Wre n. The Wren Insurance Association Ltd. Solvency and Financial Condition Report. The Wrenlnsurance Association Limited

Transcription

1 Wre n The Wrenlnsurance Association Limited The Wren Insurance Association Ltd Solvency and Financial Condition Report As at 3 June 217

2 Contents Page 1 Introduction and summary 2 Review of 216/ Directors' responsibility statement 5 3 Independent Auditors' report 6 4 Business and performance 9 Business 9 Underwriting performance 9 I nvestment performance 1 Overall business performance 1 5 System of governance 12 General information 12 Senior Insurance Managers Regime 12 Assessment of the adequacy of the system of governance 13 Fit and proper requirements 13 Risk management system and ORSA 13 I nternal control system 14 Compliance function 15 Risk function 15 I nternal audit function 15 Actuarial function 15 Remuneration policy and practices 16 Related parties 16 Outsourcing policies 16 6 Risk profile 17 Underwriting risk 17 Market risk 17 Credit risk 17 Liquidity risk 17 Operational risk 18 Stress and sensitivity tests 18 7 Valuation for solvency purposes 2 Assets 2 Technical provisions 21 Other liabilities 24 8 Capital management 25 Own funds 25 Solvency Capital Requirement and comparison with 3 June Minimum Capital Requirement 27 The Association's overall capital position 28 Appendices: Organisational Chart 29 SFCR templates 31 1

3 1. Introduction and summary Solvency Financial Condition Report This is the second Solvency and Financial Condition Report (SFCR) for The Wren Insurance Association Limited (Wren or the Association), based on the financial position as at 3 June 217. Review of 216/17 The Association is a mutual insurance company which provides professional indemnity insurance to a select group of architectural practices. Founded in 1987, it currently has 59 Members. The main strategic objectives of the Association for the next three years, which were agreed by the Board in December 216, are as follows: Deliver cost-effective insurance in the long-term; Provide Members with control over their professional indemnity insurance and promote the interests of the membership as a whole on insurance issues affecting architects; Maintain appropriate cover and assist Members to align their contractual liabilities with the cover provided; Maintain stability in the cost of cover and remain as independent of reinsurance as is reasonable; Improve standards in controlling and managing risk within Member practices; Meet the highest standards of governance, risk management and financial practice within the Association; and Contribute towards the development of new talent in the architectural industry. The Association's strategy is reviewed periodically by the Board and will next be reviewed in 219. Finance and Underwriting The Association's financial statements for the year ended 3 June 217 demonstrate the impact that claims volatility can have on the financial results from one year to another. Unusually, there was a significant increase in the claims reserves held against a small number of large claims in certain older policy years, reflecting a deterioration in the position on those claims. Investments performed well, however, producing a return of over 5.7% and the result for the year also benefitted from the continuing process of winding up the longstanding reinsurance arrangement with Citadel Reinsurance Company Limited, which began last year. The overall result for the year after tax was a small deficit of 674, and the free reserves therefore fell from 46.6m to 45.9m. However, the Association remains in a very strong financial position with capital above the economic capital benchmark set by the Board. At the renewal on 1 July 216, there was no general rate increase and many firms enjoyed reduction in their call rates. However, some firms increased their levels of fee income and one new Member joined the Association in August 216. The total call income of the Association was therefore marginally higher than the prior year at 1.3 million. With the Association remaining in a strong financial position, in March 217 the Board was able to approve a return of call of 1.8 million from the 29/1 policy year. 2

4 Reinsurance costs were marginally lower than the previous year despite the higher call income (to which reinsurance costs are proportionate), reflecting a rate reduction achieved at the renewal of the main reinsurance contract. The investment income credited to the policy year, which is based on the expected longerterm rate of return, was higher than the previous year, at just over 2.4 million. Claims incurred for the year to 3 June 217 showed a significant swing compared to the prior year a total of 6.9 million compared to a credit of 14.1 million. Last year's figure was impacted by a 1.1 million reinsurance commutation from Citadel, while the equivalent figure in 216/17 was 4.8 million. The prior year also benefitted from very low claims experience, in particular, a lower level of large claim movements. Claims in the 216/17 policy year are higher than in 215/16, although at the 12 month stage they are still modest by recent historical standards. The more significant impact on the financial year has been a deterioration in three large claims in the 27/8, 21/11 and 213/14 policy years, which together resulted in increased claims reserves (before potential reinsurance recoveries) of nearly 1 million. This volatility in the level of claims from one year to the next is typical for the Association and reflects the Association's relatively high retention. It also highlights the benefits of exercising caution in the setting of claims contingency reserves and the level of economic capital, which allows the Association easily to absorb the volatility that arises. On a net basis, allowing for potential reinsurance recoveries, the overall provision for claims outstanding increased by 1.4 million and at 3 June 217 stood at 24.5 million. Operating costs were 3% lower than in 216 at 4.1 million. The lower costs result from a lower management fee offset by additional fees relating to Solvency II implementation. The balance on the underwriting (technical) account was a deficit of 1.6 million. The actual investment return achieved for the year, at 4. million, was well above the longer-term rate, which resulted in a transfer to the investment reserve of 1.3 million. The Association's investments grew by 8.8 million to 7. million, which reflects the 4. million of investment return generated plus the transfer of 4.8 million of new money into the portfolio. Amore detailed commentary on the investment performance is set out in the investment section below. Finally, the free reserves of the Association at 3 June 217 in aggregate stood at 45.9 million. The investment reserve grew by the 1.3 million transfer noted above. The income and expenditure account fell by 2.5 million to stand at 9.3 million, the general reserve remained at million and the reinsurance reserve grew by.5 million to stand at 13.3 million. The Association's overall financial position therefore remains very strong. The Board also agreed in March 217 that there was no necessity for a general rate increase at 1 July 217. Immediately prior to renewal, one Member left the Association. However, at (or shortly after) the 217 renewal, the Association welcomed two new Members. Investments The start of the Association's financial year coincided with the Brexit vote. There was widespread concern that the UK consumer would react cautiously, resulting in lower UK economic growth. In anticipation of this, the Bank of England cut interest rates to.25%, 1 year gilt yields fell to.5% and sterling weakened further against the major currencies. So far, the concerns around economic growth have proved unfounded as the consumer has continued to behave as normal, albeit at the expense of saving. At the same time, business 3

5 has benefited from the weak pound which has boosted exports. The downside of a weak currency is higher inflation, driven by higher imported raw material prices, and UK RPI inflation was 3.7%for the last financial year. The surprise election of Donald Trump in November resulted in a general rebound in US consumer confidence on the expectation of "change", more jobs, less red tape and more fiscal stimulus via infrastructure projects. It also coincided with more momentum within most of the European economies resulting in healthy synchronised global economic growth. Against this improved economic backdrop, investors started to focus on a reduction in monetary stimulus and the withdrawal of quantitative easing, a notion which gathered momentum throughout the year. UK gilt yields rose from their lows along with other government bond yields and produced a small negative total return for the financial year. Corporate bonds fared better due to their premium yield and the narrowing of the yield "spread" over gilts. Stock markets reacted well to the improved economic expectations, with both UK and global stock markets rising by nearly 2% once dividend income is taken into account. Although the outlook for corporate profits in 217 is bright, the rally has resulted in stock market valuations becoming "stretched" when compared to history. Some would say they are priced for perfection. During the course of the year the portfolio added two new asset classes, "fixed interest absolute return" and "multi-asset credit'. The investments were funded from existing government and corporate bonds and are designed to provide positive returns should bond yields rise as economies strengthen. To date these new investments have made an encouraging start. The Association's investment portfolio returned +5.7% for the year to 3 June 217, compared to the benchmark return of +5.2%. Over the rolling three year period, the portfolio returned an annualised return of +4.4%. versus +4.1 %from the benchmark. Claims The number of matters notified to the Association over the last policy year fell slightly compared to previous years. This may be in part explained by the fact that Members designed fewer buildings during the recession, and in part, it is hoped, because Members are more aware of, and work hard to eliminate, areas of risk. Most notifications continued to be made in relation to UK projects, although a small number of notifications have been made in relation to overseas projects. Adjudications, with their fast track nature and high attendant costs, remain less popular, perhaps because they were not designed for the resolution of disputes involving negligence issues. 4

6 2. Directors' responsibility statement We acknowledge our responsibility for preparing the Association's Solvency and Financial Condition Report in all material respec#s in accordance with the PRA Rules and the Solvency II Regulations. We are satisfied that: a. throughout the financial year in question, the Association has complied in all material respects with the applicable requirements of the PRA Rules and the Solvency!I Regulations; and b. it is reasonable to believe that the Association has continued to so comply subsequently and will continue to so comply in future. For and an behalf of the Board of The Wren Insurance Association Limited ~~ l S J Peat Director H O Wells Director 5

7 3. Report of the external independent auditor to the Directors of the Wren Insurance Association Limited (`the Association') pursuant to Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook applicable to Solvency II firms Report on the Audit of the relevant elements of the Solvency and Financial Condition Report (`SFCR') Opinion Except as stated below, we have audited the following documents prepared by the Association as at 3 June 217: The `Valuation for Solvency Purposes' and `Capital Management sections of the Solvency and Financial Condition Report of the Association as at 3 June 217, (`the Narrative Disclosures subject to audit'); and Association templates S.2.1.2, S , S , S , S (`the Templates subject to audit). The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred to as the `relevant elements of the Solvency and Financial Condition Report'. We are not required to audit, nor have we audited, and as a consequence do not express an opinion on the Other Information which comprises: The `Business and Performance', `System of Governance' and `Risk Profile' elements of the Solvency and Financial Condition Report; Association templates S.5.1.2, S.5.2.1, S ; the written acknowledgement by management of their responsibilities, including for the preparation of the Solvency and Financial Condition Report (`the Responsibility Statement'). We have not audited the comparative information relating to the year ended 3 June 216 I n our opinion, the information subject to audit in the relevant elements of the Solvency and Financial Condition Report of the Association as at 3 June 217 is prepared, in all material respects, in accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based, as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and determinations. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)), including ISA (UK) 8 and ISA (UK) 85. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the relevant elements of the Solvency and Financial Condition Report section of our report. We are independent of the Association in accordance with the ethical requirements that are relevant to our audit of the Solvency and Financial Condition Report in the UK, including the FRC's Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. C~

8 Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you, where: the Directors' use of the going concern basis of accounting in the preparation of the SFCR is not appropriate; or the Directors' have not disclosed in the SFCR any identified material uncertainties that may cast significant doubt about the Association's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the SFCR is authorised for issue. Emphasis of Matter Basis of Accounting We draw attention to the Valuation for Solvency Purposes and Capital Management sections of the Solvency and Financial Condition Report, which describe the basis of accounting. The Solvency and Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and therefore in accordance with a special purpose financial reporting framework. The Solvency and Financial Condition Report is required to be published, and intended users include but are not limited to the Prudential Regulation Authority. As a result, the Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of these matters. Other Information The Directors are responsible for the Other Information. Our opinion on the relevant elements of the Solvency and Financial Condition Report does not cover the Other Information and, we do not express an audit opinion or any form of assurance conclusion thereon. I n connection with our audit of the Solvency and Financial Condition Report, our responsibility is to read the Other Information and, in doing so, consider whether the Other I nformation is materially inconsistent with the relevant elements of the Solvency and Financial Condition Report, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the relevant elements of the Solvency and Financial Condition Report or a material misstatement of the Other Information. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Directors' for the Solvency and Financial Condition Report The Directors' are responsible for the preparation of the Solvency and Financial Condition Report in accordance with the financial reporting provisions of the PRA rules and Solvency II regulations which have been modified by the modifications and supplemented by the approvals and determinations by the PRA under section 138A of FSMA, the PRA Rules and Solvency II regulations on which they are based. The Directors' are also responsible for such internal control as they determine is necessary to enable the preparation of a Solvency and Financial Condition Report that is free from material misstatement, whether due to fraud or error. 7

9 Auditor's Responsibilities for the Audit of the relevant elements of the Solvency and Financial Condition Report It is our responsibility to form an independent opinion as to whether the relevant elements of the Solvency and Financial Condition Report are prepared, in all material respects, with financial reporting provisions of the PRA Rules and Solvency I I regulations on which they are based. Our objectives are to obtain reasonable assurance about whether the relevant elements of the Solvency and Financial Condition Report are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decision making or the judgement of the users taken on the basis of the Solvency and Financial Condition Report. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: Report on Other Legal and Regulatory Requirements. In accordance with Rule 4.1 (3) of the External Audit Chapter of the PRA Rulebook for Solvency I I firms we are required to consider whether the Other Information is materially inconsistent with our knowledge obtained in the audit of the Wren Insurance Association Limited's statutory financial statements. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. ~'~U~ L'L~ Thomas Reed (Senior Statutory Auditor) For and on behalf of Moore Stephens LLP, Statutory Auditor 15 Aldersgate Street, London. EC1A 4AB ~~ October 217 F:?

10 4. Business and performance Business The Association is registered in England and Wales as a company limited by guarantee without share capital. The operations of the Association are managed by Tindall Riley & Co Ltd (`TRC') trading as Wren Managers (the Managers) and therefore the Association does not have any employees. The Association is governed by a Board comprising anon-executive Chairman, 12 non-executive directors and two executive directors who are also directors of the Managers. Regulation The Association is regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Both the PRA and the FCA operate arisk-based approach to supervision, which places emphasis on the need for regulated firms to have in place robust risk management frameworks. The PRA is the lead supervisor for the purposes of Solvency I I regulation. Contact details for the PRA and the FCA can be found on their respective websites: www. ba n kofe ng la n d. co. u k/p ra The Association's external auditor is Moore Stephens LLP, whose address is 15 Aldersgate Street, London, EC1A 4AB. Underwriting performance The Association writes a single line of business: Professional indemnity (PI) risks and for the purposes of capital reporting this is categorised as General Liability insurance. All business is written in the United Kingdom. All underwriting is carried out from Wren's office in London. In the year to 3 June 217, the Association produced an underwriting deficit of 1.6m. Table 1 shows a summary of the technical (underwriting) account. Table 1: Summary technical account for the year ended 3 June 217 (based on UK GAAP) Sources of income and expenditure m m 216/17 215/16 Calls and premiums Return calls (1.8) (2.) Reinsurance premiums (1.5) (1.6) I nvestment income (LTIR basis) Net claims incurred (6.9) 14.1 Net operating expenses (4.1) (4.2) Balance on the technical account (1.6) 18.4 ~]

11 The Association currently purchases market excess of loss reinsurance. The market excess of loss programme reduces the impact of individual large losses on the Association. The Association retains the first 3m of every claim (the Association's retention), above which the market excess of loss reinsurance arrangements respond up to the maximum limit of cover. These risk tolerances are set by the Board. Investment performance The Association has an investment strategy which complies with the requirements of the `prudent person principle'. The aim of the strategy is to match technical provisions in terms of currency and duration with low risk government bonds, and to invest funds in excess of technical provisions in assets that will produce a return for the Association without taking undue risk. At 3 June 217, the Association's investment portfolio comprised the following asset classes: Table 2: The Association's investment portfolio at 3 June 217 Asset Class Amount ( m) % of portfolio Equities % Government bonds % Corporate bonds % Cash % 7. 1% The Association's investment portfolio returned +5.7% for the year to 3 June 217, compared to the benchmark return of +5.2%. Over the rolling three year period, the portfolio returned an annualised return of +4.4%, versus +4.1 %from the benchmark. Table 3 sets out the investment return by asset class: Table 3: Investment return by asset class Asset class Equities Government bonds Corporate bonds Cash Investment management expenses Total ( ) Total ( ) 216/17 215/16 3,177,41 32, ,866 1,197, , ,23 1,277 59,637 (215,477) (19,31) 3,994,238 1,99,9 Overall business performance I n the year ended 3 June 217, the Association produced a deficit of.7m and the UK GAAP balance sheet reserves decreased to 45.9m. Own funds for Solvency II proposes, measured on a best estimate basis, stood at 45.9m an increase of.4m on the position reported last year. 1

12 The overall solvency position of the Association at 3 June 217 is set out in more detail in section 7 of this report. 11

13 5. System of governance General information on the system of governance The Association is governed by a Board comprising anon-executive Chairman, 12 nonexecutive directors and two executive directors, who are also directors of the Managers. There are three sub-committees of the board: the Audit Group, the Remuneration Group and the Nomination Sub-Committee. The Remuneration Group is responsible for making recommendations to the Board on remuneration of the Managers and the Directors, and the Audit Group is responsible for reviewing the Association's annual Report and Financial Statements, Solvency and Financial Condition Report and Regulatory Supervisory Report. The Audit Group receives regular reports from the Association's internal and external auditors and is responsible for approving the audit plan for each year. The Nomination Sub-Committee consists of the Chairman of the Association, two elected Member directors and one of the Manager directors. The Sub-Committee meets at least twice a year and is responsible for making recommendations to the Board in respect of suitable candidates for appointment/reappointment as directors of the Association, the performance of directors retiring by rotation and of the Board as a whole, and the appointment and retirement of the Chairman. Each Member Practice is entitled to nominate one of its partners or directors to sit on the Association's Committee. Members of the Committee meet twice each year. The first meeting is the Members' Forum, to which Representative Members are also invited. This is held in conjunction with the Association's Annual General Meeting in March/April. The second is the Committee Meeting in September. All Member directors of the Association are also members of the Committee. Practices represented on the Association's Board are entitled to nominate a second Committee Representative should they wish to do so. The Association is managed on a day-to-day basis by the Managers. TRC is a private company owned principally by its directors and other senior staff. The Association has in place a robust risk management framework that is the responsibility of the Board. The Risk Register is one of the key elements of this framework. The Register sets out in detail the risks faced by the Association and the internal controls that operate to mitigate those risks. It is reviewed and updated every six months. A Compliance Memorandum allocates responsibilities between the directors and the Managers and sets out the duties of the Managers for the purposes of complying with the Financial Services and Markets Act 2 and the requirements of the PRA/FCA in managing the business of the Association. For a graphical presentation of the systems of governance see the appendices included on pages 29 and 3 of the SFCR. Senior Insurance Managers Regime The Association has implemented the requirements of the Senior Insurance Managers Regime (SIMR) and prepared a Governance Map which sets out the governance structure of the Association, identifies the SIMR function holders, the notified non-executive directors and other key function holders, shows reporting lines and the allocation of prescribed responsibilities. The Governance Map is reviewed at each Board meeting. 12

14 Assessment of the adequacy of the system of governance The Board consider that the System of Governance is appropriate for the nature, scale and complexity of the inherent risks facing the Association. Fit and proper requirements The Association has a SIMR policy which sets out the procedures to ensure that all those undertaking controlled functions on behalf of the Association are and remain fit and proper to carry out those functions. These procedures ensure that all those holding controlled functions meet the requirements of the Regulators' `fit and proper' test and follow its principles; comply with the Statement of Responsibilities; and report anything that could affect their ongoing suitability. The following factors are taken into account when deciding whether an individual is fit and proper: their honesty, integrity and reputation; their competence and capability; and their financial soundness. Fitness and propriety checks are made before an individual is appointed to carry out a controlled function and also periodically thereafter. Risk management system including the ORSA The Association has a fully documented risk management strategy which includes the ORSA policy. The ORSA has been carried out in accordance with the ORSA policy (the Policy) agreed by the Board in September 215. The Policy states that the ORSA is performed annually, which is consistent with the stable nature of the Association's capital needs over time. The ORSA will be undertaken more frequently if specific triggers occur which are set out in the Policy. However, none of these events have occurred since the last ORSA was prepared. ORSA governance Overall responsibility for the ORSA rests with the Board. Appendix A of the ORSA sets out the governance arrangements of the ORSA and the responsibilities of the individuals and groups involved in the process. The ORSA process The Policy defines a number of steps that make up the overall ORSA process, which are summarised in Chart 1 below. The policy includes a description of each process and an explanation as to how each has been completed in order to fulfil the objectives of the ORSA as a whole. 13

15 Chart 1: Summary of ORSA process strategy The ORSA includes both the economic capital position of the Association and its regulatory capital position, by reference to the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR), as at 3 June 217. The Association's economic capital strategy defines the amount of capital that must be held to cover the risk of losses occurring that exceed the Association's risk appetite. It sets an overall benchmark (the economic capital benchmark or ECB) for the total resources of the Association, defined as an amount sufficient to absorb losses up to the 99.5th level of confidence over athree-year time period. The SCR defines the amount of capital that the Association must hold to satisfy regulatory requirements. The benchmark set for the SCR is also at the 99.5th level of confidence, but measured over aone-year time period. The MCR, which represents the absolute minimum level of capital that the Association must hold to avoid regulatory action, is also measured over cone-year period but reflects the 85th level of confidence. Internal control system The Association has a robust system of internal controls which are used to manage the risks faced by the Association to within the documented risk appetite. These internal controls are 14

16 documented in the Association's Business Risk Review and the Procedures Manual, which sets out the detailed processes for all aspects of the management of the Association on a day to day basis. Compliance function The Compliance function is responsible for: identifying, assessing, monitoring and reporting on the Association's compliance risk exposures; assessing possible impact of legislative change and monitoring the appropriateness of compliance procedures; and assisting, supporting and advising the Association in fulfilling its responsibilities to manage compliance risks. The Chief Risk Officer (CRO) is responsible for day to day monitoring of, and reporting to the Board, on all compliance related matters. Risk function The Risk Function is responsible for: identifying, managing, monitoring and reporting on current and emerging risks; setting the overall risk management and strategic framework; and monitoring and assisting in the effective operation of the Association's riskmanagement framework and maintaining an accurate view of the Association's risk profile. The CRO manages the day to day risk monitoring of, and reports to the Board on, all aspects of risk management. Internal audit function The Association's internal audit function operates arisk-based internal audit cycle. The Head of Internal Audit is a qualified internal auditor with 15 years of experience in the financial sector, including four years with the Association. The Head of Internal Audit reports to the Audit Group. Actuarial function The Association has an in-house actuarial team which carries out the day-to-day actuarial role, including claims reserving and maintenance of the Association's internal models. The formal role of the actuarial function under Article 48 of the Solvency II Directive to report formally to the Board on technical provisions, reinsurance and underwriting policy is carried out by Lane Clark &Peacock (LCP) under an outsourcing agreement. The Chief Actuary is a partner of LCP. 15

17 Remuneration policy and practices The Association has a Remuneration Group and the primary purpose of the Group is to: review, on behalf of the Board, the Managers' proposals with regard to their remuneration and make recommendations to the Board in this regard; review the remuneration paid to the Chairman and other directors of the Association and make recommendations to the Board in this regard; establish and maintain a remuneration policy. The duties of the Group are as follows: recommend to the Board a policy for remunerating non-executive directors; review the ongoing appropriateness and relevance of such remuneration policy; recommend to the Board the appropriate level of such remuneration and the frequency with which it shall be reviewed; recommend to the Board the remuneration of the Board's Chairman, the Chairmen of the sub-committees and other non-executive directors; consider on behalf of the Board proposals from the Managers regarding the Managers' remuneration. The Association has a Remuneration Policy which sets out the principles and procedures under which the Remuneration Group operates. Related parties The Board, comprising up to 12 representatives of the Membership of the Association and two Manager nominees, is elected to oversee the management of the Association on behalf of the Members. The members of the Board are directors of the Association and as such are related parties. Because of the mutual nature of the Association and its Members (being both insured and insurers), the Members are also in effect related parties. Outsourcing policy Outsourcing is the use of a third party (either an affiliated entity within the same group or an external entity) to perform activities on a continuing basis that would. normally be undertaken by the Association. The third party to whom an activity is outsourced is a `service provider'. The Board ensures that any outsourcing arrangement does not diminish the Association's ability to fulfil its obligations to Members or its regulators, nor impede effective supervision by its regulators. The business of the Association is carried on by specialist independent managers, Tindall Riley & Co Limited trading as Wren Managers, under the terms of a management agreement. However, certain matters are reserved for the Board, including determination of the overall strategy of the Association, determination of the overall investment strategy and decisions regarding the general level of calls. The Board considers outsourcing where it believes that there is an advantage to the Association and its Members by using a service provider. The two primary functions that have been outsourced by the Association relate to the management of the Association's investments and the role of the Chief Actuary. 16

18 6. Risk profile Underwriting risk Underwriting risk arises from two sources -adverse claims development (reserve risk) and inappropriate underwriting (premium risk). Reserve risk is managed by the Association's policy of prudent reserving of individual claims (which in most years is evident from the release of `redundant reserves noted in the financial statements) and frequent reviews of estimates by the Senior Claims Director. Prudent contingency (IBNER) reserves are also maintained at confidence levels consistent with the Association's risk appetite. Underwriting risk is managed by having in place a clear underwriting philosophy, procedures and controls in relation to pricing, rigorous selection criteria for the admission of new Members, and the diversification of risks. Reinsurance is another important method for the management of underwriting risk. The Association has market reinsurance cover from reputable reinsurers in the London Market covering various reinsurance layers between 3.Om and 2.Om. Market risk Market risk refers to the risk of losses on the Association's investment portfolio, arising from fluctuations in the market value of the underlying investments. The Association has a clear investment strategy that is reviewed regularly, which has a number of objectives to match investments to the Association's claims liabilities in terms both of currency and duration, to hold a diversified portfolio of investment types and, within that overall context, to maximise the return generated at an agreed level of risk. The underlying strategy is to match insurance liabilities in terms of currency and duration with high quality fixed-interest government securities and hold appropriate levels of corporate bonds and equities. Asset allocation is the responsibility of the Board. Credit risk Credit risk arises from the possibility of default by one or more counterparties, which include reinsurers and deposit-takers as well as Members. This risk is managed by carrying out appropriate due diligence on prospective counterparties: carrying out financial checks on potential Members, looking at the credit ratings of reinsurers and monitoring these over time (a minimum rating of `A' is required for any of the Association's reinsurance programmes), restricting the exposure to individual deposit takers (currently the limit is 5% of the total invested portfolio) and having in place a robust credit control system. Liquidity risk Liquidity risk refers to the possibility of the Association having insufficient cash available to settle claims and other liabilities as they fall due. The Association prepares cash-flow forecasts in order to manage likely cash requirements, based on known liabilities but leaving a prudent margin for unexpected commitments. Significant cash balances are maintained so that there are always adequate funds available to pay claims as required. In addition, the investment strategy requires substantial holdings in cash funds, which are available at very short notice and can be used to augment cash balances should the need arise. 17

19 Operational risk Operational risk covers the risks arising from the failure of internal processes, people or systems, or from external events. The Managers have identified its operational risks, which are recorded in the Risk Register. There is a comprehensive procedures manual which covers every aspect of the management of the Association and the internal audit function has proved effective in testing the internal control framework to ensure that it remains appropriate. Stress and sensitivity tests The Association has developed a suite of stress and sensitivity tests, including reverse stress tests, which are used to measure the robustness of the Association's capital position. These tests are regularly reviewed and updated as necessary to ensure that they capture the main risks faced by the Association. The results of the following material stress and sensitivity tests performed at 3 June 217 are summarised below: Underwriting risk The Association carries out sensitivity testing on its claims reserves. The results of sensitivity testing are set out below, showing the impact on surplus/deficit before tax, gross and net of reinsurance. For each sensitivity, the impact of a change in a single factor is shown, with other assumptions unchanged. The sensitivity analysis assumes that a change in loss ratio is driven by a change in claims incurred. Increase in loss ratio by 5 percentage points m Gross.5 Net.3 A 5 percent decrease in loss ratios would have an equal and opposite effect. Market risk Interest rate risk I nterest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market rates. Interest rate risk arises primarily from the nature and term of investments held and is managed through the buying and selling of appropriate fixed interest securities of different durations. The Association uses a number of sensitivity management tools to understand volatility of surpluses/deficits. The table below shows the effects of a.5% increase or decrease in interest on earnings from debt securities:.5% increase in interest rates 24,332.5% decrease in interest rates (24,332) `E:3

20 Investment arice sensitivity analysis The Association is exposed to price risk through its holding of equities. The exposure through equities is limited to a controlled proportion of the overall portfolio. At the year end the holding in equities was 28% (216 14%) of the investment portfolio. The value of the equity holding at the year end amounted to 19.4m ( m). The table below shows the anticipated change in investment market values from a 5% increase or decrease in underlying prices: m 5% increase in equity price 1. 5% decrease in equity price (1.) 5% increase in corporate bond price.9 5 /a decrease in corporate bond price (.9) 5% increase in fixed interest price 1.1 5% decrease in fixed interest price (1.1) 19

21 7. Valuation of assets and liabilities for solvency purposes Assets Table 4 sets out the value of the Association's assets at 3 June 217. Table 4: Valuation of the Association's assets Assets per Assets per GAAP Solvency II m m Financial investments Reinsurance recoverable Other assets Total assets The Association's assets are recognised and valued using the following principles: I nvestments The Association's investments are valued for Solvency II purposes on the same basis as the annual financial statements, which follow UK GAAP. All of the Association's investments are traded on mainstream exchanges. The difference in valuation between GAAP and Solvency relates to the allocation of accrued interest which for the purposes of Solvency I I has been included in the financial investments heading rather than a separate item. Reinsurers' share of technical provisions In the Solvency II balance sheet, the reinsurers' share of technical provisions is valued as part of net technical provisions. Following commutation discussions with Citadel Reinsurance Company Limited (Citadel), the remaining outstanding amount has been commuted at a value of 8.7m and has therefore been reallocated to reinsurance receivables from reinsurers' share of technical provisions. Furthermore, additional market reinsurance recoveries have been accrued under Solvency II compared to GAAP to take into account potential deteriorations in two reported notifications at year end. These are the main differences in valuation befinreen GAAP and Solvency II. Other assets All other assets are valued for Solvency II purposes on the same basis as the financial statements. As mentioned in the reinsurers' share of technical provisions section above, following commutation discussions with Citadel, the remaining outstanding amount has been commuted at a value of 8.7m and has therefore been reallocated to reinsurance receivables from reinsurers' share of technical provisions as it is payable within 9 days of balance sheet date. This accounts for the large variance between the Solvency II and GAAP valuation of other assets. There were no changes to any of the recognition criteria or valuation methods during the year. 2

22 Technical provisions At 3 June 217, the Association held technical provisions, valued for Solvency II purposes, of 36.8m. The assessment of the reserves is based on commonly accepted actuarial techniques applied in a consistent manner. Whilst professional judgment has been exercised in all instances, projections of future ultimate losses and loss expenses are inherently uncertain d ue to the random nature of claim occurrences. The accuracy of the results is dependent upon the accuracy of the underlying data and additional information supplied to the actuarial teams. Table 5 shows the analysis of these provisions between best estimate and risk margin, and compares them to the UK GAAP technical provisions. Table 5: Analysis of technical provisions at 3 June 217 Technical provisions per GAAP m Technical provisions per Solvency II m Technical provisions Risk margin 4.2 Total The Association values technical provisions using the methodology prescribed by the Solvency II Directive and the regulations made under the Directive. This methodology is documented in the Association's paper Process for the Preparation of the Solvency 11 Balance Sheet. Solvency I! Technical Provisions methodology The TPs are made up of a best estimate of the claims, premiums and expense cashflows that are discounted to give an estimate of the provisions. Finally, a risk margin is added. Each element is described below. Homogeneous risk groups The Association uses one homogeneous risk group for TPs as it writes only professional indemnity cover for architects. Gross claims cashflows and reinsurance recoveries Gross claims are projected to ultimate using standard actuarial techniques including Bornhuetter-Ferguson and chain ladder with some judgment overlaid. This judgment is important because the low volume of claims causes the data to be volatile. The key assumptions made include the initial expected loss ratio for each policy year, the credibility assigned to this loss ratio and the projected incurred development pattern. 21

23 These methods are considered appropriate given that the data includes years which are fully run off, the business written has been stable and there have been no material changes in the way claims are handled. At the valuation date, 3 June 217, the Association had no unearned business except for business that was bound but not incepted (BBNI). This is because all coverage is annual, renews prior to year end and incepts on the first day of the policy year. The ultimate gross claims and reinsurance recoveries for the BBNI business are taken from the Association's premium risk model. This is a stochastic frequency severity model that applies reinsurance on a claim by claim basis. A percentage loading is added to both earned and BBNI business to allow for events not in data (ENIDs), which allows for severe events to which the Association could be exposed but which are absent from the historical data. Projected cashflows are estimated by applying payment patterns to the estimates of the ultimate gross claims and recoveries. The assumed payment patterns are derived using a chain ladder. I' -. There are no further premium cashflows expected relating to prior years. Gross and reinsurance premiums for the BBNI business are taken from the business plan Expenses Acquisition and administrative expenses There are no acquisition or administrative expenses relating to earned business. For BBNI business, acquisition costs and internal administrative costs are calculated as a percentage of the total operating costs from the business plan for the forthcoming policy year. The operating costs from the business plan are set assuming a percentage increase in operating costs from 216/17 plus some specific additional costs. The external administrative costs are taken from the business plan. Claims handling expenses Allocated claims handling expenses are assumed to be included in the best estimate claims reserves and, therefore, no explicit allowance is made. Unallocated claims handling expenses are split between expenses paid in the 217/18 policy year and expenses paid in subsequent years. The expenses paid in 217/18 are calculated as an assumed percentage of the total operating costs for the forthcoming year. The expenses paid beyond 217/18 are the same as those included in the GAAP reserves. The unallocated claims handling expenses are allocated between claims and premium provisions in proportion to claims payments. Investment management expenses The investment management expenses are calculated as an assumed percentage of the sum of the projected and discounted TPs (excluding investment expenses) at each future valuation date. The assumed percentage is calculated as the annual investment management expenses divided by funds under management. 22

24 Discounting Claims, premium and expense cashflows have been discounted using the GBP EtOPA yield curve. Risk Margin The method used to calculate the risk margin is to: Calculate the SCR for the Association using the standard formula; Project the future SCRs using different runoff patterns for different elements of the SCR as follows: o Non-life underwriting risk and operational risk are combined and run off in proportion to the square root of the percentage of future gross claims cashflows. o Counterparty default risk is run off in proportion to the square root of the percentage of future reinsurance recovery cashflows. o Discount and sum the projected SCRs and multiply by the cost of capital. Data adjustments and recommendations There were no data deficiencies for which an adjustment was necessary. Further improvements to the data governance procedures are planned for 217/18 including the introduction of a data governance policy and data controls. Additional analysis of the data is also planned for 217/18, including analysing nil claims and average costs per claim. This will improve the process for estimating the TPs. Changes since the last reporting period During the current year the Association reviewed the treatment of return calls which last year were included as an element of the future cashflows that make up Solvency II technical provisions. Returns of calls from the Association are broadly equivalent to dividends made by corporate insurance companies, in other words they are a method of distributing excess capital to the shareholders (who in the case of a mutual are the Members). Returns of call are approved on a discretionary basis annually at the Association's Board, based on the surplus (if any) on the policy year due to be closed. On occasion, an interim return may also be made from a later policy year. The returns are made only to the renewing Members of the Association who were Members in the policy years) from which the returns of call are to be made. On this analysis, it has been agreed that returns of call should not be included in the calculation of technical provisions and that the funds that are potentially available for future returns of call should be treated as part of own funds until such time as the board agrees that they should be distributed. There have been no other changes in the TPs methodology since the previous period. 23

25 Other liabilities Table 6 sets out the value of the Association's other liabilities at 3 June 217. Table 6: Valuation of the Association's other liabilities Liabilities per Liabilities GAAP per Solvency II m m Member creditors Other creditors Reinsurance creditors Other liabilities The Association's other liabilities are recognised and valued for Solvency II purposes on the same basis as the annual financial statements, which are based on UK GAAP and there are no difference between the two. Alternative methods of valuation The Association does not use any alternative valuation methods. 24

26 8. Capital management The comparatives at 3 June 216 have not been audited as the requirements to audit the SFCR only applied to firms with years ending on or after 15 November 216. Own funds The Association has a simple capital structure, with balance sheet reserves comprising a single item: tier 1 capital derived from past underwriting and investment surpluses. There were no restrictions on the availability of the Association's own funds to support the SCR and MCR. At 3 June 217 and 216, the Association held the following own funds. Table 7: Solvency II Own funds at 3 June 217 Income and expenditure account I nvestment reserve General reserve Reinsurance reserve Total resources Solvency II adjustment Total adjusted resources 3 Jun 3 Jun Movement m m m (2.5) (.7) (.) (1.1} The Association's objective under its Corporate Plan is to maintain its total adjusted resources (own funds) in line with its risk appetite statement over the insurance cycle. The Association forecasts its capital over a three year planning horizon as part of its ORSA process. Analysis of significant changes during the period: Table 8 shows the movement in own funds between 3 June 216 and 3 June 217: Table 8: Movement in Own Funds between 3 June 216 and 3 June 217 m Own funds at 3 June Increase in net technical provisions (1.2) Increase in investments 9.4 Decrease in other assets (5.2) I ncrease in other liabilities (1.9) Deficit for the financial year (.7) Own funds at 3 June

27 Table 9 shows the reconciliation between UK GAAP net asset value and Solvency II net asset value at 3 June 217: Table 9: Differences between UK GAAP and Solvency II net asset value m Excess of assets over liabilities UK GAAP 45.9 Solvency II technical provisions adjustment.7 Future premiums and claims adjustments.7 Excess of assets over liabilities Solvency II 45.9 Solvency Capital Requirement (SCR) and comparison with 3 June 216 Table 1 shows an analysis of the Association's SCR split by risk modules. Table 1: The Association's SCR Heads of risk Net capital required (Solvency II best estimate basis) 3 Jun Jun 216 m m Underwriting risk Market risk Counterparty default risk Operational risk 1..8 Aggregate SCR Correlation credit (6.3) (3.) Aggregate SCR net of correlations The main changes in the SCR since 3 June 216 reflect the following factors. Underwriting risk SCR underwriting risk capital is made up of three elements, premium risk, reserve risk and catastrophe (CAT) risk. The calculation for the first two elements is based on, respectively, the expected value of net premiums over the next 12 months and the valuation of net technical (claims) provisions. Reserve risk has increased since last year as a result of an increase in the best estimate claims provisions. Premium risk has also increased slightly, which is driven by a methodology change. Last year, current and prospective gross premiums (calls) were reduced by their respective projected return of calls; however, as returns of call are no longer being considered within the technical provisions calculation, premium risk is slightly higher this year. CAT risk has also increased slightly. As a result of the above changes, overall underwriting risk has increased by.3m since last year. 26

28 Market risk Market risk is driven by a combination of market risk drivers -interest rate risk, equity risk, currency risk and spread risk. The overall increase in market risk has been driven almost equally by currency risk and equity risk. The Association's exposure to currency risk has increased by 4.9m. This is driven by the `look through' investment data, whereby the underlying assets in the GBP denominated funds are invested in a range of different currencies. The currency risk change reflects the potential market value movement during the course of the next year caused by currency fluctuations. The value of the Association's equity holdings has increased by around 1m since last year. This is as result of the Association's decision to invest the proceeds of the Citadel Commutation into equities. Equities are a higher risk investment and therefore this decision has lead to a 4.6m increase in the equity risk capital charge. Interest rate risk has increased by.5m whilst spread risk has increased by.5m. Furthermore, the correlation credit between the elements of market risk described above increased by 2.9m. Overall, SCR market risk capital has increased by 7.6m. Counterparty default risk The counterparty default risk capital requirement has increased by 1.6m in the past 12 months. This is as a result of an increase in the reinsurer's share of technical provisions. Last year, Wren's exposure to reinsurance recoveries was only in respect of future reinsurance recoveries that would be made for the bound but not incepted business whereas this year, there are actual outstanding reinsurance recoveries in respect of claims which have exceeded the reinsurance retention. Operational risk There has been an increase of.2m in the operational risk charge since last year. Under the Standard Formula, operational risk is calculated as the maximum of a proportion of either the gross technical provisions (excluding risk margin) or gross earned premium (the greater of the amounts in the last 12 or 24 months), subject to a minimum of 3% of the calculated basic SCR. Overall movement Overall, the SCR has increased by 6.4m year on year, from 14.7m to 21.6m. Minimum Capital Requirement (MCR) The MCR calculation is based on the net value of technical provisions and the expected level of retained premiums over the next 12 months. The result of the calculation is then subject to a floor and a cap, of 25 /a and 45% of the SCR respectively. As at both 3 June 216 and 3 June 217, the MCR has been set at the minimum level, i.e. equal to 25% of the SCR. This was 5.3m as at 3 June 217, compared to 3.7m 12 months ago. 27

29 The Association's overall capital position. Table 11 shows the Association's capital position in relation to the SCR and the MCR. Table 11: Summary of the Association's capital position at 3 June 217 SCR MCR m m Capital requirement Own funds available Headroom Solvency ratio By reference to the SCR and MCR, the Solvency II own funds substantially exceed the capital requirements. By these measures, the Association remains in a satisfactory capital position and the Board will therefore have considerable flexibility in some of the key decisions to be made over the next 12 months. The calculation of the SCR and MCR is subject to supervisory assessment and may change following the review of the SCR and MCR calculation by the Regulator.

30 The Wren Insurance Association Limited Overview (Governance Map) Responsible for: determination of overall strategy; proposals on amendmentr to the Rules; the appointment and remuneration of the Managers; the appointment and remuneration of the Association's Auditors; determinationoftheinvestmentstrategyand appointment and monitoring of Investment Advisors; decisions regarding (a) the general level of (i) advance or supplementary calls and (ii) release calls and (b) returns of call; decisions regardingthe terms of any reinsurences; decisions regarding claims where the Rules determine that a matter should be subject to the Directors' discretion; the appraisal of prospective members; and approving regulatory policies. Directors Chairman of Association SIMF 9 David Stanford Chairman of Nomination CF2a David Stanford Chairman of Remuneration SIMF 12 Heather Wells Chairman of Audit SIMF 11 Heather Wells CEO SIMF 1 Samantha Peat Executive CF1 Simon Scriven Chief Underwriting Officer SIMF 22 Samantha Peat Notified NEDs Report to the Chairman of the Board Chris Bennie' Jim Greaves N icholas Thompson* GaryTidmarsh Other Function Holders Chief Risk Officer SIMF4 Dan Wilkinson Chief Finance Officer SIMF 2 Jo Rodgers Chief Actuary Function SIMF 2 Tom Durkin:* Key Function Holder Compliance Dan Wilkinson Governing Body: Wren Board of Directors Pres. Resp 2/8 Reports to: Association, Chairman of Audit for performance assessment Pres. Resp 2/8 Reports to: Association, Chairman of Audit for performance assessment Pres Resp 11 Reports to: Chairman of the Association Pres Resp 1 Reports to: Chairman of the Association Pres Resp. 1/3/6/9 Reports to: Chairman of the Association Reports to: Chairman of the Association Reports to: Chairman of the Association James Pickard John Rich Ian Rudolph Tony Poole Jonathan Hall Bill Ryan` David Lawrence Reports to: Association/Chief Finance Officer Pres Resp.4/5/7 Reports to: Association/Chief Exec. Officer for performance assessment Reports to: Association/Chief Finance Officer Reports to: Association/Chief Finance Officer Nomination Sub Committee Di recto rs Chair of Nominations CF2a David Stanford CEO SIMF 1 Samantha Peat Notified NED's: Chris Bennie Nicholas Thompson Directors Chair of Audit Chairman Notified NED's Bill Ryan Other Function Holders Chief Finance Officer SIM F 2 Head of Internal Audit SIMF 5 Audit G roup SIMF 11 Heather Wells SIMF9 DavidStanford Chris Bennie Jo Rodgers Helen Slattery reports to Audit Group Remuneration Group Di recto rs Chair SIMF 12 Heather Wells Chairman SIMF 9 David Stanford N otified NEDs Bill Ryan Chris Bennie OtherFundion Holders Chief Finance Officer SIMF 2 Jo Rodgers Responsible for: the procedure for the selection &nomination of non-executive directors; recommending suitable candidates for appointment to regulatory roles, reviewing those Directors retiring by rotation reviewing the performance of the Board;and selecting and nominating when necessary, the Chairman of the Association. Responsible for: the appointment and re-appointment of the Auditors; the annual review of the external audit process; the review of the audit fee; the review of the financial statements; the review of the annual SFCR return; any issues arising from the audit; reviewing the Auditors' management letter; reviewing the Association's systems of internal financial controls; reviewing the TOR and scope of the internal audit function; reviewingwhistleblowingarrangements;and considering any other matters as the Board may from time to time require. Responsible for: reviewing the Manager's remuneration proposals; reviewing the Directors' remuneration; and considering any other matters as the Board may require from time to time 'Notified Non Executive Directors who also sit on a Sub Committee **Outsourced Function oversight responsibility is with the CFO

31 The Wren Insurance Association Limited Organisation Chart (Governance Map) THE ASSOCIATION N OTIFIED N EDs Tran n; & io le~sional OevAopme~~'. Odiry 8?raeJurei CHgIRMAN Javid Stanford <~iwre CHAIR OF AUDIT Heather Wells ~ s~cm~~~.~~i v 1 CEO/Q1 IXECUTIVE DIREROR v~me.sa a~oo~~en Samantha Peat I Simon Striven NOMINATION SUBCOMMITTEE REM UNERATION GROUP AU DITGROUP flusinesz Development o,oiess~owi e~.rioome~e HEAD OF INTERNAL AUDIT Helen Slattery mm~nain a~e v~ogamm~. CFO ~,~..~~~~,. Jo Rodgers WHISTLEBLOWING HEAD OFARUARIAL Mandeesh Rooprai naa Pillar 1 11 Pillar) Com liance Risk Pillaru x c<ac«t Managemen nxfps o~usvoxv anirr CF 51 V7i ~~r~ wx o ou*orscox cer rurvcrion

32 The Wren Insurance Association Limited Solvency and Financial Condition Report Disclosures 3 June 217 (Monetary amounts in GBP thousands)

33 General information Undertaking name Undertaking identification code Type of code of undertaking Type of undertaking Country of authorisation Language of reporting Reporting reference date Currency used for reporting Accounting standards Method of Calculation of the SCR Matching adjustment Volatility adjustment Transitional measure on the risk-free interest rate Transitional measure on technical provisions The Wrenlnsurance Association Limited RZYG3Y44L6568 LEI Nonlife undertakings GB en 3 June 217 GBP The undertaking is using local GAAP (other than IFRS) Standard formula No use of matching adjustment No use of volatility adjustment No use of transitional measure on the risk-free interest rate No use of transitional measure on technical provisions List of reported templates Balance sheet Premiums, claims and expenses by line of business Premiums, claims and expenses by country Non-Life Technical Provisions Non-Life insurance claims Own Funds Solvency Capital Requirement -for undertakings on Standard Formula Minimum Capital Requirement -Only life or only non-life insurance or reinsurance activity

34 Balance sheet Assets Solvency II value C1 R3 R4 R5 Intangible assets Deferred tax assets Pension benefit surplus R6 Property, plant ~t equipment held for own use 4 R7 Investments (other than assets held for index-linked and unit-linked contracts) 7,153 R8 Property (other than for own use) R9 Holdings in related undertakings, including participations R1 Equities $,273 R11 Equities -listed $,273 R12 Equities -unlisted R13 Bonds 22,927 R14 Government Bonds 22,927 R15 Corporate Bonds R16 Structured notes R17 Cof(aterolised securities R18 Collective Investments Undertakings 29,534 R19 Derivatives R2 Deposits other than cash equivalents 9,419 R21 Other investments R22 Assets held for index-linked and unit-linked contracts R23 Loans and mortgages R24 Loans on policies R25 R26 Loans and mortgages to individuals Other loans and mortgages R27 Reinsurance recoverablesfrom: 3,864 R28 Non-life and health similar to non-life 3,864 R29 Non-life excluding health 3,864 R3 Health similar to non-life R31 Life and health similar to life, excluding index-(inked and unit-linked R32 R33 R34 Health similar to life Life excluding health and index-(inked and unit-linked Life index-linked and unit-linked R35 Deposits to cedants 4 R36 Insurance and intermediaries receivables 8 R37 Reinsurance receivables 9,385 R38 Receivables (trade, not insurance) R39 Own shares (held directly) ~ R4 Amounts due in respect of own fund items or initial fund called up but not yet paid in R41 Cash and cash equivalents 2,268 R42 Any other assets, not elsewhere shown 25 R5 Total assets 85,73

35 Balance sheet R51 R52 R53 R54 R55 R56 R57 R58 R59 R6 R61 R62 R63 R64 R65 R66 R67 R68 R69 R7 R71 R72 R74 R75 R76 R77 R78 R79 R8 R81 R82 R83 R84 R85 R86 R87 R88 R9 Liabilities Technical provisions -non-life Technical provisions -non-life (excluding health) TP calculated os a whole Best Estimate Risk margin Technical provisions -health (similar to non-life) TP calculated as a whole Best Estimate Risk margin Technical provisions - life (excluding index-linked and unit-linked) Technical provisions - health (similar to life) TP calculated as a whole Best Estimate Risk margin Technical provisions -life (excluding health and index-(inked and unit-linked) TP calculated as a whole Best Estimate Risk margin Technical provisions - index-linked and unit-linked TP ca(cu(qted as a whole Best Estimate Risk margin Contingent liabilities Provisions other than technical provisions Pension benefit obligations Deposits from reinsurers Deferred tax liabilities Derivatives Debts owed to credit institutions Financial liabilities other than debts owed to credit institutions Insurance Et intermediaries payables Reinsurance payables Payables(trade, not insurance) Subordinated liabilities Subordinated liabilities not in BOF Subordinated liabilities in BOF Any other liabilities, not elsewhere shown Total liabilities Solvency II C value C1 36,826 36,826 32,596 4,229 1, ,758 R1 Excess of assets over liabilities ~ 45,945

36 Premiums, claims and expenses by line of business Non-life Premiums written R1 t Gross -Direct Business R12 Gross- Proportlonal reinsurence accepted 873 Gross -Non-proportional reinsurance accepted 874 Reinsurers share R2o Net Premiums earned 821 Gross -Direct Business 822 Gross - Proportional reinsurance accepted 823 Gross Non proportional reinsurance accepted 824 Reinsurers share 83 Net Claims incurred 831 Gross - Dfrec[ Business 832 Gross -Proportional reinsurance accepted 833 Gross -Non-proportional reinsurance accepted 834 Reinsurers share 84 Net Changes in other technical provisions 841 Gross ~ Direct Business 842 Gross ~ Proportional reinsurance accepted ROa3 Gross ~ Non-proportional reinsurance accepted 844 RelnSufefS Shale RO5 Ne[ Line of Business fof: non-life insurance and feinsufante obl~ g ationz ( direct business and acce p ted proportional reinsurance) Medkal Income Worker' Motor vehicle ~~~~ Firea a~her mowr aviation and other da expenx protection compensation Nabitlty Insurance insurance insurance insurance insurance transport to pro insurance insura ~~ Line of business (or: accepted non-proportional reinsurance ~d ~ mage General Credit and Legal - Misc. financial. Marine, ~~ liability suretyship expenses Assistance loss Health Casualty aviation and Property insurance Insurance insurance transport ~«i ~ J ~ CO74 CO _---_-~ Tofal ,57,556,951.. ~ 1 _.. RO55 Expe nses incu rred 812 Other expenses ~_. R 13 Total expenses 4,

37 Premiums, claims and expenses by country Non-life R1 Premiums written R11 Gross- Direct Business R12 Gross -Proportional reinsurance accepted R13 Gross -Non-proportional reinsurance accepted R14 Reinsurers'share R2 Net Premiums earned R21 Gross -Direct Business R22 Gross -Proportional reinsurance accepted R23 Gross- Non-proportional reinsurance accepted R24 Reinsurers'share R3 Net Claims incurred R31 Gross -Direct Business R32 Gross -Proportional reinsurance accepted R33 Gross- Non-proportional reinsurance accepted R34 Reinsurers' share R4 Net Changes in other technical provisions R41 Gross - Direct Business R42 Gross - Proportional reinsurance accepted R43 Gross- Non-proportional reinsurance accepted R44 Reinsurers' share RO5 Net RO55 Expenses incurred R12 Other expenses R13 Total expenses Top 5 countries (by Top 5 amount of countries (by gross amount of gross premiums written) - premiums written) -non-life non-life obli ations Home Country ~ ~ obligations Total Top 5 and - home country COt ,57 8,57 1,556 1,556 6,951 6,951 8,57 8,57 1,556 1,5561 6,951 6, ,621 Oj ' 8, 366 6,2551 ~ O 1 ~ 4,911 4,911 4,911 i

38 Non-Life Technical Provisions Direct business and accepted proportional reinwrance A ap[ed non-propatlonal relnwrance McMul Income Workers '~, Motor vehicle ~N^e, ~ Fire and other Other motor awahon and Gmape W ~fb^8fi~ Cre1t and ~~ e ~ expense protection compensation liability ~ ^ inwrance Inwrance Inwrance Inwrance inwrance VanspoR i D~WenY inwrance nwe~rr~ice inwnnca Inwonce Inwranca Asistance ~ Non- Non Non- proportional Non- Tofa1 Non-LHe Miscellaneous proportional proportional marine, prapornonel ~b~~p~~ flnandal loss heait~ casualty awatlan and property reinsurance - reinsuranm Vansport relnwra~ce reinsurance R1 Techntul prowslons calculated as a whole Total Recoverables from reinsurance/spv and Firth Re after the R5 adjustment far expected losses due m mun[erparty default associated to TP <a l<ula[ed as a whole Techntul prowslons ulculatel as a sum of BE and RM Best estimate Premium prowslons R6 Grass Total recoverable from reinsurance/spv and Finite - --~ ft14 Re after the adjustment for expected losses due to.q coun[erparty default ft15 Net Bes[ Estlma[e of Premium ProWslom ~,1qg ~ " ~ Z49 Claims pronslons ft16 Gross 3t,B23 Total recoverable from reinsurance/spv and Finite ~~ R24 Re after the adjustment (or expected tosses due [ 4,339 counterarty Aefault ft25 Ne[ Best Estimate of Claims RoNslonz 17, ToWI best estimate -gross 31,59h ROt7 ToWI best estimate -net RO78 Risk margin _. 4,279, Amount of the vanslnonal on Technical ProWslons R29 Technical Provisions calculated as a whole ~~- p RO3 Best estimate R37 Risk margin -- ~ _ 3 2 1,823 4,339 7,x B,7J2 832 TxhNcal prowsions-total 36,826 36,826 Recovenbie from relnwnnce contracuspv and ~~ R33 Finite Re after the adjustment for ezp«led losses due to ~ 3,864 3,864 counterparty default - tagl ft34 Technical prowslons minus recoverables from relnsunnce/spv and Finite Re -total ~ 32,963 ;Z,g52

39 _ Non-Life insurance claims Total Non-life business _.. Accident year /underwriting year Underwriting Year Gross Claims Paid (non-cumulative) (abwlute amount) Year Development year In Current Sum of years &+ year (cumulative) Prior , , _ U , , , ,187 5,456 F _ r-~-- ~ - 1,233 5 z~ ,31. 2, , j _, ' Total 1,532 76,969{ Gross Undiscounted Best Estimate Claims Provisions (absolute amount) Year Development year P rior &~ 324 7, ,522 2,963 3,746 5,584 3,84 5,38 2,238 5,278 2,41 1,45 3,939 1,197 2,84 4, Year end (discounted data) 7, , 677 1,179 1,378-5,171 3,711 Total 27 R1 R16 R17 R18 R19 R2 R21 R22 R23 R24 R25 R26 R1 R16 R17 R18 R19 R2 R21 R22 R23 R24 R25 R26

40 Own Funds Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 215/35 R1 Ordinary share capital (gross of own shares) R3 Share premium account related to ordinary share capital R4 Initial funds, members' contributions or the equivalent basic own-fund item for mutual and mutual-type undertakings R5 Subordinated mutual member accounts R7 Surplus funds R9 Preference shares R11 Share premium account related to preference shares R13 Reconciliation reserve R14 Subordinated liabilities R16 An amount equal to the value of net deferred tax assets R18 Other own fund items approved by the supervisory authority as basic own funds rrot specified above R22 Own funds from the financial statements that should not be represented by the reconcitlation reserve and do not meet the criteria to be classified as Solvency II own funds R23 Deductions for participations in financial and credit Institutions R29 ToWI basic own funds after deductions Ancillary own funds R3 Unpaid and uncalled ordinary share capital callable on demand R31 Unpaid and uncalled initial funds, members' contri6utiom or the equivalent basic own fund item for mutual and mutual type undertakings, callable on demand R32 Unpaid and uncalled preference shares callable on demand R33 A legally binding commitment to subscribe and pay for subordinated liabilities on demand R34 Letters of credit and guarantees under Article 96(2) of the Directive 29/138/EC R35 Letters of credit and guarantees other than under Article 96(2) of the Directive 29/138/EC R36 Supplementary members calls under first subparagraph of Article 963) of the Directive 29/138/EC R37 Supplemenury members calls - other than under first subparagraph of Article 963) of the Directive 29/138/EC R39 Other ancillary own funds R4 Total ancillary own funds Available and eligible own funds RO5 Total available own funds to meet the SCR R51 Total available own funds to meet [he MCR R54 Total eligible own funds to meet the SCR RO55 Total eligible own funds to meet the MCR RO58 SCR R6 MCR R62 Ratio of Eligible own funds to SCR R64 Ratio of Etlgible own funds to MCR Reconcilliation reserve R7 Excess of assets over liabilities R71 Own shares (held directly and indirectly) R72 Foreseeable dividends, distributions and charges R73 Other basic own fund items R74 Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds R76 Recontiliatlon reserve Expected prorts R77 Expected profits included in future premiums ~EPIFP) -Life business R78 Expected profits included in future premiums (EPIFP) -Non- life busi~ss R79 Total Expected profits included in future premiums (EPIFP) Tier 7 Tier 7 Total Tier 2 Tier 3 unrestrietad restricted ,945 45, ,945 45,945 45,945 45,945 45,945 45,945 45,945 45,945 45,945 45,945 21,121 5, % ,945 45,945 n

41 Solvency Capital Requirement -for undertakings on Standard Formula R1 Market risk R2 Counterparty default risk R3 Life underwriting risk R4 Health underwriting risk R5 Non-life underwriting risk R6 Diversification R7 Intangible asset risk R1 Basic Solvency Capital Requirement Calculation of Solvency Capital Requirement R13 Operational risk R14 Loss-absorbing capacity of technical provisions R15 Loss-absorbing capacity of deferred taxes R16 Capital requirement for business operated in accordance with Art. 4 of Directive 23/41 /EC R2 Solvency Capital Requirement excluding capital add-on R21 Capital add-ons already set R22 Solvency capital requirement Other information on SCR R4 Capital requirement for duration-based equity risk sub-module R41 Total amount of Notional Solvency Capital Requirements for remaining part R42 Total amount of Notional Solvency Capital Requirements for ring fenced funds R43 Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios R44 Diversification effects due to RFF nscr aggregation for article 34 Gross solvency capital requirement USP Simplifications C11 C8 C9 1 1,817 2,67 ~ ;. 1 1,884 _6,229. ~.._.~.._. 2,143 C ,121 21,121

42 Minimum Capital Requirement -Only life or only non-life insurance or reinsurance activity Linear formula component for non-life insurance and reinsurance obligations R1 MCRN ~ Result C1 3,851 _ ~ i Net (of reinsurance/spv)best estimate and TP calculated as a whole Net (of reinsurance) written premiums in the last 12 months R2 Medical expense insurance and proportional reinsurance R3 Income protection insurance and proportional reinsurance R4 Workers compensation insurance and proportional reinsurance R5 Motor vehicle liability insurance and proportional reinsurance R6 Other motor insurance and proportional reinsurance R7 Marine, aviation and transport insurance and proportional reinsurance R8 Fire and other damage to property insurance and proportional reinsurance R9 General liability insurance and proportional reinsurance R1 Credit and suretyship insurance and proportional reinsurance R11 Legal expenses insurance and proportional reinsurance R12 Assistance and proportional reinsurance R13 Miscellaneous financial loss insurance and proportional reinsurance R14 Non-proportional health reinsurance R15 Non-proportional casualty reinsurance R16 Non-proportional marine, aviation and transport reinsurance R17 Non-proportional property reinsurance ---. _ 2 O C3 _- 28,732 6,83 O - Linear formula component for life insurance and reinsurance obligations R2 MCR~ Result 4 Net (of reinsurance/spv) best estimate and TP calculated as a whole Net (of~ reinsurance/spv) total capital at risk R21 Obligations with profit participation -guaranteed benefits R22 Obligations with profit participation -future discretionary benefits R23 Index-linked and unit-linked insurance obligations R24 Other life (re)insurance and health (re)insurance obligations R25 Total capital at risk for all life (re)insurance obligations._. 5 6 R3 R31 R32 R33 R34 R35 Overall MCR calculation Linear MCR SCR MCR cap MCR floor Combined MCR Absolute floor of the MCR 7 3,851 21,121 9,54 5,28 5,28 2,251 R4 Minimum Capital Requirement 8 52