Annual Report 2017 helvetia.com/fl. Helvetia Swiss Insurance Company in Liechtenstein Ltd

Transcription

1 Annual Report 2017 helvetia.com/fl Helvetia Swiss Insurance Company in Liechtenstein Ltd

2 Company Profile ( Helvetia Liechtenstein ) was founded in 2006 and is 100% owned by Helvetia Swiss Insurance Company Ltd, St. Gallen. The holding company, Helvetia Holding AG, with headquarters in St. Gallen, is a Swiss public limited company listed on SIX Swiss Exchange. Helvetia Liechtenstein is located at Herrengasse 11 in 9490 Vaduz, Principality of Liechtenstein. Helvetia Liechtenstein writes insurance business in the non-life sector in the following lines of business: Engineering, Transport and Art. It offers tailored direct and indirect specialty lines coverage and reinsurance mainly in Europe. As a licensed and registered insurer under the law of the Principality of Liechtenstein, it is possible to insure risks throughout the EU and European Economic Area (EEA) countries on the single-licence principle and in Switzerland. Furthermore, Helvetia Liechtenstein holds an Excess and Surplus lines licence in the USA to write property and casualty business as a foreign insurer. Helvetia Liechtenstein operates with a comprehensive function outsourcing contract». Key functions such as underwriting, claims, IT, investment, risk management and actuarial are centralized and executed by Helvetia Market Unit Specialty Lines Switzerland & International which is part of Helvetia Group. The management structure with cross-border, functional responsibilities is very efficient, facilitates rapid decision-making, enhances transparency and avoids duplication. Standard & Poor s confirmed the A rating with a stable outlook for Helvetia Liechtenstein in Furthermore, S&P regarded Helvetia Liechtenstein as highly strategic to the Helvetia Group, being a key part of the group s expansion strategy in specialty insurance lines in Europe in its Research Update

3 Content Company profile 2 Key figures 4 Management Report At a glance 8 Our strategy 9 Corporate governance 10 Board of Directors 10 Executive Management 12 Committees 13 Risk management 14 Statutory auditors 16 Business development 16 Financial statements 18 Balance sheet 18 Income statement 20 Notes to the financial statements 21 Auditors report 30 3

4 Key figures Key figures Business volume in EUR Gross written premiums Net earned premiums Key performance figures Claims for own accounts, incl. change in case reserves Acquisition and administrative expenses Investment result Net profit Key balance sheet figures Total assets Total investments Shareholders' equity Technical provisions Ratios Gross claims ratio current year 62.3% 47.4% Net combined ratio 90.9% 84.7% Business volume in 1000 EUR Equity in 1000 EUR Net profit in 1000 EUR / / / / / / 3.3 4

5 Key figures BUSINESS VOLUME +96.3% EUR 54.8 million In the 2017 financial year, Helvetia Liechtenstein generated a business volume of EUR 57.8 million, which corresponds to an increase of 96.3%. SHAREHOLDERS EQUITY +4.2% EUR 47.1 million The shareholders equity of Helvetia Liechtenstein amounts to EUR 47.1 million. NET COMBINED RATIO 90.9% +6.2% points In the 2017 financial year, Helvetia Liechtenstein achieved a net combined ratio of 90.9% following a higher claims development compared to the previous year. Financial year 2017 S&P Rating A Standard & Poor s confirmed the A rating in Helvetia Liechtenstein is considered to be highly important to Helvetia Group. PROFIT 42.7% EUR 1.9 million In the 2017 financial year, Helvetia Liechtenstein generated a profit of EUR 1.9 million, a decrease of EUR 1.4 million compared to the previous year due to higher claims expenses. 5

6 Management Report 2017 Management Report 2017 The insurance year 2017 was dominated by natural catastrophe events Harvey, Irma and Maria. In turn, the industry benefited from good capital market performances around the globe. Particularly equity investments developed above expectations while fixed-interest assets continued to show limited performance due to the continuing low-interest environment. The low-interest environment also resulted in fewer infrastructure projects and government investments which impacts our ELS business as competition increases for new projects and rates continue to soften. Despite a challenging environment, 2017 was very successful for Helvetia Liechtenstein as the business volume was significantly increased. Gross written premiums amounted to EUR 54.8m compared to 27.9m in The line of business Engineering contributed significantly to the premium growth, primarily due to the newly acquired Excess and Surplus Lines licence in the USA with the possibility of writing insurance in the USA as a foreign insurer. The line of business Marine more than doubled the premium volume due to significant growth of business from a few key accounts and the close cooperation with underwriter agencies. The line of business Art again generated a stable premium volume on a small portfolio in a competitive market environment. Furthermore, in 2017 we implemented a new back-office sub-system for reinsurance administration. Simultaneously, the system change required a change in the accounting of insurance premiums from booked premiums to gross written premiums. This change resulted in a positive one-time effect of EUR 15.4m related to reported gross written premium volume. The claims burden in 2017 was higher than in the prior year with a few large losses across all lines of business. Furthermore, we were affected by natural catastrophes (hurricanes Harvey, Irma and Maria) with a total net impact of EUR 0.7m. Therefore, the gross loss ratio of 62.3% for the business year 2017 was considerably higher than prior year s gross loss ratio of 50.6%. Favorable prior year claims development of EUR 0.4m as well as effective reinsurance protection helped to achieve a net claims ratio of 60.5% (52.9% in 2016). Due to significantly higher premium volume, business acquisition costs increased to EUR 9.3m (EUR 3.4m in the previous year) whereas net recoveries from reinsurance commissions increased from EUR 1.2m in the previous year to EUR 3.1m in Administration costs increased slightly to EUR 3.9m (EUR 3.4m in 2016) in line with the cost allocations according to the outsourcing contract with the parent company. The net cost ratio increased slightly to 27.6% (26.8% in the previous year) mainly due to higher reinsurance premiums. The net technical result from underwriting business amounts to a favourable EUR 2.7m (EUR 2.4m in 2016), with a combined ratio of 90.9% (84.7% in the previous year). The reported investment result amounts to EUR 0.4m in a challenging investment environment characterized by a low-interest environment. Helvetia Liechtenstein only invested in corporate and government bonds and therefore did not benefit from the good performances on the capital markets for equity products. Furthermore, foreign currency exchange rates made a negative contribution of EUR 1.4m to HFL s net result of EUR 1.9m (EUR 3.3m in the previous year) following the strengthening of the euro versus USD and CHF. 6

7 Management Report 2017 In 2017 Standard & Poor s confirmed Helvetia Liechtenstein s A rating with a stable outlook. Helvetia Liechtenstein is considered to be highly important to the Helvetia Group. Under the Solvency II regime, the company is very comfortably capitalized with a Solvency II coverage ratio of 231% as at June Based on the result of the Solvency calculation as at and the forward-looking projection, Helvetia Liechtenstein is considered to be funded on a solid capital base. For the 2018 outlook and comparing premiums without the one-time effect in 2017, we expect premium growth in all three lines of business, especially in the Engineering line with further growth of American business. The Board of Directors and the Executive Committee are pleased with the 2017 results, particularly given the significant natural catastrophes in the second half of the year. We would like to thank all employees for their contribution to this result. Vaduz, 19 March 2018 Martin Gingg, CEO David Ribeaud, President On behalf of the board of directors David Ribeaud, President of Board of Directors; Martin Gingg, Chief Executive Officer 7

8 At a glance At a glance Our markets / segments Helvetia Liechtenstein is part of the specialty line segment of the Helvetia Group and operates under the freedom of services agreement (FOS). The FOS agreement is one of the fundamental principles of the EEA Agreement. It allows a service provider to offer its services in any EEA member state. Under the FOS agreement, Helvetia Liechtenstein offers direct and indirect reinsurance in the European country markets. In 2016 Helvetia Liechtenstein was granted the Excess & Surplus Lines licence authority in the USA. This licence stands for property and casualty business with the possibility of writing insurance in the USA as a foreign insurer. Our services / product portfolio We provide pan-european solutions for customers and brokers. Respective compliance and correct tax payment are granted through Helvetia Liechtenstein. We write business in three lines of businesses: Engineering, Marine Transport and Art. The Specialty line Engineering comprises all types of construction projects ranging from traditional civil construction projects through to complex infrastructure projects including tunnelling. It comprises insurance coverage for electronic, telecommunication and mechanical erection projects. Furthermore, we specialize in mechanical breakdowns cover for all types of machinery and equipment including gas turbines for the power and aviation industries, as well as operational insurance coverage including business interruption for certain industries where the main risk exposures are centred around mechanical failure. Within the Specialty Line Marine, we underwrite mainly cargo (goods in transit/stock, project cargo and international cargo facultative reinsurance), cargo liability (carriers, freight forwarders, storekeepers) and specie (securities, species, watches/jewellery, jewellers block). The main focus of the Specialty Line Art main focus is primary insurance of collections owned by wealthy individuals, companies, museums and foundations. We also diversify our portfolio with art exhibitions, art fairs, and art storage risks. Insured artworks range from fine art (paintings and sculptures, photographs and prints) to decorative arts (e.g. furniture, porcelain and ceramics) as well as collectable objects. Our sales channels / our partners We work closely together with specialized underwriting agencies and brokers. Our brokers are located in Europe, mainly London. Our underwriting agencies are located in Germany and Belgium. Through these sales channels we offer tailor-made insurance products for the lines of business Engineering, Marine Transport and Art lines of business. 8

9 At a glance Overview of sales channels by line of business LoBs Own field sale force Agents Brokers Partners Direct sales / new media Engineering Marine Art Our customers Depending on the lines of business, our customers are larger corporations in the industry sectors, small and medium-sized companies, as well as forwarding agents, hauliers, manufacturers and all other companies producing, trading or transporting goods. Our strategy Helvetia Liechtenstein is aligned with the Helvetia Group and the Specialty Lines Switzerland & International strategy. With the helvetia strategy our ambition is to become more digital and more agile. Furthermore, we will place an even greater emphasis on our customers and concentrate our efforts on customer centricity. As our customers are becoming more demanding and requesting tailor-made products, these are to be delivered through our sales channels increasingly in new ways. We are modernizing the way we interact with our customers over a variety of channels, incorporating our partners more closely into our systems. We are also increasing our use of smart data, which helps us to further tailor our market services and determine risks more precisely. In addition, we are increasingly automating our processes. Overall, we will become more customer-focused, digital and agile. In implementing the helvetia strategy, Helvetia Liechtenstein will make use of the Helvetia Group s strong brand name and expanding Helvetia s position as a selective niche provider of specialty lines in Europe as well as in select markets globally. We aim to increase our profit contribution to the Helvetia Group. In order to achieve our ambitions, we aim to grow profitable in selected niches and markets. We therefore pursue a selective, international forward strategy. At the core of our strategy is our disciplined underwriting philosophy and portfolio management, which provides the foundations together with our sophisticated pricing capabilities. We continue to invest in the future in smart data analytics, to continuously improve our underwriting quality and maximize our profitability. 9

10 Corporate governance Corporate governance Board of Directors Helvetia Liechtenstein s Board of Directors has four members: Board of Directors David Ribeaud / Chairman Member of BoD Ralph Jeitziner Member of BoD Dr. Gerold Hoop Member of BoD Bruno Rohner David Ribeaud President, CEO of Helvetia Market Unit Specialty Lines Switzerland & International, Member of Helvetia Group Executive Board, Dipl. natural sciences ETH Zurich, actuary SAV Swiss, Zurich, 1970 Professional background: Joined Swiss Re in 1995, latterly worked as Senior Underwriter Property & Casualty; 2001 moved to Zurich Global Corporate Switzerland as actuary head; 2005 Chief Pricing Actuary Europe General Insurance; Chief Underwriting Officer at Zurich, Italy; 2012 joined executive management at Nationale Suisse as Head of Customer Service & Non-Life Switzerland and from 2013 as Head of Specialty Lines & Foreign Countries; since 1 January 2015 Member of Group Executive Management in current position. Ralph Jeitziner (Head of Sales Switzerland, Member of Helvetia Group Executive Board) Swiss Federal Diploma in Insurance and Social Security Specialist, Swiss citizen, Liestal, 1965 Professional background: Basler Versicherungen: various functions at the head office and agencies; Coop Life / Coop Versicherungen AG, Basel: Head of Sales Switzerland Member of the Executive Management, Head of Marketing & Sales. Nationale Suisse: Member of the Extended Executive Management Switzerland, Head of Market Region Mittelland; 2005 Member of the Executive Management; Head of Customer Service Non-Life & Sales; Head of Multi-Channel Sales Switzerland; 2015 joined Helvetia Insurance: Member of the Executive Management of Helvetia Switzerland; Head of Sales Switzerland; Member of the Executive Management in his current role since 1 January

11 Corporate Governance Bruno Rohner (Head Operations of Helvetia Specialty Lines Switzerland & International), Weinfelden, 1958 Professional background: Joined Winterthur Insurance in 1983 and, works as business developer on different projects at Head Office in Switzerland and at Winterthur s subsidiaries in Spain, Austria, Italy, Portugal and Belgium. In 2007 moved to Baloise Insurance Company (Switzerland) responsible for a company-wide organizational restructuring programme. He joined National Suisse as Business Project Leader for an overall IT renovation programme in Since 2015 in his current function as Head Operations for the Market Unit Specialty Lines Switzerland & International. Studied economics at University of Applied Sciences of St. Gallen, holds an EMBA from the University of Applied Sciences of Chur and a MAS in Applied Ethics from the University of Zurich. Dr. Gerold Hoop (Lawyer, Rechtsanwälte Hoop & Hoop, Vaduz) Eschen, 1959 Professional background: Self-employed attorney in Liechtenstein, principally in areas of commercial, banking, insurance, company and trust law since 1999; 1982 Diploma in Engineering at Interstaatliche Hochschule für Technik Buchs NTB, Switzerland Doctorate of Law at the University of Innsbruck, Austria; 1994 Attorney s examination, admission to the Liechtenstein Bar; Several years of experience in the area of commercial and company law as well as civil and tax law. Board of Directors, from left to right: Ralph Jeitziner, David Ribeaud, Bruno Rohner (not visible: Dr. Gerold Hoop) 11

12 Corporate governance Executive Management The Executive Management comprised the following people during the year under review: Executive Management Martin Gingg / CEO Head Engineering Oscar Treceno Head Marine & Art Pascal Barbato Head Claims Cyril Cossé Martin Gingg (CEO Helvetia Liechtenstein & CFO Specialty Lines Switzerland & International), Swiss Certified Public Accountant, Member of the Swiss Institute of Certified Accountants and Tax Expert, Swiss citizen, 1973 Professional background: Finance professional with focus on insurance, joined Nationale Suisse in 2011 as CFO for the Swiss Non-Life business and later for Specialty Lines Switzerland & International. Prior to 2011, Executive Director responsible for Ernst & Young s Insurance Center of Excellence and between Director at PWC US financial services insurance practice in Chicago, IL. Prior to 2003 financial service auditor at PWC Switzerland. Cyril Cossé (Head Claims), Msc. Civil Eng, Associate in Risk Management, INSEAD MBA, French citizen, 1968 Professional background: Civil engineer involved in the design and construction of large infrastructure in Asia and LatAm. Joined Guardian Insurance in 1996 in Hong Kong then Singapore as Regional Risk and Engineering Claims Manager; in 2000 moved to GAB Robins Loss Adjusters as Regional Director Engineering Asia. In 2012 joined Infrassure in Zurich as Construction Underwriting & Claims Manager; Head of Accumulations and Capital Adequacy. In 2016 joined Helvetia Specialty Lines Switzerland and International as Head of Product Management and Claims. Pascal Barbato (Head Marine & Art), Italian citizen, 1968 Professional background: Insurance specialist with federal diploma, joined Helvetia in Different positions including Head Private and Corporate Customers, Head Sale Support, Head Marine Switzerland, Head Marine Europe and currently Head Marine Switzerland and International. Since 2013 also Head Art Switzerland & International. Oscar Treceno (Head Engineering), Chairman of IMIA Executive Committee, Spanish/French citizen, 1965 Professional background: Civil Engineer with diploma from the Swiss Federal Institute of Technology (ETH) Lausanne; joined Nationale Suisse and Helvetia in From Head of Group Product Management Engineering at SwissRe. Prior to 1993 Project engineering for tunnel construction and airport infrastructure development. 12

13 Corporate Governance Committees Helvetia Liechtenstein as such does not have any specific committees. Rather, committees are set up for Market Unit Specialty Lines Switzerland & International, which discuss strategic decisions to be taken with respect to Helvetia Liechtenstein. Investment Committee The members of the Investment Committee of Helvetia Market Unit Specialty Lines Switzerland & International oversee the implementation of the investment strategy on a tactical level based on liquidity planning, ALM (annual rollover), balance sheet management and external operating conditions (Group Investment Guidelines, Investment Regulations). The aim is to make decisions by consensus; however, Helvetia Liechtenstein is ultimately responsible for the investment made for Helvetia Liechtenstein. The assessment of current capital market risks (equities, interest rates, counterparties) and risk tolerance regarding the allocation (impact the risk limit and own funds) of Helvetia Liechtenstein is managed by the Investment Committee. They are incorporated directly into the investment tactics. The Investment Committee members are the Head and at least two further members of Group Investments Team Portfolio Strategy & Risk Management as well as the CEO, Head Finance, Head Risk Management; Head Reporting & Technical Accounting and the local Actuary of Helvetia Liechtenstein. Risk Management Committee The Executive Management directly assumes the function of the Risk Management Committee and ensures the appropriate development and effectiveness of the Integrated Risk & Capital Management System. The Executive Management has appropriate interaction with the Board of Directors of Helvetia Liechtenstein. The risk strategy is defined by the Board of Directors of Helvetia Liechtenstein. The Head Risk Management attends all Executive Management meetings and supports and advises the Executive Management in respect of all risk and capital management subjects. Furthermore, the Actuary, Internal Audit and Compliance representatives also attend the meetings to discuss specific items on the agenda. Reserving and Virtuous Circle Committees The Reserving Committee ensures the reserves included in the local and IFRS closings as at June and December are set in accordance with all relevant accounting guidelines and available information. The Committee ensures consistency between local and IFRS closings and Virtuous Circle recommendations. Furthermore, local fiscal and capital requirements are considered as required in accordance with internal guidelines and local laws and regulations. The members of the Reserving Committee are the Head Finance, Chief Underwriting Officer (Group), Head Claims, Head Controlling, the Reserving Actuary, and the Group Reserving Actuary. The Virtuous Circle Committee monitors and assesses the technical performance of the relevant businesses and steers the delivered forecasts and plans accordingly. The Committee also ensures the consistency of reserving, pricing and portfolio management assumptions as appropriate. The members are the Head Finance, Chief Underwriting Officer (Group), Head Claims, Line of Business Heads, and the Reserving Actuary. 13

14 Risk management Risk management The Integrated Risk Management ensures that all material risks are identified, collected, evaluated, controlled, managed and monitored appropriately. The risks are managed in accordance with the requirements of the relevant stakeholders, as are the concepts and methods of risk identification, management and analysis. Risk management organisation The organisational structure of Helvetia Liechtenstein ensures standardised application of the Groupwide Risk Management Standard. As a result, the roles and responsibilities in the Business Units comply with the Risk Management Organisation of the Group. This is based on a governance model that differentiates between the three basic roles of Risk Owner, Risk Observer and Risk Taker. Risk Management is responsible for the improvement and development of the Risk Management System as well as for monitoring risks and controlling measures. It is supported by specialized Risk Controlling Functions, such as the Actuarial Non-life and Compliance. A clearly regulated and documented segregation of operational Risk Controlling activities and a close connection to Group Risk Management enables a lean and effective form of risk monitoring. The Internal Auditor independently monitors the efficiency of the Risk Management System. While the Risk Controlling Functions are responsible for the ongoing monitoring of the Group s Risk Management System, the Internal Audit Unit monitors the effectiveness, appropriateness and efficiency of the risk management measures based on a periodic and risk-based testing schedule and identifies weaknesses. The Risk Takers control and manage risks in an operational context. They are responsible for risk management in the different business areas and processes. Risk Management Organization Risk Owner Board of Directors Investment and Risk, Audit, Strategy & Governance Committees) Executive Management Risk Observer Risik Committees Risik Management Specialised Risk Controlling Functions (e.g. Group Actuarial Departments Life / Non-Life, Asset Management) Internal Audit Risk Taker Risik Management in the Company Units and Processes 14

15 Risk management Risk management process and risk environment The risk management process includes all activities related to the systematic assessment of risks at Helvetia. The essential components of this process include the identification, analysis and management of risks, the operational monitoring of the success of the risk management measures, the monitoring of the efficiency and appropriateness of the risk management measures, and reporting and communication. The risk management process ensures that sufficient risk-bearing capital is available at any time to cover the risks assumed in accordance with the chosen risk tolerance. The numerous risks to which Helvetia Liechtenstein is exposed in its business activities are included in the risk management process. Market risks arise, in particular, from interest rate changes, fluctuations in share prices, real estate prices, or exchange rates that influence the value of the company s investments and technical liabilities. Liquidity risk generally refers to the possibility of being unable to provide an unexpected cash outflow in a timely manner. Counterparty or credit risk is when a contractual counterparty is unable to pay or there is a change in the counterparty s creditworthiness. The technical risks of life and non-life belong to the traditional risks of an insurance company and are consciously accepted as part of the chosen business strategy. Operational risk represents the risk of losses due to errors or the failure of internal processes, employees or systems, or as a result of external events, whereby the impact of reputational risks is also taken into consideration. Reputational risks can also arise in connection with strategic and emerging risks. Strategic risks include not achieving business targets due to the inadequate alignment of a company s business activities to the market and in the market environment. Emergent risks are risks that have not yet emerged as actual risks, but are already in existence and have a high potential for large claims. Concentration risks (also known as cluster risks) can arise from risk exposure to a single counterparty or from parallel risk positions that are vulnerable to a mutual risk factor. Risk Environment Market risks Liquidity risks Counterparty risks Technical risks Operational risks Strategic risks Emerging risks Share price risk Interest-rate risk Spread risk Exchange rate risk Real estate investment risk Long-term liquidity risks Medium-term Short-term Reinsurance Investments Other receivables Life (mortality, longevity, surrender rates, disability, costs, exercising of options) Non-life (natural hazards, major claims, base volatility, reserve risk) Financial reporting Business operations (e.g. with regard to outsourcing, BCM) Compliance Business model Fundamental business policy decisions Now and qualitatively different risks Phantom risks Other Reputational risks Concentration risks 15

16 Business development Business development Business volume 2017 (EUR m) Total Engineering Marine Art Net Combined 90.9% 74.2% 105.9% 110.2% Ratio Engineering For Engineering, in 2017 we observed a strong development of our portfolio mainly based on the strategy we deployed around our Excess & Surplus lines licence in the US market. In addition, we also benefited from the positive impact (one-off) of the change in accounting to the Gross Written Premium (GWP) approach. The extraordinary effects from the US hurricane season that significantly affected the entire industry have had only limited effects on our portfolio. For 2018 we intend to take advantage of the modest rebound in insurance conditions following the required correction due to those severe natural catastrophe losses and over-capacity (soft market) experienced in recent years. We also envisage a positive development due to the new large investments programme to be conducted in the USA to update deteriorating local infrastructures. A rebound of the world economy, including in Europe, should also support modest growth by generating more potential transactions. Cyber issues will be very high on our agenda in We have developed a new product to offer cyber coverages to our clients. We are also assessing the increased exposure contained in old existing policies (silent risk). To offer a separate solution gives clarity and higher transparency to the coverage the client purchase. Our approach of separating the exposure embedded in old policies and assessing this new risk separately should provide a more transparent and better solution for our clients. Based on the above and following recent years of over-capacity in the markets, our strategy will continue to deploy our expertise in a disciplined underwriting manner aiming to serve our clients based in an adequate long-term view. Marine & Art Despite the soft market the premium volume for Marine doubled in 2017 thanks to the excellent development of several cooperations with underwriting agencies, large key accounts and European freedom of service policies for Swiss customers. Also in Art premium growth was achieved in For 2018 we cautiously anticipate growth in Marine & Art but at a lower pace. 16

17 Geschäftstätigkeit und Leistung Claims As more business is channelled via Liechtenstein, the number of claims remained very stable year on year. Over the same period, the claims burden increased by EUR 12.1m to EUR 24.7m at year-end. This increase was essentially driven by a few large losses impacting the portfolio. Claims on the ELS portfolio decreased over the period although reserves increased by over EUR 6.3m. The majority of this increase was due to a single large loss incurred in Italy. A total of 9 claims were reported on hurricanes Harvey and Irma with combined reserves of EUR 4.7m. The increase in the claim burden on the Marine portfolio is closely proportional to the increase in the volume of business written in this book. Most marine cargo claims forming part of the reserves are declared on a bordereau basis and notified with a time lag. Overall the claim portfolio evolved as expected. Statutory auditors The auditors KPMG (Liechtenstein) AG, Schaan have served as the auditors of Helvetia Swiss Insurance Company in Liechtenstein AG since The statutory auditors term of office must be renewed by the Shareholders Meeting every year. Lars Klossack is acting as the auditor in charge. 17

18 Financial statements Financial statements Balance sheet Assets in EUR Notes A. Financial assets I. Other investments 1. Fixed-interest securities Other loans B. Other receivables I. Receivables on direct insurance business 1. from policy holders II. Receivables on reinsurance business 1. from affiliated companies III. Miscellaneous receivables 1. from affiliated companies from other debtors C. Other assets I. Cash at bank and post office D. Accruals I. Accrued interest II. Other accruals Total assets

19 Financial statements Equity and liabilities in EUR Notes E. Shareholders equity I. Called up capital 1. Capital subscribed II. Organizational fund III. Capital reserve IV. Revenue reserves 1. Legal reserves V. Profit brought forward VI. Profit for the year F. Technical provisions I. Unearned premiums 1. Gross amount less reinsurers share II. Provision for outstanding claims 1. Gross amount less reinsurers share III. Provisions for premium refunds G. Other liabilities I. Liabilities arising from direct insurance business 1. due to other creditors II. Liabilities arising from reinsurance business 1. due to affiliated companies due to other creditors 268 II. Miscellaneous liabilities 1. due to affiliated companies Tax liabilities H. Accrued expenses Total equity and liabilities

20 Financial statements Income statement I. Technical account in EUR Notes Net earned premiums a) Gross written premiums b) Reinsurance premiums ceded c) Gross change in unearned premiums d) Change in unearned premiums of reinsurance Claims for own accounts a) Paid claims aa) Paid claims and benefits (gross) bb) Reinsurers' share of paid claims b) Change in case reserve for pending claims aa) Change in technical reserves (gross) bb) Change of reinsurers' share in technical reserves Expenses for premium refunds Operating expense for own account a) Acquisition costs b) Operating and administrative expenses c) Commission received on retroceded business d) Other operating expenses for own account Net underwriting result II. Non-technical account in EUR Notes Net underwriting result Investment income a) Income from other investments b) Income from reversal of impairments Investment expenses a) Investment management fees and interest payments b) Realized losses on the disposal of investments Other operating income Other operating expenses Profit on ordinary activities Income taxes Other taxes Profit for the year

21 Notes to the financial statements Notes to the financial statements 1. Significant accounting policies 1.1 Basis of preparation The financial statements of ( Helvetia Liechtenstein ) have been prepared in accordance with the Liechtenstein Persons and Companies Act (PGR), the Insurance Regulation Act (VersAG) and the related Insurance Regulatory Decree (VersAV). 1.2 Currency translation The reporting currency of Helvetia Liechtenstein is the EURO (EUR). Transactions are generally recorded in the original currency and converted into EUR at the relevant daily rate. Assets and liabilities denominated in foreign currency are converted into EUR at the exchange rate at the balance sheet date considering the lower of cost or market value principle with respect to long-term items. The following exchange rates are used. Exchange rate at reporting date CHF USD GBP Annual average CHF USD GBP Revenues and expenses that are denominated in a foreign currency are translated at the average rates of exchange for the period. 1.3 Investments Fixed-interest securities such as bonds are stated at amortized cost less impairment losses. Other financial assets such as funds and deriviatives are recognised at lower of cost or market. For the year ended Helvetia Liechtenstein only held corporate and government bonds in its portfolio. 1.4 Receivables Receivables are stated at nominal value less impairment losses. For past due receivables a provision for doubtful accounts is calculated at 1% for receivables shorter than 90 days, 2% between 91 and 180 days, 6% between 181 and 360 days and 100% older than 1 year. 21

22 Notes to the financial statements 1.5 Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short-term liquid investments with a maturity of not more than three months from the date of acquisition. 1.6 Technical provisions Provisions are recognised for all claims incurred by the end of the accounting period. They also include provisions for claims incurred but not yet reported. Actuarial methods that take account of uncertainties are applied to determine the amount of the provisions. Estimates of provisions and related assumptions are period ically reviewed. Changes in valuation are recognized at the date of the change. 1.7 Taxes Current tax expense is charged or credited in the income statement based upon amounts payable or recoverable as a result of taxable income or loss for its operations in the current period. 1.8 Premiums Written Premiums are recognised upon inception of the policy. Any subsequent adjustments to written premiums are recognised in the period in which they are determined. Where the company has written policies which are greater than one year in duration and the premium is payable in annual installments, the total premium under the policy is recognized as written premium at the policy inception date and earned as noted below. Where there is a long-term agreement in place and policies are subject to annual renewal and re-signing, these policies will be recognised as written premium when the policy is renewed. Pipeline Premiums If premiums are subject to adjustment and the ultimate premium is reasonably estimable, the estimated ultimate premium shall be recognised as revenue over the period of the contract. If the amount of the ultimate premium is not known by the balance sheet date for a contract active during the balance sheet period, because a final premium calculation will take place at a future date (for example, contracts with profit participation), an estimate of the pipeline premium must be made. The earned or unearned premium deduced from the estimated pipeline premium must be capitalised in cases where an additional payment from the policyholder is projected or placed in reserve for an expected refund. Earned Premiums Premiums are earned as income over the period of the contract in proportion to the level of protection provided. Reinsurance Premiums Ceded reinsurance premiums are recognised in the same accounting period as the related insurance. Reinsurance premiums ceded are expensed over the period under which the coverage is provided. For contracts written on a loss occurring during basis, the reinsurance premiums are earned on a pro rata basis over the term of the contract. For contracts written on a risk attaching basis, the reinsurance premiums are earned on the terms of the underlying contracts. 22

23 Notes to the financial statements Analysis of change of accounting method The following tables show the effect of the change of accounting method in the financial year 2017 moving from a gross booked premium perspective to a gross written premium perspective. The change results in a one-time effect related to pipeline premium of current and previous periods. Income statement Technical account With one-time effect Elemination one-time effect Without one-time effect 1. Net earned premiums a) Gross written premiums b) Reinsurance premiums ceded c) Gross change in unearned premiums d) Change in unearned premiums of reinsurance Claims for own accounts Expenses for premium refunds Operating expense for own account a) Acquisition costs b) Operating and administrative expenses c) Commission received on retroceded business d) Other operating expenses for own account Net underwriting result Non-technical account 1. Net underwriting result Investment income Investment expenses Other operating income Other operating expenses Profit in ordinary activities Income taxes Profit for the year Balance sheet A. Financial assets B. Other receivables C. Other assets D. Accruals E. Shareholders' equity F. Technical provisions I. Unearned premiums 1. Gross amount less reinsurers share II. Provision for outstanding claims 1. Gross amount less reinsurers share III. Provisions for premium refunds G. Other liabilities H. Accrued expenses

24 Notes to the financial statements 2. Supplementary information on balance sheet items 2.1 Other investments The fair value of the fixed-interest securities amounts to EUR 57.3m. For the years ended and respectively, financial assets have been allocated as follows: in EUR Fixed-interest securities Other loans Total other investments Other loans of TEUR 4,599 relate to a required security deposit for the Excess & Surplus Lines authority in the USA. 2.2 Other receivables, receivables on direct insurance business, receivables on reinsurance business For the years ended and respectively, receivables consist of: in EUR Due from policyholders Co-insurance Due from reinsurance from affiliated companies Miscellaneous receivables Total other receivables Miscellaneous receivables relate to TEUR 762 due from Helvetia Swiss Insurance Company Ltd., St. Gallen and TEUR 72 due from other debtors. Analysis of past due receivables in EUR not due < 90 days days days > 1 year Total Total past due receivables The analysis of past-due receivables contains all past-due receivables that were not impaired. A provision for doubtful accounts receivable of total TEUR 613 has been recorded for the reporting year 2017 (previous year: TEUR 238). 24

25 Notes to the financial statements 2.3 Other accruals in EUR Accrued interest Prepaid expenses Pipeline premiums Total other accruals Shareholders equity The subscribed capital of TEUR 3,000 (TCHF 5,000) is split into 5,000 shares with a nominal value of each TCHF 1. The shareholders equity developed as follows: in EUR Capital subscribed Organizational fund Capital reserve Legal reserves Profit brought forward Total shareholders capital Opening balance Capital increase Profit of the year Closing balance Proposed appropriation of retained earnings Taking into account a profit brought forward from previous years of TEUR 20,614 retained earnings for appropriation are as follows: in EUR 2017 Profit brought forward Profit for the year Retained earnings The Board of Directors proposes to the general assembly that the retained earnings be carried forward to the 2018 balance sheet. 25

26 Notes to the financial statements 2.5.Technical provisions, unearned premiums and provisions for outstanding claims For the years ended and respectively, technical provisions according to actuarial calculations consist of: in EUR Gross Reinsurance assets Net Loss reserves Provisions for policyholder dividends Unearned premium reserve Deferred acquisition costs Unearned premiums reserve incl. deferred acquisition costs Total technical provisions Reinsurers share of technical provisions relate to liabilities against Helvetia Swiss Insurance Ltd, St. Gallen Other liabilities, liabilities arising from reinsurance business, miscellaneous liabilities For the years ended and respectively, other liabilities consist of: in EUR Insurance companies Tax authorities Affiliated companies Total other liabilities Liabilities against affiliated companies relate to normal business transactions, especially to the outsourcing contract with Helvetia Swiss Insurance Company Ltd, St. Gallen. All liabilities have remaining terms of less than one year. 26

27 Notes to the financial statements 3. Supplementary information on income statement items 3.1 Gross written premiums Gross written premiums amount to TEUR 54,759 (Previous Year EUR 27,891) and relate to signed insurance policies in the lines of Business Engineering, Marine and Art. 3.2 Acquisition costs Acquisition costs amount to TEUR 9,329 (Previous Year TEUR 3,361) while the reinsurers share of acquisition costs amounts to TEUR 3,122 (Previous Year TEUR 1,170) Other income and Other expense The foreign exchange results in the income statement are included in Other operating income and Other operating expense and show a loss in reporting year 2017 of TEUR 392, (previous year: profit of TEUR 619). The foreign exchange loss from financial investments is included in Other operating expense and amounts to a loss of TEUR 520 (previous year: profit of TEUR 160). 4. Supplementary information on lines of business 4.1 Appendix to Insurance Supervision Ordinance (VersAV) Art. 29 lit. a in EUR Ship-, Goods in transit insurance Fire and natural forces and other insurances Direct Indirect Direct Indirect Total Gross written premium Gross earned premium Claims for own accounts Gross acquisition and administration costs Reinsurance balance This note has been published according to VersAV Art. 29 lit. a. The assumed reinsurance only relates to facultative reinsurance for individual risks. 4.2 Insurance Supervision Ordinance (VersAV) Art. 29 lit. c Gross written premiums of TEUR 32,138 in the lines of business Technical-, Fire and Transport insurance have been written in member states of the European Economic Area (EEA), TEUR 22,621 in other countries. 27

28 Notes to the financial statements 5. Reinsurance The company is reinsured by the parent company. The line of business Engineering is protected by an Engineering surplus cover of CHF 60 million capacity. Furthermore, there is an Engineering Facultative Facility in place to increase the surplus capacity by another CHF 20 million. In addition, for the same line of business there are two excess of loss covers in place to protect the company against large losses and catastrophe events. All Engineering covers except for the Engineering Cat XL are setup on a risks attaching (underwriting year) basis. The Engineering Cat XL is set up on a loss-occurring basis and therefore covering previous underwriting years. Maximum reinsurance capacity for Engineering amounts to CHF 80 million. The line of business Marine & Art is protected by two Excess of Loss covers. Maximum reinsurance capacity for Marine is CHF 60 million and for Art CHF million. Helvetia Liechtenstein s exposure is limited to CHF 0.5 million for each claim under the above described reinsurance structure. In addition, the company is protected by a stop-loss reinsurance contract covering all lines of business with the intent to protect the company s own capital. The stop-loss contract in force covers 40% in excess of 90% of the net earned premium. 6. Remuneration of the Board of Directors and Executive Committee Members of the Board of Directors have been compensated in the financial year 2017 with total TEUR 10 (previous year TEUR 11). Members of the Executive Committee were compensated by other Helvetia companies. 28

29 Notes to the financial statements 7. Transactions with affiliated companies in EUR Parent company Other affiliated companies Reinsurance Management services of the Helvetia Group 253 Administrative expenses according to outsourcing contract Helvetia Liechtenstein operates with a comprehensive function outsourcing contract. Key functions such as underwriting, claims, IT, investment, risk management and actuarial are centralized and employed by Helvetia Market Unit Specialty Lines Switzerland & International. Except transactions with the parent company, the company has no other transactions with affiliated companies. 8. Parent company is wholly owned by Helvetia Swiss Insurance Company Ltd, St. Gallen. The consolidated financial statements are available under has an outsourcing agreement with its parent company. Costs are reimbursed accordingly. 9. Events after the reporting date No important events occurred before or on 19 March 2018 the date on which the financial statements were completed, that are likely to have a material impact on the financial statements as a whole. 29

30 Auditors report Auditor s report KPMG (Liechtenstein) AG Landstrasse 99 Telephone Internet LI-9494 Schaan Fax HR Nr. FL Report of the Statutory Auditor on the Financial Statements to the General Meeting of Shareholders of As statutory auditor, we have audited the financial statements (balance sheet, income statement and notes) and the management report (page 6 to 7) of Helvetia Swiss Insurance Company in Liechtenstein Ltd for the year ended 31 December These financial statements and the management report are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Liechtenstein profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements and the management report are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of the financial position and the results of operations in accordance with Liechtenstein law. Furthermore, the financial statements, the management report and the proposed appropriation of available earnings comply with Liechtenstein law and the company's articles of incorporation. The management report is consistent with the financial statements. In our opinion, the management report does not include material misleading information. We recommend that the financial statements submitted to you be approved. KPMG (Liechtenstein) AG Lars Klossack Chartered Accountant Auditor in Charge Denise Hämmerle Chartered Accountant Schaan, 19 March 2018 KPMG (Liechtenstein) AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. Member of EXPERTsuisse 30