TOKIO MILLENNIUM RE (UK) LIMITED

Transcription

1 REGISTERED IN ENGLAND AND WALES NO A MEMBER OF TOKIO MARINE HOLDINGS, INC. (JAPAN) ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017

2 CONTENTS Financial Statements Report For The Contents 1 Directors, Officers and Professional Advisers 2 Strategic Report 3-5 Directors' Report 6-7 Independent Auditors' Report 8-11 Statement of Comprehensive Income Statement of Financial Position: Assets 14 Statement of Financial Position: Liabilities 15 Statement of Changes in Equity 16 Statement of Accounting Policies Notes to the Financial Statements Page 1

3 DIRECTORS, OFFICERS AND PROFESSIONAL ADVISERS As at 31 December EXECUTIVE DIRECTOR Mark James Phillip Julian NON-EXECUTIVE DIRECTORS David John Finch Clemens Anton Theodor Wolf von Bechtolsheim Ken Hatakeyama Maurice Stephen Kane REGISTERED OFFICE 5th Floor 20 Fenchurch Street London EC3M 3BY United Kingdom INDEPENDENT AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 7 More London Riverside London SE1 2RT United Kingdom PRINCIPAL BANKERS HSBC Bank plc 1st Floor 60 Queen Victoria Street London EC4N 4TR United Kingdom Page 2

4 STRATEGIC REPORT Business Model Tokio Millennium Re (UK) Limited ("The Company") underwrote non-life insurance/reinsurance risks until 30 June From 1 July 2015, it ceased underwriting, with all new and renewed risks being underwritten by its fellowsubsidiary, Tokio Millennium Re AG UK Branch ("TMR AG's UK Branch" or "UK Branch"). This restructure achieved two objectives for the Tokio Millennium Re group ("TMR AG"). The first improved the capital backing on offer to our customers, with TMR AG s larger balance sheet in comparison with TMRUK Ltd s, the former of which is also backed by a parental guarantee for TMR AG s cedants further underscoring our security. The second enhanced our overall capital efficiency. Business Review Strategy and Objectives The Company's strategy is to safeguard the business of its clients. To achieve this, its objectives are to: Maintain a sound financial footing. Clients can rely on the Company to hold sufficient capital to cover all claims underwritten. The Company also has an unconditional and irrevocable guarantee from its immediate parent in Japan. Ensure a highly accurate evaluation and analysis of the potential hazards faced by its clients. The Company uses proprietary and innovative risk modelling techniques, based on Tokio Marine s longstanding underwriting experience since its establishment in Results and Performance The results for the financial year are set out on pages 12 and 13. The Company generated a post-tax profit of 6.7 million (2016 post-tax loss: (1.8) million) during the financial year. Net assets stood at million (2016: million) at the end of the financial year. On 22 September 2017, Tokio Millennium Re (UK) Ltd agreed the sale of its wholly owned subsidiary, Tokio Marine Technologies LLC, to the ultimate parent Tokio Marine Holdings Inc, for a consideration of 3.3 million. Future Outlook As part of the overall harmonisation within the Tokio Millennium Re group, the Company's renewal rights on its treaty portfolio were transferred on 1 July 2015 to its fellow subsidiary, TMR AG's UK Branch. In line with this, the Company plans to also transfer the run-off treaty portfolio to the new UK Branch through a Part VII FSMA 2000 process, although this is subject to further reviews, regulatory and court approvals. The renewal rights on its direct and facultative portfolio were transferred on 1 January 2011 to Syndicate 1880 managed by Tokio Marine Kiln Syndicates Limited. The run-off of this portfolio will continue to be managed by the Company until an exit strategy is formulated. In March 2017, the UK Government invoked Article 50 formally commencing the process for the United Kingdom to leave the European Union ("Brexit"). The Company is monitoring the ongoing Brexit negotiations and is implementing a contingency plan should it be required. Page 3

5 STRATEGIC REPORT Principal Risks and Uncertainties Overall organisational risks The risk management function oversees the management of all organisational risks and continues to enhance the mechanisms used to identify, quantify and manage accumulated exposures within the limits of the Company's risk appetite. The steering of the overall risk strategy is directed by the Board of Directors. General insurance risk General insurance risk arises from: fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; unexpected claims arising from a single source; inadequate claims reserves; and inadequate reinsurance protection. The adequacy of the Company's general insurance reserves is reviewed by the Reserving Committee and approved by the Board of Directors. For comparison purposes, the reserves are also independently re-projected by an independent firm of actuaries. Financial risk Financial risk arises through the Company's holdings in financial assets, financial liabilities, insurance/reinsurance assets and policyholder/cedant liabilities. The key financial risk is that proceeds from financial assets are insufficient to fund obligations arising from policies as they fall due. The most important components of financial risk are: interest rate risk; currency risk; credit risk; and liquidity risk. The Company adopts the Tokio Marine group-wide Enterprise Risk Management framework which is tailored and used as a guide to measure, monitor and control all risks inherent in the business, including those relating to financial risk - by ensuring these remain within its risk appetite limits. This system establishes acceptable levels of measurable risks and ensures the sufficiency of equity in light of those risks. Risk amounts are monitored to ensure these are maintained within permissible ranges based on the Company's economic capital model and are reported to the Board of Directors on a periodic basis within the Own Risk and Solvency Assessment ("ORSA") document. The Company does not use hedge accounting to manage risks. Instead, it manages risks by calculating the value-atrisk for major asset components, and the tail value-at-risk for major liability components in the Balance Sheet. The value-at-risk is an indicator - at a given confidence interval - of the worst loss expected to be suffered over a specified duration from the measurement date. The tail value-at-risk, on the other hand, measures the loss expected to be suffered once the given confidence interval is breached. Interest rate risk Interest rate risk arises primarily from the Company's investment portfolio which comprise debt securities, money market funds and cash deposits. To the extent that claims inflation is correlated with interest rates, liabilities to policyholders/cedants are also exposed to interest rate risk. The Company monitors interest rate risk by calculating the value-at-risk, average maturity and average duration of its investment portfolio. These indicators measure the sensitivity of assets and liabilities to changes in current interest rates. There is currently minimal interest rate risk exposure on assets as these are principally short-tomedium term in duration. Currency risk The Company is exposed to currency risk in respect of policyholder/cedant liabilities which are denominated in currencies other than GBP. The Company seeks to mitigate currency risk by matching the estimated foreign currency denominated liabilities with assets denominated in the same currency. Page 4

6 STRATEGIC REPORT Principal Risks and Uncertainties (continued) Credit risk Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is exposed to credit risk are: exposure to investments in debt securities, money market funds and cash deposits; reinsurers' share of insurance/reinsurance claim reserve liabilities; claim recovery amounts due from reinsurers in respect of claims already paid; premium amounts due from insurance/reinsurance policyholders/cedants; and premium amounts due from insurance/reinsurance intermediaries. The Company monitors its exposure to a single counterparty, or groups of related counterparties, and to territorial and industry segments. There is no significant credit risk in respect of reinsurers as the Company's reinsurers are the Tokio Marine group companies. Liquidity risk Liquidity risk is the risk that cash may not be available to pay obligations when due. In order to meet such calls, the Board sets minimum limits on the maintenance of cash deposits and investments. Key Performance Indicators Key performance indicators Earned premium 2,640 79,264 Underwriting profit/(loss) 7,327 (9,115) Net combined ratio (177.5%) 111.5% Movement during the financial year The underwriting result for the year was driven by favourable reserve releases across several lines of business. Investment return 1,693 4,216 Investments/cash deposits 410, ,124 Investment yield 0.4% 0.9% Investment yield has decreased from prior year as the portfolio was impacted by a lower yield environment. Investments/cash deposits 410, ,124 Total assets 431, ,596 Investments/cash deposits 95.1% 91.4% composition Pre-tax profit/(loss) 8,069 (2,177) Opening shareholder's equity 197, ,588 Return on equity 4.1% (1.1)% There continues to be a healthy composition of investments and cash deposits within total assets. Return on equity has improved as a result of favourable reserve releases across several lines of business. Mark Julian Director March 2018 Page 5

7 DIRECTORS' REPORT Directors and Their Interests The following individuals served as directors during the financial year, and up to the approval date of this report: Names Appointed Resigned David John Finch Prior to 1 January Mark James Phillip Julian Prior to 1 January Clemens Anton Theodor Wolf von Bechtolsheim Prior to 1 January Ken Hatakeyama 16/05/ Maurice Stephen Kane 16/05/ Toshiaki Suzuki Prior to 1 January /04/2017 Stephan Ruoff Prior to 1 January /06/2017 Political Donations The Company made no political donations during the year (2016: nil). Directors' Indemnification All TMRUK's directors benefited from qualifying third party indemnity provisions by way of Directors' and Officers' Insurance, limited to 10 million (2016: 10 million) in the aggregate including costs and expenses, plus 1 million additional (2016: 1 million) for every Non-Executive Director. Coverage was in place during the financial year and remains so at the approval date of this report. Independent Auditors The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office. Future Outlook The main features of the Company's future development can be found in the Strategic Report. The future development forms part of this Directors' Report and is incorporated into it by cross-reference. Dividends Paid and Declared During the year, an interim dividend of nil (2016: nil) was paid, amounting to 0p (2016: 0p) per ordinary share. No dividends are proposed (2016: nil). Financial Instruments The financial risk management objectives and policies for the Company can be found within the Strategic Report, with details of exposure being found in Note 1. Financial risk management objectives and policies form part of this Directors' Report and is incorporated into it by cross reference. Page 6

8 DIRECTORS' REPORT Statement of Directors' Responsibilities The directors are responsible for preparing the financial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Company's financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards under Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland" ("FRS 102") and Financial Reporting Standard 103 "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland for entities issuing insurance contracts" ("FRS 103") have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable it to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confirm that they have complied with the above requirements in the preparation of the financial statements. Statement of Information Disclosure to Auditors Each of the persons who is a director at the date of this report confirms that: So far as each of them is aware, there is no information relevant to the audit of the Company's financial statements for the year ended 31 December 2017 of which the auditors are unaware; and The director has taken all steps that he/she ought to have taken in his/her duty as a director in order to make him/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act By order of the Board Mark Julian Director March 2018 Page 7

9 Independent auditors report to the members of Tokio Millennium Re(UK) Ltd Report on the audit of the financial statements Opinion In our opinion, Tokio Millennium Re(UK) Ltd s financial statements: give a true and fair view of the state of the company s affairs as at 31 December 2017 and of its profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, and applicable law); and have been prepared in accordance with the requirements of the Companies Act We have audited the financial statements, included within the Annual Report, which comprise: the statement of financial position as at 31 December 2017; the statement of comprehensive income, the statement of changes in equity for the year then ended; the accounting policies; and the notes to the financial statements. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC s Ethical Standard, as applicable to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC s Ethical Standard were not provided to the company. We have provided no non-audit services to the company in the period from 1 January 2017 to 31 December Our audit approach Overview Overall materiality: 4.3 million, based on 1% of Total Assets. We performed full scope audit procedures over all operations in the UK. Appropriateness of methodologies and assumptions applied in the valuation of claims incurred but not reported (IBNR) component of claims outstanding. Page 8

10 The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We gained an understanding of the legal and regulatory framework applicable to the company and the industry in which it operates, and considered the risk of acts by the company which were contrary to applicable laws and regulations, including fraud. We designed audit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the company s financial statements, including, but not limited to, the Companies Act 2006, the Prudential Regulation Authority's regulations and the UK tax legislation. Our tests included, but were not limited to, review of the financial statement disclosures to underlying supporting documentation, review of correspondence with the regulators, enquiries of management and review of internal audit reports in so far as they related to the financial statements. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Appropriateness of methodologies and assumptions applied in the valuation of claims incurred but not reported (IBNR) component of claims outstanding See statement of accounting policies section h and note 1 (c) of the financial statements for disclosures of related accounting policies, judgments and estimates. The IBNR component of claims outstanding are a material estimate in the financial statements and their valuation involves a significant degree of judgement. The gross claims outstanding reserves are 219,665k (net 217,973k) of which the IBNR component is 76,969k. Management exercises significant judgement in respect of the trends in bodily injury claims frequency and severity, the speed of recognition of emerging data and trends, the propensity for large claims to settle as periodic payment orders ( PPOs ), The main areas of focus include: The use of appropriate reserving methodologies and assumptions and the consistency of their application from year to year; Appropriateness of yield curves, ASHE assumptions, Ogden rate for calculating large bodily injury claims reserves and PPO propensity assumptions; and Prior year developments and the appropriateness of prior year estimates. How our audit addressed the key audit matter Our work to assess the appropriateness of the methodologies and assumptions applied in the valuation of the claims IBNR was supported by our in-house non-life actuarial specialists, and included the following procedures: We assessed and tested the governance process in place to determine the methodologies and assumptions setting. We performed methodology and assumptions reviews over 82% of the claims IBNR and key indicator checks to identify any anomalies over the remaining balance. Key assumptions used by management include the PPO propensity assumptions, assumptions on credibility given to Actual Vs Expected experience, yield curves, ASHE inflation. We have assessed these assumptions for reasonableness, through analytical procedures including claims development trends over time, as well as consistency with prior periods. Where there have been changes in the methodology or key assumptions we have assessed whether these are reasonable based on changes in the industry and the historical claims experience, and have considered whether all changes we would expect to see have been made. We tested the completeness, consistency and accuracy of claims data. In addition to this, we have performed work to understand the sensitivity of the claims IBNR to changes in key assumptions and methodology, as well as reviewed the Page 9

11 actuarial disclosure in the Annual Report and Accounts. Based on our work performed we are satisfied that the methodologies and assumptions applied in the valuation of the claims IBNR are reasonable. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied 4.3 million. 1% of Total Assets. We have used total assets as a benchmark as the company is in run off and revenue or profit based metrics would not be appropriate.. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above 215k as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the directors use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company s ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. Page 10

12 In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors Responsibilities set out on page 7, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: This description forms part of our auditors report. Use of this report This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or certain disclosures of directors remuneration specified by law are not made; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the audit committee, we were appointed by the directors on 1 May 2005 to audit the financial statements for the year ended 31 December 2005 and subsequent financial periods. The period of total uninterrupted engagement is 13 years, covering the years ended 31 December 2005 to 31 December Deepti Vohra (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London March 2018 Page 11

13 STATEMENT OF COMPREHENSIVE INCOME Notes EARNED PREMIUMS, NET OF REINSURANCE Premiums written Gross amount 2(a),2(b) (5,135) 2,957 Reinsurers' share (284) (755) (5,419) 2,202 Change in the provision for unearned premiums Gross amount 3 8,380 77,567 Reinsurers' share 3 (321) (505) 8,059 77,062 Earned premiums, net of reinsurance 4 2,640 79,264 CLAIMS INCURRED, NET OF REINSURANCE Claims paid Gross amount 5 (54,782) (72,227) Reinsurers' share ,546 (53,916) (68,681) Change in the provision for claims Gross amount 5,6(a) 58,871 (179) Reinsurers' share 5,6(a) (4,355) (4,778) 54,516 (4,957) Claims incurred, net of reinsurance (73,638) Operating expenses, net of reinsurance Gross amount 7 2,618 (22,144) Reinsurers' share 7 1, ,087 (22,044) Change in the equalisation provision 2(a),6(c) - 7,303 BALANCE ON THE TECHNICAL ACCOUNT FOR GENERAL BUSINESS 2(a) 7,327 (9,115) INVESTMENT RETURN Investment income 8 6,083 7,391 Realised loss on investments (3,130) (4,294) Unrealised gain/(loss) on investments (737) 1,612 Investment expenses and charges (523) (493) Total investment return 1,693 4,216 OTHER INCOME AND CHARGES Other income 9(a) 205 2,727 Other charges 9(b) (1,156) (4) (951) 2,723 OPERATING PROFIT/(LOSS) AND PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAX 8,069 (2,177) Tax charge/(credit) on profit/(loss) on ordinary activities 10(a) (1,411) 351 PROFIT/(LOSS) FOR THE FINANCIAL YEAR 2(b) 6,658 (1,826) Page 12

14 STATEMENT OF COMPREHENSIVE INCOME Notes PROFIT/(LOSS) FOR THE FINANCIAL YEAR 2(b) 6,658 (1,826) OTHER COMPREHENSIVE INCOME/(EXPENSE) Gain/(loss) on revaluation of group undertaking (2,505) TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR 7,266 (4,331) Page 13

15 STATEMENT OF FINANCIAL POSITION : ASSETS As at 31 December 2017 Notes INVESTMENTS Investments in group undertakings 11-2,683 Other financial investments , ,763 Deposits with ceding undertakings 13 1,503 2, , ,515 REINSURERS' SHARE OF TECHNICAL PROVISIONS Provision for unearned premiums Claims outstanding 6(a) 1,692 6,106 2,009 6,768 DEBTORS Debtors arising out of direct insurance operations Debtors arising out of reinsurance operations 15 13,070 22,196 Other debtors including taxation and social security 16 1,297 2,102 14,414 24,376 OTHER ASSETS Intangible assets 17-3 Tangible assets Cash at bank and in hand 34,944 82,361 Deferred tax asset 10(d) ,981 83,258 PREPAYMENTS AND ACCRUED INCOME Accrued interest 2,617 2,100 Deferred acquisition costs ,490 Other prepayments and accrued income ,089 3,431 5,679 TOTAL ASSETS 431, ,596 Page 14

16 STATEMENT OF FINANCIAL POSITION : LIABILITIES As at 31 December 2017 Notes CAPITAL AND RESERVES Called up share capital , ,000 Revaluation reserve 11-1,561 Profit and loss account 79,523 70,696 Total equity 204, ,257 TECHNICAL PROVISIONS Provision for unearned premium 3 2,604 11,304 Claims outstanding 6(a) 219, , , ,946 PROVISIONS FOR OTHER RISKS AND CHARGES Onerous lease Provision for taxation 10(d) CREDITORS Creditors arising out of insurance operations 7 7 Creditors arising out of reinsurance operations 2, Other creditors including taxation and social security , ACCRUALS AND DEFERRED INCOME Reinsurers' share of deferred acquisition costs Other accruals and deferred income 24 1,047 2,357 1,068 2,418 TOTAL EQUITY AND LIABILITIES 431, ,596 The financial statements on pages 12 to 51 were approved by the Board of Directors on signed on its behalf by: March 2018 and Mark Julian Chief Executive Officer Page 15

17 STATEMENT OF CHANGES IN EQUITY 2017 Share capital Revaluation reserve Profit and loss account Total equity At beginning of year 125,000 1,561 70, ,257 Profit after tax (refer Note 2(b)) - - 6,658 6,658 Revaluation gain on group undertaking (refer Note 11) Disposal of group undertakings (refer Note 11) - (2,169) 2,169 - Dividends paid At end of year 125,000-79, ,523 Share capital Revaluation reserve Profit and loss account Total equity At beginning of year 125,000 4,066 72, ,588 Loss after tax (refer Note 2(b)) - - (1,826) (1,826) Revaluation gain on group undertaking (refer Note 11) - (2,505) - (2,505) Dividends paid At end of year 125,000 1,561 70, , Page 16

18 STATEMENT OF ACCOUNTING POLICIES STATEMENT OF ACCOUNTING POLICIES (a) (b) (c) (d) (e) (f) (g) The principal accounting policies applied in the preperation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Statement of compliance The financial statements have been prepared in accordance with United Kingdom Accounting Standards, including Financial Reporting Standard 102, "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland" ("FRS 102"), Financial Reporting Standard 103, "The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland for entities issuing insurance contracts" ("FRS 103") and the Companies Act 2006, under the provision of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 ( SI 2008/410 ). Basis of preparation These financial statements are prepared on a going concern basis, under the historical cost convention, as modified by the recognition of certain financial assets and liabilities measured at fair value. The preparation of financial statements in conformity with FRS 102 requires the use of critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in Accounting Policy (g) under Claims Incurred. Use of estimates and judgements The preparation of the financial statements in conformity with FRS 102 requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The most significant estimate made by management is in relation to claims outstanding. Estimates in relation to claims incurred are discussed in statement of accounting policy (h) claims incurred. Also refer to Note 6 (a) Technical Provisions, claims outstanding. Exemption from preparing consolidated financial statements The Company has taken advantage of the exemption under Companies Act 2006 section 405(2), which states that a subsidiary undertaking may be excluded from consolidation if its inclusion is not material for the purpose of giving a true and fair view. Accordingly, these financial statements are the Company's separate financial statements. Exemption from preparing cash flow statement The Company has taken advantage of the exemption under FRS 102 paragraph 1.12(b), from preparing a Statement of Cash Flows, on the basis that it is a qualifying entity and its ultimate parent company, Tokio Marine Holdings Inc. (registered in Japan), includes the Company's cash flows in its publicly available consolidated financial statements. Basis of accounting for underwriting activities The results are determined on an annual basis whereby the incurred cost of claims, commissions and related expenses are charged against the earned proportion of premiums, net of reinsurance, as described below. Written, earned and unearned premiums Premiums written Premiums written are recognised within the Statement of Comprehensive Income - Technical Account, with the gross and ceded amounts disclosed separately. Premiums written are stated gross of acquisition costs payable to intermediaries, but net of any premium levies or indirect taxes. Premiums written relate to business incepted during the financial period, together with any differences between booked premiums and those previously accrued on contracts which incepted in prior financial periods. Premium is initially recognised based on estimates of ultimate premiums. These estimates are judgemental and could result in misstatements of premium recorded in the financial statements. Adjustments to the amounts of premium are reflected in the financial statements for the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly. Earned premiums Premiums written are earned on a time-apportionment basis to reflect the risk profile of each contract written. Page 17

19 STATEMENT OF ACCOUNTING POLICIES STATEMENT OF ACCOUNTING POLICIES (continued) (g) (h) Written, earned and unearned premiums (continued) Unearned premium reserves ("UPR") Premiums written not earned, are deferred within the Statement of Financial Position as unearned premium reserves ("UPR"). UPR are retranslated at closing rate and will be recognised as earned premiums in the Statement of Comprehensive Income - Technical Account in future financial periods'. Claims incurred Claims incurred are recognised within the Statement of Comprehensive Income - Technical Account, with the gross and ceded amounts disclosed separately. Claims incurred comprise: Claims paid during the financial period; Movements in claim provisions during the financial period; Related internal and external claims handling costs attributable to the above; and Where applicable, deductions for salvage and other recoveries. Claims provisions and related reinsurance recoveries Claims provisions within the Statement of Financial Position comprise the following: Estimated costs of claims notified but not yet settled at the financial period end ( outstandings"); Incurred but not reported claims at the financial period end ( IBNRs"); Related internal and external claims handling costs attributable to the above; and Salvage and subrogation deductions, plus other recoveries where applicable. Claims provisions are estimated at each financial period end based on best available information. The Company takes all reasonable steps to ensure that it has appropriate information regarding its estimated claim exposures and these are set so that no adverse run-off deviation is envisaged. Given the uncertainties in establishing claims provisions, it is likely that the final liability will prove different from the original estimates established. Where such uncertainty is deemed considerable, a degree of caution is exercised in setting claims provisions. Notified outstanding claims In estimating outstanding claims within the Statement of Financial Position, the Company considers the claim circumstances as reported, including any information available from loss adjusters. The Company's gross outstanding claim estimates of large losses are based on best estimates of claims given the currently available information from: industry assessments of exposures; preliminary claims information obtained from policyholders, cedants and brokers to-date; and a review of in-force contracts. Actual gross losses from these events may vary materially from initial estimates due to the inherent uncertainties in making such determinations. Incurred but not reported ("IBNR") claims The estimation of IBNR claims within the Statement of Financial Position is generally subject to a greater degree of uncertainty than the estimation of notified outstanding claims as less information is available. IBNR claims may often not be apparent to the insured until many years have passed following the event which trigger such claims. Business classes where the proportion of IBNR claims are high in relation to total claims provisions will typically display greater variations between initial estimates and the final outcomes because of greater difficulties estimating these. Business classes where claims are typically reported relatively quickly after the claim event tend to display lower levels of volatility. In calculating IBNR claims, the Company applies the three reserving methods of a priori loss ratio, link ratio and Bornhuetter Ferguson. The Company then selects the most appropriate method based on information derived by underwriters and actuaries during the initial pricing of the business, supplemented by industry data where appropriate. These methods consider, among other things, premium rate changes, claims inflation and changes in terms and conditions that have been observed in the market. The IBNR for each class of business is set to represent the best estimate of future claims with appropriate allowance for all risks faced. There is no longer a margin included in the IBNR. The IBNR in previous years has included a margin to take into account uncertainties in its estimation that arise from the fact that the claims experience is underdeveloped and that industry benchmark data is at times used in the reserving methodologies. The level of this margin has generally been decreasing each year as these uncertainties have reduced. Page 18

20 STATEMENT OF ACCOUNTING POLICIES STATEMENT OF ACCOUNTING POLICIES (continued) (h) Claims incurred (continued) Assumed treaty contracts These contracts currently comprise a mixed portfolio of Property, Liability, Accident/Health, Motor, Financial, Marine, Transport and Aggregate lines. The majority are short-to-medium tail in nature and there is generally not expected to be a significant delay between the occurrence of the claim and the claim being reported to the Company. Certain contracts have exposure to periodic payment orders and these are longer tail in nature where the claim payments are structured as annuities over an extended time horizon. Direct contracts, assumed facultative contracts These contracts comprise principally Property and Engineering lines. These are short-to-medium tail in nature and there is generally not expected to be a significant delay between the occurrence of the claim and the claim being reported to the Company. Reinsurance recoveries For ceded outstanding claims within the Statement of Financial Position, a separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provision. For ceded IBNR claims within the Statement of Financial Position, these are assumed to be consistent with the historical pattern of recoveries, and adjusted to reflect changes in the Company s reinsurance programme over time. An assessment is also made of their recoverability having regard to market data on the financial strength of the underlying reinsurers and their associated default probabilities. (i) (j) (k) (l) Unexpired risk provisions ("URP") Unexpired risk provisions ( URP ) are established within the Statement of Financial Position for any deficiencies arising when unearned premium reserves ("UPR"), net of associated deferred acquisition costs ("DAC") are insufficient to meet expected claims and expenses. No account is taken of future investment return arising from investments supporting the URP and UPR. The expected claims are calculated based on information available at the Statement of Financial Position date. Unexpired risk surpluses and deficits are offset where business classes are managed together and a provision is made if an aggregate deficit arises. Equalisation provisions Equalisation Provisions are additional loss reserves required under the Solvency I regime (EC Non-Life Directive 1987/343) for the purposes of mitigating exceptionally high loss ratios in future financial periods. When the Solvency II regime (EC Solvency II Directive 2009/138) came into force on 1 January 2016, Equalisation Provisions were abolished. Acquisition costs Acquisition costs Acquisition costs within the Statement of Comprehensive Income - Technical Account represent both external commissions and internal expenses associated with acquiring insurance contracts written during the financial period. Acquisition costs also include reinsurance commissions and profit participations - both receivable and payable. Acquisition costs are recognised in the financial period in which the related premiums are earned, with the gross and ceded amounts disclosed separately. Deferred acquisition costs ("DAC") Acquisition costs which relate to unearned premium reserves ("UPR") are recognised within the Statement of Financial Position as deferred acquisition costs ("DAC"). DAC are retranslated at closing rate and will be charged in future financial periods' Statement of Comprehensive Income - Technical Account. Financial instruments The Company has chosen to adopt FRS 102 section 11 in respect of financial instruments. Financial assets Basic financial assets, including trade and other receivables, cash and bank balances, bonds and similar debt instruments are initially recognised at transaction price. Upon their initial recognition, debt instruments are designated by the entity as fair value through profit or loss, and are subsequently measured at fair value which is the current bid market price. Any changes in fair value are recognised in the Statement of Comprehensive Income - Non Technical Account. Financial assets are derecognised when: (a) the contractual rights to the cash flows from the asset expire or are settled; or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party; or (c) control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions. Page 19

21 STATEMENT OF ACCOUNTING POLICIES STATEMENT OF ACCOUNTING POLICIES (continued) (l) Financial instruments (continued) Financial liabilities Basic financial liabilities, including trade and other payables are initially recognised at transaction price. Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised at the transaction price when recorded. Offsetting Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is an enforceable right to set off the recognised amounts, and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. (m) Investment in subsidiary company Investment in the subsidiary company is held at fair value through Other Comprehensive Income. Differences between historical cost and fair value are recognised in the Revaluation Reserve. (n) (o) (p) Investment return Investment return is recognised within the Statement of Comprehensive Income and comprises: Investment income earned during the financial period; Investment expenses, charges or interest incurred during the financial period; Movements in unrealised market value gains/losses during the financial period; and Realised investment gains/losses arising from the sales and maturities of investments during the financial period. Investment income Investment income comprises: Interest on bank balances, which are accounted for on an accruals basis; Coupons on bonds, which are accounted for on an accruals basis; and Returns on money market funds, which are accounted for on an accruals basis. Investment expenses, charges or interest These are recognised on an accruals basis. Movements in unrealised gains/(losses) Unrealised gains/(losses) on investments arising during the financial period represent the difference between: The market value of investments at the Statement of Financial Position date, and their acquired cost if purchased during the financial period; or The market value of investments at the Statement of Financial Position date, and their market value at the last Statement of Financial Position date if purchased in previous financial periods. Realised gains/(losses) These represent the difference between the net sales proceeds and acquired cost. Any unrealised gains/(losses) previously recognised will be reclassified as realised gains/(losses) upon the sale or maturity of investments. Other income Fee income arises from: Income receivable by the Company from group undertakings for risk consultancy services; and Income receivable by the Company from its sublease on an office premise. Foreign currency translations and settlements The Company's reporting and functional currency is GBP. The Company operates in the three transactional currencies of GBP/EUR/USD. All non-gbp/eur/usd transactions are translated into GBP/EUR/USD at the actual rates prevailing on the respective dates of the transactions. At each period end: Foreign currency monetary items, including the Statement of Comprehensive Income, are translated at closing rates. Individual line items in the Statement of Comprehensive Income are translated at the average rate, with the retranslation into closing rates taken to exchange gains and losses. Foreign currency non-monetary items measured at historical cost are translated using the exchange rate prevailing at the date of the transaction. Foreign currency non-monetary items measured at fair value are translated using the exchange rate prevailing at the date fair value was determined. Page 20