Solvency and Financial Condition Report 2016

Transcription

1 QIC EUROPE LIMITED Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

2 Table of Contents 1 Executive Summary Business Performance System of Governance Risk Profile Valuation for Solvency Purposes Capital Management Conclusion 9 2 Business and Performance Business Underwriting Performance Investment Performance Other Material Income and Expense 15 3 System of Governance General Information on the System of Governance Fit and Proper requirements Risk Management System including Own Risk 22 and Solvency Assessment 3.4 Internal Control System Internal Audit function Actuarial function Outsourcing Any other Material Information 28 4 Risk Profile Insurance risk Market risk Credit risk Liquidity risk Operational risk Other material risks Risk Exposure arising from Off-balance Sheet Positions Material Risk Concentrations Risk Mitigation Techniques Risk Sensitivity Stress and Scenario Testing 39 5 Valuation for Solvency Purposes Assets Technical Provisions Other Liabilities 47 6 Capital Management Own Funds Solvency Capital Requirement and Minimum Capital Requirement 52 Appendices 55 QIC EUROPE LIMITED Solvency and Financial Condition Report For the financial year ended 31 December QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

3 1 Executive Summary 4 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

4 Executive Summary Executive Summary The Solvency and Financial Condition Report 1.1 Business Performance 1 presents the business performance, governance, risk profile, and financial and solvency position of QIC Europe Limited ( QEL ) covering the financial year ending 31 December This report is prepared in accordance with the supervisory reporting and disclosure requirements From its launch at the end of 2014, QIC Europe Limited has pursued a strategy, which is distinct from a classic insurance company focusing on coverholder or coinsurance partners across the European Economic Area (EEA). The model was designed to provide access to niche insurance business either by line of business, or geography, or both, for both existing portfolios and entrepreneurial start-up ventures. 1.2 System of Governance QEL performed strongly in calendar year 2016 with premium income at USD 304m which represented a 100% increase over 2015 income which was USD 152m. The net profit after tax of USD 2.3 million on a financial year basis (based on net earned premium of USD 21.7 million) reflects the high level of risk ceded to reinsurers. The lower than expected incurred claims and the investment income exceeding the plan contributed to the net profit. under Solvency II, including Malta Financial Services Authority s (MFSA) Insurance Rules Chapter 8 Financial Statements and Supervisory Reporting Requirements and its Annex 1 Guidelines on reporting and public disclosure. QEL has established a sound and effective corporate governance framework, which is appropriate to the size, nature, complexity and risk profile of the Company. This enables sound and prudent management of the Company s activities so that the interests of policyholders and other stakeholders are appropriately protected. The governance framework is administered by the Board, Board Committees, Chief Executive Officer and Delegated Underwriting Authority Manager to provide robust oversight and clear accountability with specific focus on the delegated underwriting and claims management arrangements. from a start-up operation towards a sustainable businessas-usual model. Material changes in the system of governance included the appointment of two new Board Directors and the appointment of PwC as QEL s internal auditor. Recruitment in Malta strengthened QEL s Underwriting, Finance, Accounting and Operational functions and the Risk Management and Actuarial functions were moved inhouse in the beginning of At the same time, Board oversight of the critical functions was enhanced together with improvements in operational policies and procedures. Full details of the governance and risk management frameworks are detailed in later sections of this report. During 2016, QEL made substantial progress to transition 1.3 Risk Profile The most material risks for QEL are as follows: size of the portfolio. Credit risk is the largest contributor to our capital requirements: 49% of the Solvency Capital Requirement SCR under Solvency II. The credit risk capital requirement increased significantly during 2016, which is in line with the increase in the volume of business written. At the end of the reporting period, our largest exposure to credit risk arose as a result of the large proportion of risk ceded to reinsurance counterparties, the majority being intra-group retrocessions to Qatar Reinsurance Company Limited ( Qatar Re ), and to our parent company Qatar Insurance Company S.A.Q ( QIC ). Both Qatar Re and QIC are rated A/Stable by S&P Global Ratings and A/Excellent by A.M. Best. Underwriting risk: QEL s portfolio mainly comprises low severity/high frequency business. The risk of an accumulation relating to a natural catastrophe is low relative to the Reserve risk: Considering the short period of operation of the Company, there are low levels of reserves relative to the size of the portfolio (liability-related risk being just 10% of the premium-related part of non-life risk in the SCR calculations). Reserve risk is currently not considered a material contributor to the Company s overall risk profile. Operational risk: QEL experienced significant business growth during 2016, so given that the required capital for operational risk within the SCR is linked to business volume, it also increased over the period. QEL has established effective risk management and internal control frameworks, which are designed to identify, measure and mitigate the key operational risks. The adoption of new system software, continuing process improvements and further advances in the area of risk management are all expected to deliver process efficiencies, quality improvements and enhancements 6 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

5 Executive Summary Executive Summary 1.5 Capital Management to governance and controls in Market risk: QEL s investment portfolio grew significantly during 2016, driving an increase in the associated capital requirements. The highest contributor to market risk is foreign exchange risk, which arises due to mismatches in the currencies of the assets held to match liabilities. The Company monitors this risk on an ongoing basis and the impact of adverse currency movements was reviewed as part of QEL s stress and scenario testing. The key mitigation to foreign exchange risk is that QEL s main reinsurance contracts are USD denominated but written so as to follow the fortunes of the ceded portion of risk, so there is no mismatch between the foreign exchange rate at which the gross claim is paid and the rate at which the ceded portion is recovered. Group risk: Group risk arises from the relationship between QEL and its parent group. Reinsurance cover is provided by the affiliates QIC and Qatar Re, which are rated A/Stable by S&P Global Ratings and A/Excellent by A.M. Best. Also, Qatar Re is subject to the capital and solvency requirements of a Solvency II equivalent jurisdiction. The key risk drivers, the rationale for the ranking of each type of risk and the approach to managing them are documented in section 4 below. QEL maintained own funds in excess of the Minimum Capital Requirement ( MCR ) and Solvency Capital Requirement throughout the reporting period. The solvency ratios as at 31 December 2016 are based on the Solvency II standard formula and are as follows: Solvency Position Capital Eligible Solvency Requirement Captital Ratio (USD) (USD) SCR 35,894,797 41,917, % MCR 8,973,699 40,346, % QEL s own funds consist of paid in share capital, retained earnings and a deferred tax asset. The majority of own funds as of 31 December 2016 qualify as Tier 1 capital, confirming that the Company meets the eligibility limits applied to each tier to cover the MCR and SCR. The own funds are split by tier as follows: Composition Eligible Capital Eligible to meet MCR (USD) (USD) Tier 1 Unrestricted 40,346,480 40,346,480 Tier 3 1,570,633 0 Total 41,917,113 40,346, Valuation for Solvency Purposes 1.6 Conclusion The assessment of available regulatory capital is made by taking an economic view of our assets and liabilities, in accordance with the Solvency II valuation principles. The following table sets out the assets held within QEL s balance sheet, alongside their value as at 31 December 2016 on the IFRS financial statements and on the Solvency II balance sheet. Class of Assets IFRS Solvency II (USD) Basis (USD) Deferred Acquisition Costs (DAC) 38,210,000 0 Deferred Tax Assets 0 1,570,633 Property Plant & Equipment 100, ,716 Investments (Bonds) 44,417,349 44,417,349 Reinsurance Recoverables 272,852, ,174,446 Insurance Receivables 126,190, ,190,000 Overall, QEL continued to develop in line with shareholder expectations during Supported by a parental guarantee, it also continues to benefit from an A/Stable rating by S&P Global Ratings. Further strengthening of the capital base can also take place, if required, to support further growth. Cash & Cash equivalents 20,735,100 20,735,100 Total Assets 502,505, ,188,244 The main liabilities on the Solvency II balance sheet are the technical provisions, net of reinsurance recoverables, which consist of liabilities for claims outstanding and premium provisions. Other liabilities consist mostly of insurance and reinsurance balances payable. As at 31 December 2016, QEL held technical provisions ( TP ) for non-life business and for health business as defined within the Solvency II articles. The following table sets out the gross technical provisions and the expected reinsurance recoveries on both an IFRS and Solvency II basis. Non-Life & Health Liabilities - TP Assets - Recoverable TP Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD) IFRS Insurance Contract Liabilities 294,086, ,852,497 0 Best Estimate 0 248,474, ,174,466 Risk Margin 0 5,100, Gross TP Non Life ( Including Health) 294,086, ,574, ,852, ,174,466 The liabilities other than technical provisions are set out below, alongside their value as at 31 December 2016 on each of the IFRS and Solvency II bases. Other Liabilities IFRS Solvency II (USD) Basis (USD) Deferred Commission Income 34,888,000 0 Reinsurance Payables 127,426, ,426,903 Trade Payables 180, ,097 Any other liabilities 1,089,748 1,089,748 Total 163,584, ,696,748 8 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

6 2 10 Business and Performance QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

7 Business and Performance Business and Performance 2.1 Business QEL was established in November 2014 as The Company 2 a non-life insurance and reinsurance company in Malta. QEL fulfils an important role within QIC, in enhancing the Group s insurance and reinsurance product offerings throughout the European Economic Area ( EEA ), by providing access to this important market. QEL also writes a limited number of additional covers on a worldwide basis where licensing permits. QIC is among the highest rated insurers in the Gulf region, with a rating of A/Stable from S&P and A/Excellent QEL was established in November 2014 as a non-life insurance and reinsurance company in Malta. QEL fulfils an important role within QIC, in enhancing the Group s insurance and reinsurance product offerings throughout the European Economic Area ( EEA ), by providing access to this important market. QEL also writes a limited number of additional covers on a worldwide basis where licensing permits. QIC is among the highest rated insurers in the Gulf region, with a rating of A/Stable from S&P and A/Excellent from A.M. Best. QEL operates from its Head Office in Malta and supporting operations in London and Milan. QEL focuses on sustainable and profitable growth founded upon a strong financial position and acknowledged technical expertise. QEL has rating-agency-graded insurance paper (A/Stable by S&P Global Ratings) that can be deployed across the EEA on a freedom of service basis. QEL carefully selects coverholder partners with specialist knowledge and distributions to access businesses that are not accessible on a treaty reinsurance basis. QEL has also sought entry to the Italian and UK markets on a freedom of establishment basis. QEL is authorised and regulated by Malta Financial Services Authority. Supervisory Authority Malta Financial Services Authority Notabile Road, Attard, BKR3000, Malta External Auditor Deloitte Malta Deloitte Place, Mriehel Bypass, Mriehel BKR 3000, Malta Note that, in line with the wider QIC Group, management will recommend to the Board that EY be appointed as external auditors for the year ending 31 December from A.M. Best Ownership Structure QEL is a wholly-owned subsidiary of QIC, a leading Qatari publicly-listed insurer with total shareholders equity of USD 2.3bn (as of 31 December 2016). The QIC Group structure is presented below: Qatar Insurance Group (QIC) - International Structure Qatar Insurance Company S.A.Q. (State of Qatar) QIC Capital LLC (Qatar Financial Centre) QIC Europe Limited ( QEL ) (Malta) Qatar International LLC (Qatar Financial Centre ( QFC )) Qatar Reinsurance Company Ltd (Bermuda) Antares Holdings UK Limited (UK) Branch Office (London) Branch Office (Milan) Subsidiaries & Branch Offices (GCC Countries) Branch Office (Singapore) *Rep. Office (London) Branch Office (DIFC) Qatar Re Services (QFC) Branch Office (Zurich) Antares Managing Agency Limited (UK) * Qatar Re London branch office planned for 2017 branch application has been submitted to the Prudential Regulation Authority ( PRA ) Note: This structure chart shows only the key international subsidiary companies. It does not include, for example, the Antares Lloyd s Corporate Members or certain other subsidiary companies of QIC Capital LLC. Antares Underwriting Asia pte (Singapore) Anatares Syndicate 1274 at Lloyd s QIC owns 22,499,999 shares of the share capital (valued at USD 1 each), and Khalifa Abdulla T. Al-Subaey (QIC Group President & CEO) own the remaining one share in the company. 12 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

8 Business and Performance Business and Performance Insurance and Reinsurance Business written QIC Europe Limited holds licences to write the following classes of general business insurance and reinsurance business: Class 1 - Accident Class 2 - Sickness Class 3 - Land vehicles Class 4 - Railway rolling stock Class 5 - Aircraft Class 6 - Ships Class 7 - Goods in transit Class 8 - Fire and natural forces Class 9 - Other damage to property 2.2 Underwriting Performance The Company reported a net profit after tax of USD 2.3 million compared to a loss of USD 260 thousand in The increase in profit was mostly attributable to the significant growth in business achieved in 2016, which was in line with the long-term plan for the Company. Revenue in 2016 showed significant growth across the portfolio, in line with the business plan to achieve profitable growth. Marine, aviation and transport lines of business were added during the year. Gross premiums written by the Company reached USD 304 million (on a financial year basis) during 2016 compared to Class 10 - Motor vehicle liability (in some countries) Class 11 - Aircraft liability Class 12 - Liability for ships Class 13 - General liability Class 14 - Credit Class 15 - Suretyship Class 16 - Miscellaneous financial loss Class 17 - Legal expenses Class 18 - Assistance USD 152 million in 2015, reflecting the growth of existing lines and addition of the new lines mentioned above. The largest increase in premium income occurred in the motor vehicle liability class of business. In line with written premium growth, the technical result for general business also increased and stands at USD 2.95 million, compared to USD 356 thousand in Almost all lines of business contributed to the underwriting result in 2016, with particularly favourable results in the agriculture and casualty classes. The gross written premiums for 2016 compared to 2015 by line of business are as follows: Line of business Change (USD 000) (USD 000) (USD 000) Medical Expense 4,014 1,603 2,412 Workers Compensation 9, ,616 Motor Vehicle Liability 148,381 49,853 98,528 Other Motor 42,305 26,282 16,023 Marine, Aviation & Transport 20, ,318 Fire & Other Damage to Property 31,334 47,732 (16,398) General Liability 41,510 22,930 18,580 Legal Expenses 6,991 3,881 3,110 Total 304, , ,189 The gross written premium by geographical region is as follows: 2.3 Investment Performance The Company s net investment income amounted to USD 1.5 million in The main source remains the interest income made during 2016 derived from investment in fixed income bonds. Fair value movements of USD 290 thousand during the year were driven by the revaluation of bonds as at 31 December Our investment strategy is heavily weighted towards low risk fixed income and cash deposits, with concentration limits also in place. We invest in a combination of sovereign and high investment grade fixed income securities. The investment performance for 2016 is presented in the table below: 2.4 Other Material Income and Expense The main expenses beyond underwriting and investment relate to employee compensation. The table below shows a breakdown of QEL s operating and administrative expenses: (USD 000) (USD 000) Employee Related Costs Professional Fees Travel Expenses 7 50 Board of Directors Remuneration Rent 23 0 Regulatory Fees Legal Fees 66 0 Miscellaneous Expenses Total 1, In 2015 there was no investment income because the company was in its first year of operation and the assets were only invested at the end of the year (USD 000) Interest Income 1,240 Realised Gains / Losses 307 Forex Deal Income 62 Total Investment Income 1,609 Advisory Fee Expense (118) Net Investment Income 1,491 Region Change (USD 000) (USD 000) (USD 000) Northern Europe 286, , ,026 Western Europe 320 9,169 (8,849) Eastern Europe 616 2,783 (2,167) Southern Europe 2,547 7,649 (5,102) Asia 13, ,465 South America Total 304, , , QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

9 3System of Governance 16 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

10 System of Governance 3 System of Governance 3QEL has established an effective corporate governance framework that is appropriate to the size, nature, complexity and risk profile of the Company. This enables sound and prudent management of the Company s activities so that the interests of policyholders and other stakeholders are appropriately protected. 3.1 General Information on the System of Governance QEL has established an effective corporate governance framework that is appropriate to the size, nature, complexity and risk profile of the Company. This enables sound and prudent management of the Company s activities so that the interests of policyholders and other stakeholders are appropriately protected. Investment Committee QIC Europe Limited ( QEL ) Board of Directors Risk & Compliance Committee QEL has adopted the Three Lines of Defence model to ensure appropriate segregation of roles and responsibilities across the Company. The governance flowchart as at May 2017 is as follows: Company Secretary Audit Committee CEO Risk Management Internal Audit Underwriting Management Claims Management Actuarial Compliance External Audit Deloitte Malta Delegated Underwriting Management Insurance Management Investment Management Finance Function 1st Line of Defence 2nd Line of Defence 3rd Line of Defence Performed in-house Outsourced to Third Parties Outsourced to QIC Group Companies Responsibilities of the Board and Committees The key responsibilities of the Board of Directors are: Approve QEL s strategy, annual business plan, financial statements and Solvency II submissions; Oversee performance against the approved plan; Ensure sufficient capital is held to maintain the Company s ongoing solvency; Oversee the risk management system, including setting the Company s risk appetite and tolerances; Oversee the Compliance function, and ensure that QEL meets the regulatory requirements; Oversee the effectiveness of the Company s Governance Structure and Internal Control System. Confirm that corporate governance policies and practices are developed and applied in a sound and prudent manner; and Oversee the performance of the outsourced functions. 18 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

11 System of Governance System of Governance Key Functions/Responsibilities The Board meets at least quarterly and at other times as required, and carries out its duties within established terms of reference. The Board has appointed an Investment Committee, a Risk and Compliance Committee and an Audit Committee to assist in the effective discharge of its duties, although the Board retains ultimate responsibility. The responsibilities of the committees are as follows: The key functions at QEL are the Compliance function, Risk Management function, Actuarial function and Internal Audit function. Each of the key functions is independent from the Com- pany s operational functions, thereby ensuring they are able to undertake their activities in an unbiased and objective manner. The main responsibilities of the key functions are as follows: Risk Management function Risk and Compliance Committee (RCC) Review and approve for recommendation to the Board the Risk Management Policy and Own Risk and Solvency Assessment (ORSA) Policy. Ensure that the risk management framework remains adequate and effective; Consider the impact of current and future material risks, recommend the risk appetite for approval to the Board and monitor actual exposures against risk appetite and tolerances; Review the risk register and challenge the assessment of the key risks and controls; Ensure maintenance of sufficient economic and regulatory capital; Promote a risk-aware culture and encourage risk-based decision making; Approve the Company s compliance framework, including the annual Compliance Plan, monitor the progress against the Plan; and Oversee the investigation of any material instances of non-compliance with applicable legislative or regulatory requirements or internal policies or procedures. Develop, implement and maintain the Risk Management Framework and associated risk management policies, in liaison with the Group ERM function; Assist the Board in developing the Risk Appetite Statements. Facilitate the ongoing monitoring of the risk appetite and tolerances and escalate any breaches to the CEO, committees and the Board; Coordinate the Own Risk and Solvency Assessment processes and prepare the ORSA report; Support the business functions in identifying, assessing and managing their risks. Facilitate the identification, documentation and assessment of the key controls. Communicate regularly with the business functions to understand, challenge and monitor their risks and controls; Investigate reported incidents of control failings or weaknesses, and document them in the Risk Events register; Update and maintain the risk register; Identify and assess the impact of emerging risks, maintain the Emerging Risks register; Facilitate the stress, scenario and reverse stress testing; Provide advice, consultation and training to business functions on risk and control-related matters; Coordinate assurance activities with the Actuarial, Compliance and Internal Audit functions; Provide quarterly risk reports to the Risk and Compliance Committee and the Board; and Liaise with external parties, including regulators, as appropriate. Investment Committee (IC) Audit Committee (AC) Review and approve the investment strategy, including the adoption of a prudent approach to holding and disposal of investments and the identification of appropriate asset allocations; Monitor the implementation of the investment strategy; Review and approve the investment guidelines and monitor compliance; Identify and implement measures for the preservation and enhancement of the invested assets for the purposes of ensuring continued solvency and adequate liquidity to meet the Company s obligations; and Appoint investment managers and advisors and monitor their performance. Approve the appointment of an external party to whom the internal audit function is outsourced; Approve the three-year Internal Audit Plan and any subsequent material changes; Review internal audit reports and any responses provided by management; Monitor the integrity of the financial statements, including the annual reports. Review and challenge the accounting policies; and Recommend to the Board the appointment of external auditors. Review external auditor s reports. Actuarial function The key responsibilities are documented in section 3.6 Actuarial function. Compliance function The key responsibilities are documented in section Compliance function. Internal Audit function The key responsibilities are documented in section 3.5 Internal Audit function Material Changes in the System of Governance The material changes in the system of governance during 2016 were as follows: The Malta-based Director resigned from the Board of The Internal Audit function was outsourced to PwC; Directors and a new Director was appointed in December 2016; were made; Enhancement of the quarterly reporting to the Board The CEO was appointed as an additional Director; Claims and Underwriting Management Committees Two senior underwriters, an operations manager and were established; and two qualified accountants were added to the Malta A permanent office was established at The Hedge team; Business Centre in Malta. Since the end of 2016, the Risk Management and Actuarial functions have been moved in-house Remuneration Policy Two management level committees were established in 2016: the Claims Management Committee and Underwriting Management Committee. A Reserving Committee has also been established and became operational in Q These committees assist the CEO with the oversight and management of underwriting, claims and reserving. QEL s remuneration policy is to provide compensation that is in line with the market rate and structured and calibrated so as to attract, retain, motivate and reward its employees to deliver enhanced performance in the eyes of customers and shareholders. The policy is aimed at promoting sound and effective risk management and does not encourage excessive risk-taking activities. 20 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

12 System of Governance System of Governance Total compensation is influenced by factors such as business performance and affordability, individual performance, through a pension programme. The funds are invested in QEL provides some employees with pension benefits stakeholder aspirations, capital providers and legal requirements. on the employee s preference, which is administered by a one of the Company s pension investment portfolios based third-party advisor. The Company does not operate any early retirement schemes or defined benefit pension schemes. The QEL remuneration scheme includes both fixed and variable components. These are appropriately balanced so that the fixed component represents a sufficiently high proportion of the total remuneration to avoid employees being porting period can be found in section 2.4 Other Material Details on Board and employee remuneration over the re- overly dependent on the variable components. Income and Expense. 3.2 Fit and Proper requirements The Company ensures that the Board members and key In assessing the Fit and Proper requirements the following function holders are fit and proper to discharge their responsibilities in accordance with the following definitions: Ensure that a PQ (Personal Questionnaire) and the procedures are followed: An assessment of whether an individual is fit involves relevant forms are filed with the regulator; an evaluation of the person s professional qualifications, knowledge and experience to ensure they are report any changes in their status in relation to Fit and At each Board meeting the directors are requested to appropriate to their role. It also demonstrates whether the person has exercised due skill, care, diligence, est; and Proper requirements or any potential conflict of inter- integrity and compliance with relevant standards that An internal questionnaire is completed by all roles within the company and reassessed on at least an annual apply to the area or sector in which the individual has worked; basis. An assessment of whether a person is proper includes When assessing the fitness of the Board of Directors, the an evaluation of a person s honesty, reputation and Company ensures that collectively the Board possesses financial soundness. This includes, if relevant, criminal the appropriate qualifications, experience and knowledge in convictions or disciplinary offences; the following areas: The Fit and Proper Policy applies to the following positions Insurance and financial markets knowledge; of responsibility: Board members and members of the committees; Business strategy and business model knowledge; Key functions - Compliance, Risk Management, Actuarial and Internal Audit; Financial and actuarial analysis knowledge; and System of governance knowledge; Officers and managers of the company; and Regulatory framework and requirements knowledge. Third-party service providers, including insurance managers, auditors, actuaries and country representatives. 3.3 Risk Management System including Own Risk and Solvency Assessment Risk Management System QEL has designed, established and maintains a robust and and the Company s ability to identify, assess, control and effective risk management framework, which supports the mitigate them. implementation of the strategic objectives and business Risk governance is a major component of the overall risk plan. It allows for an appropriate understanding of the nature and significance of the enterprise-wide risks to which in the oversight and management of risks. It also provides framework and provides for clear roles and responsibilities the Company is exposed, including sensitivity to those risks a framework for the reporting and escalation of risk and control issues across the Company. QEL has adopted the Three Lines of Defence approach to managing and controlling risk: 1st line of defence 2nd line of defence 3rd line of defence Risk owner (operational management) Internal control owners Responsible for managing the risk through deployment and execution of controls and management oversight. The Board is responsible for ensuring that an appropriate risk management framework is in place. The Board manages the material risks in line with the risk appetite and ensures that effective systems and controls are implemented. The Risk and Compliance Committee provides oversight of risk management, capital management and exposure management activities. This section provides an overview of key aspects in the overall risk management framework. Risk appetite QEL maintains a risk appetite statement that is reviewed at least annually and approved by the Board. The statement defines acceptable levels of risk and requires quarterly reporting of actual exposure against the level of appetite and tolerances. The Risk and Compliance Committee is responsible for discussing and approving risk appetite and tolerance limits ahead of approval by the Board. The risk appetite will be reviewed and, if necessary, modified if there is a change in QEL s business strategy or attitude towards risk. Risk register The risk register summarises the overall risk profile of QEL and includes the following risk categories: Insurance risk; Market risk; Credit risk; Operational risk; Group risk; and Strategic and Reputational risks. The business functions are responsible for identifying material risks associated with their activity. The risk identification and assessment process is facilitated by the Risk Management function. Compliance Risk Actuarial Independently reports on 1st line of defence activities. Reporting typically involves bringing independent perspective or challenge. Internal audit External audit Independently provides assurance over the process. Risk owners are required to assess the inherent and residual risk position using standardised assessment ratings. As part of the control self-assessment, the risk owners have a responsibility to assess the design and performance of the key controls. The material risks and key controls are discussed with the business functions quarterly and documented in the risk register by the Risk Management function, which also provides challenge to the risks and controls ratings. Output from the risk register and key changes to the risk profile are reported to the RCC with escalation to the Board as appropriate. Exposure management Exposure management at QEL is supported by the Qatar Re Exposure Management team, who have developed specialist tools to measure and monitor exposure. The Exposure Management Tool ( EMT ) serves as a central repository for exposure management-related information. The EMT is closely linked with the underwriting system. Different approaches are taken to natural peril catastrophe and non-natural peril catastrophe exposure management: Natural peril catastrophe exposure is monitored on a monthly basis through accumulation monitoring of our 1-in-250 year event loss to key peril scenarios in key peril regions. We also recognise that the 1-in-250 year event loss does not capture the whole distribution of possible losses and we therefore also monitor the full exceedance probability curve for a variety of return periods and an aggregated limits view of the maximum possible loss to peril events. Non-natural peril catastrophe exposure is measured with reference to the line of business-specific realistic disaster scenarios ( RDS ), where the methodologies depend very much on the nature of the business underwritten. This covers treaty and facultative underwriting of all lines of business. Emerging risks Emerging risks are risks that have not yet been fully understood or classified. The Head of Risk, with input from the wider management team, identifies and prioritises emerging risks for assessment. An emerging risk register is maintained and reviewed quarterly by the RCC. Emerging risks are also reported to the Board. Risk reporting The Head of Risk provides a quarterly written report to the RCC and the Board that covers the following core risk information: Exposures against risk appetite and tolerances; Results of quarterly self-assessment on risk register control activities; Emerging risks; 22 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

13 System of Governance System of Governance Material operational risk events (and near misses); and Any proposed changes to the risk management framework. The Risk Management function also ensures that the results from the Solvency Capital Requirement (SCR) calculations are reported to the RCC and the Board. Capital assessment QEL s SCR is calculated using the Solvency II Standard Formula on a quarterly basis. The Board is responsible for ensuring that the Company continuously holds sufficient eligible own funds to cover the SCR and Minimum Capital Requirement (MCR). QEL has a target to maintain eligible capital above the SCR (as defined in the Risk Appetite Statements) in the medium term, where the medium term is defined as the time horizon of the business plan (typically three years). Material changes to the risk profile over the course of the year could trigger ad-hoc recalculation of the SCR and potentially an update of the ORSA. A Capital Management plan is included in the ORSA report, which demonstrates how QEL will maintain the required regulatory and economic capital to support its business plan over the three-year period. Stress testing and scenario testing Stress testing and scenario testing include consideration of single stresses and multi-faceted scenarios across all material risk categories to assess QEL s ability to meet the capital requirements under stressed conditions. ORSA report The ORSA report summarises the outcome from the ORSA processes for the Board and management on an annual basis. Should there be significant changes to the business strategy or risk profile, a non-scheduled ORSA update would be produced and submitted to the MFSA. The trigger events for such ad-hoc ORSA updates are documented in the ORSA policy. The ORSA report is prepared by the Risk Management function with contributions from the relevant business functions throughout the Company. Use of the ORSA results The ORSA report is used by the Board to assess the solvency capital needed to execute the business plan. Other uses of the ORSA outputs may be as follows: Business plan, reinsurance and investment strategies may be changed as a result of the ORSA; The results from the capital projections are used for capital planning, including alternatives to ensure the continued solvency is maintained under normal and adverse conditions; Risk appetite and tolerance limits may have to be updated; and Risk management framework improvements may have to be made, including risk register updates, risk policy updates and internal control improvements Own Risk and Solvency Assessment The Own Risk and Solvency Assessment ( ORSA ) is defined as the entirety of the processes and procedures employed to identify, assess, monitor, manage and report the current and emerging risks that QEL faces or may face, and to determine the own funds necessary to ensure that overall solvency needs are met at all times. 3.4 Internal Control System Internal Control Framework ORSA process The risk management framework is implemented and integrated through the various committees, processes and procedures described in section These processes contribute towards QEL s solvency self-assessment, which seeks to identify and measure all material risks to which the Company is exposed, informing the decision-making process. QEL s ORSA includes all material risk, including: The quantifiable risks which are within the scope of the SCR; The material risks outside the scope of the SCR and the assessment of their impact; and Assessment of the emerging risks. The ORSA processes are summarised in the following figure: ORSA Process Executive Level Annual Process Other ongoing aspects of risk management framework Three Year Business Plan Risk Appetite and Tolerance Monitoring Risk Appetite Statement ORSA Policy SCR Calculation & Assessment Other Risk Management Activities Risk Register Review and Self- Certifications Emerging Risk Assessement ORSA (and ad-hoc) Report The Risk Management function coordinates the ORSA processes. The ORSA processes operate throughout the year. Some of the key processes that form part of the ORSA include: Risk appetite/tolerance statements (and their ongoing monitoring); Business planning processes (and ongoing monitoring of the implementation of the plan); Risks and controls assessment (documented in the risk register); Emerging risk assessment; Capital calculations; Three-year capital projections; and Stress & scenario testing (including reverse stress tests). Stress & Scenario Testing Exposure Monitoring Three Year Capital Projection Business Plan Monitoring Capital Plan Technical Provisions ORSA Governance & Independent Review The internal control framework seeks to mitigate risks and limit the probability of losses (or other adverse outcomes) as well as providing a framework for the overall management and oversight of the business. The internal control framework at QEL follows the Three Lines of Defence model as documented in section QEL s control framework has the following elements: Adequate and transparent organisational structure with clear allocation and segregation of responsibilities; Corporate policies defining key principles and rules for operation; operating procedures detailing the activities and controls individuals are expected to perform. The policies and procedures are reviewed at least once a year; Specific focus on outsourcing procedures and controls; Management information and monitoring of business performance. Monitoring the achievement of the busi Compliance Function The Compliance function is responsible for directing and overseeing the management and monitoring of the Company s adherence to applicable regulatory and legislative requirements, and to the Company s internal policies, procedures and controls to ensure the effective mitigation of com- ness plan; Ensuring financial and other records are complete and accurate and reliably reflect the operation of the business; Safeguarding assets against loss or misuse; and Training staff to ensure that they understand their responsibilities relating to internal controls. Ensuring that the actions of staff are in compliance with QEL s policies, procedures and relevant laws and regulations. The key controls mitigating material risks are documented in the risk register and assessed as part of the quarterly risk and control assessment process. Internal and external auditors play a key role in the oversight and assessment of the overall control environment. Findings from audit reviews are shared with and discussed by the Audit Committee, and also feed into the risk and solvency assessment processes. pliance risk. The Compliance function also acts in an advisory capacity to the Board and wider Company regarding the impact of a range of regulatory and legislative requirements, and is responsible for promoting and embedding a culture of compliance and integrity throughout the Company. 24 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

14 System of Governance System of Governance 3.6 Actuarial function The Compliance function is established as an independent second line of defence control function and has access to all relevant information and areas of the business. It maintains an open and cooperative relationship with its home state regulator and, where required, overseas regulators in jurisdictions in which the Company has a presence. Directors, key function holders and employees are required to escalate any compliance issues to the Compliance function when necessary. The Compliance function fulfils its obligations by carrying out the following key activities: Act in an advisory, oversight and assurance capacity to ensure that the Company has the necessary systems and controls to enable it to adhere, on an ongoing basis, to regulatory and legislative requirements; Develop Company-wide compliance policies and procedures, as well as undertake regular and ad-hoc compliance activities; Provide updates, as required, on any changes to regulatory and legislative requirements; Ensure that business is written in accordance with applicable licensing requirements in those jurisdictions in which the Company writes business; Liaise with the regulator(s), in order to develop and maintain open and cooperative relationships and ensure that appropriate disclosures are made to the regulator(s) of anything relating to QEL that the regulator(s) would reasonably expect notice of; Ensure that all regulatory returns are submitted to the regulator(s) within the prescribed timescales; Coordinate assurance activities with the Risk Management and Internal Audit functions; Promote and embed a strong compliance culture throughout the Company; and Prepare a quarterly Compliance Report for the RCC and the Board. In Q1 2017, QEL s Actuarial function was brought in-house following the recruitment of a Senior Reserving Actuary. In 2016, QEL s Actuarial function was outsourced to an external consultant and an affiliated company. The consultancy company provided the following services: Calculation of the technical provisions; and Supporting the Risk Management function by undertaking the calculation of the SCR; During 2016 the affiliated company provided the following actuarial and modelling services to QEL: Advising QEL underwriters on technical price, profitability, product design, portfolio impact, data quality, applicability of modelling, uncertainties and third-party reliance; Assisting with business planning, researching new classes and territories of business, assisting with portfolio optimisation and improving return on capital; Implementing and maintaining the reserving systems for QEL; performing a reserving function and preparing the necessary reserving reports for QEL s financial statements and external reporting including regulatory filings; Preparing financial projections for the purposes of assessing SCR; Providing support to ensure achievement and maintenance of Solvency II compliance; and The external consultancy and the affiliated company s actuaries continue to provide support to QEL, enabling segregation of duties within the actuarial team. Develop an annual compliance plan setting out the key objectives and activities of the Compliance function in the year ahead and ensure adequate resources are in place. The plan is approved by the RCC and its implementation is monitored on a quarterly basis; Provide guidance and support on regulatory and legislative requirements. Ensure that staff receive adequate training on various compliance matters (e.g. antimoney laundering); The Compliance function is outsourced to Marsh Management Services Malta Limited ( Marsh ) who perform the day-to-day compliance activities of the Company. In addition, Marsh liaises with the Compliance function of Qatar Reinsurance Company Limited, which provides certain compliance support under an intra-group outsourced relationship with QEL. 3.7 Outsourcing Outsourcing Policy QEL s Outsourcing Policy applies to all internal and external outsourcing arrangements. The policy describes how all outsourcing agreements are arranged, overseen, monitored and managed. The policy is owned by the Delegated Underwriting Authority Manager. A formal approval process is in place (including review of contracts by legal experts); The MFSA is notified of any new outsourcing arrangements or changes to existing outsourcing arrangements; 3.5 Internal Audit function The Internal Audit function at QEL is outsourced to PwC. The main responsibilities of the function are: Provide independent assurance on the effectiveness of the risk management, internal control and governance frameworks; Conduct internal audit reviews, discuss the findings and agree action points with the relevant business areas, prior to reporting to the Audit Committee; Develop a rolling three-year Internal Audit Plan and provide the Audit Committee with quarterly updates against the plan; and Review and evaluate the annual coverholder audit schedule and the completed coverholder audit reports. Further assurance is being obtained through the use of a panel of coverholder auditors who examine in detail the controls and transactions of all coverholder partners. All audit reports are provided to the Internal Audit function to assist it in its work. The Internal Audit function is segregated from all operational functions and provides independent assurance on the effectiveness of the risk management, internal control and governance frameworks. It has unrestricted access to all areas of the organisation so as to effectively conduct internal audit reviews. In each audit location, Internal Audit fulfils its responsibilities in compliance with local legal and regulatory requirements (such as the MFSA Insurance Code of Conduct), and in accordance with the guidelines of the Institute of Internal Auditors and the International Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (IIA). Outsourcing is used to complement QEL s overall business strategy, objectives and risk appetite. Arrangements are only considered and entered into where they offer improved business performance, both operationally and financially. QEL does not seek to enter into any outsourcing arrangements that will result in reduced standards or an increased level of risk exposure that breaches the risk appetite. QEL understands that, in accordance with regulatory requirements, where it outsources any of its activities either to external third-party service providers or intra-group entities, it will continue to be responsible and held accountable for the performance and output of those activities. Each outsourcing arrangement is subject to a robust processes: The business function owner is responsible for demonstrating the rationale for selecting and shortlisting the potential provider; Each service provider is subject to due diligence; Comprehensive assessments of the service providers are performed on a regular basis; and Validation may be sought through an independent audit. The business function owners are responsible for identifying and assessing the risks associated with an outsourcing arrangement and ensuring that the service providers have in place adequate internal control systems. The tables below outline the outsourced functions that are considered critical or important: Third Party Service Providers: Function / Work performed as at Jurisdiction of 31 December 2016 the Function Insurance Management Malta Internal Audit (Critical Function) Malta Compliance (Critical Function) Malta Company Secretarial Malta 26 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

15 Affiliated Service Providers: Function / Work performed as at Jurisdiction of 31 December 2016 the Function Compliance (Critical Function) Bermuda Investment Advisors Qatar Finance function Qatar Claims Handling and Administration Switzerland HR Support Switzerland IT Service Support Switzerland The Risk Management and the Actuarial functions were outsourced during 2016, however they were moved in-house at the beginning of A Delegated Underwriting Authority Manager joined QEL at the beginning of 2017 with responsibility for the oversight of the management of delegated authorities and other outsourced functions. The Board maintains oversight and control of all outsourced functions Delegated Underwriting and Claims Management QEL focuses on coverholder or coinsurance partners across the EEA. QEL s business model was designed to provide access to niche insurance business either by line of business, or geography, or both, for both existing portfolios and entrepreneurial start-up ventures. The coverholder or an appointed third party administrator are responsible for claims management with QEL s Claims team providing oversight of performance in accordance with service level agreements. An appropriate governance structure is in place and is administered by the CEO, Delegated Underwriting Authority (DUA) Manager and the Board to provide robust oversight and clear accountability of delegated underwriting and claims management arrangements. QEL has a robust process for selecting and managing coverholders and third party administrators. Careful evaluation of each proposition and analysis of each part of the coverholder s value chain (product management, distribution, underwriting and claims) are critical to risk selection. Actuarial and legal analysis is supported by pre-bind meetings and onsite due diligence. Terms of engagement frequently include profit commission clauses to ensure that coverholder partners share in the performance of the portfolio as well as termination clauses permitting early exit in the event of poor profitability. Post execution of any coverholder deal, monthly bordereau reports, regular meetings with the coverholders to review account developments and annual onsite audits are all used to monitor the performance of both underwriting and claims. We maintain an approved panel of coverholder auditors and we use a market standard for the scope of audit work, with a specific focus on certain areas depending on the nature of the deal and the performance of the coverholder. A detailed spreadsheet is maintained for tracking the completion of the audit recommendations. 3.8 Any other Material Information The following material events which affect the system of governance occurred after the balance sheet date: The application for an establishment in the UK has progressed and at the end of March 2017 was approved by the MFSA, the notice of application was then forwarded to the UK Regulator for approval; and The appointed general representative in Italy served notice of his resignation in order to pursue another venture. A successor has been identified and approval of his appointment is being considered by the MFSA. 28 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

16 4 30 Risk Profile QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

17 Risk Profile Risk Profile 4.1 Insurance risk 4The view of material risks at QEL is a combination of the top risks from the risk register (based on their residual rating) and the SCR risk ranking (based on the capital impact). The Company s most material risk categories are outlined below. The ranking by risk category based on the 2017 SCR calculations is as follows: Operational No-Life Underwriting 20% T Market Risk 23% 7% 1% Counterparty Default 49% Health Underwriting Insurance Risk Management Insurance risk includes underwriting and reserve risk. The pricing adequacy of the underlying business is assessed as part of the evaluation of coverholder business propositions at inception and renewal through the use of various QEL manages the insurance risk through: Selection and implementation of the underwriting pricing models, rating tools and related monitoring reports. strategy and guidelines; QEL benefits from underwriting advice and assistance from Adequate reinsurance arrangements; affiliated companies. Exposure management; and The Company monitors exposures to a range of realistic Adequate reserves and claims management processes. disaster scenarios ( RDS ) through the exposure management framework. Underwriting risk includes the unexpired risk on business already incepted and reflects the risk that future premiums Reserve risk arises from the inherent uncertainty surrounding the adequacy of the reserves set aside to cover insurance will not be sufficient to cover future losses. We manage underwriting risk through the use of defined limits, pricing liabilities. QEL s reserve risk profile is primarily short-tail, models, peer review processes and oversight from the Underwriting Management Committee and the Board. QEL s some classes include an element of long-tail run-off where claims are reported and settled quickly. However, underwriters ensure that: (notably UK motor that includes third party liability) and they Inwards business written, or authority delegated to expose QEL to reserve variations in the longer term. coverholders is matched by suitable reinsurance; Reserve risk exposure is managed within the Actuarial function and through defined reserving best practices, which are The net retained position of QEL remains within the risk appetite; and overseen and approved by the Board. QEL has appropriate licenses and regulatory approval for any business written Insurance Risk Measurement and Exposure The key risk drivers, the rationale for the ranking of each type of risk, and the approach to managing them are documented in this chapter. QEL targets a multi-class balanced portfolio. The portfolio is composed of principally low severity/high frequency business. The risk of an accumulation relating to a natural catastrophe is low relative to the size of the portfolio. Risk appetite and tolerance to catastrophe risk is quantified within the risk appetite and tolerance statements, which outline the net aggregate limits and probable maximum loss ( PML ) at the 1-in-250 return period per peril region which is acceptable. The Company s largest exposure to natural catastrophe risk is driven by the risk of a wind storm in the European Channel. This risk is continually monitored within the exposure management framework, ensuring that QEL s exposure remains within its approved risk appetite. Stress tests are run to assess and quantify the impact on the Company s solvency position and to understand the severity of stress that would be required to cause QEL to breach its regulatory capital requirements, including: A significant and prolonged increase in the motor liability loss ratio; and Increased underwriting activity beyond the business plan. The outcome of these tests shows that it would require a severe increase in the motor vehicle loss ratio for the coming 12 months to result in a danger of breaching the SCR. An increase in underwriting activity in excess of the business plan would not result in a breach of the SCR, provided the loss ratios remain broadly as planned. Given that QEL is at an early stage of development, there are low levels of reserves relative to the size of the portfolio (liability-related risk being just 10% of the premium-related part of non-life risk in the SCR calculations). Reserve risk is not considered a material contributor to the Company s overall risk profile. While the majority of QEL s insurance risk exposure is shorttailed with claims reported and settled quickly, reserve risk is expected to increase as the portfolio matures and the volume of reserves increases. The Company s highest exposure to reserve risk comes from longer-tail lines of business, notably 32 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

18 Risk Profile Risk Profile Market Risk Measurement and Exposure motor liability, which is more exposed to reserve variations in the longer term. The long-tail portion of the UK motor portfolio contributes to around 10% of incurred losses within this line of business each year. Solvency Capital Requirement The SCR using the standard formula provides an appropriate method for QEL to quantify its exposure to insurance risk, given the risk profile, size and complexity of the Company. Material changes to the underwriting risk profile would trigger a recalculation of the SCR and a reassessment of the suitability of the standard formula for quantifying the risks to which the Company is exposed. The diversified SCR for insurance risk at the end of the reporting period and at the end of last year is composed as follows: 4.2 Market risk Market Risk Management Market risk arises as a result of QEL s currency exposures, interest rate and default risk on the fixed income portfolio. The Board has adopted an investment strategy that comprises the following characteristics: A low-risk portfolio, structured to deliver a consistent return; A low maintenance portfolio which is transparent and liquid; and Matched duration of assets and liabilities. The Investment Committee provides oversight of QEL s investment policy, strategy and performance. Qatar Economic Advisors S.P.C. ( QEA ), the wholly-owned investment advisory services subsidiary of QIC, are the appointed investment managers for QEL. QEA manages the portfolio under an Investment Advisory Agreement, which outlines the authorities granted, together with an investment guidelines document, which provides more specific policy guidance. QEA is responsible for monitoring the investment performance and providing quarterly investment reports to the Investment Committee. Liquidity requirements are monitored and management ensures that sufficient funds are available to meet any com- Risk Capital (USD) Capital (USD) 31/12/ /12/2015 Premium & Reserve 10,258,484 7,285,919 Lapse 1,422,996 1,220,808 Catastrophe 5,319,916 4,308,429 Total 17,000,396 12,815,156 Diversification (4,240,124) (3,390,031) Diversified SCR 12,761,272 9,425,125 The SCR for non-life underwriting risk increased over the period in line with the increased premium volumes and reserves. The highest contributor to premium and reserve risk is motor vehicle liability, which is driven by the relatively high volume of premium within QEL from this segment. The capital charge for lapse risk is not significant. mitments as they arise. Investment of assets in accordance with the prudent person principle The investment strategy is heavily weighted towards fixed income and cash deposits. Investment mandates include details of permitted investments (including limits), minimum credit ratings and maximum concentrations. QEL s investment guidelines are approved by the Board. The Investment Committee provides oversight of QEL s investment strategy and performance. The investment strategy ensures that the Company only invests in instruments that any reasonable individual with objectives of capital preservation and return on investment would own, in the best interests of its policyholders. The guidelines only allow the assumption of investment risks that can be properly identified, measured, responded to, monitored, controlled, and reported. The guidelines are set so as to ensure appropriate and adequate capital, liquidity and ability to meet policyholder obligations. Besides relying on credit rating agencies, QEL s investments are in companies that are familiar to the investment advisors, thus the assessment is beyond the credit rating of the investment selected by QEL. Market risk is measured against the Company s risk appetite and tolerance statements, which define the investment allocation limits by investment type, geographical region, credit rating etc. The investments as at 31 December 2016 are for USD 44.4m. The entire portfolio is made up of investments that are held in fixed income bonds. The majority of investments are with entities rated A- or better, as can be seen in the breakdown of the portfolio by rating: Credit rating BBB- & BBB+ In addition, QEL s exposure is further split amongst different sectors, with the greatest reliance being around more than half of the investments (52%) in the financial sector. The remainder of the portfolio is spread across Materials, Utilities, Government, Communication and Airlines. The highest contributor to market risk is foreign exchange risk, which arises due to mismatches in the currencies of the assets held to match liabilities. The Company monitors this risk on an ongoing basis, including the impact of adverse currency movements as part of the stress and scenario testing. QEL invests predominantly in USD denominated investments to optimise the returns achieved. Given that liabilities are mostly GBP and EUR denominated, QEL is exposed to a weakening of the USD. However, the main reinsurance contracts (which are with Qatar Re and the QIC Group) are USD denominated, but written so as to follow the fortunes of the ceded portion of risk so there is no mismatch between the foreign exchange rate at which the gross claim is paid and 4.3 Credit risk Credit Risk Management Credit risk arises from both underwriting and investment activities R 18% 82% Failure of a reinsurer to settle claims in full, failure of a coverholder or a bank are the most material credit risks for QEL. The key mitigating controls for credit risk include: A- & Above the rate at which the ceded portion is recovered. Concentration risk can arise when the investment portfolio is not appropriately diversified across counterparties, geographical regions and industries. Concentration risk is measured with reference to the Company s risk appetite and tolerance statements, which limit the concentration of asset holdings. Liquidity risk arises when the Company is unable to meet its payment obligations as and when they fall due. Liquidity risk management is discussed in section 4.4. Solvency Capital Requirement The diversified SCR for market risk at the end of the reporting period and at the end of last year is composed as follows: Risk Capital (USD) Capital (USD) 31/12/ /12/2015 Interest Rate 837, ,867 Property 25,179 0 Spread 2,415, ,272 Currency 1,712,598 1,654,364 Concentration 1,551,893 1,162,936 Total 6,542,380 3,603,439 Diversification (2,702,414) (1,332,037) Diversified SCR 3,839,966 2,271,402 As described above, QEL s fixed income investment portfolio has grown significantly over the year, driving an increase in the associated capital requirements. Please refer to section 6 for more information on the capital requirements. Approval procedures for accepting new counterparties; Minimum security rating for counterparties; Aged debt monitoring, including monitoring the timely collection of the reinsurance recoverables; and Monitoring of the concentrations of credit risk arising from similar geographic regions and activities. 34 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

19 Risk Profile Risk Profile Credit Risk Measurement and Exposure Credit risk is measured through monitoring exposure in accordance with the risk appetite and tolerance statements. At the end of the reporting period, the Company s most material exposure to credit risk came from the large proportion of risk ceded to reinsurance counterparties. The majority of the exposure is intra-group due to the large proportion of business ceded to affiliated companies. This exposure is classified as type 1 in the SCR standard formula. In addition, QEL is exposed to premium counterparty default risk as it transacts with a number of coverholders. Exposure to coverholders is captured and actively monitored by the Finance function. Exposures to receivables from intermediaries and policyholder debtors are classified as type 2 exposures in the SCR standard formula. The security rating of all banking and custodian counterparties is considered an appropriate metric for measuring credit risk arising as a result of QEL s need to hold cash at bank. These ratings are monitored on a daily basis. Deposits with banks and custodians are classified as type 1 exposures in the SCR standard formula. Solvency Capital Requirement Credit risk is the largest contributor to the Company s capital 4.4 Liquidity risk Liquidity Risk Management QEL ensures that sufficient liquidity is maintained to meet both immediate and foreseeable cash flow requirements. The Investment Committee has ultimate responsibility for the management of liquidity risk and it has delegated oversight and ownership of liquidity management to the Chief Financial Officer. Day-to-day management of liquidity is the responsibility of the Finance function. Both short-term and long-term liquidity risks are considered, with actions taken to ensure QEL has a long-term view of its liquidity requirements, arising from liabilities based on an actuarial assessment of risk, and to ensure access to liquid funds to meet these liabilities Liquidity Risk Measurement and Exposure The risk appetite statement sets limits regarding the liquidity of QEL. In order to measure QEL s exposure to liquidity risk, the market value of liquid assets is compared to the expected claims and largest potential loss on a quarterly basis requirements (49% of the SCR). The diversified SCR for credit risk at the end of the reporting period, and at the end of last year is composed as follows: Default risk Capital (USD) Capital (USD) capital requirements 31/12/ /12/2015 Type 1 9,875,091 5,626,447 Type 2 18,928,500 12,151,691 Diversification within counterparty default risk module (1,670,834) (988,952) Diversified Total 27,132,757 16,789,186 The credit risk capital requirement increased significantly over the reporting period. This is in line with the increase in the volume of business written, driving a higher premium receivable and reinsurance recoverable balance, offset partially by a reduction in the cash at bank over the period. In managing exposure to credit risk, the Company also considers counterparty default risk arising as a result of the fixed income portfolio, and continuously monitors the ratings of its fixed income counterparties. This risk is considered within the market risk module of the SCR. Liquidity constraints are applied through the Investment Manager Agreement and Guidelines provided to the investment manager. Other liquidity monitoring controls are: Daily review of settlement advices that provides a useful indicator in predicting short-term future cashflow; Monitoring of the debt positions; Bordereau monitoring process; and Ensuring that sufficient liquid funds will be available to meet the largest probable maximum loss, such that minimal costs are incurred to meet the cashflow requirements. to ensure that the Company remains within appetite. The investment portfolio was comprised of cash and bonds at the end of the reporting period. The cash balance significantly exceeded the net technical provisions and other liabilities expected to be settled in the short term. The cash and investments are as follows: Investment Portfolio USD 31/12/2016 Cash and cash equivalents 20,735,100 Corporate Bonds 44,417,349 Total 65,152, Expected Profit Included in Future Premiums The amount of expected profit included in future premiums was calculated in accordance with Article 260 of the 4.5 Operational risk Operational Risk Management Operational risk arises from: inadequate processes (or the failure of processes); people; systems; or external events that impact the operational capability of the Company. Operational risk is managed through: Effective corporate governance, including segregation of duties, avoidance of conflicts of interest, clear lines of management responsibility, adequate management information reporting; A strong internal control culture; Operational Risk Measurement and Exposure Solvency Capital Requirement The operational risk capital charge calculations within the SCR standard formula are based on the volume of business, and do not take into account the quality of the operational risk management system or the internal control framework. The calculation factors in the Company s gross earned premiums and gross technical provisions, and is capped at 30% of the basic SCR. The premium-based operational risk charge, calculated based on the earned gross premiums, exceeds the maximum capped capital charge set at 30% of the basic SCR. The Company does not hold capital to cover liquidity risk and it does not feature in the SCR. This risk is more appropriately measured and managed through the overall risk management system. Solvency II Delegated Acts. The amount was USD 1.47m at the end of the reporting period. Staff training/awareness of the control responsibilities relating to their roles; Effective IT systems, Business Continuity and Disaster Recovery plans; Ensuring compliance with regulatory requirements; Recruiting/retaining adequately skilled staff, adequate performance assessment system; Procedures to minimise internal/external fraud; and Assessment of the impact of outsourcing material functions on the risk profile of the Company. QEL monitors operational risk exposures through its risk register and the operational loss monitoring process, which are overseen by the Risk and Compliance Committee. The SCR for operational risk at the end of the reporting period and at the end of last year was as follows: Risk Capital (USD) Capital (USD) 31/12/ /12/2015 Operational Risk 11,001,334 2,951,737 QEL experienced significant business growth during Given that the operational risk capital charge is linked to business volume, it also increased significantly over the period. 36 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

20 Risk Profile Risk Profile 4.6 Other material risks Political risk The referendum in the UK in which the electorate expressed A/Stable by S&P Global Ratings and A/Excellent by A.M. Best a desire to leave the EU has caused increased political and is subject to the capital and solvency requirements of a uncertainty in the UK. Since its launch in 2014, QEL has Solvency II equivalent jurisdiction. conducted business in the UK on the basis of Freedom of Strategic and reputational risk Services permissions and, prior to the referendum result, Strategic and reputational risks are monitored through the had already decided to pursue an application to conduct risk appetite, risk management oversight and reverse stress business in the UK on an establishment basis. The application was submitted via the MFSA in October 2016 notwith- testing process. Other specific mitigants of strategic risk include: standing the referendum result. Effective business planning and performance monitoring; The UK s exit from the EU will take place within the two-year period after Article 50 was triggered (March 2017) and thus Aligning the business strategy, risk appetite, business the immediate impact will be limited, but the basis of QEL s plan, underwriting guidelines and capital requirements; operation in the UK will need to be reviewed thereafter with Periodic review of the emerging risks and assessment the possibility of some structural change. of the potential impact on the business; and In view of existing business in the UK, the impact of any Capital management planning. changes arising from the UK s exit from the EU will be carefully reviewed and considered as events unfold. QEL recognises reputational risk as either a by-product of inadequate management and mitigation of the material Group risk risks, or as a result of contagion from external events beyond its control. The internal controls framework, effective Group risk arises from QEL s relationship with its parent group. Reinsurance cover is provided by affiliates QIC and compliance and risk management functions, monitoring Qatar Re. QIC is among the highest-rated insurers in the Gulf of operations by the Board and the committees and the due region with a rating of A/Stable from S&P Global Ratings and diligence/audit procedures for coverholders contribute to A/Excellent from A.M. Best. Qatar Re is also currently rated minimising the reputational risk. 4.7 Risk Exposure arising from Off-balance Sheet Positions QEL does not have any risk exposure arising from off-balance sheet positions. 4.8 Material Risk Concentrations The Company s risk appetite and tolerance statements, Market risk concentrations are discussed in section approved by the Board, govern the concentration limits in Similarly, for underwriting risk, catastrophe capacity is allocated across both business lines and key perils/regions. relation to counterparties, credit quality and geographical locations so as to avoid any material risk concentration. Usage of these allocated limits is then monitored on a The Risk Management function, in liaison with the business monthly basis. The Exposure Management Tool provides areas and risk owners, performs a qualitative and quantitative assessment of exposures against the defined appetite and region. The approach to managing insurance risk real-time monitoring of aggregate risk exposures by peril on a quarterly basis. concentrations is presented in section In addition to the appetite and tolerance limits, there are The Company s most material risk as per the SCR is credit risk, a number of different managerial level limits used across which arises due to significant exposure to QEL s parent and different functions to manage risk exposures within the affiliated companies through outwards reinsurance protection, and due to the process whereby coverholders handle approved risk appetites. For example, investments are managed within the scope of the approved investment mandate, premiums due to QEL from cedants. The Company limits which includes details of permitted investments (including and monitors this risk through its risk appetite monitoring limits), minimum credit ratings and maximum concentrations. Asset positions against the mandate are regularly and through its robust internal control framework. See process, coverholder selection and monitoring procedures, reported and monitored by the Investment Committee. section for further details on credit risk management. 4.9 Risk Mitigation Techniques The internal control framework seeks to mitigate risks, protect our policyholders and limit the likelihood of losses or treaty reinsurance by line of business to provide stability in The Company purchases both quota share and excess of loss other adverse outcomes, as well as providing a framework claims costs and increase capacity to write new and larger lines for the overall management and oversight of the business. of business. QEL also purchases facultative reinsurance to QEL s internal control framework is summarised in section increase capacity, increase margins and take advantage of opportunities where it is prudent and makes commercial sense 3.4. Key controls are captured within the risk register and assessed as part of the risk and control assessment process to do so. The effectiveness of the reinsurance programme described under section 3.3. is monitored to ensure it meets the defined objectives Risk Sensitivity Stress and Scenario Testing Stress and scenario tests QEL s risk management process includes a range of single written so as to follow the fortunes of the ceded portion of stress and multifaceted scenario tests, reporting on the output as part of the ORSA. The Company explores plausible rate at which the gross claim is paid and the rate at which risk, so there is no mismatch between the foreign exchange adverse scenarios that may arise in the normal course of the ceded portion is recovered. business, which are derived from the key drivers of business 2. Insurance risk Loss Ratio and the risks identified in the risk register. There is a quantitative analysis of the solvency and profit and loss impacts A number of stress tests were carried out to assess the impact of an increase in the motor loss ratio, including a of the various stress and scenario tests, supplemented with standalone increase to 105% in 2017, and an increase to qualitative analysis. 101% lasting throughout 2017 and The latter of the The stress tests cover the most material risks. If any of these above scenarios had the most adverse outcome, given that stresses materialise this will trigger our Capital Management two years of adverse loss experience in a row would result action plan. in prolonged lower retained earnings and higher technical provisions, thus reducing the available capital and increasing Some of the key stresses (including the methods and the reserve risk capital requirement. assumptions) along with their outcomes are as follows: 3. Expense risk 1. Foreign exchange risk The impact of an accumulated annual increase in general Given QEL s exposure to foreign exchange risk, the impact administrative expenses of 25% was assessed, leading to of the following scenarios was assessed on its solvency the conclusion that it would not significantly damage QEL s position: solvency position. 40% increase in the value of the USD against GBP and EUR; and Reverse stress tests Reverse stress tests identify individual and combined scenarios that would place significant stress upon the business 40% decrease in the value of the USD against GBP and EUR. and threaten the financial viability of the Company. These A strengthening of USD against the EUR and GBP would lead scenarios could cause a loss of market confidence, which to a significant reduction in the Company s technical provisions, reducing the liability side of the balance sheet. There could render the business model unviable, albeit not necessarily to the point where the business runs out of capital. would be a corresponding reduction in reinsurance recoverables associated with the technical provisions. Overall, the As part of this process, potential scenario drivers are identified. The likelihood of their occurrence is also assessed and available capital would increase. The required capital would reduce correspondingly to the reduction in the counterparty default risk and underwriting risk capital requirements. actions are then identified that could prevent and/or miti- the materiality defined in qualitative terms, management The operational risk capital requirement would also reduce. gate the scenarios. The opposite would occur if the USD were to depreciate It was found that business model failure due to adverse outcomes of the reverse stress tests over the planning horizon significantly against the GBP and to an extent, the EUR. However, the main reinsurance contracts (which are with was highly unlikely. Qatar Re and the QIC Group) are USD denominated but 38 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

21 5Valuation for Solvency Purposes 40 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

22 5Valuation for Solvency Purposes The assessment of available and required regulatory capital is made by taking an economic view of the Company s assets and liabilities, in accordance with the Solvency II valuation principles. The Solvency II balance sheet is produced on an economic basis and is presented in Appendix 1. Valuation for Solvency Purposes 5.1 Assets The following table sets out the assets held within QEL s balance sheet, alongside their value as at 31 December 2016 for the IFRS financial statements and the Solvency II balance sheet Valuation bases, methods and main assumptions Cash and cash equivalents, fixed income securities and all other assets on the Solvency II balance sheet are recorded at fair value in line with IFRS, with both changes in fair value and realised gains/losses netted off against the own funds. The Company is not using any alternative methods for valuation of investments, in accordance with Article 263 of the Solvency II Delegated Regulation. In cases where the IFRS principles do not require fair value, investments are valued using the Solvency II valuation hierarchy, as defined in the Solvency II Delegated Regulation. Receivable balances which are due in more than one year are discounted using the risk-free discount curve. Differences between the bases, methods and assumptions Class of Assets IFRS Solvency II (USD) Basis (USD) Deferred Acquisition Costs (DAC) 38,210,000 0 Deferred Tax Assets 0 1,570,633 Property Plant & Equipment 100, ,716 Investments (Bonds) 44,417,349 44,417,349 Reinsurance Recoverables 272,852, ,174,446 Insurance Receivables 126,190, ,190,000 Cash & Cash equivalents 20,735,100 20,735,100 Total Assets 502,505, ,188,244 used for the valuation for solvency purposes (Solvency II balance sheet) and in financial statements (IFRS balance sheet) are outlined below: Deferred acquisition costs ( DAC ) are valued at nil in the Solvency II balance sheet as the company does not expect future cashflows to arise from this asset; and Deferred tax assets in the Solvency II balance sheet arise from the difference between the IFRS balance sheet and the Solvency II balance sheet. Profit or loss arising from the change in valuation basis would have a related tax impact. This impact is captured within the Solvency II balance sheet by way of the deferred tax liability or asset. 5.2 Technical Provisions The main liabilities on the Solvency II balance sheet are the technical provisions, net of reinsurance recoverables, which consist of liabilities for claims outstanding and premium provisions. for non-life business and for health business as defined within the Solvency II articles. The following table sets out the gross technical provisions and the expected reinsurance recoveries on both an IFRS and Solvency II basis. As at 31 December 2016, QEL held technical provisions ( TP ) Non-Life & Health Technical Provisions Liabilities- TP Assets- Recoverable TP IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD) TP calculated as a whole 294,086, ,852,497 0 Best Estimate 0 248,474, ,174,466 Risk Margin 0 5,100, Gross TP Non-Life ( Including Health) 294,086, ,574, ,852, ,174, QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

23 Valuation for Solvency Purposes Valuation for Solvency Purposes The technical provisions can be split as follows: Non-Life Liabilities- TP Assets- Recoverable TP Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD) TP calculated as a whole 278,197, ,133,466 0 Best Estimate 0 234,744, ,462,559 Risk Margin 0 4,838, Gross TP Non-Life (Excluding Health) 278,197, ,583, ,133, ,462,559 Health Liabilities- TP Assets- Recoverable TP Technical Provisions (TP) IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD) TP calculated as a whole 15,889, ,719,031 0 Best Estimate 0 13,729, ,711,887 Risk Margin 0 261, Gross TP Health 15,889,252 13,991,334 14,719,031 12,711,887 For a full breakdown of the technical provisions and reinsurance recoverables from reinsurance by line of business, see QRT S in Appendix Valuation Bases, Methods and Assumptions Solvency II requires insurers to place an economic value on their assets and liabilities for solvency purposes. More specifically, the value of the technical provisions should be the amount that the insurer would be required to pay in order to transfer its obligations relating to its insurance contracts to a willing third party in an arm s-length transaction. Insurance liabilities are difficult to value due to uncertainty of both the amounts and timing of future payments. Therefore, alongside the net present value of the expected future cashflows relating to claims liabilities, a risk margin is required to cover the cost of the increased risk that the receiving party is subject to, having taken on the obligations. The risk margin can be thought of as the mechanism that moves the valuation of the insurance liabilities to a mark-to-market basis see section for more details. The best estimate liability aims to represent the probabilityweighted average of future cash flows required to settle the insurance obligations attributable to the lifetime of QEL s policies. The best estimate cash flows include future best estimate premium payments, claim payments, expenses expected to be incurred in servicing the Company s policies over their lifetime, investment costs and any payments to and from reinsurers. The best estimate liability is discounted using the currency-specific risk free yield curves as published by the European Insurance and Occupational Pensions Authority ( EIOPA ). The method and assumptions used within the estimation of the technical provisions are equivalent to those used within the estimation as at the previous reporting period. In determining the technical provisions on a Solvency II basis, QEL s starting point is the technical provisions on an IFRS basis. These are valued at best estimate, with no explicit margin for prudence. The reserves on an IFRS basis are estimated using the following reserving classes: Agriculture, including pet, livestock and bloodstock; Aviation; Space; Property - contracts covering single risks; Energy - contracts covering single risks; Property - binding authority business; Engineering; Liability professional lines; Motor - non-uk business; and Motor - UK business. The reserving classes segment business into homogeneous groupings based on the underlying risks. The groupings set out above have been used for estimating QEL s reserves consistently since QEL s inception. The main differences between the value of the technical provisions for solvency purposes and the IFRS valuation are as follows: 1. Expected losses on the unearned business are taken into account in the calculation of premium provisions, removing any portion of the unearned premium reserve ( UPR ) that is in excess of this amount; 2. The premium provisions and claims provisions include an amount relating to all future expenses to run off the insurance liabilities and for events not in the data set; 3. Future cash flows are discounted to reflect the time value of money; and 4. A risk margin is added, calculated using the cost of capital approach. The Company did not make use of any of the following: Matching adjustment referred to in Article 77b of the Solvency II Directive; Volatility adjustment referred to in Article 77d of the Solvency II Directive; Transitional risk-free interest term structure referred to in Article 308c of the Solvency II Directive; and Transitional deduction referred to in Article 308d of the Solvency II Directive. The best estimate of the amounts recoverable from reinsurance contracts and other risk transfer mechanisms is calculated separately from the gross best estimate. The calculation is based on principles consistent with those underlying the gross best estimate, projecting all cash flows associated with the recoverables and discounting using the risk free rate yield curve. Further, on an IFRS basis, technical provisions are split into an earned portion, relating to periods of risk exposure that have already expired, and an unearned portion, relating to periods of risk exposure that are yet to expire. On the Solvency II basis, this distinction is also made, however profit within the yet-to-expire period of risk is recognised immediately within the premium provisions. Similarly any loss relating to the cession of assumed business due to the reinsurer s profit margin etc. is recognised immediately. An adjustment is made to reflect the expected losses on reinsurance recoverables due to counterparty default. The adjustment is based on an assessment of the probability of default of the counterparty and the average loss resulting from the default. Within the Solvency II regulations and guidelines, various aspects of valuation should be considered. The considerations that should be made, alongside the approach QEL has taken are summarised below: Contracts should be unbundled into material lines of business. For the estimation of the Solvency II technical provisions, contracts are segmented into Solvency II lines of business. For those contracts that contain coverage that could be considered to straddle more than one line of business, a split of expected coverage types is assumed based on the information that was available when pricing the contract. For example, QEL underwrites pet business which would expect to incur both property damage claims and liability (potentially bodily injury) claims. These contracts are split into the fire and other damage to property and general liability lines of business. The technical provisions estimate the mean of the complete distribution of possible reserve values. As such, if they are based on historical data, there is a potential for the reserves to underestimate the mean, should extreme or very rare events not be included within the historical data set. QEL includes an allowance for events not in data ( ENIDs ) within the provision for claims relating to future periods of exposure. For claims relating to periods of past exposure, it is assumed that the best estimate reserve, as determined by traditional reserving methods, allows for the potential of extreme or rare events. The technical provisions should include provisions for claims on policies that have already been agreed or bound by the valuation date, and on which QEL is therefore obligated to provide cover, even if the inception date of these policies is after the date of valuation. For the valuation as at 31 December 2016, it has been determined that there are no policies to which this definition applies. Therefore, no additional provisions are required for such policies. The discounting of the technical provisions relies on the assumed timing of future claims payments. Payment patterns have been assumed that are in line with the paid claims development patterns assumed within claims reserving on the statutory basis. These are based on historic data, alongside market benchmarks for less mature classes of business. The yield curves used for discounting are those prescribed by EIOPA without adjustment. 44 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

24 Valuation for Solvency Purposes Valuation for Solvency Purposes Risk margin 5.3 Other Liabilities The risk margin is added to the best estimate to reflect the uncertainty associated with the probability-weighted cash flows. It is calculated using a cost of capital approach, which calculates the cost of providing eligible own funds for the duration of the run-off of the obligations to cover the insurance risk, counterparty credit risk and operational risk components of the SCR. The rate used in the determination of the cost of providing the own funds is called cost-of-capital rate. A cost-of-capital rate of 6% is applied to the cost of capital to cover the full period needed to run off the insurance liabilities. The cost of capital in each future year is discounted using the risk-free discount curve. Given the size and complexity of QEL s business model, projecting QEL s balance sheet over the lifetime of its insurance obligations in order to forecast the associated SCR at each future period would be disproportionate to the amount of analysis required. QEL therefore calculated the risk margin using one of the simplifications set out within the Solvency II regulations and guidelines, which is proportional to the nature, scale and complexity of QEL s business. Under this simplification, future SCRs are assumed to be proportional to the value of the undiscounted technical provisions. Under this assumption the expected run-off of the technical provisions was used to estimate the expected SCR over the lifetime of the insurance obligations. The liabilities other than the technical provisions are set out below, alongside their value as at 31 December 2016 on each of the IFRS and Solvency II bases. Other Liabilities Reference IFRS Solvency II (USD) (USD) Deferred commission income a 34,888,000 Reinsurance payables b 127,426, ,426,903 Trade Payables c 180, ,097 Any other liabilities d 1,089,748 1,089,748 Total 163,584, ,696,748 Valuation bases, methods and main assumptions are: a. Deferred commission income is valued at nil within the Solvency II balance sheet as the Company does not expect future cashflows from this liability; b. Reinsurance payables due within three months are not discounted. This is analogous to the treatment of insurance receivables within the balance sheet assets; c. Payables (trade, not insurance) relate to trade accruals and are valued at face value; and d. Any other liabilities comprise the tax accrual at 35% of the net profit before tax for basis year 2016 and are recorded at face value Uncertainty Considering the short period of operation of the Company, the growing and evolving portfolio and underlying volatility of the reinsurance business written, there is no credible volume of historical loss development triangles or factors, which increases the need to rely on pricing estimates and suitable benchmarks. QEL has selected benchmarks it believes are appropriate to the specifics of the business, and they will be substituted for actual development experience as the Company builds up a volume of statistically credible data Reinsurance recoverables The following tables show the reinsurance recoverables as at 31 December 2016, valued under IFRS and under Solvency II, split by line of business: Non-Life IFRS Solvency II Reinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD) Motor Vehicle Liability 133,603, ,390,680 Other Motor 29,501,440 26,330,463 Marine, Aviation & Transport 17,086,825 12,935,624 Fire & Other Damage to Property 34,446,613 24,898,902 General Liability 37,278,908 28,682,251 The estimation of the reinsurance recoverables is analogous to that of the gross technical provisions with the exception that the estimate of the reinsurers share of technical provisions is adjusted to allow for the potential default of a reinsurer. To estimate an appropriate adjustment for the potential default of a reinsurer, the best estimate of the reinsurance recoverable is multiplied by the counterparty recovery rate, multiplied by the modified duration of the receivables and again multiplied by the probability of default over a one-year time horizon. Legal Expenses 6,216,046 5,224,639 Total Reinsurance Recoverables (Non-life Excluding Health) 258,133, ,462,559 Health IFRS Solvency II Reinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD) Medical Expense 3,433,791 3,059,857 Workers Compensation 11,285,241 9,652,030 Total Reinsurance Recoverables (Health) 14,719,031 12,711, QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

25 6 48 Capital Management QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

26 Capital Management Capital Management 6.1 Own Funds 6The Company is required by the MFSA to hold available own funds of an amount that is equal to or exceeds the Minimum Capital Requirement ( MCR ) and Solvency Capital Requirement ( SCR ), in accordance with the Solvency II Directive. The SCR is calculated using the Solvency II standard formula. QEL benefits from its parent company s credit rating due to the backing provided from QIC in the form of a parental guarantee and the quota share treaties with Qatar Re and QIC Management of Own Funds Capital adequacy is maintained with reference to QEL s risk appetite. At any given time, the Company aims to maintain a strong capital base to enable QEL to support the business plan based on its own view of the capital required, and meeting regulatory capital requirements on an ongoing basis. The ORSA process enables QEL to identify, assess, monitor, manage and report on the current and emerging risks that it faces, and to determine the capital necessary to ensure that overall solvency needs are met at all times Tiers of Own Funds Solvency II legislation has introduced a three-tiered capital system designed to assess the quality of insurers capital resources eligible to satisfy their regulatory capital requirement levels. The tiered capital system (Tiers 1, 2 and 3) classifies capital instruments into a given tier based on their loss absorbency characteristics. The highest quality capital is eligible for Tier 1, which is able to absorb losses under all circumstances, including on a going-concern, run-off, wind-up and insolvency. Tier 2, while providing full protection to policyholders in a wind-up or insolvency, has moderate loss absorbency on a going-concern basis. Tier 3 meets, on a limited basis, some of the characteristics exhibited in Tiers 1 and 2. Eligibility limits are applied to each tier in determining the The Capital Management Action Plan identifies the various thresholds below which available capital may be depleted, and the actions QEL will adopt to maintain capital adequacy. QEL can manage its capital position by either increasing the amount of available capital or by taking action to reduce the required capital. The approach taken is dependent on the specific circumstances of the event giving rise to the depletion of available capital. amounts eligible to cover regulatory capital requirement levels. The majority of our own funds as of 31 December 2016 qualify as Tier 1 capital, confirming that the Company meets the eligibility limits applied to each tier to cover the MCR and SCR: Composition Eligible Capital Eligible to meet MCR (USD) (USD) Tier 1 Unrestricted 40,346,480 40,346,480 Tier 3 1,570,633 0 Total 41,917,113 40,346,480 The changes in own funds over the reporting period are: Basic Own Funds December 2016 December 2015 December 2016 December 2015 (Q4 2016) (Q4 2015) (Q4 2016) (Q4 2015) (USD million) (USD million) (USD million) (USD million) Tier 1 Tier 1 Unrestricted Unrestricted Ordinary Share Capital Retained Earnings Reconciliation Reserve (4.5) (2.7) Tier 3 Tier 3 Deferred Tax Asset Capital Contribution* 20.0 Total Basic Own Funds * In early 2016, retained earnings were distributed to QIC, which in turn contributed capital to the value of USD 20m. This increased the level of Tier 1 capital by USD 0.3m. It should be noted that due to the timing of this activity, the capital contribution was included within the 2015 financial statements and is considered to have occurred during the 2015 financial year. It follows that no significant changes in the level of own funds occurred during the 2016 financial year. The Reconciliation Reserve increased steadily over the period, in line with the growth of the Company. There were no material changes to the sources of capital during the reporting period. There are no planned redemptions, repayment or maturity dates linked to the share capital. 50 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

27 Capital Management Capital Management Differences in Shareholder s Equity as Stated in the Financial Statements Vs. the Available Capital and Surplus for Solvency Purposes Calculation of the MCR The maximum and minimum MCR as determined by the standard formula are as follows: The table below shows the comparison of QEL s basic own funds under Solvency II and shareholders equity under IFRS as of 31 December 2016: The MCR is capped at 45% of the Solvency Capital Requirement (SCR) being USD 16.2m, whilst The lowest allowed capital requirement, i.e. the floor, is set at 25% of the SCR being USD 9.0m. Detail Reference IFRS Solvency II Base Variance (USD) (USD) (USD) Ordinary Share Capital 22,500,000 22,500,000 0 Surplus Funds 2,334,004 2,334,004 0 Reconciliation Reserve a 0 (4,487,524) (4,487,524) Deferred Tax Assets b 0 1,570,633 1,570,633 Capital Contribution 20,000,000 20,000,000 0 Total Basic Own Funds 44,834,004 41,917,113 2,916,891 The key differences between the total equity shown under IFRS and Solvency II are as follows: a. Under Solvency II, a reconciliation reserve is recognised. This reserve is the amount of the adjustments made to the assets and liabilities to arrive at the Solvency II estimates by applying Solvency II valuation principles. This reserve reduces the company s Total Basic Own Funds by USD 4.5 million. b. A deferred tax asset ( DTA ) of USD 1.6 million has arisen due to the difference between the IFRS balance sheet and the Solvency II balance sheet. The DTA is mainly driven by the difference in the valuation of the net best estimate liability when compared to IFRS net reserves. The DTA is considered under Tier 3 capital up to a limitation of 15% of the total capital being taken as allowable against the SCR Own Funds subject to Transitional Arrangements At the end of the reporting period, QEL does not hold any own funds which are subject to transitional arrangements Ancillary Own Funds At the end of the reporting period, QEL does not hold any own funds which have been approved by the MFSA to be classified as ancillary own funds Factors Affecting the Availability and Transferability of Own Funds SCR by risk module The SCR and MCR for QEL, together with a split of the relevant risk modules that the Company is exposed to can be seen in the following diagram: SCR Cover 117% Market 3,839,966 MCR Cover 450% Equity 0 Concentration 1,551,893 Spread 2,415,533 Interest Rate 837,176 Property 25,179 FX 1,712,598 SCR 35,894,797 BSCR 36,671,115 Default 27,132,757 Counterparty Default 27,132,757 MCR 8,973,699 Operational 11,001,334 Premiums & Reserves 490,971 Lapse 91,271 Catastrophe 34,706 Health 509,169 Adjustment -11,777,652 Premiums & Reserves 10,258,484 Lapse 1,422,996 Catastrophe 5,319,916 Non-Life 12,761,272 There are no factors affecting the availability and transferability of own funds Movement in the SCR over the reporting period 6.2 Solvency Capital Requirement and Minimum Capital Requirement The movements between the SCR and MCR over the reporting period are set out in the table below: Calculation of the SCR The SCR and MCR have been determined using the standard formula approach set out in the Solvency II Delegated Regulation. QEL uses a simplified calculation of the recoverable from reinsurance contracts under Article 57, which is proportionate to the nature, scale and complexity of its risks. QEL does not use undertaking-specific parameters pursuant to Article 104(7) of the Solvency II Directive. No internal or partial model has been used in the calculation of the SCR. QEL is not subject to any capital add-on at the end of the reporting period. The final amount of the SCR is subject to supervisory assessment. Q Q Movement (USD million) (USD million) (USD million) Market Risk m Counterparty Default Risk m Health Underwriting Risk m Non-Life Underwriting Risk m Operational risk m Adjustment for Deferred Tax Asset (11.778) (9.425m) (2.353) SCR m MCR m QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

28 Capital Management The Company SCR increased over 2016 mainly due to new business and investments, which impact the underwriting risk and market risk modules. The capital requirement has moved in line with business volumes and funds under management. The increase in operational risk relates to the increase in earned premium and anticipated increase in business in Solvency Position The Company maintained own funds in excess of the MCR and the SCR throughout the reporting period. The solvency ratio stood at 117% as at 31 December The solvency position is summarised in the table below: Section 4 provides additional information on the key risk drivers for each type of risk. The MCR has moved in line with the increase in business volumes and the SCR over the reporting period. Solvency Position Capital Requirement Eligible Capital Solvency MCR as % (USD) (USD 000) Ratio of SCR SCR 35,894,797 41,917, % MCR 8,973,699 40,346, % 25% AAppendices Assets & Liabilities Own funds Non-Life (direct business/accepted proportional reinsurance and accepted non-proportional reinsurance) Non-Life Technical Provisions Linear formula component for non-life insurance and reinsurance obligations Disclaimer Some of the statements in this solvency and financial condition report may consist of forward-looking statements or statements of QEL s future expectations based on the information available to it currently. There are many factors and conditions, financial or economic, whether owing to market conditions or the happening of catastrophic events, that may cause actual events or results to be materially different from those that may be anticipated by such statements. Neither QEL, nor its parent and its affiliated companies, make any representation or warranty, whether express or implied, as to the accuracy, completeness of such statements, nor is any representation or warranty made that they will be reviewed, amended or brought up to date. Neither QEL, nor its parent and its affiliated companies, accept any liability whatsoever for any decision made, or action taken or not taken, including the consequences thereof, in connection or conjunction with, directly or indirectly, the information and/or statements contained in this solvency and financial condition report. 54 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

29 Assets Liabilities Goodwill R0010 Solvency II Statutory Reclassification value accounts value adjustments C0010 C0020 EC0021 Deferred acquisition costs R ,210,000 Intangible assets R0030 Deferred tax assets R0040 1,570,633 0 Pension benefit surplus R Property, plant & equipment held for own use R , ,716 Investments (other than assets held for index-linked and unit-linked contracts) R ,417,349 44,417,349 Property (other than for own use) R Holdings in related undertakings, including participations R Equities R Equities - listed R Equities - unlisted R Bonds R ,417,349 44,417,349 Government Bonds R0140 4,166,500 4,166,500 Corporate Bonds R ,250,849 40,250,849 Structured notes R Collateralised securities R Collective Investments Undertakings R Derivatives R Deposits other than cash equivalents R Other investments R Assets held for index-linked and unit-linked contracts R0220 Loans and mortgages R Loans on policies R Loans and mortgages to individuals R Other loans and mortgages R Reinsurance recoverables from: R ,174, ,852,497 Non-life and health similar to non-life R ,174, ,852,497 Non-life excluding health R ,462, ,133,466 Health similar to non-life R ,711,887 14,719,031 Life and health similar to life, excluding health and index-linked and unit-linked Health similar to life Life excluding health and index-linked and unit-linked Life index-linked and unit-linked R0310 R0320 R0330 R0340 Deposits to cedants R Insurance and intermediaries receivables R ,190, ,190,000 Reinsurance receivables R Receivables (trade, not insurance) R Own shares (held directly) R Amounts due in respect of own fund items or initial fund called up but not yet paid in R Cash and cash equivalents R ,735,100 20,735,100 Any other assets, not elsewhere shown R0420 Total assets R ,188, ,505,662 Solvency II Statutory Reclassification value accounts value adjustments C0010 C0020 EC0021 Technical provisions non-life R ,574, ,086,910 Technical provisions non-life (excluding health) R ,583, ,197,658 Technical provisions calculated as a whole R0530 Best Estimate R ,744,535 Risk margin R0550 4,838,514 Technical provisions - health (similar to non-life) R ,991,334 15,889,252 Technical provisions calculated as a whole R0570 Best Estimate R ,729,754 Risk margin R ,580 Technical provisions - life (excluding index-linked and unit-linked) Technical provisions - health (similar to life) Technical provisions calculated as a whole Best Estimate Risk margin Technical provisions life (excluding health and index-linked and unit-linked) Technical provisions calculated as a whole Best Estimate Risk margin Technical provisions index-linked and unit-linked Technical provisions calculated as a whole Best Estimate Risk margin Other technical provisions Contingent liabilities R0600 R0610 R0620 R0630 R0640 R0650 R0660 R0670 R0680 R0690 R0700 R0710 R0720 R0730 Provisions other than technical provisions R ,888,000 Pension benefit obligations Deposits from reinsurers Deferred tax liabilities Derivatives Debts owed to credit institutions Debts owed to credit institutions resident domestically Debts owed to credit institutions resident in the euro area other than domestic Debts owed to credit institutions resident in rest of the world Financial liabilities other than debts owed to credit institutions Debts owed to non-credit institutions Debts owed to non-credit institutions resident domestically Debts owed to non-credit institutions resident in the euro area other than domestic Debts owed to non-credit institutions resident in rest of the world Other financial liabilities (debt securities issued) R0740 R0760 R0770 R0780 R0790 R0800 ER0801 ER0802 ER0803 R0810 ER0811 ER0812 ER0813 ER0814 ER0815 Insurance & intermediaries payables R Reinsurance payables R ,426, ,426,903 Payables (trade, not insurance) R , ,097 Subordinated liabilities R Subordinated liabilities not in Basic Own Funds R Subordinated liabilities in Basic Own Funds R Any other liabilities, not elsewhere shown R0880 1,089,748 1,089,748 Total liabilities R ,271, ,671,658 Excess of assets over liabilities R ,917,113 44,834, QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

30 Non-Life (direct business/accepted proportional reinsurance and accepted non-proportional reinsurance) Line of Business for: non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance) Medical Income Workers Motor vehicle Other motor Marine, aviation Fire and other General liability Credit and Legal expenses expense protection compensation insurance insurance and transport damage insurance suretyship insurance insurance insurance insurance insurance insurance to property insurance insurance Total C0010 C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0200 Premiums written Gross - Direct Business R0110 4,014,444 9,615, ,381,245 42,304,843 20,318,277 31,333,995 41,509,633 6,990, ,469,095 Gross - Proportional reinsurance accepted R0120 Gross - Non-proportional reinsurance accepted R0130 Reinsurers share R0140 3,795,959 8,882, ,322,880 39,985,187 19,058,817 27,460,276 36,752, ,543, ,801,550 Net R , ,135 8,058,365 2,319,655 1,259,460 3,873,718 4,757, ,533 21,667,545 Premiums earned Gross - Direct Business R0210 3,452,139 8,544, ,697,396 36,279,199 6,828,223 35,589,996 30,220,770 6,278, ,891,498 Gross - Proportional reinsurance accepted R0220 Gross - Non-proportional reinsurance accepted R0230 Reinsurers share R0240 3,259,464 7,857, ,579,799 34,244,764 6,404,965 30,931,205 27,244, ,845, ,368,126 Net R , ,940 7,117,597 2,034, ,258 4,658,790 2,976, ,098 18,523,371 Claims incurred Gross - Direct Business R0310 2,259,744 6,953,670 89,068,211 18,269,611 5,810,812 16,420,091 19,934,738 3,897, ,614,330 Gross - Proportional reinsurance accepted R0320 Gross - Non-proportional reinsurance accepted R0330 Reinsurers share R0340 2,137,714 6,487,737 84,278,738 17,262,678 5,447,079 14,310,048 18,070,161 3,649, ,643,305 Net R , ,933 4,789,473 1,006, ,733 2,110,043 1,864, ,303 10,971,025 Changes in other technical provisions Gross - Direct Business R ,305 1,071,056 20,683,849 6,025,643 13,490,054 (4,256,001) 11,288, ,829 49,577,597 Gross - Proportional reinsurance accepted R0420 Gross - Non- proportional reinsurance accepted R0430 Reinsurers share R ,495 1,024,861 19,743,081 5,740,423 12,653,852 (3,470,929) 9,508, ,394 46,433,42 Net R ,810 46, , , ,202 (785,072) 1,780,616 14,435 3,144,174 Expenses incurred R , ,712 2,098, ,343 (240,362) 1,413, , ,006 5,072,185 Administrative expenses Gross - Direct Business R0610 Gross - Proportional reinsurance accepted R0620 Gross - Non-proportional reinsurance accepted R0630 Reinsurers share R0640 Net R0700 Investment management expenses Gross - Direct Business R Gross - Proportional reinsurance accepted R Gross - Non-proportional reinsurance accepted R Reinsurers share R Net R Claims management expenses Gross - Direct Business R Gross - Proportional reinsurance accepted R Gross - Non-proportional reinsurance accepted R Reinsurers share R Net R0900 Acquisition expenses Gross - Direct Business R ,387 2,334,888 30,394,911 8,715, ,494 10,752,956 8,960,654 1,567,646 64,452,905 Gross - Proportional reinsurance accepted R Gross - Non-proportional reinsurance accepted R Reinsurers share R ,520 2,101,176 28,296,072 8,113,626 1,142,856 9,339,825 8,182,005 1,438,640 59,380,719 Net R , ,712 2,098, ,343 (240,362) 1,413, , ,006 5,072,185 Overhead expenses Gross - Direct Business R Gross - Proportional reinsurance accepted R Gross - Non-proportional reinsurance accepted R Reinsurers share R1040 Net R Other expenses R1200 Total expenses R1300 5,072, QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

31 Non-Life Technical Provisions Technical provisions calculated as a whole Direct business Accepted proportional reinsurance business Accepted non-proportional reinsurance Total Recoverables from reinsurance/spv and Finite Re after the adjustment for expected losses due to counterparty default associated to TP calculated as a whole Technical provisions Best estimate Premium provisions Gross - Total R0060 1,542,856 4,157,185 57,476,902 16,614,799 9,285,512 13,553,478 10,134,034 2,607, ,372,580 calculated as a sum of BE and RM Gross - direct business R0070 1,542,856 4,157,185 57,476,902 16,614,799 9,285,512 13,553,478 10,134,034 2,607, ,372,580 Gross - accepted proportional reinsurance business R Risk margin R , ,121 2,068, , , , , ,921 5,100,094 Amount of the transitional TP as a whole R on Technical Provisions Best estimate R Technical provisions - Technical provisions - total R0320 3,279,293 10,712, ,273,399 28,210,042 14,129,579 29,227,543 33,034,704 5,707, ,574,384 total Recoverable from reinsurance contract/spv and Finite Re after the adjustment for expected losses due to counterparty default - total R0330 3,059,857 9,652, ,390,680 26,330,463 12,935,624 24,898,902 28,682,251 5,224, ,174,446 Line of Business: Premium provisions - Total number of homogeneous risk groups R0350 further segmentation (Homogeneous Risk Groups) Claims provisions - Total number of homogeneous risk groups R0360 Cash-flows of the Cash out-flows Future benefits and claims R0370 Best estimate of Premium Provisions Future expenses and other cash-out flows R0380 (Gross) Cash in-flows Future premiums R0390 Cash-flows of the Cash out-flows Future benefits and claims R0410 Best estimate of Claims Provisions Future expenses and other cash-out flows R0420 (Gross) Cash in-flows Future premiums R0430 R0010 R0020 R0030 R0040 R0050 Medical Workers Motor vehicle Other motor Marine, aviation Fire and other General liability Credit and Legal expenses Total Non-Life expense compensation liability insurance and transport damage insurance suretyship insurance obligation insurance insurance insurance insurance to property insurance insurance C0020 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0200 C0180 Gross - accepted non-proportional reinsurance business R Total recoverable from reinsurance/spv and Finite Re before the adjustment for expected losses due to counterparty default Recoverables from reinsurance (except SPV and Finite Reinsurance) before adjustment for expected losses R0100 1,462,613 3,800,087 54,493,828 15,745,365 8,709,946 11,729,955 8,828,094 2,426, ,196,789 R0110 1,462,613 3,800,087 54,493,828 15,745,365 8,709,946 11,729,955 8,828,094 2,426, ,196,789 Recoverables from SPV before adjustment for expected losses R Recoverables from Finite Reinsurance before adjustment for expected losses R Total recoverable from reinsurance/spv and Finite Re after the adjustment for expected losses due to counterparty default R0140 1,461,242 3,794,886 54,454,604 15,740,545 8,703,930 11,723,862 8,816,481 2,424, ,120,205 Net Best Estimate of Premium Provisions R , ,300 3,022, , ,582 1,829,615 1,317, ,159 8,252,375 Claims provisions Gross - Total R0160 1,690,977 6,338,736 69,727,981 11,196,375 4,409,602 14,728,615 22,023,377 2,986, ,101,710 Gross - direct business R0170 1,690,977 6,338,736 69,727,981 11,196,375 4,409,602 14,728,615 22,023,377 2,986, ,101,710 Gross - accepted proportional reinsurance business R Gross - accepted non-proportional reinsurance business R Total recoverable from reinsurance/spv and Finite Re before the adjustment for expected losses due to counterparty default Recoverables from reinsurance (except SPV and Finite Reinsurance) before adjustment for expected losses R0200 1,600,115 5,865,173 65,983,572 10,593,161 4,234,619 13,181,886 19,891,937 2,802, ,153,040 R0210 1,600,115 5,865,173 65,983,572 10,593,161 4,234,619 13,181,886 19,891,937 2,802, ,153,040 Recoverables from SPV before adjustment for expected losses R Recoverables from Finite Reinsurance before adjustment for expected losses R Total recoverable from reinsurance/spv and Finite Re after the adjustment for expected losses due to counterparty default R0240 1,598,615 5,857,145 65,936,077 10,589,918 4,231,694 13,175,040 19,865,769 2,799, ,054,242 Net Best Estimate of Claims Provisions R , ,591 3,791, , ,908 1,553,576 2,157, ,063 9,047,468 Total Best estimate - gross R0260 3,233,833 10,495, ,204,883 27,811,174 13,695,114 28,282,093 32,157,411 5,593, ,474,290 Total Best estimate - net R , ,891 6,814,202 1,480, ,490 3,383,191 3,475, ,222 17,299,843 Risk margin R Technical provisions minus recoverables from reinsurance/spv and Finite Re- total R ,436 1,060,012 8,882,719 1,879,579 1,193,955 4,328,641 4,352, ,143 22,399,938 Percentage of gross Best Estimate calculated using approximations Best estimate subject to transitional of the interest rate Technical provisions without transitional on interest rate Best estimate subject to volatility adjustment Other cash-in flows (incl. Recoverable from salvages and subrogations) Other cash-in flows (incl. Recoverable from salvages and subrogations) Technical provisions without volatility adjustment and without others transitional measures R0400 R0440 R0450 R0460 R0470 R0480 R0490 Direct business and accepted proportional reinsurance 60 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

32 Own funds Linear formula component for non-life insurance and reinsurance obligations Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 2015/35 Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds Total Tier 1 - Tier 1 - Tier 2 Tier 3 unrestricted restricted C0010 C0020 C0030 C0040 C0050 Ordinary share capital (gross of own shares) R ,500,000 22,500,000 0 Share premium account related to ordinary share capital R Initial funds, members contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R Subordinated mutual member accounts R Surplus funds R0070 2,334,004 2,334,004 Preference shares R Share premium account related to preference shares R Reconciliation reserve R0130 (4,487,524) (4,487,524) Subordinated liabilities R An amount equal to the value of net deferred tax assets R0160 1,570,633 1,570,633 Other own fund items approved by the supervisory authority as basic own funds not specified above Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds R0180 R ,000,000 20,000, MCR components C0010 Solvency II MCRNL Result R0010 3,700,942 Deductions Deductions for participations in financial and credit institutions R0230 Total basic own funds after deductions R ,917,113 40,346, ,570,633 Ancillary own funds Unpaid and uncalled ordinary share capital callable on demand R0300 Unpaid and uncalled initial funds, members contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand R0310 Total ancillary own funds Unpaid and uncalled preference shares callable on demand A legally binding commitment to subscribe and pay for subordinated liabilities on demand Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC Other ancillary own funds Available and eligible own funds Total available own funds to meet the SCR R ,917,113 40,346, ,570,633 Total available own funds to meet the MCR R ,346,480 40,346, R0320 R0330 R0340 R0350 R0360 R0370 R0390 R0400 Total eligible own funds to meet the SCR R ,917,113 40,346, ,570,633 Total eligible own funds to meet the MCR R ,346,480 40,346, SCR R ,894,797 MCR R0600 8,973,699 Ratio of Eligible own funds to SCR R % Ratio of Eligible own funds to MCR R % 62 QIC Europe Limited Solvency and Financial Condition Report 2016 QIC Europe Limited Solvency and Financial Condition Report

33 QIC EUROPE LIMITED QIC Europe Limited The Hedge Business Centre, Triq ir-rampa ta San Giljan, Balluta Bay, St Julian s, STJ 1062, Malta Designed by Masu Komi 64 QIC Europe Limited Solvency and Financial Condition Report 2016