Everest Reinsurance Company Singapore Branch--MAS 124 Disclosure. 1. Domicile and activities

Transcription

1 1. Domicile and activities Everest Reinsurance Company, Singapore Branch (the Branch ) is incorporated in the Republic of Singapore with its registered office at 20 Cecil Street, #08-06 Equity Plaza, Singapore The Branch is licensed as a general reinsurer under the Singapore Insurance Act, Chapter 142. The principal activities of the Branch are the underwriting of reinsurance in Singapore and the Asia Pacific region. 2. Basis of measurement The financial statements are presented in Singapore dollars which is the Branch s functional currency. The assets and liabilities of the Branch which relate to the reinsurance business carried on in Singapore are subject to the requirements of the Insurance Act. Such assets and liabilities are accounted for in the books of the insurance funds established under the Insurance Act. Assets held in the insurance funds may be withdrawn only if the withdrawal meets the requirements stipulated in Section 17 and the Branch continues to be able to meet the solvency requirements of Section 18 of the Insurance Act and Insurance (Valuation and Capital) Regulations. 3. Business Strategy As a member of Everest Re Group, Ltd (the Group ), the Branch adheres to the Group s business strategy which is to sustain its leadership position within targeted reinsurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its shareholders. The Group s underwriting strategies seek to capitalize on its (i) financial strength and capacity, (ii) global franchise, (iii) stable and experienced management team, (iv) diversified product and distribution offerings, (v) underwriting expertise and disciplined approach, (vi) efficient and low-cost operating structure and (vii) effective enterprise risk management practices. The Group offers treaty reinsurance and its products include the full range of property and casualty reinsurance and insurance coverage, including marine, aviation, surety, errors and omissions liability, directors and officers liability, medical malpractice, other specialty lines, accident and health and workers compensation. The Group s underwriting strategies emphasize underwriting profitability over premium volume. Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Group s business mix in response to changing market conditions. The Group focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives. The Group s underwriting strategies emphasizes flexibility and responsiveness to changing market condition, such as increased demand or favourable pricing trends. The Group believes that its existing strengths, including its broad underwriting expertise, global presence, strong financial 1

2 ratings and substantial capital, facilitate adjustments to its mix business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Branch writes business throughout the Asia Pacific region for many different customers and lines of business, thereby a broad spread of risk. 4. Risk Governance The Group has an Enterprise Risk Management ( ERM ) process, as described in Notes 4 to 7, and the underwriting and operating activities of the Branch are included in this process. ERM at Everest Re Group begins with the Board of Directors. The objective of ERM is to manage uncertainty, enhance shareholder value and maintain policyholder protection through controlled risk taking and the effective deployment of capital when considering the risk-return characteristics of the Group s combined business activities. The Executive Risk Committee comprised of our President, CFO, Chief Underwriting Officer, Chief Risk Officer (CRO) and General Counsel, together with the Board, are responsible for establishing the Group s risk management principles, policies and risk tolerance levels. The Executive Risk Committee provides strategic direction to the ERM Unit, which is centrally responsible for implementing the risk management framework which identifies, assesses, monitors, controls, and communicates the Group s risk exposures. Quarterly, the CRO presents a report to the Executive Risk Committee which details the Group s risk positions compared to risk appetites, scenario testing, financial strength, etc. The ERM Unit is staffed and supported with seasoned and accredited Actuarial, Accounting and Management staff. In addition, an Emerging Risks Committee keeps abreast of new risks that we may face. As required under the Everest Re Group, Ltd. Corporate Governance Guidelines, every quarter, the CRO (or CFO) reviews with the Board s Audit Committee our Risk Position (relative to our Risk Appetite for our three key risks asset risk, natural catastrophe exposure risk and long tailed reserve risk), key accumulations and current risk management activities. We also maintain a Group Risk Register of all the risks that the Group faces. 5. Risk Position Our three key risks are asset risk, natural catastrophe exposure risk and long tailed reserve risk. We maintain Board-approved Risk Appetites. Limits are expressed as a percentage of permissible loss to GAAP equity at the 1/20 (5% probability) and 1/100 (1% probability) return periods for these three risks. Every quarter, we report to the Board our actual risk position compared to the Boardapproved Risk Appetites. To ensure that these limits are not breached we have documented operating controls as discussed below. 2

3 6. Economic Capital Model It is important to measure all risks in the same consistent manner so that they can be compared, prioritized and used in risk return deliberations irrespective of line of business, department, legal entity or product type. At the Group level, we use economic capital to quantify risk, using sophisticated, holistic Economic Capital Model (ECM) software, RiskExplorer. We combine the volatility and uncertainty of all the major types of risks along with correlation between them into our ECM which allows us to identify how much capital is required to support the risks associated with the Group s activities. Risk capital can be identified by legal entity, major risk type, and line of business or contract. The required capital is compared to actual/projected capital for each operating entity and any necessary adjustments are implemented. Branches are considered part of the legal operating entity for the determination of adequate capital. We can allocate capital further down, also. We allocate capital down to the contract level in order to calculate return on equity (ROE) when pricing contracts. This also allows us to monitor the contracts on a risk adjusted basis. The Economic Capital Model is also used to make strategic decisions such as should we enter a particular line of business or make an acquisition. Details are given in the Strategic Risk Section. 7. Risk Governance Discussion 7.1 Asset/Market Risk Everest Re Group manages its assets through a cycle of interactions with our Board of Directors, the Investment Policy Committee and our Investment Managers. All assets of the Group, regardless of the legal entity that they support or where they are invested, are analyzed centrally from the corporate office. When appropriate, recommendations for actions are made to the subsidiaries and branches. The Board of Directors has approved a high level set of Consolidated Investment Guidelines; and, the Consolidated (Investment Grade) Investment Guidelines and Objectives. Each quarter we monitor our portfolio to ensure that the portfolio is in compliance with these policies, objectives and guidelines and this compliance is reported to the Board. Changes to the policies, objectives and guidelines occur only rarely and with Board approval. Since Asset Risk is one of our three major risks, it is included on our Risk Appetite report which is made to the Board every quarter. The Investment Policy Committee, which is comprised of two designated Group Board members, the CEO and President, CFO, and Chief Investment Officer (CIO), meet quarterly to evaluate portfolio allocations and possible changes that might be made within the policies, objectives and guidelines. For example, a short term strategy might involve letting the duration of the portfolio shorten to reduce interest rate risk while increasing our investments in below investment grade bond to maintain the yield. We use different managers for the different types of below investment grade bonds (e.g. high yield bonds and emerging risk debt). Maintaining the desired balance between these various asset classes is achieved by moving money from one manager to another. The detailed allocation within each asset class is handled by the manager in conjunction with our CIO. These decisions are made while ensuring that we have enough liquidity to meet our ongoing obligations. 3

4 All of our Investment Managers work contractually within investment guidelines specific to their mandate. These guidelines are developed, with investment manager input, by the Investment Operations Committee (IOC) which consists of the CEO and President, CFO, the CIO and the Comptroller. The investment guidelines ensure overall compliance with Board-approved investment policies and guidelines. Whenever a non-compliance situation arises, the investment manager works with our CIO to bring their portfolio back into compliance. The IOC maintains frequent contact with our investment managers. 7.2 Premium (non-catastrophe) Risk Everest Re Group manages its non-cat exposure through a cycle of planning, underwriting / pricing and monitoring. Planning primarily involves determining how much premium will be written for each IBNR Group and forecasting how each will perform. Thus, the underwriting heads propose premium levels for each IBNR group along with Expected Loss Ratios (ELR), commission and brokerage and overhead expenses. The Chief Reserving Actuary reviews the ELRs for reasonability. The President, CUO, CFO, Treasurer and Head of ERM all work with the underwriting heads to develop the final plan. Metrics such as forecasted combined ratios and ROEs are used during this process. The annual expected loss from potential catastrophe losses is also considered within the Plan the process used for that is discussed in the Natural Catastrophe Risk Section. Underwriting / Pricing is carried out by the underwriters using processes documented in a form that supports SOX review. The underwriters and pricing actuaries use a variety of pricing tools created by the actuaries. In many cases, the actuaries work hand in hand with the underwriters to establish a price. The Actuarial Pricing Procedures identify the information needed, pricing method and describes the output. The Rating Manuals, International Casualty, International Property (which includes Domestic Property) and US Casualty, detail the specific parameters needed to price. The ERM team provides the underwriting departments with target combined ratios for each IBNR group that will achieve desired ROE levels. In addition, a combined ratio is provided that produces an ROE equal to our cost of capital. This provides the underwriter with a measure of when it might not make sense to write a contract. The ECM (Economic Capital Model) is instrumental in developing the equity figures used in the ROE calculation. A peer review process of contract/underwriting pricing is required under certain circumstances to provide an additional level of risk control. Monitoring occurs in two steps. The first step is monitoring bound contracts on an expected basis. This is supported by a facility we call SAFE. The second step is monitoring the actual performance of the contracts. This involves tracking the premium, reported losses, expenses as well as allocating the IBNR from the reserve studies down to the contract level. Reserving is a critical part of monitoring and is discussed further in the Reserving Section. The results of contract level tracking are available through a system, Performance Monitoring; to disseminate contract performance information more efficiently to underwriters, actuaries and management, group wide. 4

5 Accumulation analysis is an important part of monitoring to ensure that we are not exposing ourselves to more risk in any particular area than we wish. There are a number of accumulation studies performed including: Financial Lines; Casualty/Umbrella; Terrorism; Offshore Energy Risks; Oil Rigs; Surety; Trade Credit; Structured Trade Credit and Political Risk. The actuarial pricing team ensures fitness through several mechanisms. The most important is that new actuaries always work under the close supervision of experienced, credentialed actuaries. In addition, formal training sessions are held 6-8 times each year, internally, to discuss tools and techniques. Further, everyone is given the opportunity to attend outside actuarial functions. Lastly, a generous student program providing for study time in the office and increased compensation upon passing an exam encourages less experienced actuaries to become credentialed. 7.3 Natural Catastrophe Risk Everest Re Group manages its catastrophe exposure globally (i.e. at the Group level) through a cycle of planning, pricing (pre-binding), accumulation (post-binding) and post-event monitoring. Planning primarily involves determining how much Capacity is going to be offered to each underwriting unit in each zone. The primary metric used is the 1/100 PML. The capacity by underwriting unit in each zone/peril is set by the Chief Underwriting Officer. Throughout the year this capacity is evaluated in the context of the current market environment and adjusted accordingly. This is distributed to the underwriting units that underwrite catastrophe risks. The pre-binding activities associated with pricing are supported by the cat models as well as other analytical tools. The Group s primary cat modeling tools are from AIR. These include Clasic2 and Catrader. The AIR output is modified so that the final results reflect the Group s view of the actual loss exposure. The modifications are based on a combination of AIR results, RMS results, underwriter judgment and other expert opinions. Pricing tools for cat contracts include Catapult, the global pricing tool which is the standard throughout the Group for cat XOL contracts and cat exposed proportional contracts; the Retro pricing tool which is the corporate standard for pricing retro contracts; and the Industry Loss Warranty pricing tool which is the corporate standard for pricing these types of contracts. The post-binding activities associated with accumulations begins with loading information for bound cat exposed contracts into our Cat Contract Database via the Catapult application. This database contains all relevant information about all bound cat exposed contracts throughout the group. This permits centralized catastrophe risk monitoring by the ERM department to ensure that expected contract performance is consistent with prescribed targets. The data includes each contract s loss distribution by zone and peril. These loss distributions are based on AIR s 10,000 year event set. The information in this database therefore enables us to generate the annual aggregate (AA) exceedence probability (EP) curves for the Group-wide Economic Capital Model (ECM), as well as annual occurrence (AO) statistics by zone and peril. These curves are generated individually for different underwriting areas in the ECM that have cat exposure. Formally, accumulations are performed each quarter and reported to senior management and the Board. Since cats are one of the three key risks identified by the Board, these results are also expressed as our Risk Position to assure the Board that the Risk Appetite has not been exceeded. 5

6 Post event Monitoring is triggered by an actual cat event. The first challenge is to make the initial estimate of the total loss. This is done by generating and comparing three estimates: The underwriter s estimate based on a ground-up contract level review, the cat modeler s estimate based on AIR event specific releases, and a market share analysis based on our estimated market share and an industry loss estimate. Senior management then uses these estimates to arrive at our final booked estimate. 7.4 Reserve Risk Reserving throughout Everest Re Group is centralized with the Group s Chief Reserving Actuary (CRA) who is responsible for all reserves. There are five groups that actually perform reserving: Directly reporting to the Group s CRA: 1-- Reinsurance (excluding those reporting to local management) 2-- US and Canadian Insurance 3-- Bermuda Reporting to local management but responsible to the CRA for reserving: 4-- Canadian Reinsurance 5-- London, Brussels and Ireland All reserving is done with the same reserving software, Affinity. With very few exceptions, reinsurance reserving is done with the same template a method of ensuring consistent use of the same methodologies. All reserving is done using standard actuarial methods. Data to perform the reinsurance reserve studies is extracted from the Reinsurance Data Warehouse for the US, Canada and Bermuda business units and from the IRIS system for the London, Brussels and Ireland business units. Data for the insurance reserve studies is extracted from Everest National Data Warehouse. All data is directly, or indirectly, reconciled to the general ledger before being used. The various analyses are performed with the final results being signed off on by the CRA. A reserve study is performed for each department/program once a year. The reserve study processes are documented in a form that supports SOX review. There are two formal Reserve Committees: The Reinsurance Reserve Committee is comprised of the CFO, the Underwriting Department Heads, the Chief Claim Officer, the Chief Underwriting Officer (CUO), the CRO and the CRA. The Everest National Reserve Committee is comprised of the President of Everest National, the CFO, the Chief Claim Officer, the CUO, the CRO and the CRA. Both of these committees meet quarterly to discuss actual versus expected analyses and reserve study results and to make recommendations for reserve actions, as appropriate. There is also a less formal quarterly discussion regarding the Bermuda results including the head of the Bermuda office, the CFO, the Chief Claim Officer, the CUO, the CRO and the CRA. Since Reserve Risk is one of our three major risks, it is included on our Risk Appetite report which is made to the Board every quarter. 6

7 Individual legal entities each have an appointed actuary or loss reserve specialist who opines on the adequacy of the reserves calculated for the entity. The actuarial reserving team ensures fitness through several mechanisms. The most important is that inexperienced actuaries always work under the close supervision of experienced, credentialed actuaries. Further, everyone is given the opportunity to attend outside actuarial functions. Lastly, a generous student program providing for study time in the office and increased compensation upon passing an exam encourages less experienced actuaries to become credentialed. In addition to the Group s activities, the Branch appoints an independent actuary to assess the adequacy of the Branch s insurance liabilities on an annual basis. The actuary uses statistical projections of the Branch s expectations of the ultimate claims settlement for losses which occurred in the current financial year and prior. Such statistical tools analyze and extrapolate the development of paid and incurred claims to ultimate. An additional loading is applied, otherwise known as a provision for adverse deviation, having regard to the Insurance Act and Insurance (Valuation and Capital) Regulations and uncertainty introduced by limitations of available data. 7.5 Operational Risk As a publically traded company, Everest Re Group must comply with certain standards as set forth by the Security and Exchange Commission (SEC), including Sarbanes Oxley Act (SOX), Section 404. Accordingly strong, documented processes and controls exist for every financially significant facet of the business. Our Internal Audit department ensures compliance with documented processes and controls and the CEO and CFO annually attest to the strength of Group s internal financial control system. Any deviations are reported to the Board. Operational risk is covered in the following areas:- 1-- Information Technology (IT) issues which primarily focus on security issues for all types. 2 A variety of specific issues that are addressed through standards and policies. 3 Internal Audit (IA) which assists management appropriately and by providing objective assurance that the major operational risks are being managed appropriately and by providing assurance that the risk management and internal control framework is operating effectively. Information Technology IT standards and policies are all set at the Group level and apply to the subsidiaries and branch offices. Security is a critical element in all of the policies. This includes technical, physical, logical and procedural defenses such as: Perimeter and internal defenses such as firewall products; anti-virus, anti-spam, and antispyware software; as well as encryption technology for laptops, backup tapes & data transmissions over the Internet. Physical security of hardware assets, locked facilities, and data center environmental controls. Logical security over hardware, software, data and remote access, restricting access to only the appropriate people and enforcing strict password rules. 7

8 Procedural defenses such as documented security policies, automatic system time-outs, and regular monitoring of areas at risk. Part of limiting data access to those personnel who should have access involves segregating data for several entities. For example, US underwriters cannot see the Bermuda underwriting information and vice versa. To ensure that the third parties to whom we outsource services are managing their risks, we require SSAE 16 reports (previously called SAS70s) which are prepared by a third party auditor. To ensure continuity of business processes in the event of equipment failure or short-term power outage, we have redundancy for all communication lines, firewalls, and critical servers, as well as Uninterruptible Power Supply (UPS) units on all key equipment. Additionally, a recently installed back-up generator will provide power to our corporate headquarters that will allow the corporate data center and critical business systems to remain available for a longer period of time. For a longer-term/broader outage, an extensive Business Contingency Plan (BCP) has been developed and it is updated annually. In addition, each local company or branch has their own BCP. Lastly, many IT procedures and processes are carried out under SOX compliance and thus are carefully documented, followed and audited. Reputational Risk Ethical behavior by all employees is the key to reducing reputational risk. In every dealing, both internal and external, every employee is expected to adhere to the highest ethical standards. Every year all employees even remotely in a position to expose the company to reputational risk are asked to review the ethics standards document and sign a letter that they have done so. There is also an Employee Handbook and an Everest Employee Code of Conduct that are distributed to all employees. Internal Audit The mission of the internal audit department is to provide independent, objective assurance and consulting services designed to add value and improve the Company s operations. It helps the Company accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, internal control, and governance processes. In addition, to Group home office, all principle operating subsidiaries and branch office operations are periodically audited by Internal Audit. Consistent with our risk based approach to develop the audit work schedule, subsidiary and branch operations are considered in Internal Audit s comprehensive risk assessment process. Each year Internal Audit develops an audit plan based on a risk assessment of many facets of the Group s activities Cedents, Programs, Branch/Affiliates and Corporate Departments. 8

9 7.6 Emerging Risk The identification, initial analysis, and monitoring of emerging risks is carried out by our Emerging Risk Committee. The committee consists of representatives from Claim, Underwriting, Accounting, Actuarial and the ERM department. This committee meets at least once annually to review new risks and to determine the appropriate method for analyzing a known risk. A database of this information is maintained which also contains a host of documents obtained from the outside. Every month a list of new documents is ed to all the members of the committee and other interested parties within the Group. 7.7 Strategic Risk Managing of strategic risk involves three key components: Having a clear strategy, having effective tools to help make strategic decisions; and, having a disciplined process for making those decisions. Everest Re s strategy is straightforward: 1-- Increase book value per common share over time 2-- Achieve a mid-teens ROE average over the insurance cycle Our approach is to build on our core competencies by optimizing, within constraints, by marginal improvement. The tools that we use range from our ERM framework to our Economic Capital Model (ECM). The ERM Framework consists of four components: 1-- Risk Appetite 2-- Pricing of Risk 3-- Optimizing Upside 4-- Accumulations, Risk Limits and Controls A Board-approved Risk Appetite provides the high level constraints within which we have decision making flexibility. State of the art pricing tools permit accurate assessments of both expected profit and risk. While always assessing the downside risk, our objective is to optimize the upside. Lastly, by having documented risk limits and by monitoring a variety of accumulations of exposures we ensure that we will remain within our Risk Appetite. A wide range of checks and controls further help mitigate Operational Risk. Our ECM, a sophisticated, group-wide model of all group operations and their associated risks, is a core component of capital management decisions. In addition, it allows us to assess the risk adjusted value of pricing decisions, acquisitions, entry into new lines of business, etc. The key is a disciplined process for using the tools to make decisions. We believe that the tools, although extremely valuable, must be used with caution and their results must be supplemented with experienced, informed business judgment. 9

10 8. External environment The worldwide reinsurance business is highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, high rates and strong profits followed by periods of abundant capacity, low rates and constrained profitability. Competition in the types of reinsurance that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer, ratings of the reinsurer, underwriting expertise, the jurisdictions where the reinsurer is licensed or otherwise authorized, capacity and coverages offered, premium charged, other terms and conditions of the reinsurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance is generally not consistent across lines of business, domestic and international geographical area and distribution channel. We compete in the international reinsurance markets with numerous global competitors. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the potential for securitization of reinsurance risks through capital markets provide additional sources of potential reinsurance capacity and competition. Worldwide reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business. Generally, there is ample reinsurance capacity relative to demand. Overall, we believe that current marketplace conditions, particularly for catastrophe coverage, provide profit opportunities for us given out strong ratings, distribution system, reputation and expertise. We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio. 9. Investments The Branch s principal investment objectives are to ensure funds are available to meet its reinsurance obligations and to maximize investment income while maintaining a high quality diversified investment portfolio. The Branch generally invests in fixed income securities with an average credit quality of Aa2. This fixed maturity securities portfolio is externally managed by an independent, professional investment manager using portfolio guidelines approved by the Branch. Our fixed income investments are classified for accounting purposes as available for sale and are carried at market value. 10

11 10. Financial risk management The Branch s activities expose it to a variety of financial risks credit risk, liquidity risk and market risk (including currency risk and interest rate risk). The Branch s overall risk management strategy seeks to minimize adverse effects from the unpredictability of financial markets on the Branch s financial performance. (i) Credit Risk The Branch has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Branch s exposure to credit risk is limited to the carrying amounts of the insurance receivables, reinsurance assets, other debtor and deposits, and cash and cash equivalent. The Branch limits its credit risk by dealing with reputable international brokers with appropriate credit history and relying on due diligence done by these brokers. The Branch also monitors its outstanding debts closely and has credit control procedures in place that specify the actions to be taken to handle debts overdue for a certain period of time. Financial assets are mainly comprised of: a) deposits with financial institutions with appropriate credit rating by international credit rating agencies; b) available-for-sale debt securities issued by government and corporates in countries that are of economic and political stability; and c) insurance receivable from brokers and cedants with good collection track record with the Branch. Ageing of insurance receivables not impaired at the reporting date is as follows: Up to 6 months 94% 99% Above 6 months 6% 1% 100% 100% 11

12 (ii) Liquidity risk Liquidity risk is the risk that the Branch will encounter difficulties in meeting obligations associated with financial instruments. The Branch has to meet its liabilities as and when they fall due, notably from claims arising from its general reinsurance contracts. There is therefore a risk that the cash and cash equivalents held will not be sufficient to meet its liabilities when they become due. The Branch manages this risk by setting limits on the maturing assets that will be available to settle these short-term liabilities. Given the credit quality in the Branch s financial assets, and with an average maturity of less than 5 years for its investment portfolio, the Branch is able to quickly liquidate its investments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. In addition, Everest Reinsurance Company has cash and cash equivalents available to assist the Branch in meeting its liquidity requirements, if necessary. The nature of reinsurance is that the requirements of funding cannot be predicted with absolute certainty as the theory of probability is applied on reinsurance contracts to ascertain the likely provision and the time period when such liabilities will be settled. The amounts and maturities in respect of reinsurance liabilities are thus based on the Management s best estimate and past experience. The following are the contractual maturities of insurance and other liabilities of the Branch. Up to 1 to Over 1 year 5 years 5 years Total $ $ $ $ 2013 Insurance contract - Claims liabilities 315,094, ,863,766 1,376, ,334,724 - Premium liabilities 52,376, ,376,000 Insurance payables 11,553, ,553,753 Other payables 2,674, ,674, ,697, ,863,766 1,376, ,938, Insurance contract - Claims liabilities 421,800, ,843,819 2,415, ,059,451 - Premium liabilities 48,823, ,823,000 Insurance payables 11,504, ,504,369 Other payables 7,313, ,313, ,441, ,843,819 2,415, ,700,176 12

13 (iii) Foreign currency risk Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of Everest Re Group s non-us/bermuda ( foreign ) operations maintain capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The Group mitigates foreign exchange exposure by generally matching the currency and duration of its assets to its corresponding operating liabilities. (iv) Interest rate risk Refer to Note Capital Management In the United States, Everest Reinsurance Company is subject to the risk-based capital developed by the U.S. National Association of Insurance Commissioners ( NAIC ) which determines an authorized control level risk-based capital. As long as the total adjusted capital in 200% or more of the authorized control level capital, no action is required by the Company. The Company s current capital level well exceeds the authorized control level capital. As a reinsurer who conducts its business in Singapore, the Branch is registered with the Monetary Authority of Singapore and is subject to the prudential standards which set out the basis for calculating the fund solvency requirements ( FSR ) and capital adequacy requirement ( CAR ) which is a minimal level of capital that must be held to meet policyholders obligations. The FSR and CAR apply a risk-based approach to capital adequacy and are determined to be the aggregate of the risk requirement of the Singapore Insurance Fund ( SIF ) established and maintained by the reinsurer under the Singapore Insurance Act, Chapter 142. Risk requirement for the Offshore Insurance Fund ( OIF ) continues to be exempted for now. It is the Branch s policy to hold capital levels in excess of FSR and CAR with the aim of having sufficient capital and liquidity to meet its outstanding liabilities. 13