 —192 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 2014 —22 % —2.6 % 0.1 % —4.6 % 6.0 % —0.1 % 0.4 % —22.8 % 2013 —22 % —2.5 % —0.1 % —7.2 % 13.7 % —0.2 % 1.2 % —17.1 % PARENT COMPANY 2014 —22 % — — —2.2 % 12.0 % — — —12.2 % REPORTED DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES GROUP 2014 2013 2014 2013 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 67 208 40 — — 2,190 2,505 —362 2,143 53 211 10 — 4 2,268 2,546 —222 2,324 — — —73 —270 —2,307 — —2,650 362 —2,288 — — —57 —199 —2,306 — —2,562 222 2,340 NET 2014 67 208 —33 —270 —2,307 2,190 —145 — —145 2013 —97 1 22 —74 2013 —22 % — — —12.1 % 27.9 % — 0.7 % —5.5 % 2013 53 211 —47 —199 —2,302 2,268 —16 — —16 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 2014 2013 2014 2013 DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES Personnel-related provisions Other provisions Surplus value of securities DEFERRED TAX BALANCES 33 8 — 41 26 8 — 34 — — — — — — —47 —47 NET 2014 33 8 — 41 2013 26 8 —47 —13 55 sirius international insurance corporation – annual report 2014 Note 10 – Cont. UNRECOGNIZED DEFERRED TAX ASSETS The Group has unrecognized deferred tax assets related to tax loss carry-forwards 359 (360). 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 2014 2013 2014 2013 PARENT COMPANY —16 — —239 12 98 —145 246 6 —316 48 — —16 —13 — 42 12 — 41 —78 — 22 43 — —13 Taxes recognized in other comprehensive income mainly refer to available-for-sale financial assets 12 (44). 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, 2013 Acquisition for the year Currency revaluation effects CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Acquisition for the year Disposal for the year Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2014 Accumulated amortization and impairment Opening balance January 1, 2013 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Depreciation for the year Impairment for the year Disposal for the year CLOSING BALANCE DECEMBER 31, 2014 Carrying amount Per January 1, 2013 PER DECEMBER 31, 2013 Per January 1, 2014 PER DECEMBER 31, 2014 168 41 — 209 209 48 0 — 257 —114 —32 —146 —146 —31 — 0 —177 54 63 63 80 572 — — 572 572 — —485 — 87 —281 — —281 —281 — —265 485 —61 291 291 291 26 69 34 —1 102 102 — —2 20 120 — — — — — —2 — —2 69 102 102 118 810 75 —1 883 883 48 —487 20 464 —395 —32 —427 —427 —31 —267 485 —240 415 456 456 224 168 41 — 209 209 48 0 — 257 —114 —32 —146 —146 —31 — 0 —177 54 63 63 80 460 — — 460 460 — —373 — 87 —261 —28 —289 —289 —29 —120 373 —65 199 170 170 22 628 41 — 669 669 48 —373 — 344 —375 —60 —435 —435 —60 —120 373 —242 253 233 233 102 56 sirius international insurance corporation – annual report 2014 Note 11 – Cont. Amortization and impairment for the year is included in the following rows of the income statement for 2013: Operating costs Other costs TOTAL Amortization for the year is included in the following rows of the income statement for 2014: Operating costs Other costs Investment expenses 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 —32 — —32 —31 — — —31 — — — — — —265 —265 — — — — —2 — —2 —32 — —32 —31 —2 —265 —298 —32 — —32 —31 — — —31 — —28 —28 — —29 —120 —149 —32 —28 —60 —31 —29 —120 —180 The Group and Parent Company goodwill derive from the acquired operation in has been made which has led to impairment of acquisition goodwill of MSEK 265 Belgium, which is an identifiable cash generating unit. The amounts refer both in the Group and MSEK 120 in the Parent Company. to acquisition- and asset deal goodwill and are annually tested for impairment. IT-related intangible assets include acquired licenses and capitalized expens- The projected future cash flows have been discounted to present value and es for development of business-critical systems. Other intangible assets mainly are based on a conservative assessment without any growth of the unit’s include insurance licenses, for a number of American states, identified at the earnings, in the insurance operations, based on historical and future earning acquisition of subsidiaries. The licenses have been valued at fair vaule by an patterns. The forecasted profit margin is currently equal to a combined ratio independent advisory firm and are deamed to have an indefinite useful life and of approximately 95%. Additional charges for cost of capital have been added are tested annually for impairment. representing deployed capital. The discount rate has been determined based on For the Group, no depreciation is made on goodwill. For further information a market rate of return, i.e. WACC. During the year a review of used parameters regarding depreciation, see Note 1, Accounting principles. Note 12 – Land and buildings GROUP AND PARENT COMPANY Accumulated acquisition cost Opening balance January 1, 2013 Acquisitions CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Acquisitions CLOSING BALANCE DECEMBER 31, 2014 Accumulated depreciation Opening balance January 1, 2013 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Depreciation for the year CLOSING BALANCE DECEMBER 31, 2014 Carrying amount Per January 1, 2013 PER DECEMBER 31, 2013 Per January 1, 2014 PER DECEMBER 31, 2014 30 1 31 31 1 32 -17 -1 -18 -18 -2 -20 13 13 13 12 The Parent Company holds three properties, located in Sweden and Belgium. Sirius International accounts for the properties, including building supplies, according to the acquisition value method and the capitalized expenses are depreciated over 50 and 10 years, respectively. No depreciation is performed on land. 57 sirius international insurance corporation – annual report 2014 Note 13 – Shares and participations in group companies NAME OF SUBSIDIARY REGISTERED OFFICES, COUNTRY PARTICIPATING INTEREST, % 2014 2013 Passage2Health Ltd. London, Great Britain Sirius Rückversicherungs Service GmbH Hamburg, Germany Sirius Belgium Réassurances S.A. Liège, Belgium Sirius International Holdings (NL) B.V. Amsterdam, The Netherlands 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 Capital contributions Repayment of paid-up capital End of year Accumulated impairments Beginning of year Impairment for the year End of year CARRYING AMOUNT DECEMBER 31 100 100 100 100 100 100 100 100 100 PARENT COMPANY 2014 11,647 — 1,161 —1,223 11,585 —1,317 — —1,317 10,268 100 100 100 100 100 100 100 100 100 2013 8,870 701 2,134 —58 11,647 —616 —701 —1,317 10,330 Write down of shares in subsidiaries in 2013 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 2014 Shareholders’ equity Shares, % Number of shares Book value Profit/loss Note 13 – Cont. SUBSIDIARIES’ SHAREHOLDERS’ EQUITY 2014 Name of subsidiary Passage2Health Ltd. Sirius Rückversicherungs Service GmbH Sirius Belgium Réassurances S.A. Sirius International Holdings (NL) B.V. —5 36 12 973 S.I. Holdings (Luxembourg) S.à r.l. 4,282 Sirius International Managing Agency Ltd. 8 White Mountains Re Sirius Capital Ltd. WM Phoenix (Luxembourg) S.à r.l. —44 7,079 White Sands Holdings (Luxembourg) S.à r.l. 16 TOTAL 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. Sirius International Managing Agency Ltd. White Mountains Re Sirius Capital Ltd. WM Phoenix (Luxembourg) S.à r.l. 12,357 Shareholders’ equity 0 22 12 1,591 2,827 0 —83 5,886 White Sands Holdings (Luxembourg) S.à r.l. 17 TOTAL 10,272 100 100 100 100 100 100 100 100 100 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 €1,245,681 consisting of 700,000 shares without nom. value 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 0 13 269 3,809 4 0 6,158 15 —5 7 —0 325 414 3 45 491 —0 10,268 1,280 Shares, % Number of shares Book value Profit/loss 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 €1,245,681 consisting of 700,000 shares without nom. value 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 Note 14 – Investments in shares and participations Fair value Acquisition cost GROUP 2014 5,186 4,441 2013 4,097 3,441 PARENT COMPANY 2014 494 522 2013 399 496 Further information on financial instruments can be found in Note 18. 59 sirius international insurance corporation – annual report 2014 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 2014 1,203 486 0 2,033 14,213 17,935 17,932 758 214 FAIR VALUE 2014 1,112 386 0 783 4,688 6,969 6,966 425 6 Note 16 – Derivative financial instruments Currency derivatives, Sirius Bermuda Insurance Company Ltd. Other derivatives, Endurance TOTAL GROUP 2014 —494 25 —469 2013 1,801 466 0 2,565 11,628 16,460 16,397 666 38 2013 1,693 366 0 1,232 3,273 6,564 6,564 337 19 2013 275 —2 273 2014 1,184 464 0 2,003 13,484 17,135 17,132 725 207 ACQUISITION COST 2014 1,093 364 0 739 4,197 6,393 6,390 278 4 PARENT COMPANY 2014 —494 25 —469 2013 1,799 471 0 2,618 11,601 16,489 16,426 663 29 2013 1,691 369 0 1,277 3,280 6,617 9,793 277 14 2013 275 —2 273 The table above show gross positions with individual counterparties in excess Trough foreign exchange options, the currency futures transactions are settled of MSEK 0,5. on the basis of an exchange rate cap and exchange rate floor (average rate 5.11 Currency derivatives of nominal MUSD 600 against SEK mainly concern con- SEK/USD and 11.44 SEK/USD). The remaining average term is 20 months. tracts with internal counterparties. The company has entered into three internal The currency hedge agreements are valued monthly at fair value via the currency hedging agreements with Sirius Bermuda Insurnace Company Ltd (for- income statement. mer Sirius International Financial Services LTD), in order to adjust the company’s Currency hedging with external counterparts occurs to a limited extent for currency exposure against USD in accordance with established limits. the currencies USD, EUR and GBP. 60 sirius international insurance corporation – annual report 2014 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 2014 — 221 221 2013 — 144 144 PARENT COMPANY 2014 159 65 224 2013 167 83 250 Note 18 – Categories of financial assets and liabilities and their fair value FINANCIAL ASSETS GROUP 2014 Shares and participations Derivative financial instruments1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL GROUP 2013 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available— for—sale financial assets — — — 579 221 800 5,186 25 8,844 47 — 14,102 — — 9,091 106 — 9,197 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 instruments1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL — — — 478 144 622 4,097 273 7,813 46 — 12,229 — — 8,647 110 — 8,757 1) Derivatives are classified as Financial instruments held for trading. Total carrying amount 5,186 25 17,935 732 221 Fair value Acquisition value 5,186 25 17,935 732 221 3,855 25 17,296 732 221 24,099 24,099 22,116 Total carrying amount 4,097 273 16,460 634 144 21,608 Fair value Acquisition value 4,097 273 16,460 634 144 21,608 3,441 12 16,489 634 144 20,720 61 sirius international insurance corporation – annual report 2014 62 sirius international insurance corporation – annual report 2014 Note 18 – Cont. FINANCIAL ASSETS PARENT COMPANY 2014 Shares and participations Derivative financial instruments1) Bonds and other interest-bearing securities Accrued income Other debtors TOTAL PARENT COMPANY 2013 Shares and participations Derivative financial instruments1) 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 — — — 314 41 355 494 25 — — — 519 — — 6,970 90 — 7,060 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 — — — 672 — — 6,564 87 — 6,651 1) Derivatives are classified as Financial instruments held for trading. Total carrying amount 494 25 6,970 404 41 7,934 Total carrying amount 399 273 6,564 363 250 7,849 Fair value Acquisition value 494 25 6,970 404 41 7,934 522 12 6,527 404 41 7,506 Fair value Acquisition value 399 273 6,564 363 250 7,849 496 12 6,617 363 250 7,738 FINANCIAL LIABILITIES GROUP 2014 Other liabilities Accrued expenses TOTAL Other financial liabilities Carrying amount Fair value GROUP 2013 Other financial liabilities Carrying amount Fair value 205 58 263 205 58 263 205 58 263 Other liabilities Accrued expenses TOTAL 188 48 236 188 48 236 188 48 236 PARENT COMPANY 2014 Other financial liabilities Carrying amount Fair value PARENT COMPANY 2013 Other financial liabilities Carrying amount Fair value Other liabilities Accrued expenses TOTAL 164 54 218 164 54 218 164 54 218 Other liabilities Accrued expenses TOTAL 133 229 362 133 229 362 133 229 362 63 sirius international insurance corporation – annual report 2014 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 2014 Level 1 Level 2 Level 3 TOTAL GROUP 2013 Shares and participations Derivatives Bonds and other interest- bearing securities 4,277 — 12 — 897 —469 5,186 —469 Shares and participations Derivatives 3,852 14,080 3 17,935 Bonds and other interest-bearing securities TOTAL 8,129 14,092 431 22,652 TOTAL Level 1 Level 2 Level 3 TOTAL 3,237 — 4,245 7,482 9 — 851 273 4,097 273 12,152 12,161 63 16,460 1,187 20,830 PARENT COMPANY 2014 Shares and participations Derivatives Bonds and other interest- bearing securities Level 1 Level 2 Level 3 TOTAL PARENT COMPANY 2013 Level 1 Level 2 Level 3 TOTAL 384 — 12 — 98 494 Shares and participations —469 —469 Derivatives 2,761 4,206 3 6,970 Bonds and other interest- bearing securities 314 — 3,144 3,458 9 — 3,420 3,429 76 273 — 349 399 273 6,564 7,236 TOTAL 3,145 4,218 —368 6,995 TOTAL 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. 64 sirius international insurance corporation – annual report 2014 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 2014 Opening balance January 1, 2014 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, 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 1) PARENT COMPANY 2014 Opening balance January 1, 2014 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, 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 1) GROUP 2014 Opening balance January 1, 2014 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, 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 1) Shares and participations Derivatives 9 3 — — — — — 12 3 — — — — — — — — — Shares and participations Derivatives 9 3 — — — — 12 3 — — — — — — — — Bonds 12,152 847 13,283 —13,958 — 322 1,434 14,080 TOTAL 12,161 850 13,283 —13,958 — 322 1,434 14,092 847 850 Bonds 3,420 666 5,045 —5,022 — 97 4,206 666 TOTAL 3,429 669 5,045 —5,022 — 97 4,218 669 Shares and participations Derivatives Bonds TOTAL 851 111 45 —255 — — 145 897 111 273 —690 — —52 — — — —469 —690 63 2 255 —206 —132 8 13 3 2 1,187 —577 300 —513 —132 8 158 431 —577 1) Reported in net income of financial transactions in profit/loss for the year. 65 sirius international insurance corporation – annual report 2014 Note 18 – Cont. PARENT COMPANY 2014 Opening balance January 1, 2014 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, 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 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 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) Shares and participations Derivatives Bonds TOTAL 76 8 33 —19 — — 98 8 273 —690 — —52 — — —469 —690 Shares and participations Derivatives 363 40 21 —404 —12 — — 9 40 — — — — — — — — — Shares and participations Derivatives 360 40 21 —400 —12 9 40 — — — — — — — — 0 2 107 — —114 8 3 2 Bonds 14,015 —305 12,833 —14,410 — 88 —68 12,152 —305 Bonds 6,851 —75 3,739 —7,098 — 3 3,420 —75 349 —680 140 —71 —114 8 —368 —680 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 1) Reported in net income of financial transactions in profit/loss for the year. 66 sirius international insurance corporation – annual report 2014 Note 18 – Cont. 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) 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) 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 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 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. 67 sirius international insurance corporation – annual report 2014 Note 19 – Tangible assets Accumulated acquisition cost Opening balance January 1, 2013 Acquisition Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Acquisition Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2014 Accumulated depreciation Opening balance January 1, 2013 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2013 Opening balance January 1, 2014 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE DECEMBER 31, 2014 Carrying amount Per January 1, 2013 PER DECEMBER 31, 2013 Per January 1, 2014 PER DECEMBER 31, 2014 Group Equipment Parent Company Equipment 176 29 —16 —1 188 188 22 —22 11 199 —122 —26 15 1 —131 —131 —26 21 —8 —144 54 57 57 55 124 13 —16 — 121 121 21 —6 — 136 —74 —22 15 — —81 —81 —22 4 — —99 50 40 40 37 2013 266 — 219 —240 —1 244 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 2014 446 0 449 —439 88 544 2013 439 0 423 —411 —5 446 2014 244 — 225 —234 44 279 68 sirius international insurance corporation – annual report 2014 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 2014 2013 15 —4 1 12 10,447 — 10,447 10,459 25 —4 —6 15 9,647 800 10,447 10,462 Net 1,657 0 55 —25 1,687 Note 22 – Provisions for unearned premiums and unexpired risks PROVISIONS FOR UNEARNED PREMIUMS 2014 GROUP Gross Reinsurers’ share Opening balance Acquired portfolio Change in provision Currency revaluation effect CLOSING BALANCE 2,133 0 —27 448 2,554 PROVISIONS FOR UNEXPIRED RISKS —446 0 6 —96 —536 Net 1,687 0 —21 352 2,018 2013 Gross Reinsurers’ share 2,120 0 34 —21 2,133 —463 0 21 —4 —446 GROUP Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2014 2013 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 76 —10 15 81 —56 8 —11 —59 PROVISIONS FOR UNEARNED PREMIUMS 2014 PARENT COMPANY Gross Reinsurers’ share Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 1,412 —97 295 1,610 —445 22 —100 —523 20 —2 4 22 Net 967 —75 195 1,087 81 —5 0 76 —61 4 1 —56 2013 Gross Reinsurers’ share 1,498 —77 —9 1,412 —456 16 —5 —445 20 —1 1 20 Net 1,042 —61 —14 967 PROVISIONS FOR UNEXPIRED RISKS PARENT COMPANY Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2014 2013 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 76 —10 15 81 —56 8 —11 —59 20 —2 4 22 82 —5 —1 76 —61 4 1 —56 21 —1 0 20 69 sirius international insurance corporation – annual report 2014 Note 23 – Claims reserve GROUP Gross Reinsurers’ share 2014 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 year Claims handling expenses Paid claims Currency revaluation effect CLOSING BALANCE Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) 7,255 5,234 12,489 0 2,720 758 186 4,447 2,030 13,364 7,795 5,568 Net 5,723 4,527 10,250 0 2,013 434 186 3,452 1,720 10,779 6,016 —1,532 —707 —2,239 0 —707 —324 0 —995 —309 —2,584 —1,779 —805 4,763 2013 Gross Reinsurers’ share 7,264 9,101 16,365 330 2,856 —1,762 183 4,752 —365 12,489 7,255 5,234 —1,359 —3,583 —4,942 —89 —722 2,376 0 —861 277 —2,239 —1,532 —707 PARENT COMPANY Gross Reinsurers’ share 2014 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 year Claims handling expenses Paid claims Currency revaluation effect CLOSING BALANCE Closing balance, reported claims Closing balance, incurred but not reported claims (IBNR) 4,198 1,557 5,755 1,898 311 149 2,657 730 5,889 4,413 1,476 —1,107 —296 —1,403 —612 —299 0 —869 —165 —1,610 —1,269 —341 Net 3,091 1,261 4,352 1,286 12 149 1,788 565 4,279 3,144 1,135 2013 Gross Reinsurers’ share 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 Note 24 – Equalization provision Note 25 – Claims handling provision Net 5,905 5,518 11,423 241 2,134 614 183 3,891 —88 10,250 5,723 4,527 Net 3,124 1,644 4,768 1,449 174 141 1,847 —51 4,352 3,091 1,261 PARENT COMPANY 2014 2013 Opening balance Provision of the year CLOSING BALANCE 86 3 89 86 — 86 GROUP PARENT COMPANY 2014 2013 2014 2013 241 0 —57 48 28 260 247 4 —59 48 1 241 132 0 —22 31 9 150 132 0 —34 32 2 132 Opening balance Acquired portfolio Release of provision made in prior years Provision for the year Currency revaluation effect CLOSING BALANCE 70 sirius international insurance corporation – annual report 2014 Note 26 – Employee benefits 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 2014 2013 2014 2013 PARENT COMPANY 96 96 0 14 14 74 -78 -4 11 7 - - - 14 14 - - - 11 11 Group defined benefit plans In a defined benefit plan, the employer guarantees that the employee will re- The group has defined benefit plans in Sweden (collective agreement) and Germany which are based on the employees’ pension entitlements and length of ceive a defined level of benefit upon retirement, based on one or more factors, employment. In Germany all employees are included in the plan. In Sweden only such as age, length of service and salary. The group calculates its provisions employees born 1971 or earlier are covered by defined benefit plans and, thus, and expenses based on the conditions of the guaranteed pension obligations, as form part of the FTP2. Paid pension premiums are mainly funded with Skandia well as on its own assumptions regarding future development. Liv for employees in Sweden and with Allianz for employees in Germany. The The provision reported in the balance sheet for defined benefit plans is lion share of the plan assets are funded with Skandia Liv where the assets are the present value of the defined benefit obligation at the end of the reporting invested in Swedish bonds (39%), Swedish and foreign shares (28%), real-es- period, less the fair value of plan assets, adjusted for actuarial gains and losses tate (10%), non listed shares (9%) and other investment assets (14%). recognized in Other Comprehensive Income. Actuarial gains and losses arise if Furthermore, there are two variations of retirement earlier than at the age actual outcome deviates from calculated, defined assumptions, or if there is a of 65. Employees born 1955 and earlier have the possibility to retire between change in assumptions. The defined pension obligation is calculated annually by the ages of 62 and 65 according to local agreement. Staff employed before independent actuaries, applying the projected unit credit method. The net pres- 1 January, 2004 have the right to retire from the age of 64. These plans are ent value of the pension obligation is defined by discounting of estimated future also defined benefit plans and are reflected in financial statements of both the cash flows, using interest rates that are based on the same currency in which Group and the Parent Company. the obligations are to be paid and with durations comparable to the duration of Employees in Sweden born 1972 or later, are covered by a defined contribu- the current pension obligation. Other assumptions used to determine the pen- tion plan, FTP1. sion obligation and the fair value of the plan assets are disclosed in this note. Employees outside Sweden and Germany are mainly covered by defined contri- bution plans in which the employer has a responsibility for the employees’ 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 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 2014 2013 10 4 —6 8 71 79 7 3 —3 7 65 72 2014 2013 85 10 3 14 —2 —2 2 110 80 7 3 —2 —3 —1 1 85 71 sirius international insurance corporation – annual report 2014 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, 2014, is lower than the value of the Group’s defined benefit pension commitments. The Group has per Decem- ber 31, 2014 a net obligation of MSEK 14 (7). 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 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 ACTUARIAL ASSUMPTIONS GROUP Discount rate Price inflation Expected salary increases Indexation of benefits Indexation of income base amount Staff turnover 2014 2013 78 6 6 6 —1 1 96 69 3 5 4 —4 1 78 2014 2013 0 14 —7 7 2014 2.3 % 1.3 % 2.8 % 1.3 % 2.5 % 3.0 % 6 —2 —4 0 2013 3.6 % 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 effects made regarding the future development of factors which may influence the size from collective agreements and salary drift. Final benefits according to FTP are of expected payments. The discount rate is the interest rate applied to discount governed by Swedish base income amount (inkomstbasbeloppet). Conse- the value of expected payments. This rate is fixed applying a market rate with quently, there is a requirement to assess future base income amounts. Annual a remaining duration equivalent to the pension obligations. The discount rate pension increases also need to be considered, as these have historically always applied for the Swedish defined obligations, is based on high quality Swedish 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 (17 years). 72 sirius international insurance corporation – annual report 2014 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 2014 23 182 205 2013 28 160 188 PARENT COMPANY 2014 54 110 164 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 2014 7,557 1,425 8,982 On the basis of the stipulations in Chapter 7, Section 11 of the Insurance Busi- ness Act, registered assets amount to MSEK 5,994. 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 2014 3,350 132 3,482 2013 7,809 158 7,967 2013 1,930 140 2,070 2014 5,582 1,166 6,748 PARENT COMPANY 2014 3,350 31 3,381 2013 51 82 133 2013 6,571 120 6,691 2013 1,930 49 1,979 73 sirius international insurance corporation – annual report 2014 Note 29 – Associated parties SUMMARY OF TRANSACTIONS WITH ASSOCIATED COMPANIES WITHIN THE WHITE MOUNTAINS GROUP GROUP 2014 Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities White Mountains Advisors LLC — financial services Sirius Bermuda Insurance Company Ltd — financial services Sirius Capital Bermuda Ltd — administrative services White Schoals Re Ltd. — administrative services Sirius International Insurance Group Ltd. — administrative services OneBeacon Insurance Group Ltd. — liability insurance and dividends Other associated cmpanies TOTAL — — — — — — — — — — — — — — — — —41 75 9 3 19 43 8 116 — — 3 — 1 — — 4 12 9 — — — — 6 27 PARENT COMPANY 2014 Sirius America Insurance Company — assumed reinsurance Sirius America Insurance Company — ceded reinsurance Star Re Ltd. — ceded reinsurance Syndicate 1945 — assumed reinsurance Sirius America Insurance Company – administrative services WM Phoenix (Luxembourg) S.à r.l. – dividends Sirius International Holding (NL) B.V. — dividends Sirius Rückversicherungs Service GmbH — intra-group payables Sirius Belgium Réassurances S.A — intra-group payables Star Re Ltd. — intra—group receivables S.I. Holdings (Luxembourg) S.à r.l. — dividends/receivables Passage2Health Ltd. — intra-group receivables Syndicate 1945 — intra group receivables Sirius Global Services LLC — administrative services Sirius International Holdings Ltd — administrative services Sirius International Managing agency Ltd — administrative services White Sands Holdings (Luxembourg) S.à r.l. – dividends White Mountains Re Sirius Capital Ltd – intra-group payables White Mountains Advisors LLC — financial services Sirius Bermuda Insurance Company Ltd – financial services Sirius Capital Markets Bermuda Ltd. — administrative services White Schoals Re Ltd – administrative services Other associated cmpanies TOTAL Premium income, net Indemnifications Purchased/ sold services Receivables Liabilities 134 0 —120 20 — — — — — — — — — — — — — — — — — — — 38 3 — —2 — — — — — — — — — — — — — — — — — — — — — — — 20 558 119 —29 0 1 67 0 76 —34 —4 2 — — —14 75 9 3 5 378 — — 3 — — — — — — 3 6 102 15 — 3 0 44 — — 2 — — — — — — — — — 42 1 — — — — — 1 — — — 4 9 — — 0 34 39 853 556 57 74 sirius international insurance corporation – annual report 2014 Note 29 – Cont. 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 — — — — — — — — — — — — — — — — — — — — — — — — — — —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 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 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 — — — — TOTAL —55 —2,553 1,815 508 1) Refers to reinsurer’s share of outstanding claims. — — — — — 1 — — — 19 — — — 3 — — — — — — — — 31 1 — 55 75 sirius international insurance corporation – annual report 2014 Note 30 – Average number of employees, salaries and other remunerations AVERAGE NUMBER OF EMPLOYEES GROUP Parent Company Germany UK, P2H USA Canada TOTAL 2014 2013 Men Women TOTAL Men Women TOTAL 148 3 — 59 5 215 145 10 — 59 2 216 293 13 — 118 7 431 141 4 0 60 5 210 145 9 2 58 2 216 286 13 2 118 7 426 PARENT COMPANY Men Women TOTAL Men Women TOTAL 2014 2013 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 75 28 24 4 4 5 8 148 72 22 23 5 11 2 10 145 147 50 47 9 15 7 18 293 74 25 23 4 4 5 6 141 72 20 24 5 11 2 11 145 146 45 47 9 15 7 17 286 2014 2013 Men Women TOTAL Men Women TOTAL 5 1 6 1 — 1 GROUP 2014 599 224 79 71 8 108 787 6 1 7 2013 553 203 72 65 7 99 724 6 1 7 — — — PARENT COMPANY 2014 370 135 68 64 4 102 539 6 1 7 2013 329 114 61 60 1 93 483 76 sirius international insurance corporation – annual report 2014 Note 30 – Cont. OF WHICH PAID REMUNERATIONS FOR THE YEAR TO: GROUP 2014 2013 2014 2013 PARENT COMPANY CEO Salaries including bonuses Of which paid out bonuses Pension expenses — Defined contribution plans — Defined benefit plans TOTAL FORMER 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 4 2 1 1 — 5 17 13 3 3 — 20 15 9 3 3 — 18 — — — — — — 16 12 3 3 — 19 14 8 3 3 — 17 4 2 1 1 — 5 17 13 3 3 — 20 15 9 3 3 — 18 — — — — — — 16 12 3 3 — 19 14 8 3 3 — 17 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 home- Annual General Meeting. Board fees are not paid to individuals employed in the page, which follows FFFS 2011:2. company. No board fees were paid in 2013 and 2014. Note 31 – Fees and reimbursements to auditors PwC Audit assignment Tax counseling Other services TOTAL GROUP 2014 2013 2014 2013 PARENT COMPANY 12 2 1 15 11 1 1 13 4 0 1 5 5 1 0 6 Audit assignment refers to the examination of the annual report and accounting from observations made during such an examination or the implementation of records, as well as the administration of the Board of Directors and Managing such other duties. Other services than those included in the audit agreement Director, other duties which are the responsibility of the Company’s auditors are classified as audit services in addition to audit agreement, tax counseling to execute and the provision of advisory services or other assistance resulting 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 GROUP 2014 PARENT COMPANY 2013 2014 2013 50 163 40 253 49 126 112 287 31 99 — 130 33 71 1 105 77 sirius international insurance corporation – annual report 2014 Note 33 – Class analysis PROFIT/LOSS PER INSURANCE CLASS PARENT COMPANY 2014 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance GROUP 2014 Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance TECHNICAL RESULT Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision TECHNICAL RESULT 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 1,257 1,226 —754 —447 —4 21 121 101 —85 —58 —7 —49 144 122 —74 —60 —14 —26 75 83 —12 —36 —14 21 1,597 1,532 —925 —601 —39 —33 673 657 —300 —303 —23 — 31 105 88 —72 —53 —7 — —44 29 38 —23 —28 —4 — —17 15 16 2 —8 —8 — 2 822 799 —393 —392 —42 — —28 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsu- rance 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 TOTAL 7,637 7,674 6,040 6,142 —2,553 —3,478 —1,707 —2,308 —561 1,321 —600 1,288 —1,816 —2,209 4,088 4,218 —1,159 —363 —3 877 TOTAL 4,910 5,017 —1,551 —405 —3 849 TOTAL 7,445 7,416 —1,094 —2,455 —2,960 907 PARENT COMPANY 2013 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsu- rance TOTAL Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision 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 — 751 5,173 5,255 —44 —1,511 —2,926 — 774 78 sirius international insurance corporation – annual report 2014 stockholm, march 5, 2015 allan waters Chairman of the Board of Directors brian kensil jeffrey davis jan onselius lars ek monica cramér manhem President & CEO Our Auditors’ Report was submitted on March 5, 2015 catarina ericsson Authorised Public Accountant morgan sandström Authorised Public Accountant 79 sirius international insurance corporation – annual report 2014 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 2014. 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 accepted 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, including 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 IIn 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 2014 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act for Insurance Companies. The consolidated 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 group as of 31 December 2014 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 2014. 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 appropriations 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, March 5, 2014 Catarina Ericsson Authorized Public Accountant Morgan Sandström Authorized Public Accountant 80 sirius international insurance corporation – annual report 2014 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 2014. The audited Swedish version is the binding version. 81 sirius international insurance corporation – annual report 2014 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 reinsur- ance 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 industrial 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 International. 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 companies 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. in 2014 monica cramér manhem became the president & ceo of Sirius International. Sirius launched its own Lloyd’s managing agency. 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 reinsurance 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 $850 million in underwriting profits. This long-term track record is perhaps unparalleled. 82 sirius international insurance corporation – annual report 2014 83 sirius international insurance corporation – annual report 2014 art and production: vitt grafiska ab 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 +1 441 278 3145 Telefax: 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 +49 40 30 95 19-21 Telefax: 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 +44 20 7617 4919 Telefax: Sirius International Insurance Corporation (publ) Asia Branch, Singapore 24 Raffles Place #10-01/02, Clifford Centre 048 621 Singapore, Singapore Telephone: +65 6435 0052 +65 6435 0053 Telefax: Sirius International Insurance Corporation (publ) Labuan Branch c/o MNI Offshore Insurance (L) Ltd Level 11 (B) Block 4 Office Tower Financial Park Labuan Complex Jalan Merdeka 87000 FT Labuan, Malaysia Telephone: +60 87 417 672 73 Telefax: +60 87 417 675 Sirius International Insurance Corporation (publ) Stockholm, Zurich Branch P.O. Box 2807 CH-8022, Zurich, Switzerland Visiting address: Dreikönigstrasse 12 Telephone: +41 43 443 0180 +41 43 443 0189 Telefax: www.siriusgroup.com 85 sirius international insurance corporation – annual report 2014 86 sirius international insurance corporation – annual report 2014