Annual report 2015 CONTENTS CMIH, our owners Sirius Annual Report 2015 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 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 Note 14 Shares and participations in associated companies 59 Note 15 Investments in shares and participations Note 16 Bonds and other interest-bearing securities Note 17 Derivative financial instruments Note 18 Other debtors Note 19 Categories of financial assets and liabilities and their fair value Note 20 Tangible assets Note 21 Deferred acquisition costs Note 22 Untaxed reserves Note 23 Provisions for unearned premiums and unexpired risks Note 24 Claims reserve Note 25 Equalization provision Note 26 Claims handling provision Note 27 Employee benefits Note 28 Other creditors Note 29 Contingent liabilities and commitments Note 30 Associated parties Note 31 Average number of employees, salaries and other remunerations Note 32 Fees and reimbursements to auditors Note 33 Operational leasing Note 34 Class analysis Audit report Definitions History Contact information 60 60 61 61 61 68 68 69 69 70 70 70 71 73 73 74 76 77 77 78 80 81 82 85 2 sirius international insurance corporation – annual report 2015 CMIH, our owners CM International Holding Pte. Ltd. Sirius International Insurance Group, Ltd. On April 18, 2016 - Singapore-based CM International A Bermuda-domiciled holding company whose operating Holding Pte. Ltd. (“CMIH”) finalized the acquisition of Sirius companies offer insurance and reinsurance capacity for International Insurance Group, Ltd. (“Sirius Group”) through property, accident & health, aviation and space, trade credit, its Bermuda holding company, CM Bermuda Limited. CMIH marine, agriculture and other exposures. is an investment holding company owned by private investors. Singapore-based CMIH is focused on international Our principal operating companies are: investments, asset management and cross-board M & A. CMIH is the flagship international platform founded and wholly-owned by China Minsheng Investment Corp., Ltd. (“CMI”), one of China’s leading private investment companies. Highly regarded in the Chinese private sector and registered in Shanghai with total assets of US $13.2B and total shareholders’ equity of US $7.3B, CMI focuses on the transformation and upgrading of Chinese private enterprises through integrating industry resources and financial capital. 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, 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. sirius 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 2015 2 sirius international insurance corporation – annual report 2015 Sirius Annual Report 2015 I am pleased to advise that 2015 was not only another run-off administration. Finally, Sirius is in the process of successful year for Sirius International; it was also a applying for a representative office in Shanghai as part of our momentous one. On July 27th 2015, White Mountains signed strategy to develop and strengthen our presence in the a stock purchase agreement to sell Sirius Insurance Group to Chinese market. Singapore-based CM International Holding Pte.Ltd. (CMIH). The arrival of Solvency II on January 1, 2016 came after Together with the entire Sirius Group, we are very excited years of preparation and hard work across the entire about the transaction and our new future ownership. We organization. The regulation involves a substantial and costly firmly believe it will give us further momentum and open industry-wide increase in levels of administration with the doors to new opportunities, whilst enabling us to retain our objective of strengthening the relationship between solvency core values with their strong emphasis on long-term, mutually capital requirements and risks for insurance undertakings. beneficial relationships. The company has adapted its processes for calculation of own Last year I emphasised that one of our strengths was funds, capital requirement, risk management, internal control consistency rather than eye-catching changes of direction. and reporting in line with the new regulation. With our 2015 was another highly profitable year for the Sirius Group, extremely strong capital base, the Solvency II capital one where we were able to grow selectively in key markets requirements are more than fulfilled. whilst maintaining the quality of our business. All in all, we are in good shape as we look forward to We recorded an underwriting profit of MSEK 992, with opening a new chapter in our 70-year history under the gross written premium up 27 % to MSEK 9,689 partly as a ownership of CMIH with its ultimate owner China Minsheng consequence of a weakening SEK, primarily against USD and Investment Corp., Ltd., (CMI). With more than $6 billion of GBP, but also with increases in business written in both Sirius shareholders’ equity, CMI will be a financially strong owner America and in Syndicate 1945. Our combined ratio for the with the ability to infuse capital as underwriting and year was a strong 86 % reflecting the company’s successful investment opportunities emerge. Although CMI has strategy with a well-diversified insurance portfolio and good considerable interests in banking and other financial services, spread of risk. Sirius represents their first investment in insurance and It is worth noting that this combined ratio is almost in line reinsurance. We strongly believe there will be opportunities with our average result of 85 % during our eleven years under to grow our franchise and business with our new owners, the ownership of White Mountains, all of them profitable. It is thereby complementing our existing footprint. by any standards an outstanding record and a tribute to our Some things remain completely unchanged and very clear. conservative underwriting approach as well as the Our core values, approach to underwriting and culture will professionalism of our people. Our consistently good results remain as they have always been, based around partnerships underpin the stability that is part and parcel of our offer to with clients, understanding their business needs and doing all clients, and they justify our strategy of maintaining a we can to meet them. We will have the same staff, whose diversified book of business by both class and territory. We dedication and professionalism make them among the very thank White Mountains for their support during this period, best in the business. Our capital base, which is ring-fenced by which saw considerable growth in our operations under their regulation and provides strong protection to our protective umbrella. policyholders, will maintain its organic growth, but with the The year 2015 was a positive one for the industry primarily potential for further investment in the future. because, according to preliminary estimates from external So there is much to look forward to as we move ahead. In experts, total insured losses from natural catastrophes and the meantime, our clients and brokers remain, as always, at man-made disasters were the lowest since 2009. The largest the centre of all we do. We will continue to honor our tradition insurance losses for Sirius during 2015 came from the damage of providing superior service and innovative solutions, while caused by the explosion in the Chinese port of Tianjin and thanking them for their support, and looking forward to being from widespread flooding in India. of continued service. The overall portfolio evolved during the year with the direct Accident and Health business written at Lloyd’s and in the United States growing, whilst we saw a slight reduction in the Property Catastrophe business due to continuing pressure on prices. In July 2015, we took the strategic decision to cease offering new aviation insurance from our branch in Copenhagen. Sirius has signed an agreement with a Danish insurance company who will offer new policies and handle the monica cramér manhem President & CEO 3 sirius international insurance corporation – annual report 2015 AT A GLANCE 2015 2014 Net premium income Claims net of reinsurance Underwriting profit Combined ratio Result before taxes $845 million $428 million $118 million 86 % $233 million COMBINED RATIO 99 % 90 % 83 % 78 % $867 million $357 million $189 million 78 % $320 million 86 % 17,954 2011 2012 2013 2014 2015 SOLVENCY CAPITAL, MSEK 14,150 16,011 16,191 17,954 18,632 2011 2012 2013 2014 2015 4 sirius international insurance corporation – annual report 2015 Board of Directors’ Report The Board of Directors and the President and Chief Executive Officer of Sirius International Försäkrings- aktiebolag (publ), (Sirius International), Corporate Identity Number 516401-8136, hereby present the Annual Report for 2015. 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 2016, was exposed to a certain amount of price pressure, with falling prices in certain markets and insurance classes. For the overall portfolio however, the general information regarding the company pricing for 2016 is deemed to be satisfactory. Sirius International operates within international insurance In 2015, the operation of Syndicate 1945 at Lloyd’s has and reinsurance. Sirius International was established in 1989. developed well. The Syndicate has successfully managed to grow However, the operations were initially started within Sirius its portfolio according to plan through Lloyd’s sales channels. Insurance in 1945. In 1989, the reinsurance operations were The US operations conducted in Sirius America Insurance transferred to Sirius International. Sirius International has Company, also had a successful 2015 where satisfactory been the Parent Company in the Group since 1992. premium volume and favorable claims experience contributed to a strong Group result. development of the company’s operations, income and financial position The year 2015 was a positive one for the industry, primarily Gross premium income amounted to MSEK 9,689 (7,637) for the Group and MSEK 5,901 (4,910) for the Parent Company. The Group’s premium income for own account amounted to MSEK because it represented yet another year without any major claims 7,090 (5,930), and MSEK 3,651 (3,281) for the Parent Company. arising from natural disasters such as earthquakes, hurricanes, For the Group the premium volume was 27 % higher compared storms and floods. According to preliminary estimates from to the previous year, and 20 % higher for the Parent Company. external experts, total insured losses from natural catastrophes The weakened SEK, primarily against USD and GBP has and man-made disasters was the lowest since 2009. The El Nino provided a favorable effect on premium volume for both the weather phenomenon did admittedly cause extensive floods group and the parent company. Gross premium income and extreme heat waves in some developing - and emerging expressed in original currency displays a somewhat different countries, but El Nino did also have a damping effect on picture. Sirius America Insurance company and Syndicate 1945 hurricane activity in the Atlantic. The largest insurance loss for at Lloyd’s reports a slight increase in gross premiums in original Sirius International during 2015 was an explosion in the port of currency compared with previous year. The parent company, Tianjin, China. The outcome is estimated to have resulted in Sirius International, reports slightly reduced gross premiums claims of approximately USD 2 billion for the industry as a whole incomes compared with last year. and for Sirius International the explosion in Tianjin is estimated The Group’s operating profit from insurance operations to approximately MSEK 151. The following claims events represent a summary of the major claims impacting the amounted to MSEK 1,090 (1,549) and to MSEK 720 (1,028) for the Parent Company. The combined ratio was 86 % (78 %) for the Company’s insurance portfolio during 2015. In the first quarter a Group and 82 % (75 %) for the Parent Company. The strong fire occurred at a food plant in Germany, a passenger plane from insurance operating result is very gratifying and reflects the German wings crashed in the French Alps on its way from Spain Company’s successful strategy, with a well-diversified insurance and Massachusetts state in north eastern USA was hit by portfolio and good spread of risk. snowstorms. The second quarter was fairly moderate without 2015 was characterized by turbulence and varying develop- any major insurance losses with the exception of a fire in a ment in the various stock markets. OMX 30, Dow Jones and chemical engineering plant in Korea. In the third quarter Austria FTSE 100 indices decreased by 1 % to 5 %. Other stock market suffered from hailstorms and a ship carrying livestock sank at indices increased by 5 % to 10 %. the port of Vila Do Conde in Brazil. The fourth quarter was hit On a global basis, GDP grew 2.4 % which was below by extensive flood damage in the UK and in the province of expectation. The economic slowdown of the most influential Chennai in southern India and from a credit reinsurance loss emerging markets Brazil, Russia, China and South Africa from a spanish multinational company. For Sirius International affected the global GDP development negatively. these events are estimated to have resulted in claims of approximately MSEK 198 for own account. During 2015, the Swedish economy developed positively and GDP grew by 3.5 %. In the US, domestic consumption and The major claims from natural disasters during previous investments outside the oil sector has contributed to strong accident years have developed favorably during the year, domestic demand. GDP landed at plus 2.5 %. The UK economy resulting in a positive run-off result for the 2015 financial year. 5 sirius international insurance corporation – annual report 2015 has continued to develop strongly during the year and GDP is over the office. Sirius Danish branch is therefore discontinued. now on a higher level than before the financial crisis. The During the year Sirius International received a capital increased growth in the Eurozone was in line with expectations, contribution from the parent company Fund American Holding while private consumption in Japan fell and the level of AB of MSEK 162. Furthermore, it was in December decided that investments remained low. S.I Holdings (Luxembourg) S.à r l. will execute a capital SEK has continued to fall against USD and GBP. During 2015, USD repayment totaling MSEK 236 to Sirius International. and GBP have grown stronger by 8.4 % and 3.1 % respectively against The new solvency rules, Solvency 2, were applied January 1, SEK. EUR has weakened against SEK by 2.8 % during the year. 2016. The objective is to strengthen the relationship between The markets in the US, Sweden, Germany and the UK are the solvency capital requirements and risks for insurance underta- most important ones for the Group’s bond portfolio. In Sweden, kings. The company has adapted its processes for calculation of the interest levels on three year tenor have decreased 30 basis own funds, capital requirement, risk management, internal points whereas the interest rate in the five year tenor increased control and reporting. 17 basis points. In the US, the interest rates have continued to Other events regarding the changes in the Group’s structure are increase. The three year tenor increased 25 basis points whereas described primarily under the section “Ownership structure” below. the interest rate in the five year tenor increased about 10 basis points. The UK interest rates shows a similar pattern with an increase of approximately 20 basis points on the interest levels ownership structure Sirius International Försäkringsaktiebolag (publ) is a wholly-ow- on three and five-year tenor, while the corresponding interest ned subsidiary of Fund American Holdings AB (Corporate rates for EURO bonds remained virtually unchanged. Identity Number 556651-1084), Stockholm, Sweden. Fund Overall, yield on the bond portfolio was 1.0 % adjusted for American Holdings AB is a wholly-owned subsidiary of Sirius exchange rate effects. As regards the equity portfolio, including Insurance Holding Sweden AB (Corporate Identity Number investments in Hedge Funds and Private Equity investments, the 556635-9724), Stockholm, Sweden, which is the ultimate entity in yield amounted to 27 %, adjusted for exchange rate effects. The the Swedish Group structure and which is, in turn, owned by realized and unrealized exchange rate result, including currency White Mountains Insurance Group Ltd, Hamilton, Bermuda. hedging and translation differences from foreign subsidiaries, At the end of the year 2015, the Group comprised of the Parent amounted to a profit of MSEK 725. Exchange rate hedging against Company, Sirius International Försäkringsaktiebolag (publ), with the USD has been undertaken to the same extent as previous year the subsidiaries Sirius Belgium Réassurances S.A. (in liquidation), and the total nominal hedged amount remains at MUSD 600. Per Liège, Belgium; Sirius Rückversicherungs Service GmbH, year end the portion of the solvency capital that is exposed to foreign Hamburg, Germany; Sirius International Holdings (NL) B.V., currency, after currency hedging, is in line with previous year. Amsterdam, Holland; Passage2Health Ltd., London, United The Investment result for the Group including unrealized Kingdom; Sirius International Corporate member Ltd., London, gains and losses from the bond portfolio recognized in Other United Kingdom; Sirius International Managing Agency Ltd., Comprehensive Income, but before allocation of interest to the London, United Kingdom, SI Phoenix (Luxembourg) S.à r.l., insurance operations, shows a profit of MSEK 875 (1,056). The Luxemburg; White Sands Holdings (Luxembourg) S.à r.l., Group’s direct yield was 2.0 % (2.3 %) and the total yield was 3.2 Luxemburg and S.I. Holdings (Luxembourg) S.à r.l., Luxemburg. % (4.7 %). The direct and total yields are calculated according to In addition, Sirius International has eight branch offices the recommendations of The Swedish Financial Supervisory outside Sweden. These are Sirius International Insurance Authority. The investment portfolio’s concentration and Corporation (publ) UK branch, London, United Kingdom; Sirius composition are largely unchanged compared with the previous International Insurance Corporation (publ) Stockholm Zürich year. At year-end, the consolidated investment portfolio, branch, Zürich, Switzerland; Sirius International Insurance excluding currency related derivatives, had the following Corporation (publ) Asia branch, Singapore; Sirius International composition: Bonds and other interest bearing securities 70 %, Insurance Corporation (publ) Labuan branch, Labuan, Malaysia; Shares and participations 20 %, Bank funds 10 %. Sirius International Insurance Corporation (publ) Belgian branch, From July 1, 2015, Sirius International’s Danish branch has Liège, Belgium; Sirius International Danish Branch, filial af Sirius ceased to offer new insurance. Only the renewal of existing International Försäkringsaktiebolag (publ), Copenhagen, contracts will be offered. Sirius has signed an agreement with the Denmark; Sirius International Insurance Corporation (publ) Danish insurance company Alpha Insurance A / S and its agent Bermuda Branch, Hamilton, Bermuda and Sirius International Beta Aviation Aps, who will offer new insurance and handle the Insurance Corporation (publ) Australian Branch, Australia. In run-off administration. Beta Aviation has hired the staff and taken Hamburg, Germany, the operations are conducted through the 6 sirius international insurance corporation – annual report 2015 agency, Sirius Rückversicherungs Service GmbH, which provides insurance on behalf of Sirius International. During 2001, Sirius Belgium Réassurances S.A. (in financial instruments and risk management See Note 1, Accounting Principles, and Note 2, Information on Risks. liquidation), Liège, Belgium commenced voluntary liquidation proceedings, as the company had ceased to conduct opera- remuneration and benefits to senior executives See Note 31, Average number of employees, salaries and other tions. The liquidation remains incomplete, as the result of a tax remuneration. dispute. The outcome of the dispute will not impact the company’s financial position. significant events during and after the financial year On July 27, 2015 White Mountains announced that they had signed a definitive agreement to sell Sirius International Insurance Group, Ltd to CM International Holding PTE Ltd., Singapore and, in turn, owned by China Minsheng Investment Corp., Ltd., China. The transaction is a subject for regulatory approval and is expected to close during spring 2016. The Group’s holdings in the affiliated companies Symetra Financial Corpora- tion and OneBeacon Insurance Group will be sold before transaction closing. 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. insurance contracts with insufficient insurance risk The Company retains only a few contracts in which insufficient insurance risk is assessed to exist, and which, thereby, do not qualify as insurance contracts. These contracts are classified as investment contracts. For further details, refer to Note 1, Accounting Principles. expected future developments The underlying profitability in the insurance operations is good, despite increased competition on the market, and the diversified investment portfolio is expected to provide a stable yield. However, the fierce competition requires stringent pricing and underwriting, continued efficiency improvements and sound balancing of risks between the insurance and investment operations, in order to ensure long-term profitabi- lity. Sirius International’s targets for 2016 are to achieve a combined ratio under 92 % and an Underwriting Return on Capital (UROC) of 9 %. 7 sirius international insurance corporation – annual report 2015 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 Total solvency capital Solvency ratio Capital base 1) Required solvency capital Group based values 2) Capital base Solvency requirement 2015 2014 2013 20123) 2011 7,090 7,106 143 —3,589 —2,525 —45 1,090 863 1,541 13,193 27,769 51 % 36 % 86 % 2 % 3 % 16,277 2,358 —3 18,632 263 % 17,516 1,911 18,586 1,911 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 1) Include Sirius International with subsidiaries. 2) Include SI Caleta (Gibraltar) Ltd. For 2011 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 2015 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. 2015 2014 2013 2012 2011 3,651 3,711 51 —1,734 —1,305 —3 720 354 —22 717 5,522 18,313 47 % 35 % 82 % 3 % 2 % 3,618 10,719 — 14,337 393 % 13,372 947 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 9 sirius international insurance corporation – annual report 2015 proposed appropriation of profits For 2015, the Parent Company recorded income of MSEK 1,069 The Board of Directors and the president propose that the amount be appropriated as follows: (MSEK 1,575) before appropriations and taxes. Net income for the Dividend to the owner year amounted to MSEK 717 (MSEK 1,386). As of December 31, To be carried forward 2015 retained earnings in the Group amounted to MSEK 7,116. Total 842,470 1,975,266 2,817,736 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 Shareholder’s contribution Dividends paid, as resolved by the general meeting of shareholders and extraordinary general meeting of shareholders Net income for the year Total 3,655,335 –89,666 162,230 –1,627,370 717,207 2,817,736 The Company’s financial position does not give rise to any assessment other than that the Company can be expected to fulfill its obligations in both the short-term and in the long-term. It is the opinion of the Board of Directors that the solvency capital of the Company, as it has been reported in the annual report, is adequate in relation to the scope and risks of the operations. Regarding the Company’s and the Group’s results and financial position, please refer to the attached income statements and balance sheets, cash flow statements and statements of changes in shareholders’ equity, with accompanying notes. 10 sirius international insurance corporation – annual report 2015 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 — Share of result in associated companies Investment income allocated to the technical account Total investment income/expenses RESULT BEFORE TAXES Taxes NET INCOME FOR THE YEAR Note 2015 2014 3 3 4 4 5 5 9 6 7 8 14 10 9,689 —2,599 —82 98 7,106 143 —5,582 1,279 —4,303 1,016 —302 —3,589 —2,525 —45 1,090 7,637 —1,707 37 —15 5,952 313 —4,633 995 —3,638 1,155 37 —2,445 —2,218 —53 1,549 1,090 1,549 1,647 —418 —215 —8 —143 863 1,952 —411 1,541 1,222 88 —360 — —313 637 2,186 —498 1,688 11 sirius international insurance corporation – annual report 2015 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 27 2015 1,541 3 0 —73 649 17 —58 13 551 2,092 2014 1,688 —7 1 205 1,585 —47 —99 22 1,660 3,348 12 sirius international insurance corporation – annual report 2015 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 2015 2014 11 12 14 15, 19 16, 19 17, 19 23 24 10 18, 19 20 19 21 26 162 188 11 310 127 5,387 18,428 — 23,815 664 24,927 736 2,381 3,117 168 2,658 314 1,964 260 5,364 98 2,842 2,940 134 628 29 791 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 37,327 36,474 13 sirius international insurance corporation – annual report 2015 Balance Sheet – Group, cont. DECEMBER 31 (MSEK) Note 2015 2014 SHAREHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES Shareholders’ equity — Share capital (8 million shares of nom. value SEK 100) — Additional paid in capital — Reserves — Retained earnings – restricted — Retained earnings – non-restricted, including net income for the year Total shareholders’ equity 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 800 5,479 1,402 8,361 235 16,277 2,879 13,431 16,310 27 1 2,350 383 2,761 441 88 490 734 154 72 1,979 800 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 23 24, 26 27 10 17, 19 19, 28 19 TOTAL SHAREHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES 37,327 36,474 Pledged assets and other comparable collaterals for own debts and provisions recorded as insurance liabilities Other pledged assets and comparable collaterals Contingent liabilities Commitments 29 29 29 29 8,451 – 3,626 64 8,982 – 3,350 132 14 sirius international insurance corporation – annual report 2015 Change in Shareholders’ Equity – Group (MSEK) Share Capital 1) Additional paid in capital Retained earnings — restricted 1) Reserves Retained earnings — non— restricted TOTAL Amount January 1, 2015 800 5,317 854 8,158 522 15,651 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 paid Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Shareholder’s contribution Dividend paid 2) Total transactions with owners AMOUNT DECEMBER 31, 2015 Amount January 1, 2014 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 paid Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Dividend paid 2) Total transactions with owners AMOUNT DECEMBER 31, 2014 — — — — — — — — — — 800 800 — — — — — — — — — — — — — — — — 162 — 162 5,479 5,317 — — — — — — — — — 800 5,317 — — —101 — 649 548 548 — — — 1,402 —812 — — 81 — 1,585 1,666 1,666 — — 854 — 203 — — — — 1,541 —203 — 3 — 3 1,541 0 —101 3 649 551 203 1,341 2,092 — — — 8,361 8,160 — —2 — — — — —2 — — 8,158 — —1,627 — 1,627 235 414 1,688 3 — —6 — —6 1,685 — 1,577 —1,577 522 162 — 1,627 —1,465 16,277 13,879 1,688 1 81 —6 1,585 1,660 3,349 —1,577 —1,577 15,651 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 203 SEK (197 SEK) per share. 15 sirius international insurance corporation – annual report 2015 Change in Shareholders’ Equity – Group, cont. (MSEK) SHARE CAPITAL Specified in number of shares Issued per January 1 Issued per December 31 Per December 31, 2015 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 2015 2014 8,000,000 8,000,000 8,000,000 8,000,000 20142015 2014 5,317 162 5,479 154 —131 23 —34 30 —4 120 —101 19 734 649 1,383 8,158 203 8,361 522 1,541 —203 3 — —1,627 235 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 16 sirius international insurance corporation – annual report 2015 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 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 gains Capital losses Unrealized gains Unrealized losses Interest income Interest expenses Dividends received Shares of result in associated companies 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 2015 2014 1,952 383 —4 177 —1,126 —330 1,052 —248 —110 —393 301 20 —60 —40 —709 —709 —448 3,198 —448 92 2,842 47 —719 —477 108 —116 534 —365 4 —177 8 24 3 —1,126 1,055 1,787 2,842 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 11, 12, 20 6 6 8 7 7 6 8 6 14 24 17 sirius international insurance corporation – annual report 2015 Performance Analysis – Group 2015 (MSEK) Direct Swedish risks — property Direct Swedish risks — aviation Direct foreign risks Assumed reinsurance TOTAL 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 underwriting year 2014 and earlier. 3 — —2 —1 0 —2 —1 —1 — —2 — — — 3 — — — 3 —2 — — — — —2 3 — —2 — 1 —1 —1 —2 — —3 — 1 1 3 — — — 3 —3 1 — — — —2 1,367 13 —833 —590 —43 —451 —893 —906 —25 5,733 130 —2,752 —1,934 1,177 —350 —1,984 —12,227 —270 —1,824 —14,481 342 284 626 2,627 —1,190 —111 41 1,367 394 2,096 2,490 7,056 —1,409 29 57 5,733 7,106 143 —3,589 —2,525 1,135 —804 —2,879 —13,136 —295 —16,310 736 2,381 3,117 9,689 —2,599 —82 98 7,106 —1,213 —4,126 —5,344 526 —34 —180 68 752 —204 1,196 —370 1,279 —238 1,016 —302 —833 —2,752 —3,589 18 sirius international insurance corporation – annual report 2015 Income Statement – Parent Company JANUARY 1 — DECEMBER 31 (MSEK) Note 2015 2014 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 25 9 6 7 8 11 22 10 5,901 —2,250 —16 76 3,711 51 —2,966 985 —1,981 495 —248 —1,734 —1,305 —3 — 720 4,910 —1,629 107 —30 3,358 179 —2,806 869 —1,937 597 42 —1,298 —1,208 — —3 1,028 720 1,028 1,149 —573 —171 —51 354 —5 1,069 —243 —18 808 —91 717 1,457 —528 —175 —179 575 —28 1,575 — 3 1,578 —192 1,386 19 sirius international insurance corporation – annual report 2015 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 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 2015 717 —60 13 —55 12 —90 627 2014 1,386 182 —40 —91 20 71 1,457 20 sirius international insurance corporation – annual report 2015 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 2015 2014 11 12 13 15, 19 16, 19 17, 19 23 24 10 18,19 20 19 21 17 76 93 11 10,031 122 126 6,302 — 6,428 617 17,209 702 1,391 2,093 23 1,772 174 40 916 2,926 77 1,104 1,181 68 322 28 419 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 23,921 24,660 21 sirius international insurance corporation – annual report 2015 Balance Sheet – Parent Company, cont. DECEMBER 31 (MSEK) Note 2015 2014 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 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 24 2,077 717 3,618 29 10,690 10,719 1,802 5,724 89 7,615 16 — 220 236 301 7 508 734 117 1,366 66 800 113 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 23,921 24,660 6,085 — 3,626 — 6,748 — 3,350 31 22 23 24, 26 25 27 17, 19 19, 28 19 29 29 29 29 22 sirius international insurance corporation – annual report 2015 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, 2015 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 Shareholder’s contribution Dividend paid 2) Total transactions with owners AMOUNT DECEMBER 31, 2015 Amount January 1, 2014 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, 2014 800 113 — — —90 —90 —90 — — — 23 42 - - 71 71 71 - - 113 2,157 1,386 1,386 —1,386 — — — — 162 —1,627 —1,465 2,078 2,468 1,266 - - - - -1,577 -1,577 2,157 717 — — 717 — — — 717 1,266 -1,266 1,386 - - 1,386 - - 1,386 4,456 0 717 —90 —90 627 162 —1,627 —1,465 3,618 4,576 0 1,386 71 71 1,457 -1,577 -1,577 4,456 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 203 (SEK 197) per share. 23 sirius international insurance corporation – annual report 2015 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, 2015 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 Shareholder’s contribution Dividend paid CLOSING RETAINED EARNINGS NET PROFIT/LOSS FOR THE YEAR NET PROFIT/LOSS FOR THE YEAR 2015 2014 8,000,000 8,000,000 8,000,000 8,000,000 145 —116 29 —32 26 —6 113 —90 23 2,157 1,386 162 —1,627 2,078 54 91 145 —12 —20 —32 42 71 113 2,468 1,266 — —1,577 2,157 717 1,386 24 sirius international insurance corporation – annual report 2015 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 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 gains Capital losses Unrealized gains Unrealized losses Interest income Interest paid 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 2015 2014 1,069 170 —4 79 —345 —248 721 —17 314 —688 330 —21 —56 —77 — —709 —709 —456 1,525 —456 35 1,104 48 —513 —62 117 — 573 —148 4 —461 96 1 —345 389 715 1,104 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 11,12,20 6 6 8 7 7 6 8 6 24 25 sirius international insurance corporation – annual report 2015 Performance Analysis – Parent Company 2015 (MSEK) Direct Swedish risks — property Direct Swedish risks — aviation Direct foreign risks Assumed reinsurance TOTAL 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 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 2014 and earlier. 3 — —2 —1 0 —1 —1 — — — —1 — — — 3 — — — 3 —2 — — — — —2 3 — —3 — 0 —2 —1 —2 — — —3 — 1 1 3 — — — 3 —3 — — — — —3 652 5 —269 —336 52 —249 —546 —295 —10 — —851 222 43 265 1,240 —577 —54 43 652 3,053 46 —1,460 —968 671 —516 —1,254 —5,277 —140 —89 —6,760 480 1,347 1,827 4,655 —1,673 38 33 3,053 3,711 51 —1,734 —1,305 723 —768 —1,802 —5 ,574 —150 —89 —7,615 702 1,391 2,093 5,901 —2,250 —16 76 3,711 —527 —2,297 —2,829 226 —8 58 —18 —269 759 —129 437 —230 —1,460 985 —137 495 —248 —1,734 26 sirius international insurance corporation – annual report 2015 Note 1 – Accounting principles GENERAL INFORMATION This annual report was issued per December 31, 2015 and refers to Sirius International Försäkringsaktiebolag (publ), both the Group and the Parent Company, which is an insurance company with its registered offices in Stock- holm. The address of the head office is Birger Jarlsgatan 57B, Stockholm and the Corporate Identity Number is 516401-8136. The Group’s ultimate owner is White Mountains Insurance Group Ltd., Hamilton, Bermuda. The Group writes property and casualty insurance and reinsurance, see Note 34 Class analysis for further information. COMPLIANCE WITH STANDARDS AND LAW The Company’s annual report has been prepared in accordance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), as well as the Swedish Financial Supervisory Authority’s regulations and general guidelines on Annual Reports in Insurance Companies (FFFS 2008:26) with the amend- ments in FFFS 2009:12, FFFS 2011:28 and FFFS 2013:6 as well as the Swedish Financial Reporting Board RFR 2. The Sirius International Group’s annual report has been prepared in accord- ance with the Swedish Act on Annual Accounts in Insurance Companies (ÅRFL), as well as the Swedish Financial Supervisory Authority’s regulations and general guidelines on Annual Reports in Insurance Companies (FFFS 2008:26) with the amendments in FFFS 2009:12, FFFS 2011:28 and FFFS 2013:6, the Swedish Financial Reporting Board RFR 1 Supplementary Accounting Rules for Groups, as well as International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the EU. ASSUMPTIONS IN THE PREPARATION OF THE COMPANY’S FINANCIAL REPORTS The Company’s functional currency is the Swedish krona (SEK) and the financial reports are presented in Swedish kronor. Unless otherwise stated, all amounts are rounded to the nearest million. Assets and liabilities are recorded at acqui- sition cost, with the exception of certain financial assets and liabilities which are valued at fair value. Financial assets and liabilities valued at fair value consist of derivative instruments, financial assets classified as financial assets valued at fair value via the income statement or as available-for-sale financial assets. CHANGES TO STANDARDS, STATEMENTS AND INTERPRETATIONS The Annual Report per December 31, 2015 has been prepared in accord- ance with standards, statements and interpretations that have come into force during the year. Furthermore, a number of standards, statements and interpretations have been published but have not yet come into force. Below follows a summary and a preliminary assessment of the effect these standards, statements and interpretations have and may have on the Company’s financial reports. Changes other than those given below are not deemed relevant, alter- natively are not expected to affect the Group’s financial reports. New and amended standards applied by the Group The following standards are applied by the group for the first time for the finan- cial year starting January 1 2015: • Yearly improvements of the IFRS standards, improvement cycle 2011-2013. Refers to clarifications regarding IFRS 1, IFRS 3, IFRS 13 and IAS 40. • IFRIC 21 Levies that concerns accounting of property tax and fees to the Swedish Financial Supervisory Authority for their supervisory activities. None of the IFRS standards that are mandatory for the first time for the financial year that started January 1 2015 has had any significant impact on the group’s income statement or balance sheet. New standards, amendments and interpretations of existing standards which have not yet entered into force and which have not been early adopted by the Group A number of new standards and interpretations come into effect for financial years beginning after 1 January 2015 and have not been applied in the prepara- tion of these financial statements. These new standards and interpretations are expected to impact the group’s financial reports in the following way: IFRS 9 “Financial Instruments” addresses the classification, measurement 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 con- tractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through P&L with the irrevocable option at the inception to 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 through P&L. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The EU has not yet adopted the standard. The group is yet to assess IFRS 9’s full impact. IFRS 15 ”Revenue from contracts with customers” regulates the reporting of incomes that are not yet regulated by other standards such as incomes from financial instruments, leasing and insurance contracts. The principles that IFRS 15 is built upon shall provide users of financial reports with more useful information regarding the company’s revenues. The increased disclosure re- quirements implies that information regarding revenue segments, timing of set- tlement, uncertainty in connection to revenue recognition and cash flow from customers shall be disclosed. IFRS 15 is based on the principle that the revenue is recognised when the customer obtains control over the sold good or service – a principle that replaces the earlier principle that revenues are recognised when risks and benefits have passed over to the buyer. IFRS 15 replaces IAS 18, Incomes, and IAS 11, construction contracts and the related SIC and IFRIC. IFRS 15 come into effect on January 1 2018. Early adoption is permitted. The EU has not yet adopted the standard. A company can choose between a modified retrospective approach or recognizing the cumulative effect with additional disclosures. The group has not yet evaluated the effects of the introduction of the new standard. IFRS 16 Leases. In January 2016, IASB issued a new lease standard that will replace IAS 17 Leases and the related interpretations IFRIC 4, SIC-15 and SIC-27. The standard requires assets and liabilities arising from all leases, with some exceptions, to be recognized on the balance sheet. This model reflects that, at the start of a lease, the lessee obtains the right to use an asset for a period of time and has an obligation to pay for that right. The accounting for lessors will in all material aspects be unchanged. The standard is effective for accounting periods beginning on or after 1 January 2019. Early adoption is permitted. EU has not yet adopted the standard. The group has not yet assessed the impact of IFRS 16. No other of the IFRS or IFRIC interpretations which have not yet entered into force are expected to have any significant impact on the Group or, if applicable, the Parent Company. ASSESSMENTS AND ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with International Finan- cial Reporting Standards requires the Company’s management to make assess- ments and estimates, as well as assumptions impacting the application of the accounting principles and the recorded values of assets, provisions, liabilities, income and expenses. These estimates and assumptions are based on historical experience and a number of other factors considered reasonable in the current situation. The results of these estimates and assumptions are, subsequently, 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 contracts as insurance or investment contracts. Insurance contracts and financial instruments According to IFRS 4, contracts transferring significant insurance risk should be classified as insurance. The Company has made the assessment that insurance risk in excess of five percent should be deemed significant and the contract is and recognition of financial assets and liabilities. The complete version of IFRS thus classified as insurance. 9 was issued in July 2014. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial All agreements that are insurance contracts have been subject to assess- ment regarding whether they signify a transfer of significant insurance risk, so that they can also be presented as insurance contracts in the accounts. In 27 sirius international insurance corporation – annual report 2015 Note 1 – Cont. the case of certain agreements which are a combination of risk and savings, decessor accounting method” or at fair value. The “Predecessor accounting the Company has been obligated to undertake an assessment of the contracts method” implies that the acquirer assumes the acquired company’s reported which can be considered to signify a transfer of significant insurance risk. The book values as presented in the divested entity’s accounts. Adjustment of the amount of the insurance risk has been assessed through a consideration of acquired values is to be carried out in the case that these accounts are not pre- whether there exists one or more scenarios with commercial implications in pared in accordance with IFRS. Furthermore, the method implies that goodwill which the insurance company would be liable to pay significant further benefits is not reported; any possible difference between the consideration paid and the in excess of the amount which would have been paid had the insured event acquired values is reported directly against shareholders equity. Intra-group never occurred. business combinations are valued and accounted for according to IFRS . Certain contracts include an option for the contract holder to insure themselves in the future. The Company does not consider such options, in themselves, to constitute a material insurance risk. Important sources of uncertainty in estimates The Company makes assessments and estimates forming the basis for the Associated companies Associated companies are those companies in which the Group has a significant, but not controlling, influence over the operational and financial administration, usually through the holding of participations between 20 % and 50 % of the number of votes. From the point in time when the significant valuation of certain assets, provisions and liabilities. These assessments and influence is acquired, participations in associated companies are recorded in valuations are made on an ongoing basis and are based on previous experience the consolidated accounts according to the equity method. The equity method and future expected outcomes. Technical provisions The Company’s accounting principles for insurance contracts are described implies that the value of the shares in the associated company, reported in the Group, corresponds to the Group’s share of the associated companies’ equity and Group goodwill and any other remaining amount of positive or negative group adjustment in consolidation. The Group’s participations in the associate’s below. The Company’s most critical accounting estimate concerns insurance net profit after taxes and minority interests, adjusted for any amortization, im- technical provisions. This estimate is based on historical experience and other pairment or dissolution of acquired surplus or deficit value, are reported in the relevant factors considered as reasonable. Even if the applied methods and consolidated income statement under the item ”Share of associated companies’ employed parameters are assessed as correct, future outcomes may deviate income”. Dividends received from associated companies decrease the book from the expected value. value of the investment. The process applied for the determination of central assumptions, forming When the Group’s share of reported losses in an associated company the basis for the valuation of the provisions, is described in Note 2. exceeds the book value of the Group’s participations in the company, the value Determination of fair value of financial instruments The valuation methods described below have been applied in the valuation of financial assets and liabilities for which there is no observable market price. There may be some uncertainty as regards the observed market price for finan- of the participations is reduced to zero. The equity method is applied up to the point in time when the significant influence ceases. Transactions eliminated on consolidation Receivables and liabilities, income and expenses, and unrealized gains and loss- cial instruments with limited liquidity. Such instruments may, therefore, require es arising on internal transactions between Group companies are eliminated further assessments, depending on the uncertainty of the market situation. For a in their entirety when the consolidated financial statements are prepared. Unre- sensitivity analysis of interest- and equity risk, see note 2 Information on risks. alized gains arising from transactions with associated companies and joint ven- Company management has discussed the development, selection and tures are eliminated to the extent corresponding to the Group’s participating disclosure of significant accounting principles and estimates of the Group and of interest in the company. Unrealized losses are eliminated in the same manner the Parent Company, as well as discussing the application of these principles and as unrealized gains, but only to the extent there is no write-down requirement. estimates. The specified accounting principles have been consistently applied to all periods presented in the financial statements, unless stated otherwise below. APPROVAL The annual accounts were approved for publication by the Board of Directors 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, on March 15, 2016. The income statement and balance sheet will be adopted at including the branch offices, and the Group’s, functional currency is the Swed- the General Meeting held in May 2016. CONSOLIDATION PRINCIPLES Subsidiaries Subsidiaries are companies in which the Parent Company has a controlling 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 fluctuations are recorded net in the income statement on the lines, Investment, income or Investment, expenses. influence. The term “controlling influence” refers to the direct or indirect right to formulate a company’s financial and operative strategies with the Financial statements of foreign operations Assets and liabilities in foreign operations, including goodwill and other Group intention of receiving financial benefit. Acquisitions of subsidiaries are reported surplus and deficit values, are translated from the functional currency of the according to the purchase method, as described in IFRS 3, with the exception of foreign operation to the Group’s reporting currency, Swedish kronor, at the intra-group acquisitions of subsidiaries under common control. The application exchange rate prevailing on the balance sheet date. Income and expenses of the purchase method implies requirements for the identification of the in foreign operations are translated into Swedish kronor at an average rate purchaser and the establishment of the acquisition date. The purchase method that approximates the exchange rates prevailing at the date of the respective further implies that the acquisition of subsidiaries is considered to be a transac- transactions. Translation differences arising in the translation of foreign net tion through which the Group indirectly acquires the subsidiary’s assets and as- investments and the associated effects of the hedging of net investments are sumes its provisions, liabilities and contingent liabilities. The Group acquisition recorded in other comprehensive income. Upon disposal of a foreign operation, value is determined through an acquisition analysis of the identifiable acquired accumulated translation differences attributable to the operation, less any assets and the assumed provisions and liabilities, as well as any contingent currency hedging, are realized in the Group’s income statement. liabilities concurrent with the acquisition. In the case of business acquisitions in which the acquisition cost exceeds the net value of the acquired assets and Rates for the most important currencies assumed provisions and liabilities and contingent liabilities, the difference is recorded as goodwill. When the difference is negative, this is recorded directly in the income statement. The subsidiary’s financial reports are included in the consolidated financial statements as of the acquisition date, until such date as the controlling influence is transferred from the Parent Company. As IFRS 3 is not directly applicable on intra-group business combination under common control, such acquisitions are reported according to the “pre- USD EUR GBP Closing rates Average rates 8.42 9.17 12.47 8.39 9.34 12.84 28 sirius international insurance corporation – annual report 2015 Note 1 – Cont. INSURANCE CONTRACTS Insurance contracts are recorded and valued in the income statement and 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. balance sheet in accordance with their financial substance as opposed to their The provision for incurred but not reported claims (IBNR) includes costs for legal form, in the event that these differ. Contracts transferring material insur- incurred but, to date, unknown claims and not yet fully reported claims. This ance risks from the policyholder to the Company and whereby the Company amount is an estimate based on historic experience and outcome of claims. agrees to compensate the policyholder or other beneficiary in the event that a The income statement recognizes the change in provision for in outstanding pre-determined insured event occurs are recorded as insurance contracts. Fi- claims for the period. nancial instruments are contracts which do not transfer any material insurance 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 bi-annual- tive if they wholly or in part relates to later insurance period. In calculating ly. If the recoverable amount is lower than the carrying amount of the asset, the these provisions, an estimate is made of anticipated costs for any claims that asset is impaired to the recoverable amount and the impairment is recorded in may occur during the remaining terms of these insurance policies, as well as 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 REPORTING OF INVESTMENT RETURN Investment income allocated to the technical account Investment return is transferred from the non-technical account to the tech- the premium for the contracts in force and if the latter exceeds the costs, the nical account on the basis of average technical provisions for the Company’s unexposed portion of the written premium will form an unearned premium re- own account, less deductions for net receivables in insurance operations. This serve. If the future costs exceed the unexposed portion of the written premium, capital base is allocated per currency. The transferred investment return is the deferred acquisition costs are written down, but if that is insufficient, an calculated on the basis of an interest rate per currency equivalent to the actual unexpired risk provision will also be set up. The unexposed premium is also in total yield from the investment assets belonging to the insurance operations. this case recorded as a provision for unearned premium. The income statement The weighted average interest rate for 2015 amounted to 1.25 %. recognizes the change in provision for unearned premium reserve and unex- pired risks. Provision for outstanding claims This balance sheet item comprises of estimated nominal cash flows relating to final costs for settlement of all claims resulting from events occurring before the close of the financial year, with deduction of those amounts that have al- ready been paid, on the basis of receipt of claims payment advices. This amount 29 sirius international insurance corporation – annual report 2015 Note 1 – Cont. Applied interest rates % EUR GBP SEK USD 2015 1.12 % 1.95 % 0.78 % 1.27 % 2014 7.31 % 6.65 % 4.44 % 2.12 % 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. Investment expenses and charges Charges on investment assets are recorded under the item Investment expens- es and charges. The item comprises operating costs for land and buildings, asset management costs, interest expense, net foreign exchange losses, depre- ciations and impairments and net capital losses. Changes in realized and unrealized gains and losses For investment assets valued at acquisition value, capital gain comprises the positive difference between sale price and book value. For investment assets valued at fair value, a capital gain is the positive difference between sale price and acquisition value. For interest-bearing securities, acquisition value is the amortized cost value and, for other investment assets, it is the historical acqui- sition value. At the sale of investment assets, previously unrealized changes in value are recognized as adjustment entries under the item Unrealized profits from investment items or Unrealized losses from investment items, as appro- priate. As regards interest-bearing securities classified as available-for-sale financial assets, previously unrealized changes in value are recognized as adjustment entries in Other comprehensive income. Capital gains from assets other than investment assets are recorded as Other income. Unrealized gains and losses are recorded net per asset class. Changes due to exchange rate fluctuations are recorded as exchange rate gains or exchange rate losses under the item Investment income/expenses. Share of associated company’s profit or loss Share of associated company’s profit or loss represents Sirius’ share of the associated company’s result, accounted for according to the equity accounting method. Currency translation effects are recorded in Other comprehensive income. based on assumptions on future profitability and earnings. If these assumptions change it could imply future reductions in deferred tax assets. Estimating fu- ture earnings, historical experience and assumptions of the future development of the underlying asset is considered. INTANGIBLE ASSETS Goodwill Goodwill comprises the amount by which the acquisition cost exceeds the fair value of the Group’s participation in the acquired subsidiary’s or associate’s identifiable net assets at the point in time of the acquisition. Goodwill on the acquisition of subsidiaries is recognized as an intangible asset. Goodwill is test- ed annually for impairment and is recognized at acquisition cost less accumu- lated impairment losses. Impairment losses of goodwill are not reversed. Profit or loss on the sale of a unit includes the remaining carrying value of goodwill referring to the unit sold. Goodwill is distributed to cash-generating units upon testing of any write-down requirement. Other intangible assets Other intangible assets which have been acquired separately are reported at acquisition cost. Other intangible assets acquired through a business acqui- sition are reported at fair value as per the acquisition date. Acquired Other intangible assets are capitalized on the basis of the costs arising at the point in time in which the asset in question was acquired and put into operation. Accounting of an intangible asset is based on it useful life. An intangible asset with a finite useful life is amortized while an intangible asset with an indefinite is not amortized but is impaired annually. Establishing the useful life is based on an analysis of each acquired intangible asset. The amortized amount of an intangible asset is periodized over the useful life. Self-developed software Costs for maintenance of software are charged at the time at which they arise. Development costs directly attributable to the development and testing of identifiable and unique software products controlled by the Company are repor- ted as intangible assets when the following criteria are fulfilled: — it is technically possible to prepare the software for use, the Company’s intention is to complete the software and to put it into use, — the conditions for the use of the software are in place, — the manner in which the software can generate probable future economic benefits can be demonstrated, — adequate technical, financial and other resources for the completion of development and for the use of the software are accessible, and — expenditure attributable to the software during its development period can be calculated in a reliable manner. INCOME TAX Income taxes are accounted according to IAS 12 and consist of current tax and deferred tax. Income taxes are recorded in the income statement, except when the underlying transaction is recorded in Other comprehensive income, whereupon the pertaining tax effect is recorded in Other comprehensive income. Other development costs, which do not fulfill these criteria, are charged at the time at which they arise. Development costs which have previously been charged are not reported as an asset in the following period. Development costs for software reported as an asset are amortized during their assessed useful life, which does not exceed five years. 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 of temporary differences between the book values of assets and liabilities and their tax values. Temporary differences are not considered as regards differ- ences arising at the initial recording of goodwill and the initial recording of as- sets and liabilities that are not business acquisitions and which did not affect ei- ther net profit/loss or taxable profit/loss at the transaction date. Furthermore, temporary differences referring to participations in subsidiaries or associated companies that are not expected to be reversed within the foreseeable future are not considered either. The valuation of deferred tax is based on the extent to which underlying assets and liabilities are expected to be realized or settled. Deferred tax is calculated with the application of the tax rates and regulations that have been enacted or practically enacted as per balance sheet date. 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 Licenses Licenses, acquired or otherwise received, are accounted as an intangible 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 are depreciated over 50 years. No depreciation is carried out on land. FINANCIAL INSTRUMENTS Financial instruments recorded in the balance sheet include, on the asset side, shares and participations, loan receivables, bond and other interest-bearing secu- rities as well as derivatives. Where appropriate, derivatives with negative market value are included among liabilities, other liabilities and shareholders’ equity. Acquisitions and disposals of financial assets are recorded on trade date, the date upon which the Company commits to acquire or dispose an asset and thus gains or loses control of the asset. Classification and valuation Financial instruments are initially recorded at acquisition value corresponding 30 sirius international insurance corporation – annual report 2015 Note 1 – Cont. to the fair value of the instrument plus transaction costs, except in the case of instruments, any transaction costs will be included in the acquisition value instruments belonging to the category Financial assets recorded at fair value when initially reported, and will, thereafter, be assessed on an ongoing basis at via the income statement, which are recorded at fair value exclusive of transac- fair value, to be included in other comprehensive income, until that point in time tion costs. A financial instrument is classified when it is initially reported, based the instruments in question mature or are disposed. At disposal of the assets, upon the purpose for which the instrument was acquired. This classification the accumulated profit/loss is recorded in the income statement. determines the manner in which the financial instrument will be valued after A long-term approach forms the basis for investments in this category, initial recording, as described below. where the yield granted by these instruments at the time of investment is of significance for which investments shall be made. 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- Other financial liabilities Borrowings and other financial liabilities, for example, accounts payable, are ognition as an asset to be measured at fair value trough the income statement included in this category. These liabilities are valued at fair value including (according to the so-called Fair Value Option). Fair Value Option is used in order transaction costs and are subsequently accounted at amortized cost. to reduce mismatch between valuation and accounting of financial assets. (i.e. accounting mismatch). Financial instruments in this category are continually valued at fair value, with changes in value recorded in the income statement. Financial guarantees Financial guarantee agreements are recorded as insurance contracts in ac- The first sub-group includes derivatives with a positive fair value. The first cordance with the accounting principles described in the section Accounting of sub-group includes derivatives with a positive fair value. The second sub-group insurance contracts, above. consists of financial investments in bonds and other interest-bearing securities along with shares and participations, with the exception of shares in subsidiar- ies or associated companies. Write-downs of financial instruments Impairment testing of financial assets At each reporting date, the Company assesses whether there exists any Calculation of fair value Financial instruments listed on an active market For financial instruments listed on an active market, fair value is determined objective evidence indicating that a financial asset or group of assets requires impairment as a consequence of one or several events occurring after the asset is reported for the first time and that these loss-making events have an impact on the basis of the asset’s listed bid rate at balance sheet date, with no added on the estimated future cash flows from the asset or group of assets. If there is transaction costs (e.g. commission) at the time of acquisition. A financial objective evidence indicating that an impairment requirement may exist, the as- instrument is considered to be listed in an active market if listed prices are sets in question are considered to be doubtful. Objective evidence is constituted easily accessible on a stock exchange, with a trader, broker, trade association, both of observable conditions which have arisen and which have a negative company supplying current price information or supervisory authority and impact on the possibility of recovering the acquisition cost, and of significant or these prices represent actual and regularly occurring market transactions un- extended reductions of the fair value of a financial investment classified as an der business-like conditions. Possible future transaction costs from a disposal available-for-sale financial asset. are not considered. These instruments are included in the balance sheet items Shares and participations and Bonds and other interest-bearing securities. The predominant proportion of the Company’s financial instruments has been Reversal of impairment An impairment is reversed if an indication exists both that the impairment assigned a fair value with prices quoted on an active market. 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 impairment of loans receivable and account receivables, recorded at amortized cost, is reversed if a later increase of the recoverable amount can be objectively the fair value by means of various valuation techniques. As far as is possible, related to an event occurring after the impairment has been performed. the valuation methods employed are based on market data, while company-spe- The impairment of interest-bearing instruments, classified as availa- cific information is used to the least degree possible. The Company regularly ble-for-sale financial assets, is reversed via Other comprehensive income if calibrates valuation methods and tests their validity by comparing the outcome fair value increases and this increase can objectively be related to an event of the valuation methods with prices from observable current market transac- occurring after the write-down was carried out. assumptions forming the basis of the estimation of the impaired amount. The tions in the same instrument. The total effect in the Income Statement for the year, and the values in the December 31, 2018 balance sheet, for financial instruments valued at fair value by LEASED ASSETS All lease agreements are classified and recorded in the Group and Parent Com- using valuation techniques based on assumptions that are neither supported by pany as operational leases. In operational leasing, the leasing fee is expensed the prices from observable current market transactions in the same instruments, over the duration of the lease, on the basis of the benefit received, which can nor based on available observable market information, is disclosed in Note 19. 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 TANGIBLE ASSETS Tangible assets are recorded at acquisition value after deduction for accumu- assets which are not listed on an active market and with fixed or determinable lated depreciation and any impairment, with a supplement for any appreciation. payments. These assets are measured at amortized cost. Amortized cost is In disposal or sale, gains and losses are recorded net in operating cost. Depre- determined by using the effective interest method at time of acquisition. Loans ciation takes place systematically over the estimated useful lives of the assets. receivables and accounts receivables are reported in the amounts which are Estimated useful lives for equipment such as cars, furniture and computer expected to be received, that is, after deductions for bad debt provisions. The equipment amounts to 3 – 10 years. major posts are Interest bearing investments emitted by, and loans to, group companies and Other debtors. Available-for-sale financial assets The category available-for-sale financial assets include financial assets not 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 classified in any other category or financial assets that the Company has indication of an impairment requirement exists, the asset’s recoverable amount initially chosen to classify in this category. The holding of bonds and other inter- is estimated in accordance with IAS 36. est-bearing securities is recorded here. Assets in this category are continuously 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 cash-generating unit exceeds its recoverable amount. An impairment loss is income, except for changes in value due to impairment or to foreign exchange recognized in the income statement. The impairment of assets related to a rate differences on monetary items recorded in the income statement. Fur- cash-generating unit is primarily allocated to goodwill. The proportional impair- thermore, interest on interest-bearing instruments is recorded in accordance ment of other assets included in the unit is subsequently performed. with the effective interest method in the income statement. As regards these The recoverable amount is the highest of fair value less selling expenses and 31 sirius international insurance corporation – annual report 2015 Note 1 – Cont. value in use. In the calculation of value in use, future cash flow is discounted by privately administered pension insurance plans on an obligatory, contractual or a discount factor that considers the risk-free interest rate and the risk associat- voluntary basis. The Group has no further payment obligations when all fees are ed with the specific asset. Reversal of impairment An impairment is reversed if an indication exists both that the impairment paid. The fees are reported as personnel costs at the point in time at which they fall due for payment. Prepaid fees are reported as an asset to the extent that cash repayment or reduction of future payments may benefit the Group. requirement no longer exists and that a change has taken place in the assump- tions forming the basis of the estimation of the recoverable amount. However, Remuneration upon termination of employment Remuneration upon employment of contract is payable when an employee’s the impairment of goodwill is never reversed. Reversals are only performed to employment is terminated by the Group before the normal retirement age the degree that the asset’s reported value after reversal does not exceed the or when an employee voluntarily accepts the termination of employment in reported value that should have been reported, with deduction for depreciation exchange for such remuneration. The Group reports severance payments when or amortization when appropriate, if no impairment had been carried out. it is demonstrably obliged to terminate employees’ employment in accordance DIVIDENDS Dividends are recorded as liabilities after approval of the dividend by the Gener- with a detailed formal plan, without possibility of revocation. In the case that the Company has submitted an offer to encourage voluntary termination of employment, the calculation of severance payment is based on the number of al Meeting of Shareholders. employees which it is estimated will accept this offer. OTHER PROVISIONS A provision is recognized in the balance sheet when the Company has an exist- CONTINGENT LIABILITIES A contingent liability is recognized when there is a possible obligation which ing legal or constructive obligation as a result of past events, when it is likely arises from past events and whose existence is solely confirmed by one or more that an outflow of resources will be required to settle the obligation and when uncertain future events, or when there is a commitment which is not recorded the amount can be estimated reliably. In cases in which the date of payment has as a liability or provision due to the fact that it is unlikely that an outflow of a material effect, the amount of the provision is calculated via the discounting resources will be required. of the expected future cash flow to an interest rate before taxes which reflects the relevant market assessments of the effect of the time value of money and, if applicable, the risks associated with the liability. Pensions and similar commitments The Group companies’ pension plans differ. The pension plans are usually PARENT COMPANY’S ACCOUNTING PRINCIPLES The Parent Company’s annual report, as well as its financial statements in gen- eral, has been prepared using the same accounting principles and calculation methods used in the most recent annual report. financed through payments to insurance companies or managed funds. These payments are determined based on periodic actuarial calculations. The Group Differences between accounting principles in the Group and the Parent Company The differences between the accounting principles in the Group and the Parent has both defined benefit and defined contribution pension plans. A defined con- Company are presented below. The accounting principles stated below for the tribution plan is a pension plan under which the Group pays fixed contributions Parent Company have been consistently applied for all periods presented in the into a separate legal entity. The Group has no legal or constructive obligations 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 the several factors, such as age, duration of employment and salary. Swedish Annual Account Act and is reported in the balance sheet on a straight- The liability reported in the balance sheet regarding defined benefit pension line basis over the estimated useful life of the asset. The estimated useful life is plans is the current value of the defined benefit obligation at the end of the reviewed annually. The estimated useful life for goodwill, and goodwill arising period, reduced with the fair value of the managed assets, with adjustments for from the purchase of the net assets of a business, amounts to 20 years. Amor- actuarial gains and losses. The defined benefit pension plan obligation is calcu- tization which deviates from plan is handled as an appropriation and is reported lated annually by independent actuaries applying the so-called projected unit under the heading Difference between reported depreciation/amortization and credit method. The current value of the defined benefit obligation is determined 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 characteristics of the defined pension obligation, both in terms of duration and Subsidiaries and associated companies The Parent Company records participations in subsidiaries and associates the currency in which the remuneration will be paid according to the cost method. Only dividends which have been received are The service cost for current year is recognized in the Income Statement. Costs recognized as income, provided that such dividends derive from profits earned referring to service during earlier periods are reported directly in the income subsequent to the acquisition. Dividend amounts exceeding this earned profit statement, unless the changes in the pension plan are conditional on the em- are considered as repayment of the investment and reduce the carrying value ployee remaining employed during a given period (earning period). In this case, of the participations. the cost referring to service during earlier periods is distributed on a straight-line In the Parent company’s financial statements transaction costs are capital- basis over the earning period. Actuarial gains and losses on the defined benefit ized in the balance sheet and are added to the total acquisition amount booked obligation and the fair value on the plan assets are recognized in Other compre- as shares in subsidiaries. In the consolidated accounts transaction costs are hensive 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 of amount before the Parent Company has published its financial statements. 65. Employees born 1955 and earlier have the possibility to retire between the ages of 62 and 65 according to local agreement. Staff employed before January 1, 2004 have the right to retire from the age of 64. These plans are also defined Taxes Untaxed reserves are recorded in the Parent Company including deferred in- benefit plans and are reflected in financial statements of both the Group and the come tax liabilities. However, untaxed reserves in the consolidated accounts are Parent Company. allocated between deferred income tax liabilities and shareholders’ equity. For defined contribution pension plans, the Group pays fees to publicly or 32 sirius international insurance corporation – annual report 2015 Note 1 – Cont. Pensions The Parent Company applies a different form of reporting of defined benefit Equalization provision The Parent Company’s balance sheet includes an Equalization provision within pension plans than stipulated in IAS 19. The Parent Company’s reporting of Technical provisions, and any changes for the period in this provision are defined benefit pension plans follows the Pension Obligations Vesting Act and reported in the income statement. The amount of the provision is calculated as the regulations of the Swedish Financial Supervisory Authority, as it is stated the equivalent of 150 % of the highest net premium income for Class 14, credit in RFR 2 that it is not necessary to apply the regulations in IAS 19 regarding insurance, with equivalent reinsurance, for the five most recent financial years. defined benefit pension plans in legal entities. Pension costs are reported as The provisions for each financial year are equivalent to 75 % of the technical Operational expenses in the Parent Company’s income statement and a provi- surplus in the credit insurance operations. However, in the consolidated balance sion referring to individuals with the option of retiring at the ages of 62 and 64 sheet, the Equalization provision is allocated into deferred tax liabilities and is found on the line Pension provisions in the Parent Company’s balance sheet. shareholders’ equity. Appropriations and untaxed reserves Appropriations and untaxed reserves are only recorded in the Parent Company. Group contributions and shareholders’ contributions for legal entities The Company reports group contributions and shareholders’ contributions in Taxation legislation in Sweden gives companies the option of decreasing accordance with the Swedish Financial Reporting Board (RFR2). taxable income for the year by making provisions to untaxed reserves. When Shareholders’ contributions are recorded directly against shareholders’ applicable, untaxed reserves are set off against fiscal loss deductions or be- equity in the receiving entity and in shares and participations in the entity come subject to taxation upon resolution. In accordance with Swedish practice, providing the contribution, to the extent that no impairment is required. changes in untaxed reserves are recorded in the income statement. Provisions Group contributions are recorded according to their financial significance. made to untaxed reserves are recorded in the income statement under the This implies that group contributions provided and received for the purpose of heading Appropriations. The accumulated value of the provisions is recorded in minimizing the Group’s total taxes are recorded directly against retained earn- the balance sheet under the heading Untaxed Reserves. ings, with a deduction for the current tax effects of the contribution. A total of 22 % of the untaxed reserves can be considered as a deferred tax Group contributions which can be seen as the equivalent of a dividend are liability and 78 % as shareholders’ equity. The deferred tax liabilities can be reported as a dividend. This implies that group contributions received and their described as an interest-free liability with a non-defined duration. In the group current tax effects are recorded in the income statement. Group contributions accounts, 22 % of the untaxed reserves are allocated to deferred tax liabilities provided and their current tax effects are recorded directly against retained and 78 % to shareholders’ equity. In an assessment of financial strength, the to- earnings. In the receiving entity, group contributions which can be seen as the tal value of the untaxed reserves is considered risk capital, as any losses can be equivalent of a shareholders’ contribution are directly recorded in retained covered, to a large extent, by the dissolution of untaxed reserves without taxes earnings, with consideration for current tax effects. The contributor records the becoming payable. The largest item attributable to untaxed reserves refers to group contribution and its current tax effects as investments in participations the safety reserve. The safety reserve forms a collective security-conditioned in the Group companies, to the extent that impairments are not required. reinforcement of the technical provisions. Accessibility is limited to loss cover- age and otherwise requires official authorization. 33 sirius international insurance corporation – annual report 2015 34 sirius international insurance corporation – annual report 2015 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, 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’ thinking. Sirius defines ERM as the discipline by which the company identifies, assesses, controls, monitors, and discloses risks from all sources for the pur- Internal Audit fulfils an important role in the independent evaluation of risk management and control systems. This includes the evaluation of the reliability of reporting, the effectiveness and efficiency of operations, and compliance with laws and regulations. The Internal Audit department reports directly to the 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 culture that emanates from top management and which permeates throughout the entire organization. Sirius strives to maintain a risk culture where employ- ees are aware of and measure, assess and communicate risk as part of their responsibilities. Management’s role includes communicating, implementing, monitoring and fostering this culture. Sirius’ ultimate owner is listed on the New York Stock Exchange and, con- sequently, is required by the Sarbanes-Oxley Act, Section 404, to express an opinion on the effectiveness of internal control over financial reporting execut- ed during the year. As part of this assessment, a thorough documentation and evaluation of all processes and controls leading up to the annual report have been undertaken. This work has enabled Sirius to demonstrate compliance with the requirements of the Act. 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 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 — Demonstrate strong risk management through a well-defined process (after retrocessional protections) that Sirius is willing to assume. including identification, quantification, monitoring, and appropriate Sirius divides insurance risk management into two principal areas; under- management response writing risk and reserve risk. — 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- 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. ment processes. Sirius’ risk strategy and risk tolerance have been established The goal for all underwriting is to maximize profitability for each selected by Sirius’ Board of Directors. The aim is to secure a balance between risk, return risk level. The anticipated profitability of each underwriting decision shall and capital requirements. As part of the planning process, strategic limits are comprise the basics of all underwriting. Other underwriting guiding principles explicitly discussed and specified. The strategic risk tolerance is expressed include diversification, strong accumulation controls and an active use of rein- either in quantitative terms (e.g., an aggregate risk limit for windstorms in surance in order to adjust risks to acceptable risk tolerance levels. Europe) or in qualitative terms (e.g., in relation to operational risk). From these At Sirius America the ultimate responsibility for managing these risks is as- overall risk tolerance statements, risk limits are applied at a detailed level signed by underwriting unit. For property it is the Property Chief Underwriting throughout the organization in the form of maximum risk exposure, retroces- Officer, and for A&H it is the Global A&H Head in conjunction with the America sion limits, foreign exchange exposure limits, maximum equity exposure in the Underwriting Manager. They are ultimately responsible for managing these investment portfolio, etc. risks. Sirius America is governed by similar underwriting guidelines as Sirius As part of the ERM culture, Sirius embraces the following qualitative principles: The insurance premiums for assumed business are to cover expected losses — Controlled/moderate risk taking and adequate capitalization and expenses as well as provide a reasonable return on deployed capital. The — Reduce risk by proper risk selection and active portfolio diversification premium risk is therefore associated with any possible level of losses deviating — All insurance transactions are expected to yield positive technical results from expected levels. The premium risk is generally managed through the — Active use of retrocession as part of business and capital planning application of pricing models and underwriting procedures, but also through — Positive investment returns through a diversified portfolio of high quality a restructuring of under-performing business, active use of retrocession or International, as appropriate. debt and equity investments — Strong accumulation control — Strong and independent control functions — Motivate employees to further develop their risk management capabilities RISK GOVERNANCE The risk management processes within Sirius are supported by a risk man- 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 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 procedures, risk models and reporting routines. This is described in further detail in the risk sections below. Sirius’ Board of Directors is ultimately responsible for the company’s risk management strategy, risk tolerances and policies and Sirius’ management has the day-to-day responsibility for all ERM activities. To deploy these responsibili- ties, different risk committees carry out certain pre-defined duties. In order to ensure consistency in the underwriting process, all underwriting within Sirius complies with specific rules and procedures. Detailed underwriting guidelines comprise the framework for all risk acceptances, and these guide- lines contain sections regarding, for example, limits, underwriting authorities and restricted business. A Four-Eyes underwriting system, that is, a system in which at least two individuals participate in each decision, is applied for the majority of the business. The underwriting guidelines are reviewed at least annually and updated when appropriate. The Risk Management Committee has the objective of formalizing the oversight There are several levels of control functions as well as technical systems, of critical risks, including the following risk management processes: — Establishment of risk tolerances — Identification and management of emerging risks — Quantification and subsequent monitoring of exposures — Implementation of risk reduction/reward expansion strategies — Risk reporting which are in place to monitor and control that underwriting policies and proce- dures are followed. At Sirius International, there is an underwriting control unit reporting to the Chief Underwriting Officer. This group focuses in detail on how the business is underwritten and that the underwriters follow issued policies and procedures. Another group controls the underwriting system and ensures 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 2015 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 24 Claims reserve, where a company can obtain an estimation of catastrophe risk, both prior to and after specification of claims costs and expenses relating to the current year and prior retrocession. 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 1,598 catastrophe risks, divided by geographical area and return periods. Sirius ana- (1,498) 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 2014 and 2015. increase during 2015 is caused entirely by changes in fx. In original currency (USD) we have a 1.5 % reserve decrease. SENSITIVITY ANALYSIS — LOSSES DIVIDED BY GEOGRAPHICAL AREA AND RETURN PERIODS FOR THE GROUP 2015 2014 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 4,688 2,918 3,209 1,436 4,255 2,808 5,423 3,572 4,187 1,852 5,156 3,488 4,345 3,923 3,192 1,458 3,993 3,846 5,054 4,687 4,063 1,803 4,756 4,573 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 2015. 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 2015 Note 2 – Cont. 10-YEAR TABLE GROUP – CLAIMS, GROSS 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) 2005 AND PRIOR YEARS TOTAL 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL 2,936 3 , 7 1 4 6,279 6,204 7, 2 0 1 10,482 9,044 6,306 6,282 6,286 6,286 6,030 256 — — 4 , 1 0 5 4,997 4,97 7 4,878 8 ,9 1 0 8,873 8,866 8,842 8 , 8 3 1 8 , 8 3 1 8,575 256 — — 4,200 5,240 5,226 8,997 8,960 8 ,9 4 1 8,898 8,837 8,837 8,570 268 — — 4,069 5,893 9, 0 5 1 8,905 8,832 8,74 2 8,785 8,785 8,532 253 — — 3,380 8,544 8 , 4 1 2 8,358 8 , 1 7 9 8 , 1 2 3 8 , 1 2 3 7, 7 1 0 414 — — 4,939 6 , 4 1 2 6 , 61 8 6,255 6,082 6,082 5 , 8 1 3 269 — — 3 , 4 5 1 4,575 4,336 4,230 3,254 4,894 4,7 74 2,886 4,990 2,894 4,230 3 , 6 6 1 570 — — 4 ,7 74 3,946 828 — — 4,990 3 , 1 1 3 1,876 — — 2,894 45 4 2,441 — — 7,430 5,705 13,136 GROUP – CLAIMS, NET OF REINSURANCE UNDERWRITING YEAR 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 2005 AND PRIOR YEARS TOTAL 2,634 3,354 3,480 3,449 3 , 4 1 8 6 , 1 5 1 5,875 5, 8 18 5,795 5,799 5,799 5,550 249 — — 3,653 4,477 4,429 4,329 8,567 8 , 1 6 5 7,75 6 7, 7 3 1 7, 7 2 1 7, 7 2 1 7,4 87 235 — — 3,859 4,629 4,573 8,647 7,872 7, 7 5 1 7, 7 1 9 7,694 7,694 7,4 47 247 — — 3,539 4 , 5 9 1 7, 8 87 7, 453 7, 386 7, 3 1 6 7, 3 5 1 7, 3 5 1 7, 1 2 3 228 — — 2 ,792 7,844 7, 57 9 7, 5 32 7, 3 47 7, 304 7, 304 6,964 340 — — 4,448 6,065 6 ,0 1 6 5,657 5,628 5,628 5,388 240 — — 3 , 1 7 1 3,952 3,680 3,583 2,360 3,447 3, 367 2,064 3,629 2 , 1 2 8 3,583 3 ,1 5 0 433 — — 3, 367 2 , 7 6 1 606 — — 3,629 2 ,1 0 8 1,521 — — 2 , 1 2 8 269 1,859 — — 5,959 4,795 10,755 PARENT COMPANY – CLAIMS , GROSS UNDERWRITING YEAR 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 2005 AND PRIOR YEARS TOTAL 2,936 3 , 7 1 4 6,279 6,204 7, 2 0 1 7, 874 6,504 3,768 3,766 3,767 3,767 3 , 7 1 9 48 — — 4 , 1 0 5 4,997 4,97 7 4,878 4,855 4 , 8 4 1 4,839 4,842 4,835 4,835 4,760 75 — — 4,200 5,240 5,226 5 , 1 4 3 5 ,1 5 0 5 , 1 2 9 5,083 5,035 5,035 4,898 137 — — 4,069 5,893 5 , 6 1 2 5,530 5 , 4 9 1 5,433 5,455 5,455 5,290 166 — — 3,380 5 , 1 3 1 4,966 4,936 4,833 4,805 4,805 4,497 309 — — 2,366 3,493 3,335 3 ,1 4 8 3 , 1 1 3 3 , 1 1 3 2,775 338 — — 2,203 2,902 2 ,74 7 2,690 2,389 3, 323 3 , 1 2 5 1 , 8 8 2 2,760 1 , 7 7 2 2,690 2,259 431 — — 3 , 1 2 5 2,502 623 — — 2,760 1 , 6 4 8 1 , 1 1 1 — — 1 , 7 7 2 196 1,575 — — 4,814 760 5,574 PARENT COMPANY – CLAIMS , NET OF REINSURANCE UNDERWRITING YEAR 2010 2008 2009 2007 2006 2011 2012 2013 2014 2015 TOTAL Estimated claims: at the close of the calendar year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later Current estimate of total claims Total paid CLAIMS OUTSTANDING 1) 2005 AND PRIOR YEARS TOTAL 2,634 3,354 3,480 3,449 3 , 4 1 8 3, 4 1 0 3, 4 0 1 3,402 3,404 3,405 3,405 3,365 41 — — 3,653 4,477 4,429 4,329 4,303 4,290 4,290 4,296 4 , 2 9 1 4 , 2 9 1 4,236 54 — — 3,859 4,629 4,573 4,485 4, 50 1 4,488 4,442 4 , 4 1 2 4 , 4 1 2 4 , 3 1 5 97 — — 3,539 4 , 5 9 1 4,349 4,346 4 , 3 1 8 4,262 4,278 4,278 4 , 1 6 5 113 — — 2 ,792 4,287 4 , 1 1 1 4,084 3,963 3,939 3,939 3 , 7 1 6 224 — — 1 , 8 4 4 2,662 2,527 2,343 2 , 3 1 7 2 , 3 1 7 2,009 307 — — 1 ,78 0 2,226 2,062 1 ,9 9 4 1 , 4 9 7 2 ,1 0 9 1 ,9 8 5 1 , 2 3 4 1 , 8 2 0 1 , 2 3 2 1 ,9 9 4 1 , 6 9 9 295 — — 1 ,9 8 5 1 , 5 76 409 — — 1 , 8 2 0 1 , 0 07 813 — — 1 , 2 3 2 101 1 , 1 3 1 — — 3,484 700 4,183 1) For reconciliation against Balance Sheet, see Note 24. 37 sirius international insurance corporation – annual report 2015 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 2015 yielded a total return The overall investment objective is to achieve consistent positive returns and of 3.2 percent (4.7 percent in 2014), expressed in SEK. The duration in the to maximize long-term after-tax return on invested assets within prudent levels portfolio with interest-bearing investments at the end of 2015 was 2.38 years of risk, through a diversified portfolio of high-quality fixed income and equity which was slightly higher compared to 2014 (2.1 years). During the year, only investments. minor changes between different asset classes have been made. The table Sirius makes an important distinction between Policyholder Funds Invest- below shows the investment assets divided by class of asset, excluding deposits ments and Owners’ Funds Investments. Policyholder Funds are defined as in companies 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 2015 2014 2015 2014 71.08 0.52 20.41 1.34 —2.79 10.78 68.02 37.18 0.46 19.44 1.73 0.09 11.99 59.90 0.74 0.64 —4.33 6.51 35.77 53.31 2.53 0.50 0.13 8.26 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 2015 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, 2015 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, 2015 and December 31, 2014. 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) 2015 1,679 1,479 14,524 17,681 EXPOSURE (MSEK) 2015 1,304 1,478 4,519 7,301 2014 2,506 1,540 13,889 17,935 2014 2,056 1,540 3,374 6,970 2015 100 bp 100 bp 100 bp — SCENARIO, STRESS TEST 2015 100 bp 100 bp 100 bp — 2014 100 bp 100 bp 100 bp — 2014 100 bp 100 bp 100 bp — 2015 2014 33 75 290 399 60 40 297 397 CAPITAL REQUIREMENTS (MSEK) 2015 2014 24 75 101 200 53 40 102 195 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, 2015 and December 31, 2014. 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) 2015 5,387 127 5,514 EXPOSURE (MSEK) 2015 2,858 8,223 11,081 2014 5,186 122 5,308 2014 3,544 7,103 10,647 2015 35 % 35 % — 2014 35 % 35 % — 2015 1,885 45 1,930 2014 1,815 43 1,858 SCENARIO, STRESS TEST CAPITAL REQUIREMENTS (MSEK) 2015 35 % 35 % — 2014 35 % 35 % — 2015 1,000 2,878 3,878 2014 1,240 2,487 3,727 39 sirius international insurance corporation – annual report 2015 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 2015 2014 USD EUR GBP Other USD EUR GBP Other 5,496 13,635 2,244 2,910 5 1,488 145 94 — 1,701 63 4 24,285 1,732 1,768 5,230 12,837 2,328 2,716 15 1,505 156 —121 — 1,315 34 74 23,111 1,555 1,423 Technical provisions, net Total liabilities and provisions —10,503 —1,309 —10,503 —1,309 Net exposure before financial hedging with derivatives 13,782 423 —330 —330 1,438 —10,500 —10,500 12,611 Nominal value currency forwards —5,055 — — — —4,666 NET EXPOSURE AFTER FINANCIAL HEDGING WITH DERIVATIVES 8,727 423 1,438 —46 7,945 —1,372 —1,372 183 —6 177 —260 —260 1,163 — 1,163 — 264 285 128 677 —503 —503 174 — 174 — — 309 163 472 —518 —518 —46 In the table below, the effect on the company’s shareholders’ equity and income The analysis below assumes that the changes in exchange rates do not affect statement of two stress tests are shown: An unfavorable foreign exchange rate other risk parameters, such as interest rate. The sensitivity analysis takes into move of 25 basis points, in the respective foreign currencies towards SEK and consideration existing financial hedges with currency related derivatives. an unfavorable change to fx rates by 10 percent in the respective foreign currencies towards SEK. SENSITIVITY ANALYSIS PER CURRENCY GROUP 5 Change 25 basis points 1 0 2 Change 10 % 4 Change 25 basis points 1 0 2 Change 10 % USD 259 873 256 795 EUR 12 42 5 18 GBP 29 144 24 116 Other TOTAL — 5 — 17 300 1,064 285 946 40 sirius international insurance corporation – annual report 2015 Note 2 – Cont. CREDIT RISK Credit risk, or counterparty risk, refers to the risk that the company will not Credit spread risk in investment assets Credit spread risk results from the sensitivity of the value of fixed income 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, 2015 and December 31, 2014. INVESTMENT ASSETS, CREDIT SPREAD RISK ACCORDING TO THE TRAFFIC LIGHT MODEL RISK SCENARIOS EXPOSURE (MSEK) AVERAGE CREDIT SPREAD SCENARIO IMPACT CAPITAL REQUIREMENTS (MSEK) GROUP 2015 Assets with Credit risk – all currencies 13,982 2014 13,087 2015 2014 2015 2014 2015 2014 1.26 0.94 —3.8 % —3.0 % 526 397 PARENT COMPANY Assets with Credit risk – all currencies EXPOSURE (MSEK) 2015 5,374 2014 4,523 AVERAGE CREDIT SPREAD SCENARIO IMPACT CAPITAL REQUIREMENTS (MSEK) 2015 2014 2015 2014 2015 2014 1.34 1.07 —4.9 % —4.5 % 265 205 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 2015 18,738 1,687 480 — 16,571 127 5,387 — 24,252 2014 18,148 3,236 486 — 14,426 122 5,186 25 23,481 2015 6,302 421 377 — 5,504 10,153 126 — 16,581 2014 6,970 1,896 386 — 4,688 10,390 494 25 17,879 41 sirius international insurance corporation – annual report 2015 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 2015 Name of security Symetra Financial Corporation OneBeacon Insurance Group SPDR S&P 500 ETF Trust Swedbank Hypotek AB ISHARES Core S&P 500 ETF JPMorgan Chase & Co Nordax Finans AB Total Capital Canada Ltd Verizon Communications Telenor ASA Total PARENT COMPANY 2015 Type of security Market value (MSEK) % of financial assets Share Share Share Bond Share Bond Bond Bond Bond Bond 3,012 766 378 377 370 327 219 216 160 132 5,957 12.08 3.07 1.52 1.51 1.48 1.31 0.88 0.87 0.64 0.53 23.89 Name of security Type of security Market value (MSEK) % of financial assets SI Phoenix (Luxembourg) S.à r.l 1) Shares in Subsidiary S.I. Holdings (Luxembourg) S.à r. Shares in Subsidiary Swedbank Hypotek AB Bond Sirius International Holdings (NL) B.V. Shares in Subsidiary Total Capital Canada Ltd Nordax Finans AB Telenor ASA BE Reinsurance Ltd Scania CV AB MLSSS Ltf TOTAL 1) Formerly WM Phoenix (Luxembourg) S.á r.l. Bond Bond Bond Shares in Associated Company Bond Share 6,158 3.572 377 269 233 219 132 128 96 77 11,261 35.78 20.76 2.19 1.56 1.35 1.28 0.77 0.74 0.56 0.45 65.44 42 sirius international insurance corporation – annual report 2015 Note 2 – Cont. 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 5,386 8.36 3.83 2.03 1.33 1.19 1.18 1.16 1.11 1.07 1.06 22.32 Name of security Type of security Market value (MSEK) % of financial assets SI Phoenix (Luxembourg) S.à r.l. 1) S.I. Holdings (Luxembourg) S.à r.l. Swedbank Hypotek AB Shares in Subsidiary Shares in Subsidiary 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 1) Formerly WM Phoenix (Luxembourg) S.á r.l. 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 43 sirius international insurance corporation – annual report 2015 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 AAA AA A BBB CCC rated TOTAL AAA AA A BBB CCC rated TOTAL 2015 Not 2014 Not Bonds and other interest-bearing securities — Swedish government — Swedish mortgage institutions — Other Swedish institutions — Foreign governments — Other foreign issuers 22 0 100 0 27 19 24 20 34 — — — 64 20 — — — 8 — — — 1 22 39 — — — — — — — — — — — — 100 0 100 0 100 100 22 100 100 0 20 13 26 18 33 — — — 78 24 — — — 1 — — — 1 22 40 — — — — — — 1 — — — — 1 100 100 100 0 100 100 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 2015 0.62 96.85 2.53 100 GROUP 2015 23.30 73.85 2.61 0.25 100 GROUP 2015 9.15 2.61 0 88.24 100 2014 3.88 95.84 0.28 100 2014 17.93 71.20 9.46 1.41 100 2014 18.04 2.71 0 79.25 100 2015 3.62 96.15 0.23 100 PARENT COMPANY 2015 57.86 35.43 5.99 0.72 100 PARENT COMPANY 2015 6.68 5.99 0 87.33 100 2014 7.61 92.26 0.13 100 2014 40.50 34.37 21.49 3.64 100 2014 27.20 5.54 0 67.26 100 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, 2015, to MSEK 74 for the Group, whereof MSEK 22 at Sirius International (2014 MSEK 73 for the Group, MSEK 31 at Sirius International). 44 sirius international insurance corporation – annual report 2015 Note 2 – Cont. GROUP 2015 2014 Due for <1 Month 1–3 Months 4–6 Months 7–9 Months 10–12 Months >1 Year TOTAL Net receivables Net receivables 731 644 100 82 50 32 8 6 5 2 119 103 1,013 869 PARENT COMPANY Due for <1 Month 1—3 Months 4—6 Months 7—9 Months 10—12 Months >1 Year TOTAL 2015 2014 Net receivables Net receivables 109 149 24 33 22 23 6 2 1 1 83 40 245 248 In accordance with Sirius International’s policy for write-downs of receivables outstanding for more than 1 year, there is a specific reserve for counterparties Retrocession credit risk Reinsurers’ share of technical provisions consists of outstanding claims which are not classified as IDC companies (Insolvent and Doubtful Companies) including IBNR reserves, as well as a provision for unearned premiums and which totals MSEK 6 (7) at December 31, 2015. 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 2015 2014 AAA AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 460 269 300 487 193 543 36 208 621 3,117 0 0 7 2 28 0 73 0 39 124 273 0 460 262 298 460 193 469 36 169 497 2,844 0 15 9 10 15 6 17 1 7 20 100 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 2,865 100 PARENT COMPANY Gross Collateral Percentage split Net Gross Collateral Percentage split Net 2015 2014 AAA AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 0 244 181 304 136 504 34 79 611 2,093 0 0 7 0 0 0 0 0 0 124 131 0 0 237 181 304 136 504 34 79 487 1,962 0 0 12 9 14 7 24 1 4 29 100 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 45 sirius international insurance corporation – annual report 2015 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’ 2015 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 2015 2014 AA+ AA AA- A+ A A- BBB+ BBB or lower Special approval TOTAL 0 215 1,338 2,066 157 915 63 63 1,705 6,522 0 0 0 0 0 0 46 77 1,298 1,421 0 215 1,338 2,066 157 915 17 (14) 407 0 4 26 41 3 18 0 0 8 0 148 1,016 2,105 142 378 87 39 760 5,101 100 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 LIQUIDITY RISK Liquidity risk is the risk that the company will have difficulties fulfilling payment sets and insurance liabilities. At the end of 2015 the duration of interest-bearing investment assets was 2.4 years (2.1 years at the end of 2014) and the duration obligations, mainly those related to insurance liabilities. Liquidity risk can also of insurance liabilities was 5.0 years (5.0 years at the end of 2014). 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 2015 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL ASSETS (CONTRACTUAL INFLOWS) GROUP 2015 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL Bonds and other interest-bearing securities Shares & participations in Associated Companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income TOTAL GROUP 2014 — — — 2,842 — — — — 689 1,300 8,702 7,737 — — — — — — — — 680 1,880 — 9 168 153 — — — — 67 65 1 — — — — — 28 — — 127 5,387 — 168 30 — — 18,428 127 5,387 2,842 168 2,657 261 163 2,842 1,378 3,501 8,835 7,765 5,713 30,034 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration 853 1,971 8,228 6,883 Bonds and other interest-bearing securities Shares & participations in Associated Companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income — — — 3,198 — — — — — — — — 1,532 114 188 3,805 — — — — 40 84 1 — — — — — 22 — TOTAL 3,198 1,660 8,353 6,905 5,424 29,345 PARENT COMPANY 2015 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL Bonds and other interest-bearing securities Shares & participations in Group companies Shares & participations Cash & bank balances Receivables, direct insurance Receivables, reinsurance Other debtors Prepayments and accrued income TOTAL — — — 1,104 — — — — 1,104 155 722 2,752 2,673 — — — — 1,598 9 87 — — — — 67 39 1 — — — — — — — PARENT COMPANY 2014 On demand <3 months 3 months— 1 year 1—5 years >5 years 619 1,010 3,031 2,310 Bonds and other interest-bearing securities 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 — — — — 183 — — 802 — — — — 1,376 4 124 2,514 — — — — 40 61 1 — — — — — — — 2,416 2,859 2,673 11,171 20,494 TOTAL 17,935 122 5,186 3,198 192 2,303 220 189 — 122 5,186 — 44 72 — — — 10,153 126 — 23 — 869 — 6,302 10,153 126 1,104 23 1,772 917 97 No duration — 10,390 494 — 36 5 160 — TOTAL 6,970 10,390 494 1,525 36 1,604 225 125 — — — 148 659 — — — — — — 107 — 9 271 3,133 2,310 11,085 21,369 47 sirius international insurance corporation – annual report 2015 Note 2 – Cont. LIQUIDITY PROFILE — FINANCIAL DEBTS (CONTRACTUAL OUTFLOWS) GROUP 2015 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL GROUP 2014 Payables, direct insurance Payables, reinsurance Other creditors Accrued expenses and deferred income TOTAL PARENT COMPANY 2015 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 On demand <3 months 3 months— 1 year 1—5 years >5 years No duration TOTAL — — — — — — — — — — 75 437 145 293 950 — — — 136 136 — — 27 22 49 13 53 — 3 69 88 490 172 454 1,204 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 — — — — — — — — — — — 455 66 204 725 — — — 78 78 — — 16 — 16 7 53 51 3 114 7 508 133 285 933 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 LIQUIDITY PROFILE — TECHNICAL PROVISIONS Estimated claim payments, net, excluding ULAE. GROUP PARENT COMPANY <3 months 3 months — 1 year 1—5 years >5 years TOTAL <3 months 3 months — 1 year 1—5 years >5 years TOTAL 2015 2014 809 812 2,482 2,485 4,191 4,348 4,327 4,115 11,809 11,760 366 403 1,138 1,247 1,763 2,013 1,525 1,230 4,792 4,893 48 sirius international insurance corporation – annual report 2015 Note 2 – Cont. OPERATIONAL RISK MANAGEMENT Sirius has defined operational risks as “The risk of loss arising from inadequate 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 or failed internal processes, personnel or systems or from external events. Board’s involvement and oversight over the Solvency II project. Operational risk includes legal risk and excludes risks arising from strategic decisions, as well as reputation risks.” All employees within Sirius are responsible for the contribution to a SOLVENCY AND CAPITAL REQUIREMENTS Sirius has continued to develop its internal Economic Risk Capital (ERC) model. well-functioning process for operational risk management and shall see The objectives for the internal ERC model are: themselves as risk managers. The function for Risk Control is responsible for — Stochastically calculate capital needed to be economically solvent over a developing and improving the operational risk management methodology and one year period within specified probability level thereby supporting the organization and the process owners with the tools — Consolidate quantifiable risks into one model needed to manage these risks. — Produce a realistic distribution of financial outcomes at various Operational risks within Sirius are identified through reviews and the report- return periods ing of incidents. Operational risks are also identified and managed by defining — Allocate capital to key risks, business units and lines of business controls within the processes and through follow up and testing of the effective- — Produce a streamlined and inclusive view of interdependencies ness of the key controls. of these risks Sirius always aims at reducing the operational risks to acceptable levels COMPLIANCE RISK MANAGEMENT Compliance risk is “the risk of legal or regulatory sanctions, material financial The practical applications of the internal ERC model include the following: — Assess the amount of capital necessary to support the underwriting and investment operations over the course of a one-year period loss or loss to reputation that Sirius may suffer as a result of not complying — Allocate deployed capital in the organization to key underwriting risk areas with laws, internal or external regulations and administrative provisions as in order to establish appropriate risk-adjusted pricing targets applicable to Sirius activities.” — Monitor the risk according to the risk tolerance levels established by the The responsibility for Sirius’ compliance with internal and external regula- Board of Directors tion lies with all employees. Compliance risks are identified by all employees on — Measurement of key risks and their interaction an ad hoc basis and more formally through reviews. The business organization — Evaluate reinsurance purchases is also responsible for managing compliance risks and for reporting of compli- ance risks to the Compliance function. The Compliance function supports the Board and business organization by informing, advising and monitoring com- pliance issues and risks throughout the Group. Compliance risk assessments are made of both internal and external compliance risks, continuously and on annual basis. SOLVENCY II Sirius has been preparing for compliance with the Solvency II regulation. The company has for a number of years been working with this in a project with several defined subprojects. The subprojects 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. The project is now in its final stage and will be closed during 2016. 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. 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, 2015 and 2014. TOTAL CAPITAL REQUIREMENT ACCORDING TO THE TRAFFIC LIGHT MODEL Total capital net requirement Capital buffer SURPLUS 2015 4,267 17,414 13,147 2014 4,215 16,528 12,313 FINANCIAL STRENGTH RATING The financial strength of Sirius has during 2015 been rated by Standard & Poor’s and A. M. Best. GROUP AND PARENT COMPANY Financial Strength Rating Outlook 2015 S&P 1) A— Stable A.M. Best 2) A Negative 2014 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 2015 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 2015 6 297 2,330 7,056 9,689 —2,599 7,090 Note 4 – Claims incurred, for own account CLAIMS INCURRED FOR THE YEAR’S OPERATIONS 2015 Gross Ceded 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 INCURRE 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 —450 44 —992 —1,486 —238 —3,122 Gross —4,891 —47 1,926 1,568 —1,444 —4,566 2014 6 249 1,342 6,040 7,637 —1,707 5,930 Net —317 44 —738 —1,151 —238 133 0 254 335 0 722 1,155 —9 —549 —342 255 977 —3,736 —56 1,377 1,226 —1,189 —3,589 TOTAL CLAIMS PAID GROUP Claims paid Loss portfolios Claims handling expenses TOTAL CLAIMS PAID 2015 Gross Ceded Net —5,341 —3 —238 —5,582 1,288 —4,053 —9 0 —12 —238 1,279 —4,303 2015 6 77 1,163 4,655 5,901 —2,250 3,651 2014 Gross Ceded —526 43 —1,142 —909 —186 149 0 361 197 0 707 —3,917 —47 1,660 1,546 —758 —3,478 Gross —4,443 —4 —186 —4,633 841 5 —336 —186 324 1,031 2014 Ceded 990 5 0 995 —2,400 —2,720 2015 2014 Ceded Net Gross Ceded 2014 6 130 686 4,088 4,910 —1,629 3,281 Net —377 43 —781 —712 —186 —2,013 Net —3,076 —42 1,324 1,360 —434 —2,447 Net —3,453 1 —186 —3,638 50 sirius international insurance corporation – annual report 2015 Note 4 – Cont. CHANGE IN PROVISION FOR OUTSTANDING CLAIMS GROUP Change in provision for ncurred and reported claims Change in provision for incurred but not reported claims (IBNR) TOTAL CHANGE IN PROVISIONS FOR OUTSTANDING CLAIMS 2015 Gross Ceded 934 82 —295 —7 1,016 —302 CLAIMS INCURRED FOR THE YEAR’S OPERATIONS PARENT COMPANY Gross Ceded 2015 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 —242 45 —752 —860 —137 —1,946 96 0 223 231 0 550 Net 639 75 714 Net —146 45 —529 —629 —137 2014 Gross Ceded 518 637 1,155 25 11 36 2014 Gross Ceded —355 43 —932 —505 —149 123 0 335 154 0 612 —1,396 —1,898 CLAIMS INCURRED FOR PREVIOUS YEAR’S OPERATIONS PARENT COMPANY Gross Ceded Net Gross Ceded Net 2015 2014 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 TOTAL CLAIMS PAID —2,585 —47 1,294 813 —525 —2,471 899 —10 —459 —243 187 737 —1,686 —57 835 570 —338 —2,298 —47 1,187 847 —311 —1,734 —2,209 740 6 —295 —152 299 911 PARENT COMPANY Gross Ceded Net Gross Ceded 2015 2014 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 —2,827 —2 —137 —2,966 995 —10 0 985 2015 Gross Ceded 542 —47 495 —236 —12 —248 —1,832 —12 —137 —1,981 Net 306 —59 247 —2,653 —4 —149 —2,806 863 6 0 869 2014 Gross Ceded Net 255 342 597 40 2 42 295 344 639 51 Net 543 648 1,191 Net —232 43 —597 —351 —149 —1,286 —1,558 —41 892 695 —12 —1,298 Net —1,790 2 —149 —1,937 sirius international insurance corporation – annual report 2015 Note 5 – Operating costs SPECIFICATION OF INCOME STATEMENT ITEM OPERATING COSTS 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 TOTAL OTHER OPERATING COSTS TOTAL OPERATING COSTS PER TYPE Direct and indirect personnel costs Premises costs Depreciation/amortization Other expenses related to operations TOTAL OTHER OPERATING COSTS GROUP PARENT COMPANY 2015 —2,251 52 —932 606 —2,525 2014 —1,711 10 —898 381 —2,218 2015 —1,302 30 —549 516 —1,305 GROUP PARENT COMPANY 2015 —2,525 —238 —101 —2 —45 —2,911 GROUP 2015 —787 —71 —48 —2,005 —2,911 2014 —2,218 —186 —89 —3 —53 —2,549 2014 —816 —68 —59 —1,607 —2,549 2015 —1,305 —137 —48 —2 —3 —1,495 PARENT COMPANY 2015 —525 —47 —45 —878 —1,495 2014 —973 —9 —570 344 —1,208 2014 —1,208 —149 —48 —3 — —1,408 2014 —547 —46 —55 —760 —1,408 52 sirius international insurance corporation – annual report 2015 Note 6 – Investment income GROUP 2015 2014 2015 2014 PARENT COMPANY Dividend income from: Foreign shares and participations Interest income Bonds and other interest-bearing securities Other interest income — of which from financial assets not valued at fair value with changes in value reported in the income statement Capital gains on foreign exchange, net Capital gains and reversed write-downs (net) Foreign shares Group and associated companies Interest-bearing securities Derivatives TOTAL RETURN ON CAPITAL, INCOME 177 354 12 — 627 404 — 73 — 1,647 208 326 38 — 316 142 4 136 52 1,222 461 133 15 — 478 7 — 55 — 1,149 In the group accounts, gains from acquisition of subsidiaries have been realized and accounted in accordance with IFRS 3. Note 7 – Unrealized gains and losses on investments Foreign shares and participations Bonds and other interest-bearing securities Derivative financial instruments Currency TOTAL UNREALIZED GAINS AND LOSSES ON INVESTMENTS GROUP 2015 116 —78 —261 —195 —418 2014 332 —14 —742 512 88 PARENT COMPANY 2015 —8 — —261 —304 —573 Note 8 – Investment expenses and charges GROUP PARENT COMPANY 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 Derivative financial instruments TOTAL 2015 —2 —101 —4 — —13 — —95 —215 2014 —3 —89 —4 — — —264 — —360 2015 —2 —48 —4 — —22 — —95 —171 756 146 18 — 379 15 — 91 52 1,457 2014 —14 — —742 228 —528 2014 —3 —48 —4 — — —120 — —175 53 sirius international insurance corporation – annual report 2015 Note 9 – Netprofitornetlosspercategoryoffinancialinstruments FINANCIAL ASSETS GROUP 2015 Shares and participations Derivative financial instruments Bonds and other interest—bearing securities Deposits with cedants Cash and bank balance TOTAL PARENT COMPANY 2015 Shares and participations Derivative financial instruments Bonds and other interest—bearing securities Deposits with cedants Cash and bank balance TOTAL 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 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 684 — 115 — — 799 — —356 — — —356 — — 127 — — 127 — — — 8 —3 5 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 438 — — — — 438 — —356 — — — —356 — — 84 — — 84 — — 6 6 12 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 TOTAL 684 —356 242 8 —3 575 TOTAL 438 —356 84 6 6 178 TOTAL 643 96 485 13 6 1,243 Financial assets valued at fair value in the income statement Financial assets held for trading Available—for—sale financial instruments Loan receivables and other accounts receivables TOTAL 757 — — — — 757 — 52 — — — 52 — — 342 — — 342 — — — 11 7 18 757 52 342 11 7 1,169 The amounts in the table above constitute a specification of the amounts Currency exchange gains/losses amount to 61 (137) for the Group, of which 39 regarding financial instruments which are reported in the income statement (514) refer to exchange rate gains/losses on financial assets. Exchange rate as (i) return on capital, income, (ii) unrealized gains, (iii) return on capital, ex- gains/losses on liabilities and other assets amount to 22 (-377). penses, (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 2015 Note 10 – Taxes INCOME TAX RECOGNIZED IN INCOME STATEMENT Current tax expense (–)[/revenue (+)] Current tax expenses Current tax adjustment attributable to previous years Deferred tax expense (-)[/revenue (+)] Deferred taxes TOTAL TAX EXPENSE (—)/REVENUE (+) GROUP 2015 2014 2015 2014 PARENT COMPANY -110 17 -318 -411 -279 20 -239 -498 -90 0 -1 -91 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 2015 —22 % —7.9 % — —1.4 % 9.3 % 0.4 % 0.6 % —21 % 2014 —22 % —2.6 % 0.1 % —4.6 % 6.0 % —0.1 % 0.4 % —22.8 % -234 0 42 -192 2014 —22 % — — —2.2 % 12.0 % — — PARENT COMPANY 2015 —22 % — — —1.9 % 12.6 % — — —11.3 % —12.2 % REPORTED DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES GROUP 2015 2014 2015 2014 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 69 207 38 — — 1,953 2,267 —303 1,964 67 208 40 — — 2,190 2,505 —362 2,143 — — —62 —226 —2,365 — —2,653 303 —2,350 — — —73 —270 —2,307 — —2,650 362 —2,288 NET 2015 69 207 —24 —226 2014 67 208 —33 —270 —2,365 —2,307 1,953 —386 — —386 2,190 —145 — —145 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 2015 2014 2015 2014 DEFERRED TAX ASSETS DEFERRED TAX LIABILITIES Personnel-related provisions Other provisions DEFERRED TAX BALANCES 36 4 40 33 8 41 — — — — — — NET 2015 36 4 40 2014 33 8 41 55 sirius international insurance corporation – annual report 2015 Note 10 – Cont. UNRECOGNIZED DEFERRED TAX ASSETS The Group has unrecognized deferred tax assets related to tax loss carry—forwards 359 (359). CHANGES IN DEFERRED TAX Opening balance Recognized in income statement Recognized in other comprehensive income Tax loss carry—forwards CLOSING BALANCE GROUP PARENT COMPANY 2015 —145 —318 32 45 —386 2014 —16 —239 12 98 —145 2015 2014 41 —1 — — 40 —13 42 12 — 41 Taxes recognized in other comprehensive income partially refer to available—for—sale financial assets 5 (12). 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 2014 Acquisition for the year Disposal for the year Currency revaluation effects CLOSING BALANCE 2014 Opening balance 2015 Acquisition for the year Disposal for the year Currency revaluation effect CLOSING BALANCE 2015 Accumulated amortization and impairment Opening balance 2014 Depreciation for the year Impairment for the year Disposal for the year CLOSING BALANCE 2014 Opening balance 2015 Depreciation for the year CLOSING BALANCE 2015 Carrying amount Per January 1, 2014 PER DECEMBER 31, 2014 Per January 1, 2015 PER DECEMBER 31, 2015 209 48 0 — 257 257 22 — — 279 —146 —31 — 0 —177 —177 —26 —203 63 80 80 76 572 — —485 — 87 87 — — — 87 —281 — —265 485 —61 —61 — —61 291 26 26 26 102 — —2 20 120 120 — —42 10 88 — — —2 — —2 —2 — —2 102 118 118 86 883 48 —487 20 464 464 22 —42 10 454 —427 —31 —267 485 —240 —240 —26 —266 456 224 224 188 209 48 0 — 257 257 22 — — 279 —146 —31 — 0 —177 —177 —26 —203 63 80 80 76 460 — —373 — 87 87 — — — 87 —289 —29 —120 373 —65 —65 —5 —70 170 22 22 17 669 48 —373 — 344 344 22 — — 366 —435 —60 —120 373 —242 —242 —31 —273 233 102 102 93 56 sirius international insurance corporation – annual report 2015 Note 11 – Cont. Amortization and impairment for the year is included in the following rows of the income statement for 2014: Operating costs Other costs Investment expenses TOTAL Amortization for the year is included in the following rows of the income statement for 2015: Operating costs Other costs TOTAL GROUP PARENT COMPANY Intangible assets — IT Capitalized expenditure for development work Acquired intangible assets — Goodwill Other acquired intangible assets Intangible assets –IT Capitalized expenditure for development work Acquired intangible assets Goodwill TOTAL TOTAL —31 — — —31 —26 — —26 — — —265 —265 — — — — —2 — —2 — — — —31 —2 —265 —298 —26 — —26 —31 — — —31 —26 — —26 — —29 —120 —149 — —5 —5 —31 —29 —120 —180 —26 —5 —31 The Group and Parent Company goodwill derive from the acquired operation in IT-related intangible assets include acquired licenses and capitalized expens- Belgium, which is an identifiable cash generating unit. The amounts refer both es for development of business-critical systems. Other intangible assets mainly to acquisition- and asset deal goodwill and are annually tested for impairment. include insurance licenses, for a number of American states, identified at the The projected future cash flows have been discounted to present value and are acquisition of subsidiaries. The licenses have been valued at fair value by an based on a conservative assessment of the unit’s earnings, in the insurance independent advisory firm and are deemed to have an indefinite useful life and operations, based on historical and future earning patterns. Additional charges are tested annually for impairment. for cost of capital have been added representing deployed capital. The discount For the Group, no depreciation is made on goodwill. For further information rate has been determined based on a market rate of return, i.e. WACC. During regarding depreciation, see Note 1, Accounting principles. 2014 a review of used parameters was made which led to impairment of acquisi- tion goodwill of MSEK 265 in the Group and MSEK 120 in the Parent Company. Note 12 – Land and buildings GROUP AND PARENT COMPANY Accumulated acquisition cost Opening balance 2014 Acquisitions CLOSING BALANCE 2014 Opening balance 2015 Acquisitions CLOSING BALANCE 2015 Accumulated depreciation Opening balance 2014 Depreciation for the year CLOSING BALANCE 2014 Opening balance 2015 Depreciation for the year CLOSING BALANCE 2015 Carrying amount Per January 1, 2014 PER DECEMBER 31, 2014 Per January 1, 2015 PER DECEMBER 31, 2015 31 1 32 32 0 32 -18 -2 -20 -20 -1 -21 13 12 12 11 The Parent Company holds three properties, located in Sweden and Belgium. Sirius International accounts for the properties, including building supplies, according to the acquisition value method and the capitalized expenses are depreciated over 50 and 10 years, respectively. No depreciation is performed on land. 57 sirius international insurance corporation – annual report 2015 Note 13 – Shares and participations in group companies NAME OF SUBSIDIARY REGISTERED OFFICES, COUNTRY PARTICIPATING INTEREST, % 2015 2014 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 SI Phoenix (Luxembourg) S.à r.l. 1) Luxembourg Sirius International Corporate Member Ltd. 2) London, Great Britain White Sands Holdings (Luxembourg) S.à r.l. Luxembourg Accumulated acquisition cost Beginning of year Capital contributions Repayment of paid-up capital End of year Accumulated impairments Beginning of year End of year CARRYING AMOUNT DECEMBER 31 1) Previously WM Phoenix (Luxembourg) S.à r.l. 2) Previously White Mountains Re Sirius Capital Ltd. 100 100 100 100 100 100 100 100 100 PARENT COMPANY 2015 11,585 — —237 11,348 —1,317 —1,317 10,031 100 100 100 100 100 100 100 100 100 2014 11,647 1,161 —1,223 11,585 —1,317 —1,317 10,268 58 sirius international insurance corporation – annual report 2015 Shareholders’ equity Shares, % Number of shares Book value Profit/loss Note 13 – Cont. SUBSIDIARIES’ SHAREHOLDERS’ EQUITY 2015 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. 4,639 Sirius International Managing Agency Ltd. Sirius International Corporate Member Ltd.2) 9 28 SI Phoenix (Luxembourg) S.à r.l. 1) 8,003 White Sands Holdings (Luxembourg) S.à r.l. 17 1) Previously WM Phoenix (Luxembourg) S.à r.l. 2) Previously White Mountains Re Sirius Capital Ltd. 2014 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. —6 38 12 761 —5 36 12 973 4,282 8 —44 7,079 100 100 100 100 100 100 100 100 100 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 3,527 4 0 6,158 15 0 5 0 —198 909 1 —26 386 0 100 100 100 100 100 100 100 100 100 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 TOTAL 13,501 10,031 1,076 Shareholders’ equity Shares, % Number of shares Book value Profit/loss White Sands Holdings (Luxembourg) S.à r.l. 16 TOTAL 12,357 10,268 1,280 Note 14 – Shares and participations in associated companies NAME OF ASSOCIATED COMPANIES REGISTERED OFFICES NUMBER OF SHARES PARTICIPATING INTEREST, % 2015 2014 BE Reinsurance Ltd. Hong Kong 125,000,000 25 25 1) Voting share and participating interest are equal. 59 sirius international insurance corporation – annual report 2015 Note 14 – Cont. CHANGE DURING THE YEAR Beginning of the year Acquisition Share of associated companies’ result Translation difference on foreign associated companies CARRYING AMOUNT DECEMBER 31 GROUP 2015 122 - -8 13 127 2014 - 122 - - 122 PARENT COMPANY 2015 122 - - - 122 Note 15 – Investments in shares and participations Fair value Acquisition cost GROUP 2015 5,387 4,543 2014 5,186 4,441 PARENT COMPANY 2015 126 199 For further information regarding financial instruments, see Note 19. Note 16 – 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 2015 0 480 0 1,687 16,261 18,428 18,428 492 736 FAIR VALUE 2015 0 377 0 421 5,504 6,302 6,302 375 707 2014 1,203 486 0 2,033 14,213 17,935 17,932 758 214 2014 1,112 386 0 783 4,688 6,969 6,966 425 6 2015 0 457 0 1,680 15,884 18,021 18,021 464 639 ACQUISITION COST 2015 0 359 0 413 5,228 6,000 6,000 345 617 2014 - 122 - - 122 2014 494 522 2014 1,184 464 0 2,003 13,484 17,135 17,132 725 207 2014 1,093 364 0 739 4,197 6,393 6,390 278 4 60 sirius international insurance corporation – annual report 2015 Note 17 – Derivativefinancialinstruments Currency derivatives, Sirius Bermuda Insurance Company Ltd. Other derivatives, Endurance TOTAL GROUP 2015 —722 —12 —734 2014 —494 25 —469 PARENT COMPANY 2015 —722 —12 —734 2014 —494 25 —469 The table above show gross positions with individual counterparties in excess Trough foreign exchange options, the currency futures transactions are set- of MSEK 0,5. tled on the basis of an exchange rate cap and exchange rate floor (average rate Currency derivatives of nominal MUSD 600 against SEK mainly concern 5.03 SEK/USD and 11.73 SEK/USD). The remaining average term is 20 months. contracts with internal counterparties. The company has entered into three The currency hedge agreements are valued monthly at fair value via the internal currency hedging agreements with Sirius Bermuda Insurance Company income statement. Ltd in order to adjust the company’s currency exposure against USD in accord- ance with established limits. Note 18 – 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 2015 — 260 260 2014 — 221 221 PARENT COMPANY 2015 869 47 916 2014 159 65 224 Note 19 – Categoriesoffinancialassetsandliabilitiesandtheirfairvalue FINANCIAL ASSETS GROUP 2015 Interest-bearing securities and loans to group companies Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Cash and bank balances Accrued income Other debtors TOTAL GROUP 2014 Interest-bearing securities and loans to group companies Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Cash and bank balances 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 Total carrying amount Fair value Acquisition value 310 — — — — 29 260 599 — 5,387 — 9,657 2,842 81 — — — — 8,771 — 53 — 310 5,387 — 18,428 2,842 163 260 310 5,387 — 18,428 2,842 163 260 310 4,543 — 18,326 2,842 163 260 17,967 8,824 27,390 27,390 26,444 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available— for—sale financial assets Total carrying amount Fair value Acquisition value 213 — — — — 35 221 469 — 5,186 25 8,844 3,198 47 — 17,300 — — — 9,091 — 106 — 9,197 213 5,186 25 17,935 3,198 188 221 213 5,186 25 17,935 3,198 188 221 26,966 26,966 213 3,855 25 17,296 3,198 188 221 24,996 1) Derivatives are classified as Financial instruments held for trading. 61 sirius international insurance corporation – annual report 2015 Note 19 – Cont. FINANCIAL ASSETS PARENT COMPANY 2015 Shares and participations Derivative financial instruments 1) Bonds and other interest-bearing securities Cash and bank balances Accrued income Other debtors TOTAL PARENT COMPANY 2014 Shares and participations Derivative financial instruments 1) Bonds and other interest bearing securities Cash and bank balances Accrued income Other debtors TOTAL — — — — 28 40 68 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets Total carrying amount 126 — 6,302 1,104 96 40 Fair value Acquisition value 126 — 6,302 1,104 96 40 199 — 6,090 1,104 96 40 126 — — 1,104 — — — — 6,302 — 68 — 1,230 6,370 7,668 7,668 7,529 Loan receivables and accounts receivables Financial assets valued at fair value via the income statement Available- for-sale financial assets Total carrying amount Fair value Acquisition value — — — — 35 41 76 494 25 — 1,525 — — — — 6,970 — 90 — 2,044 7,060 494 25 6,970 1,525 125 41 9,180 494 25 6,970 1,525 125 41 9,180 522 12 6,527 1,525 125 41 8,752 1) Derivatives are classified as Financial instruments held for trading. FINANCIAL LIABILITIES GROUP 2015 Other liabilities Accrued expenses Derivative financial instruments TOTAL Other financial liabilities Carrying amount Fair value GROUP 2014 Other financial liabilities Carrying amount Fair value 154 72 734 960 154 72 734 960 154 72 734 960 Other liabilities Accrued expenses Derivative financial instruments TOTAL 205 58 494 757 205 58 494 757 205 58 494 757 PARENT COMPANY 2015 Other liabilities Accrued expenses Derivative financial instruments TOTAL Other financial liabilities 117 66 734 917 Carrying amount Fair value PARENT COMPANY 2014 Other financial liabilities Carrying amount Fair value 117 66 734 917 117 66 734 917 Other liabilities Accrued expenses Derivative financial instruments TOTAL 164 54 494 712 164 54 494 712 164 54 494 712 62 sirius international insurance corporation – annual report 2015 Note 19 – Cont. In the tables below, data is provided regarding the determination of fair value for financial assets and liabilities valued at fair value in the balance sheet. The deter- mination of fair values is categorized according to the following three levels: Level 1: Based on prices listed on an 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 2015 Level 1 Level 2 Level 3 TOTAL GROUP 2014 Level 1 Level 2 Level 3 TOTAL Shares and participations Derivative financial instruments 4,824 — 12 — 551 —734 5,387 —734 Shares and participations Derivative financial instruments 4,277 — 12 — 897 —469 5,186 —469 Bonds and other interest- bearing securities 2,724 15,705 — 18,429 Bonds and other interest- bearing securities TOTAL 7,548 15,717 —183 23,082 TOTAL 3,852 14,080 8,129 14,092 3 431 17,935 22,652 PARENT COMPANY 2015 Level 1 Level 2 Level 3 TOTAL PARENT COMPANY 2014 Level 1 Level 2 Level 3 TOTAL Shares and participations Derivative financial instruments 5 — 12 — 109 —734 126 —734 Shares and participations Derivative financial instruments Bonds and other interest- bearing securities 1,568 4,734 — 6,302 Bonds and other interest- bearing securities TOTAL 1,573 4,746 —625 5,694 TOTAL 384 — 2,761 3,145 12 — 4,206 4,218 98 —469 3 —368 494 —469 6,970 6,995 The fair value of financial assets and liabilities traded on an active market is Specific valuation techniques applied in valuing financial assets and based on the listed price on balance sheet date. A market is seen to be active in liabilities include: cases where listed prices from a stock exchange, broker, industry group, pricing — Listed market prices or broker listings for similar instruments. service or supervisory authority are easily accessible, and where these prices — Fair value of interest swaps is determined as the current value of estimated represent genuine, regularly-occurring market transactions conducted at arm’s future cash flows, based on observable yield curves. length. The listed market price applied in determining the fair value of instru- — Fair value for currency forward exchange agreements is determined ments that are to be found in Level 1 is the current buying-rate through the use of exchange rates for forward exchanges on balance sheet Fair values of financial assets and liabilities which are not traded on an active date, at which point the resulting value is discounted to current value. market are determined with the aid of valuation techniques. This procedure — Other techniques, such as the calculation of discounted cash-flows, are applies, as far as possible, such market information as is available, while applied in determining fair value for any financial assets or liabilities not information specific to a company is applied as little as possible. If all significant covered by the above techniques. input data required in determining the fair value of an instrument is observable, the instrument is to be found in Level 2 or 3. Currency derivatives are included All fair values determined with the aid of these valuation techniques are to in level 3 due to their long duration. be found in Level 2 and 3. In the event that one or more significant input data figures are not based on observable market information, the associated instru- ment is to be classified in Level 3. 63 sirius international insurance corporation – annual report 2015 Note 19 – Cont. The tables below shows a reconciliation of opening and closing balance data for financial assets and liabilites valued at fair value in the balance sheet, on the basis on non-observable input data (Level 2 and 3). GROUP 2015 Level 2 Opening balance 2015 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 2015 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2015 1) PARENT COMPANY 2015 Level 2 Opening balance 2015 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 2015 Profit/loss reported in profit/loss for the yearfor assets included in the closing balance December 31, 2015 1) GROUP 2015 Level 3 Opening balance 2015 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 2015 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2015 1) Shares and participations Derivatives Bonds TOTAL 12 — — — — — — 12 — — — — — — — — — — 14,080 —48 13,851 —13,200 — 342 680 15,705 —48 14,092 —48 13,851 —13,200 — 342 680 15,717 —48 Shares and participations Derivatives Bonds TOTAL 12 — — — — — 12 — — — — — — — — — 4,206 40 6,908 —6,571 — 151 4,734 40 4,218 40 6,908 — 6,571 — 151 4,746 40 Shares and participations Derivatives Bonds TOTAL 897 25 108 —542 — — 63 551 25 —469 —265 — — — — — —734 —265 3 — 152 — —155 — — — — 431 —240 260 —542 —155 — 63 —183 —240 1) Reported in net income of financial transactions in profit/loss for the year. 64 sirius international insurance corporation – annual report 2015 Note 19 – Cont. PARENT COMPANY 2015 Level 3 Opening balance 2015 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 2015 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2015 1) GROUP 2014 Level 2 Opening balance 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 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 1) PARENT COMPANY 2014 Level 2 Opening balance 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 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 Bonds TOTAL 98 33 25 —47 — — 109 33 —469 —265 — — — — —734 —265 3 — 146 — —149 — — — —368 —232 171 —47 —149 — —625 —232 Shares and participations Derivatives Bonds TOTAL 9 3 — — — — — 12 3 — — — — — — — — — 12,152 847 13,283 —13,958 — 322 1,434 14,080 12,161 850 13,283 —13,958 — 322 1,434 14,092 847 850 Shares and participations Derivatives Bonds TOTAL 9 3 — — — — 12 3 — — — — — — — — 3,420 666 5,045 —5,022 — 97 4,206 666 3,429 669 5,045 —5,022 — 97 4,218 669 1) Reported in net income of financial transactions in profit/loss for the year. 65 sirius international insurance corporation – annual report 2015 Note 19 – Cont. GROUP 2014 Level 3 Opening balance 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 2014 Profit/loss reported in profit/loss for the year for assets included in the closing balance December 31, 2014 1) PARENT COMPANY 2014 Level 3 Opening balance 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 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 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 Shares and participations Derivatives Bonds TOTAL 76 8 33 —19 — — 98 8 273 —690 — —52 — — —469 —690 0 2 107 — —114 8 3 2 349 —680 140 —71 —114 8 —368 —680 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. 66 sirius international insurance corporation – annual report 2015 67 sirius international insurance corporation – annual report 2015 Note 20 – Tangible assets Group Equipment Parent Company Equipment Accumulated acquisition cost Opening balance 2014 Acquisition Disposals Currency revaluation effect CLOSING BALANCE 2014 Opening balance 2015 Acquisition Disposals Currency revaluation effect CLOSING BALANCE 2015 Accumulated depreciation Opening balance 2014 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE 2014 Opening balance 2015 Depreciation for the year Disposals Currency revaluation effect CLOSING BALANCE 2015 Carrying amount Per January 1, 2014 PER DECEMBER 31, 2014 Per January 1, 2015 PER DECEMBER 31, 2015 188 22 —22 11 199 199 63 —10 5 257 —131 —26 21 —8 —144 —144 —21 9 —3 —159 57 55 55 98 121 21 —6 — 136 136 59 —9 — 186 —81 —22 4 — —99 —99 —18 8 — —109 40 37 37 77 Note 21 – Deferred acquisition costs Opening balance Acquired portfolio Capitalization for the year Depreciation/amortization for the year Currency revaluation effect CLOSING BALANCE GROUP 2015 PARENT COMPANY 2014 2015 2014 544 0 570 —518 32 628 446 0 449 —439 88 544 279 — 301 —271 13 322 244 — 225 —234 44 279 68 sirius international insurance corporation – annual report 2015 Note 22 – Untaxed reserves PARENT COMPANY Accumulated depreciation in excess of plan Opening balance Change for the year — goodwill Change for the year – tangible assets CLOSING BALANCE Appropriation to safety reserve Opening balance Change for the year CLOSING BALANCE TOTAL 2015 2014 12 —4 21 29 10,447 243 10,690 10,719 15 —4 1 12 10,447 — 10,447 10,459 Net 1,687 0 —21 352 2,018 Note 23 – Provisions for unearned premiums and unexpired risks PROVISIONS FOR UNEARNED PREMIUMS 2015 GROUP Gross Reinsurers’ share Opening balance Acquired portfolio Change in provision Currency revaluation effect CLOSING BALANCE 2,554 0 86 155 2,795 PROVISIONS FOR UNEXPIRED RISKS —536 0 —101 —37 —674 Net 2,018 0 —15 118 2,121 2014 Gross Reinsurers’ share 2,133 0 —27 448 2,554 —446 0 6 —96 —536 GROUP Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2015 2014 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 81 —4 7 84 —59 3 —6 —62 PROVISIONS FOR UNEARNED PREMIUMS 2015 PARENT COMPANY Gross Reinsurers’ share Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 1,610 20 88 1,718 —523 —79 —38 —640 22 —1 1 22 Net 1,087 —59 50 1,078 76 —10 15 81 —56 8 —11 —59 2014 Gross Reinsurers’ share 1,412 —97 295 1,610 —445 22 —100 —523 20 —2 4 22 Net 967 —75 195 1,087 PROVISIONS FOR UNEXPIRED RISKS PARENT COMPANY Gross Reinsurers’ share Net Gross Reinsurers’ share Net 2015 2014 Opening balance Change in provision Currency revaluation effect CLOSING BALANCE 81 —4 7 84 —59 3 —6 —62 22 —1 1 22 76 —10 15 81 —56 8 —11 —59 20 —2 4 22 69 sirius international insurance corporation – annual report 2015 Note 24 – Claims reserve GROUP 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) PARENT COMPANY 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) 2015 Reinsurers’ share Net Gross 2014 Reinsurers’ share —1,779 —805 —2,584 0 —722 —255 0 —1,278 —98 —2,381 —1,540 —841 6,016 4,763 10,779 0 2,400 1,189 238 4,066 689 10,755 5,711 5,044 7,255 5,234 12,489 0 2,720 758 186 4,447 2,030 13,364 7,795 5,568 —1,532 —707 —2,239 0 —707 —324 0 —995 —309 —2,584 —1,779 —805 2015 Reinsurers’ share Net Gross 2014 Reinsurers’ share —1,269 —341 —1,610 —550 —187 0 —985 —29 —1,391 —1,046 —345 3,144 1,135 4,279 1,396 338 137 1,844 151 4,183 2,937 1,246 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 Gross 7,795 5,568 13,364 0 3,122 1,444 238 5,344 787 13,136 7,251 5,885 Gross 4,413 1,476 5,889 1,946 525 137 2,829 180 5,574 3,983 1,591 Net 5,723 4,527 10,250 0 2,013 434 186 3,452 1,720 10,779 6,016 4,763 Net 3,091 1,261 4,352 1,286 12 149 1,788 565 4,279 3,144 1,135 Note 25 – Equalization provision Note 26 – Claims handling provision GROUP Opening balance Provision of the year CLOSING BALANCE 2015 2014 – – – — — — PARENT COMPANY 2015 2014 Opening balance Provision of the year CLOSING BALANCE 89 — 89 86 3 89 Opening balance Acquired portfolio Release of provision made in prior years Provision for the year Currency revaluation effect CLOSING BALANCE GROUP PARENT COMPANY 2015 2014 2015 2014 260 0 —38 65 8 295 241 0 —57 48 28 260 150 0 —38 39 —1 150 132 0 —22 31 9 150 70 sirius international insurance corporation – annual report 2015 Note 27 – Employeebenefits 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 2015 2014 2015 2014 PARENT COMPANY 121 94 —27 27 27 110 96 —14 14 14 — — — 16 16 — — — 14 14 Group defined benefit plans In a defined benefit plan, the employer guarantees that the employee will receive The group has defined benefit plans in Sweden (collective agreement) and Germany which are based on the employees’ pension entitlements and length of a defined level of benefit upon retirement, based on one or more factors, such as employment. In Germany all employees are included in the plan. In Sweden only age, length of service and salary. The group calculates its provisions and expenses employees born 1971 or earlier are covered by defined benefit plans and, thus, form based on the conditions of the guaranteed pension obligations, as well as on its part of the FTP2. Paid pension premiums are mainly funded with Skandia Liv for own assumptions regarding future development. employees in Sweden and with Allianz for employees in Germany. The lion share of The provision reported in the balance sheet for defined benefit plans is the the plan assets are funded with Skandia Liv where the assets are invested in Swed- present value of the defined benefit obligation at the end of the reporting period, ish bonds (35 %), Swedish and foreign shares (26 %), real-estate (10 %), non-listed less the fair value of plan assets, adjusted for actuarial gains and losses recog- shares (10 %) and other investment assets (19 %). nized in Other Comprehensive Income. Actuarial gains and losses arise if actual Furthermore, there are two variations of retirement earlier than at the age of outcome deviates from calculated, defined assumptions, or if there is a change in 65. Employees born 1955 and earlier have the possibility to retire between the assumptions. The defined pension obligation is calculated annually by independent ages of 62 and 65 according to local agreement. Staff employed before 1 January, actuaries, applying the projected unit credit method. The net present value of the 2004 have the right to retire from the age of 64. These plans are also defined pension obligation is defined by discounting of estimated future cash flows, using benefit plans and are reflected in financial statements of both the Group and the interest rates that are based on the same currency in which the obligations are Parent Company. to be paid and with durations comparable to the duration of the current pension Employees in Sweden born 1972 or later, are covered by a defined contribution obligation. Other assumptions used to determine the pension obligation and the plan, FTP1. 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 31 in the table “Remuneration to employees”. CHANGES IN DEFINED BENEFIT OBLIGATIONS GROUP Opening balance pension obligation Adjustments due to change in discount rates 1) 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 2015 2014 9 2 —2 9 68 77 10 4 —6 8 71 79 2015 2014 110 15 9 3 —9 —4 —2 —1 121 85 — 10 3 14 —2 —2 2 110 1) An alignment of used discount rates for the German share of the obligation has been made during the year. The change implicates that the discount rate stipulated by German statutory regulations has been replaced with the discount rate stipulated by IAS 19 for the group accounts. The change is recorded in other comprehensive income. 71 sirius international insurance corporation – annual report 2015 Note 27 – 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, 2015, is lower than the value of the Group’s defined benefit pension commitments. The Group has per Decem- ber 31, 2015 a net obligation of MSEK 27 (14). This is mainly 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 retirements are settled when the decision regarding retirement is made. In conjunction with such a decision, the total pension premium is paid to the company’s pension administrator for the period up to 65 years of age. During the year, 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 Expected price inflation Expected salary increases Indexation of benefits Indexation of income base amount Staff turnover 2015 2014 96 2 8 1 —13 0 94 2015 7 —22 4 —11 2015 2.6 % 1.5 % 2.7 % 1.6 % 2.7 % 3.0 % 78 6 6 6 —1 1 96 2014 0 14 —7 7 2014 2.3 % 1.3 % 2.8 % 1.3 % 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 the discount rate stipulated by defined benefit obligations, according to IFRS, it is common practice in Sweden IAS 19, taking into account both the underlying currency and the duration of the to comply with the above mentioned instruction from the Swedish Financial pension obligation, which is normally equal to the interest rate for high quality Supervisory Authority. corporate bonds. The expected duration of the pension obligations is 16 years (17 years). 72 sirius international insurance corporation – annual report 2015 Note 28 – Other creditors Amounts due to group companies 1) Other creditors 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 2015 9 145 154 2014 23 182 205 PARENT COMPANY 2015 51 66 117 Note 29 – 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 2015 8,021 430 8,451 On the basis of the stipulations in Chapter 7, Section 11 of the Insurance Busi- ness Act, registered assets amount to MSEK 5,731. 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 2015 3,626 64 3,690 2014 7,557 1,425 8,982 2014 3,350 132 3,482 2015 5,732 353 6,085 PARENT COMPANY 2015 3,626 — 3,626 2014 54 110 164 2014 5,582 1,166 6,748 2014 3,350 31 3,381 73 sirius international insurance corporation – annual report 2015 Note 30 – Associated parties SUMMARY OF TRANSACTIONS WITH ASSOCIATED COMPANIES WITHIN THE WHITE MOUNTAINS GROUP GROUP 2015 Premium income, net Indemnifications, net Purchased/ sold services Receivables Liabilities White Mountains Advisors LLC - financial services Sirius Bermuda Insurance Company Ltd – financial services Sirius Capital Markets Bermuda Ltd - administrative services White Shoals Re Ltd. - administrative services Sirius International Insurance Group Ltd. - administrative services OneBeacon Insurance Group Ltd. - liability insurance and dividends Other associated companies TOTAL — — — — — — — — — — — — — — — — —41 —149 0 4 28 53 11 —92 — 7 — — 0 — 1 8 8 — — — — 0 9 17 PARENT COMPANY 2015 Sirius America Insurance Company - assumed reinsurance Sirius America Insurance Company - ceded reinsurance Star Re Ltd. – ceded reinsurance Syndicate 1945 – assumed reinsurance Syndicate 1945 - ceded reinsurance Sirius America Insurance Company – administrative services SI Phoenix (Luxembourg) S.à r.l 1) 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. – financial services 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. – intra-group payables Sirius International Corporate Member Ltd. 2) White Mountains Advisors LLC - financial services Sirius Bermuda Insurance Company Ltd – financial services Sirius Capital Markets Bermuda Ltd. - administrative services White Shoals Re Ltd – administrative services Other associated companies TOTAL 1) Previously WM Phoenix (Luxembourg) S.à r.l. 2) Previously White Mountains Re Sirius Capital Ltd. Premium income, net Indemnifications, net Purchased/ sold services Receivables Liabilities 177 0 —118 16 —18 — — — — — — — — — — — — — — — — — — — —52 23 — 1 11 — — — — — — — — — — — — — — — — — — — — — — — 31 17 50 —30 0 1 381 0 117 —42 —4 2 — — —12 —149 0 3 7 423 — — 6 — 9 — — — — — 622 6 167 15 0 2 0 59 — 6 — — 0 — — — — —6 — — — 51 1 — — — — — — — 2 — — — — — 0 57 —17 372 1,315 48 74 sirius international insurance corporation – annual report 2015 Note 30 – Cont. GROUP 2014 White Mountains Advisors LLC - financial services Sirius Bermuda Insurance Company Ltd. – financial services Sirius Capital Markets Bermuda Ltd. - administrative services White Shoals Re Ltd. - administrative services Sirius International Insurance Group Ltd. - administrative services OneBeacon Insurance Group Ltd. - liability insurance and dividends Other associated companies TOTAL 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. – financial services 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 receivables White Mountains Advisors LLC - financial services Sirius Bermuda Insurance Company Ltd – financial services Sirius Capital Markets Bermuda Ltd. - administrative services White Shoals Re Ltd – administrative services Other associated companies TOTAL Premium income, net Indemnifications, net Purchased/ sold services Receivables Liabilities — — — — — — — — — — — — — — — — —41 75 9 3 19 43 8 116 — — 3 — 1 — — 4 12 9 — — — — 6 27 Premium income, net Indemnifications, net Purchased/ sold services Receivables Liabilities 134 0 —120 20 — — — — — — — — — — — — — — — — — — — 38 3 — —2 — — — — — — — — — — — — — — — — — — — 34 39 — — — — 20 558 119 —29 0 1 67 0 76 —34 —4 2 — — —14 75 9 3 5 853 378 — — 3 — — — — — — 3 6 102 15 — 3 0 44 — — 2 — — — — — — — — — 42 1 — — — — — 1 — — — 4 9 — — 0 556 57 75 sirius international insurance corporation – annual report 2015 Note 31 – Averagenumberofemployees,salariesandotherremunerations AVERAGE NUMBER OF EMPLOYEES GROUP Parent Company Germany USA Canada TOTAL 2015 2014 Men Women TOTAL Men Women TOTAL 154 4 59 5 222 146 9 58 2 215 300 13 117 7 437 148 3 59 5 215 145 10 59 2 216 293 13 118 7 431 PARENT COMPANY Men Women TOTAL Men Women TOTAL 2015 2014 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 27) Social security contributions, special employer’s contributions on pensions TOTAL 75 36 25 4 5 - 9 154 70 26 23 5 12 - 10 146 145 62 48 9 17 - 19 300 75 28 24 4 4 5 8 148 72 22 23 5 11 2 10 145 147 50 47 9 15 7 18 293 2015 2014 Men Women TOTAL Men Women TOTAL 5 1 6 1 — 1 GROUP 2015 592 161 74 68 8 95 761 6 1 7 2014 599 224 79 71 8 108 787 5 1 6 1 — 1 PARENT COMPANY 2015 369 98 60 58 2 87 516 6 1 7 2014 370 135 68 64 4 102 539 76 sirius international insurance corporation – annual report 2015 Note 31 – Cont. OF WHICH PAID REMUNERATIONS FOR THE YEAR TO: GROUP 2015 2014 2015 2014 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 7 4 1 1 — 8 28 28 — — — 28 20 14 3 3 — 23 4 2 1 1 — 5 17 13 3 3 — 20 15 9 3 3 — 18 7 4 1 1 — 8 28 28 — — — 28 20 14 3 3 — 23 4 2 1 1 — 5 17 13 3 3 — 20 15 9 3 3 — 18 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 2014 and 2015. Note 32 – Fees and reimbursements to auditors PwC Audit assignment Tax counseling Other services TOTAL GROUP 2015 2014 2015 2014 PARENT COMPANY 14 0 1 15 12 2 1 15 5 0 1 6 4 0 1 5 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 33 – 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 2015 2014 2015 2014 PARENT COMPANY 50 183 80 313 50 163 40 253 30 116 49 195 31 99 - 130 77 sirius international insurance corporation – annual report 2015 Note 34 –Classanalysis PROFIT/LOSS PER INSURANCE CLASS PARENT COMPANY 2015 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance GROUP 2015 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 2014 Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance TECHNICAL RESULT —3,133 —4,566 TOTAL 9,689 9,607 —3,114 —935 992 TOTAL 5,901 5,885 7,056 7,085 —2,176 —729 1,047 4,655 4,692 —1,989 —2,471 —1,259 —819 — 625 —1,808 —934 — 672 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance 2,218 2,117 —1,152 —770 —168 27 54 74 —41 —19 —3 11 140 149 —72 —76 —22 —21 221 182 —168 —73 —13 —72 2,633 2,522 —1,433 —938 —206 —55 1,142 1,043 —398 —484 —93 — 68 54 74 —41 —19 —4 — 10 30 34 —24 —29 —9 — —28 20 42 —19 —17 —9 — —3 1,246 1,193 —482 —549 —115 — 47 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 6,040 6,142 —2,553 —1,707 —561 1,321 PARENT COMPANY 2014 Personal accident and health Marine, aviation and transport Fire and other property damage Miscellaneous Total direct insurance Assumed reinsurance Premium income, gross Premium earned, gross Incurred claims, gross Operating expenses, gross Result, ceded reinsurance Equalization provision TECHNICAL RESULT 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 4,088 4,218 —1,816 —1,159 —363 —3 877 TOTAL 7,637 7,674 —3,478 —2,308 —600 1,288 TOTAL 4,910 5,017 —2,209 —1,551 —405 —3 849 78 sirius international insurance corporation – annual report 2015 stockholm, march 15, 2016 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 15, 2016 catarina ericsson Authorised Public Accountant morgan sandström Authorised Public Accountant 79 sirius international insurance corporation – annual report 2015 For translation purposes only Audit report To the annual meeting of the shareholders of Sirius International Insurance Corporation (publ), corporate financial performance and cash flows for the year ended in accordance with International Financial Reporting Standards, as adopted by the identity number 516401-8136. report on other legal and regulatory requirements We have audited the annual accounts and consolidated accounts of 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 Sirius International Insurance Corporation (publ) for the year 2015. and the group. 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 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 2015. Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts Responsibilities of the Board of Directors and the Managing Director that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility 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 Our responsibility is to express an opinion on these annual accounts Companies Act and the Insurance Business Act. 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 In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act for Insurance Companies and present fairly, in all material respects, the financial position of the parent 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 admini- stration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. company as of 31 December 2015 and of its financial performance and Stockholm, March 15, 2016 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 2015 and of their Catarina Ericsson Morgan Sandström Authorized Public Accountant Authorized Public Accountant 80 sirius international insurance corporation – annual report 2015 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. Other operating costs are excluded when calculating combined ratio as they stem from non-insurance operations. 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 2015. The audited Swedish version is the binding version. 81 sirius international insurance corporation – annual report 2015 History sirius was founded in 1945 as a captive by the Swedish industrial group Axel Johnson. Initially the company insured only Johnson fleet vessels and reinsured at Lloyd’s. Over time, Sirius moved into third party business and during the 1970s a global assumed reinsurance account was developed. by 1978 sirius had become one of the largest reinsurance companies in Sweden with premiums of about $40 million. in 1985, the johnson group ran into financial difficulties and reluctantly sold Sirius to the Swedish 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 the president & 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. on july 1, 2011 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. on april 18, 2016 Sirius International Insurance Group, Ltd. was bought by CM International Holding Pte. Ltd. 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. During the ownership of White Mountains, Sirius has had an average combined ratio of 85 % and close to $1 billion in underwriting profits. This long-term track record is perhaps unparalleled. 82 sirius international insurance corporation – annual report 2015 83 sirius international insurance corporation – annual report 2015 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 55 00 Sirius International Insurance Corporation (publ) Belgian Branch Mont Saint Martin 62 B/2 BE 4000 Liège, Belgium Telephone: +32 4 220 86 11 Sirius International Insurance Corporation (publ) Bermuda Branch Hamilton HM11, Bermuda Visiting address: 14 Wesley Street; 5th floor Telephone: +1 441 278 31 40 Sirius Rückversicherungs Service GmbH Neuer Wall 52/Entrance: Bleichenbrücke 1-7 DE-20354 Hamburg, Germany Telephone: +49 403 095 190 Sirius International Insurance Corporation (publ) UK Branch 4th Floor, 20 Fenchurch Street London EC3M 3BY, Great Britain Telephone: +44 203 772 3111 Sirius International Insurance Corporation (publ) Asia Branch 24 Raffles Place #10-01/02 Clifford Centre 048 621 Singapore, Singapore Telephone: +65 643 500 52 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 Sirius International Insurance Corporation (publ) Zurich Branch P.O. Box 2807 CH-8002 Zurich, Switzerland Visiting address: Dreikönigstrasse 12 Telephone: +41 43 443 0180