Chubb Insurance (Switzerland) Limited Zürich Report of the statutory auditor to the General Meeting on the financial statements 2017
Report of the statutory auditor to the General Meeting of Chubb Insurance (Switzerland) Limited Zürich Report of the statutory auditor on the financial statements As statutory auditor, we have audited the accompanying financial statements of Chubb Insurance (Switzerland) Limited, which comprise the balance sheet, income statement and notes, for the year ended 31 December 2017. Board of Directors responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2017 comply with Swiss law and the company s articles of incorporation. PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.
Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Philip ip Kirkpatrick ick Audit expert Auditor in charge Nicolas Juillerat lera Audit expert Zürich, 18 April 2017 Enclosures: Financial statements (balance sheet, income statement and notes) Proposed appropriation of the available earnings 3
Swiss Statutory 31.12.2017 31.12.2016 BALANCE SHEET Notes Assets Investments 285.3 286.5 - Fixed maturities 1 256.3 259.9 - Other investments 2 29.0 26.6 Deposits on ceded reinsurance business 0.9 3.5 Cash and cash equivalents 3 8.1 31.9 Reinsurers' share of technical provisions 167.3 179.7 - Reinsurance recoverable on losses and loss expenses 4 151.8 165.3 - Prepaid reinsurance premiums 5 15.5 14.4 Insurance receivables 19.6 15.7 - (Re)Insurance balances receivables from third party companies 6 19.3 15.6 - (Re)Insurance balances receivables from group companies 0.3 0.2 Other receivables from group companies 7 12.9 25.3 Other assets 8 0.8 1.3 Prepaid expense and accrued income 9 2.3 2.7 Total assets 497.1 546.7 Liabilities & equity Technical provisions 292.7 318.7 - Unpaid losses and loss expenses, gross 4 265.9 289.7 - Unearned premium reserves, gross 5 26.8 29.0 Interest bearing liabilities 3 6.2 0.0 Insurance payables 9.3 10.1 - (Re)Insurance payables to third party companies 10 4.4 5.0 - (Re)Insurance payables to group companies 4.8 5.1 Other payables due to group companies 7 0.0 48.1 Other liabilities 11 3.8 2.3 Deferred income & accrued income tax 12 8.5 4.5 Total liabilities 320.4 383.5 Shareholders' equity Share capital 100.0 100.0 Legal Reserves 51.6 51.6 - Capital contribution reserves 50.0 50.0 - General legal reserves 1.6 1.6 Free Reserves 25.1 11.4 - Retained earnings / (accumulated losses) 11.4 3.2 - Net income (loss) for the period 13.7 8.3 Total shareholders' equity 13 176.7 163.0 Total liabilities & equity 497.1 546.7 Notes form an integral part of these financial statements 1
Swiss Statutory 01.01.2017 01.01.2016 INCOME STATEMENT - 31.12.2017-31.12.2016 Notes Gross written premiums 113.9 90.5 Premium ceded to reinsurers -51.4-44.5 Net written premiums 62.5 46.0 Change in unearned premium reserves, gross 1.2 7.4 Change in unearned premium reserves, ceded 1.2-3.0 Change in unearned premium reserves, net 2.3 4.4 Net earned premiums 64.9 50.4 Total technical income 64.9 50.4 Paid claims and claims expenses, gross 73.2 43.1 Paid claims and claims expenses, ceded -40.2-17.6 Paid claims and claims expenses, net 33.0 25.5 Change in loss reserve, gross -28.7-5.0 Change in loss reserve, ceded 16.5-3.5 Change in loss reserve, net -12.2-8.5 Net claims and claim expenses incurred 20.8 17.0 Acquisition costs, gross 21.4 18.8 Administrative expenses, gross 14 12.8 12.1 Total acquisition cost and admin. expenses, gross 34.2 30.8 Reinsurers' share of acquisition- and administrative expenses -6.3-7.8 Total acquisition cost and admin. expenses., net 28.0 23.1 Total technical expenses 48.6 40.1 Underwriting result 15 16.3 10.3 Investment income 16 5.7 5.7 Investment related expense 17-5.6-4.8 Net investment income 0.1 0.9 Operating result 16.3 11.2 Other income 18 1.5 0.5 Other expenses 19-0.4-1.4 Income before tax 17.3 10.3 Income tax (expense) -3.6-2.0 Net income / (loss) 13.7 8.3 Notes form an integral part of these financial statements 2
Notes to the Basis of Presentation The financial statements are presented in million Swiss francs, with the consequence that the rounded amounts may not add up to the rounded total in all cases. The financial statements have been prepared in accordance with the provisions of commercial accounting as set out in the Swiss Code of Obligations (Art. 957 to 963b CO, effective since January 1, 2013) and the provisions of the Swiss Ordinance on the Supervision of Private Insurance Companies (Art. 5-6a AVO-FINMA, status as of 15 December 2015). On 14th January 2016, ACE Limited completed the acquisition of The Chubb Corporation (Chubb Merger), creating a global leader in property and casualty insurance. At the same time ACE Limited changed its name to Chubb Limited and is in the process of adopting the Chubb name globally. As a result of the merger, the insurance and reinsurance contracts of Chubb Insurance Company of Europe SE, London, Zurich branch (Chubb Swiss Branch) were transferred to ACE Insurance (Switzerland) Limited (AISL), effective 1st October 2016. The transaction was approved by the Swiss Financial Market Supervisory Authority FINMA on 30 September 2016. Subsequently, Chubb Swiss Branch returned its licenses to FINMA, effective 1st October 2016, and AISL was renamed into Chubb Insurance (Switzerland) Limited (CISL), effective 3rd October 2016. All direct insurance contracts with counterparties domiciled in Switzerland of Chubb Swiss Branch were transferred by Chubb Insurance Company of Europe SE (CICE) as the seller to CISL as the purchaser of Chubb Swiss Branch by way of a portfolio transfer pursuant to Article 62 of the Swiss Insurance Supervision Act. The vast majority of the reinsurance contracts of Chubb Swiss Branch were transferred to CISL by way of singular succession (novation) with the explicit written consent of the counterparties and supported by an assumption agreement concluded between CICE and CISL (Assumption Agreement). Based on the Assumption Agreement CISL absolutely, unconditionally and irrevocably guarantee to CICE the prompt settlement of all present and future losses, which can be claimed under a reinsurance agreement concluded by Chubb Swiss Branch, which has not been novated to CISL on or before the date the Assumption Agreement was concluded. Significant accounting policies Foreign Currency Translation The annual financial statements are prepared in Swiss franc. Expenses and income in foreign currency are translated at the prevailing rate of the transactions. Balance sheet items denominated in foreign currency are translated at the prevailing rate as of the balance sheet date for which the main exchange rates used are presented below: 2017 2016 EUR 1.1672 1.0753 USD 0.9918 1.0120 Valuation principles Valuation principles are applied consistently. Assets and liabilities, with the exception of fixed maturities, are valued on an individual basis. Fixed maturities are grouped and valued in accordance with their economic purpose. Accounting policies for assets and liabilities are disclosed below. a) Cash and cash equivalents / bank overdrafts Cash and cash equivalents include cash on hand and deposits with an original maturity of three months or less at time of purchase. CISL participates in the multi-currency notional cash pooling program, implemented by Chubb Limited with a third party bank provider. In this program, participating ACE subsidiaries (e.g. CISL) establish deposit accounts in different currencies with the bank provider and each day the credit or debit balances in every account are notionally translated into a single currency (U.S. dollars) and then notionally pooled. The bank extends overdraft credit to any participating ACE subsidiary (e.g. CISL) as needed, provided that the overall notionally-pooled balance of all accounts in each pool at the end of each day is at least zero. Actual cash balances are not physically converted and are not commingled between legal entities. Any overdraft balances incurred under this program by an ACE subsidiary would be guaranteed by Chubb Limited up to $350 million in the aggregate. The revolving credit facility allows for same day drawings to fund a net pool overdraft should participating ACE subsidiaries (e.g. CISL) withdraw contributed funds from the pool. b) Insurance and reinsurance receivables Insurance and reinsurance receivables are recognised at cost. Any impairment of a receivable will be recognised if there is evidence that the company will not be able to collect the amounts receivable according to the original terms of the receivable. 3
Notes to the c) Fixed maturities Fixed maturities are held for a) tied asset purposes and b) to fund the capital contribution reserve within equity. Both categories are separetly valued at lower of amortised cost or market. Amortised cost is based on the scientific amortisation method. Investment income comprises all investment income, realised investment gains and losses and movements in unrealised losses, net of investment expense, charges and interest. Interest income and expense are accounted for on an accrual basis. Realised gains and losses on investments are calculated as the difference between the net sale proceeds and the amortised cost. Movements in unrealised gains and losses on investments represent the difference between the valuation at the balance sheet date and the amortised cost. d) Provision for claims outstanding and related reinsurance recoveries The provision for claims outstanding is assessed on an individual case basis and is based on the estimated ultimate cost of all claims notified but not settled by the balance sheet date, together with the provision for related claims handling costs. The provision also includes the estimated cost of claims incurred but not reported ("IBNR") at the balance sheet date based on statistical methods. These methods generally involve projecting from past experience of the development of claims over time to form a view of the likely ultimate claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. For the most recent years, where a high degree of volatility arises from projections, estimates may be based part on output from rating and other models of the business accepted and assessments of underwriting conditions. The amount of salvage and subrogation is separately identified and, where material, reported as an asset. The reinsurer's share of the provision for claims outstanding is based on the amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, the claims experience for the year and the current security rating of the reinsurance companies involved. A number of statistical methods are used to assist in making these estimates. The two most critical assumptions as regards the provisions for claims outstanding are that the past is a reasonable predictor of the likely level of claims development, and that the rating and other models used for current business are fair reflections of the likely level of ultimate claims to be incurred. Management and the Board of Directors together with the Appointed Actuary consider that the provision for gross claims outstanding and related reinsurance recoveries is fairly stated on the basis of the information currently available. However, the ultimate liability will vary as a result of subsequent information and events and this may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made. The methods used, and estimates made, are reviewed regularly. This includes equalisation provisions, where required by FINMA and in line with the business plan. 4
Disclosures, breakdowns and explanations on balance sheet items Note 1 - Fixed maturities 31.12.2017 31.12.2016 Fixed maturities, at fair value 252.4 258.0 Short terms bonds, at fair value 3.9 1.9 Total fixed maturities at fair value 256.3 259.9 Value adjustment to amortised cost 0.4 1.3 Total fixed maturities at amortised cost 256.7 261.2 Total Fixed maturities - lower of amortised cost or fair value 256.3 259.9 Note 2 - Other investments Pledged assets, at fair value 29.0 26.6 Value adjustment to amortised cost 0.0 0.2 Total other investments at amortised cost 29.0 26.8 Total Other investments - lower of amortised cost or fair value 29.0 26.6 Note 3 - Cash and cash equivalents / interest bearing liabilities Cash Treasury Managed 8.1 26.3 Cash pooling activity in USD 0.0 2.6 Cash pooling activity in CHF 0.0-1.6 Cash pooling activity in EUR 0.0-1.8 Cash pooling activity in GBP 0.0 5.7 Cash pooling activity in JPY 0.0 0.6 Total cash and cash equivalents 8.1 31.9 Cash pooling activity in USD 20.4 0.0 Cash pooling activity in CHF -22.9 0.0 Cash pooling activity in EUR -11.0 0.0 Cash pooling activity in GBP 6.4 0.0 Cash pooling activity in JPY 0.9 0.0 Total interest bearing liabilities -6.2 0.0 Note 4 - Net unpaid losses and loss expenses Unpaid losses to third party companies, gross 236.5 260.5 Unpaid losses to group companies, gross 9.9 12.1 Other technical provisions 19.5 17.1 Total unpaid losses and loss expenses, gross 265.9 289.7 Reinsurance recoverable from third party comp. 5.8 13.5 Reinsurance recoverable from group comp. 146.0 151.7 Total Reinsurance recoverables on losses and loss expenses 151.8 165.2 Total net unpaid losses and loss expenses 114.1 124.5 5
Disclosures, breakdowns and explanations on balance sheet items 31.12.2017 31.12.2016 Note 5 - Net unearned premiums Unearned premiums, gross, third party 25.6 27.3 Unearned premiums, gross, group comp. 1.3 1.7 Total unearned premiums, gross 26.9 29.0 Prepaid reinsurance premiums, third party 1.6 4.6 Prepaid reins. premiums, group companies 13.9 9.8 Total prepaid reinsurance premiums 15.5 14.4 Total net unearned premiums 11.3 14.6 Note 6 - (Re)Insurance balances receivables from third party companies Premium receivables from policyholders 12.7 7.8 Premium receivables from broker 4.8 5.4 Premium receivables from insurance companies 1.8 2.3 Total premium receivables from third party companies 19.3 15.6 Note 7 - Other group companies receivables / payables Chubb Reinsurance (Switzerland) Ltd. 0.4 1.3 Chubb Limited (parent / shareholder) 6.8 24.1 ACE European Group (London) AEGL 5.7 0.0 Other receivables from group companies 12.9 25.3 Chubb Insurance Co. of Europe SE, London 0.0 47.8 ACE European Group London (AEGL) 0.0 0.1 Other Chubb Group companies 0.0 0.2 Other payables to group companies 0.0 48.1 Note 8 - Other assets Withholding tax 0.6 0.3 Other assets 0.2 0.9 Accruals for income tax 0.0 0.0 Total other assets 0.8 1.3 Note 9 - Prepaid expense and accrued income Accrued interest on investments 2.1 2.3 Other prepaid expenses 0.2 0.4 Total prepaid expense and accrued income 2.3 2.7 Note 10 - (Re)Insurance payables to third party companies (Re)Insurance payables to insured 0.0 0.2 (Re)Insurance payables to broker 3.6 1.5 (Re)Insurance payables to insurance companies 0.8 3.3 Total (Re)Insurance payables to third party companies 4.4 5.0 6
Disclosures, breakdowns and explanations on balance sheet items 31.12.2017 31.12.2016 Note 11 - Other liabilities and accrued expenses Payables to AEGL 0.0 0.0 Payables insurance premium tax 1.0 0.9 Accruals administration expenses 1.3 0.1 Accruals personnel costs 1.4 1.4 Accruals for pension fund 0.1 0.0 Total other liablities and accrued expenses 3.9 2.3 Note 12 - Deferred income and accruals for income tax Unrealized value fluctuation 5.0 4.0 Advance Premium Remittance 1.2 0.0 Accruals for income tax 2.4 0.5 Total deferred income and accruals for income tax 8.5 4.5 Note 13 - Reconcilation of Shareholders' Equity CHFm Share Capital Legal Reserves Capital contribution reserves General legal reserves Free Reserves Total Shareholders' equity Balance as at 31.12.2015 100.0 50.0 1.6 3.2 154.8 Net income / (loss) 2016 8.3 8.3 Balance as at 31.12.2016 100.0 50.0 1.6 11.4 163.0 Net income / (loss) 2017 13.7 13.7 Balance as at 31.12.2017 100.0 50.0 1.6 25.2 176.8 Disclosures, breakdowns and explanations on income statement items 01.01.2017 01.01.2016-31.12.2017-31.12.2016 Note 14 - Administrative expenses Salaries 7.1 5.8 Other personnel costs 2.3 1.4 Total personnel costs * 9.4 7.1 Other 3.4 4.9 Total Administrative Expenses 12.8 12.1 * The annual average number of full-time equivalents for the reporting year was not above 50, the same as for the previous year. 7
Disclosures, breakdowns and explanations on income statement items 01.01.2017 01.01.2016-31.12.2017-31.12.2016 in in Note 15 - Underwriting result TOTAL DIRECT INDIRECT* TOTAL DIRECT INDIRECT* Gross written premiums 113.9 111.2 2.7 90.5 83.8 6.7 Premium ceded to reinsurers -51.4-51.2-0.2-44.5-41.3-3.2 Net written premiums 62.5 60.0 2.5 46.0 42.4 3.5 Change in unearned premium reserves, gross 1.2-1.4 2.5 7.4 2.6 4.8 Change in unearned premium reserves, ceded 1.2 2.8-1.6-3.0-0.6-2.4 Change in unearned premium reserves, net 2.4 1.4 0.9 4.4 2.0 2.4 Net earned premiums 64.9 61.4 3.4 50.4 44.5 5.9 Total technical income 64.9 61.4 3.4 50.4 44.5 5.9 Paid claims, gross 73.2 61.9 11.2 43.1 28.6 14.5 Paid claims and claims expenses, ceded -40.2-33.4-6.9-17.6-9.0-8.6 Paid claims and claims expenses, net 33.0 28.5 4.3 25.5 19.6 5.9 Change in loss reserve, gross -31.2-18.4-12.8-5.5 4.6-10.1 Change in other provisions 2.4 2.4 0.0 0.5 0.5 0.0 Change in loss reserve, ceded 16.5 7.2 9.3-3.5-11.4 7.9 Change in loss reserve, net -12.3-8.8-3.5-8.5-6.3-2.2 Total net claims and claim expenses incurred 20.7 19.7 0.8 17.0 13.3 3.7 Acquisition costs, gross 21.4 19.9 1.5 18.8 15.3 3.5 Administrative expenses, gross 12.8 12.8 0.0 12.1 12.1 0.0 Total acquisition cost and admin. expenses., gross 34.2 32.7 1.5 30.8 27.3 3.5 Reinsurers' share of acquisition- and admin. expenses -6.3-5.4-0.9-7.8-5.4-2.4 Total acquisition cost and admin. expenses., net 27.9 27.3 0.6 23.1 22.0 1.1 Total technical expenses 48.6 47.0 1.5 40.1 35.3 4.8 Underwriting result 16.3 14.4 1.9 10.3 9.3 1.1 * INDIRECT: Reinsurance business written by Chubb Tempest Reinsurance, Zurich Note 16 - Investment income 01.01.2017 01.01.2016-31.12.2017-31.12.2016 Interest on fixed maturities 5.2 5.4 Realized gains on fixed maturities 0.5 0.3 Total investment income 5.7 5.7 Note 17 - Investment related expense Amortisation on fixed maturities -2.4-4.2 Realized losses on fixed maturities -2.5-0.1 Other expenses on fixed maturities -0.7-0.4 Total investment related expense -5.6-4.8 8
Disclosures, breakdowns and explanations on income statement items Note 18 - Other income 01.01.2017 01.01.2016-31.12.2017-31.12.2016 Foreign exchange differences 0.0 0.5 Other income 1.5 0.0 Total other income 1.5 0.5 Note 19 - Other expenses Capital tax -0.2-0.1 Other expenses -0.2-1.3 Total other expenses -0.4-1.4 Other notes to the financial statements Note 20 - Contingent liabilities Value-added tax group Chubb Insurance (Switzerland) Ltd. is part of the Chubb Limited Swiss VAT group. Consequently, it is jointly and severally liable to the Federal Tax Administration in Berne for VAT liabilities of this VAT group. Note 21 - Residual Amount of lease obligations The maturity profile of lease obligations that do not expire or cannot be cancelld within 12 months is presented below: 1 to 5 years 0.2 0.3 Total 0.2 0.3 Subsequent Events Subsequent Events 2017 There have been no subsequent events. Subsequent Events 2016 There have been no subsequent events. 9
Proposed appropriation of available earnings as at 31 December 2017 The Annual General Meeting has at its disposal the following available earnings: 31.12.2017 31.12.2016 in CHF in CHF Balance brought forward from previous year 11.4 3.2 Net income for the current year 13.7 8.3 Available earnings 25.3 11.5 The Board of Directors proposes to allocate the available earnings as follows: Appropriation to legal reserves 0.0 0.0 Balance brought forward 25.3 11.5 Available earnings 25.3 11.5 10