Entwurf SFCR Stand 12102016 FINAL ENGLISCH Changeable - GRAWE Reinsurance
SFCRSolvency and Financial Condition Report as of 31 December 2017
Table of contentsList of abbreviations . 6Summary . 7A.BUSINESS AND RESULTS . 9A.1Business . 9A.1.1Business strategy . 9A.1.2Ownership structure and group affiliation . 9A.1.3A.1.4Auditor .10Supervisory authority.10A.2Underwriting performance .11A.2.1Non-life reinsurance .11A.2.2Life reinsurance.12A.3Investment performance .13A.3.1Structure of the investments .13A.3.2Result of the investment .14A.4 Performance of other activities .15A.5B.Any other information .15SYSTEM OF GOVERNANCE .16B.1General information on the system of governance .16B.1.1Appropriateness .16B.1.2Board of Directors and key functions .16B.1.3B.1.4Material changes in the system of governance .18Compensation policy and compensation practices .18B.1.5Material transactions .19B.1.6Governance structure .19B.2 Fit and proper requirements .22B.2.1Requirements of skills, know-how and expertise .22B.2.2B.3Procedures for the fit and proper evaluation .24Risk management system .25B.3.1Risk strategy .25B.3.2Risk management process .25B.3.3Implementation of the Risk Management function .27B.3.4B.3.5Risk management for users of Internal Models .28Own risk and solvency assessment.28B.4B.4.1Internal control system .31Description .31B.4.2Implementation of the Compliance function .32B.5 Internal Audit function.33B.5.1Implementation of the Internal Audit function .33B.5.2Objectivity and independence .332
B.6Actuarial function.34B.7Outsourcing .34B.7.1B.7.2B.8C.Outsourcing policy.34Outsourcing of critical or important operational functions or activities .35Any other information .35RISK PROFILE.36C.1Underwriting risk .37C.1.1Risk exposure .38C.1.2Risk concentration.41C.1.3Retrocession and other risk mitigation techniques.42C.1.4Liquidity risk future profits .42C.1.5Risk sensitivity.43C.2 Market risk .43C.2.1Risk exposure .43C.2.2Risk concentration.45C.2.3Risk mitigation .46C.2.4Liquidity risk future profits .46C.2.5Risk sensitivity.46C.3Default risk .46C.3.1Risk exposure .47C.3.2Risk concentration.47C.3.3Risk mitigation .47C.3.4Liquidity risk future profits .48C.3.5Risk sensitivity.48C.4 Liquidity risk .48C.4.1Risk exposure .48C.4.2Risk concentration.49C.4.3Risk mitigation .49C.4.4Liquidity risk future profits .49C.4.5Risk sensitivity.49C.5Operational risk .49C.5.1Risk exposure .49C.5.2Risk concentration.50C.5.3Risk mitigation .50C.5.4Liquidity risk future profits .50C.5.5Risk sensitivity.50C.6Other fundamental risks .51C.6.1Risk exposure .51C.6.2Risk concentration.51C.6.3C.6.4Risk mitigation .51Liquidity risk future profits .523
C.6.5C.7D.Risk sensitivity.52Other information .52VALUATION FOR SOLVENCY PURPOSES .53D.1Assets .56D.1.1Explanation of the valuation differences per category of asset .56D.1.2Assessments that can fundamentally influence the valuation approaches .58D.2 Technical provisions .61D.2.1Non-Life .62D.2.2Life .63D.2.3Description of the amounts that can be collected from retrocession contracts(reinsurance recoverables) .64D.2.4Description of the uncertainty level .65D.2.5Qualitative and quantitative explanation of the valuation differences per LOB,differences in the basics, methods and assumptions used .65D.2.6Significant simplifications and description of the level of uncertainty incalculating the technical provisions .68D.2.7Calculation of the risk margin .68D.3Other liabilities.69D.3.1Explanation of the valuation differences per category of liability .69D.3.2Assessments that can fundamentally influence the valuation approaches .70D.4Alternative valuation methods .70D.4.1Alternative price determination for securities .71D.4.2At-equity approach for shares in affiliated companies and participations .71D.5Other information .71D.5.1D.5.2E.Currency conversion .71Materiality.71CAPITAL MANAGEMENT .72E.1 Own funds .72E.1.1. Own funds according to IFRS .73E.1.2. Own funds pursuant to Solvency II .73E.1.3. Explanation of the differences in valuation .74E.2SCR and MCR .75E.3Use of the duration-based equity-risk sub-module in the calculation of the SolvencyCapital Requirement.77E.4Differences between the standard formula and any internal models used .77E.5Non-compliance with the Minimum Capital Requirement and non-compliance withthe Solvency Capital Requirement .77E.6Any other information .77Annex .79Glossary .92Independent Auditor’s Report .934
Note with regard to figures and rounding:In general, figures are presented as per thousand EUR (kEUR) As a result of the use ofautomatic calculation aids, calculation differences caused by rounding may occur whenadding up rounded amounts and percentages. Unless specified differently, calculations arebased on data as per balance sheet date 31 December 20175
List of 95Adjustment term for deferred taxesAdjustment term for technical provisionsAktiengesellschaft (joint stock corporation)ArticleBest EstimateBasic solvency capital requirement of Pillar 1Cyprus Company LawLatin: conferCost of CapitalEuropean CommissionEuropean Central BankLatin: exempli gratiaEuropean Insurance and Occupational Pensions Authority from 01 January2011Expected Profits Included in Future PremiumsetceteraGrazer Wechselseitige Versicherung AktiengesellschaftHuman ResourcesHomogeneous risk groupin other wordsInternational accounting standards in the respective last valid versionendorsed by the EUincurred but not reportedInsurance Companies Control ServiceincludingIncome statementInterest supplement reserveThe Law on Insurance and Reinsurance Business and other Related issues of2016 and additional Orders and Guidelines issued from the SuperintendentLine of BusinessLimitedMinimum capital requirementOrganisation for Economic Cooperation and DevelopmentOwn risk and solvency assessment of Pillar 2ParagraphSubsidised retirement investment productsSolvency capital requirement of Pillar 1Superintendent of InsuranceTechnical Inspection Association (German: Technischer Überwachungsverein)The Value at Risk (VaR) denotes the threshold value that with the determinedprobability ( confidence level) is not exceeded within a defined period of time( holding period).The Value at Risk that denotes the threshold value that is not exceeded withina defined period of time with a 95% probability.6
SummaryGRAWE Reinsurance Ltd. (hereafter referred to as GRAWE RE) is a subsidiary of GrazerWechselseitige Versicherung AG, an Austrian company which has grown since its initialfounding by Archduke Johann of Austria in 1828 from its original form as a fire damageinsurer into an international group in Central and Eastern Europe which unites insuranceundertakings, real estate and financial services under one roof.GRAWE RE was founded in 1999 and focuses mainly on proportional life and non-lifereinsurance of the subsidiaries of Grazer Wechselseitige Versicherung AG.A Business and ResultsIn the reporting year in the two business segments non-life reinsurance and life reinsurance,GRAWE RE generated in total written premiums of kEUR 17,651 (2016: kEUR 17,304) withfocus on fire and other damage to property reinsurance, general liability, income protectionand life reinsurance. The premiums written are offset by claims incurred amounting tokEUR 6,287 (2016: kEUR 6,317). In the reporting year in the annual financial statementsaccording to IFRS, earnings before taxes in the amount of kEUR 9,891 (2016: kEUR 4,887)were generated.The income from investments (incl. liquid funds) in the annual financial statements accordingto IFRS of GRAWE RE amounted to kEUR 11,285 (2016: kEUR 7,694). The most importantgoal in the investment is the continuous ensuring of the ongoing ability to fulfil the obligationsfrom the reinsurance contracts.B System of GovernanceThe system of governance means the management and control system of GRAWE RE. Theorganisation, tasks and authorisations of the Governance functions are defined in companyinternal policies. In addition, the system of governance guarantees compliance with thecompensation and outsourcing regulations as well as the fit and proper requirements of theBoard of Directors and of key function holders.C Risk ProfileThe risk profile of GRAWE RE remains unchanged in comparison to previous year. The mainrisk categories for the solvency capital requirement (SCR) according to the Solvency IIstandard formula are like last year, the market risk, the underwriting risk Non-Life andunderwriting risk Life.Furthermore, the capital requirement of internal risk view that was determined within theORSA process is far below the solvency capital requirement according to the standardformula.D Valuation for Solvency PurposesThe eligible own funds are determined on the basis of the economic balance sheet assurplus of the assets over liabilities. In the economic balance sheet, the assets and liabilitiesare set at market values.7
This results in a valuation that deviates from the annual financial statements according toIFRS that have been approved and signed by the Board of Directors on 29 March 2018.The differences between the technical provisions according to IFRS and the Best Estimatesin the economic balance sheet result from the different perspectives and calculationmethods. Additionally, the deviations come from the valuation of the investments insubsidiaries and the deferred tax liability. All remaining assets and liabilities remain thesame. Due to the high solvency ratio, the use of any LTG transitional measure like volatilityand matching adjustments were not considered.E Capital ManagementAs at 31 December 2017 the SCR amounted to kEUR 36,886 (2016: kEUR 38,152). Thesuperb own funds with the amount of kEUR 221,955 (2016: kEUR 223,095), make it possiblefor GRAWE RE to be a strong and reliable partner in years to come and provides thenecessary reliability to the existing and future customers.The SCR ratio, i.e. the comparison of the eligible own funds to the solvency capitalrequirement based on the calculations of the standard formula is as at 31 December 2017601.7% (2016: 584.8%). The MCR of GRAWE RE was kEUR 9,222 (2016: kEUR 9,538).The ratio of the eligible own funds to the MCR amounted to 2,406.9% (2016: 2,339%).The requirements to cover the SCR were constantly fulfilled during the whole reportingperiod.Statement of the Board of DirectorsThe following solvency and financial condition report of GRAWE RE was prepared in allconscience in accordance with the Law and the corresponding European regulations. Itprovides the truest possible reflection of the solvency and financial condition and gives adescription on the business, the system of governance, the risk profile and the assets,liabilities and own funds as well as the solvency balance sheet.This report was approved for publication with the resolution by the Board of Directors dated2 May 2018.8
A. BUSINESS AND RESULTSA.1 BusinessA.1.1 Business strategyThe business strategy of GRAWE RE focuses on proportional life and non-life reinsurance ofthe subsidiaries of Grazer Wechselseitige Versicherung AG, which are situated in Centraland Eastern European countries (CEE) and make up 90% of all reinsurance treaties. Theremaining 10% are attributable to contracts with external international clients. Around 2/3 ofthe business comes from general business and 1/3 from life reinsurance.Our external clients are from well-known markets and have already been several yearsreinsured at Grazer Wechselseitige Versicherung AG before they became clients of GRAWERE. Therefore, these clients meet our main targets, namely security, long lasting customerrelationship and knowledge of the written risk categories. Furthermore, to minimize the risk,the share on the maximum amount of cover of these contracts is very low.As long-lasting relationships with clients and mutual trust are essential for the business ofGRAWE RE, almost all reinsurance contracts are concluded directly with clients, thus almostno brokers are involved in negotiations and conclusion of contracts.As of 31 December 2017, 62% of premiums written of GRAWE RE are attributed to non-lifereinsurance and 38% to life reinsurance.As far as investments are concerned, a high importance is attached to security and long-termsuccess and profit, in compliance with the legal provisions. This is reflected by long-termsuccessful and security-oriented investments, for which market bets in the capital investmentarea as well as not transparent and complex products are generally renounced. In addition,defined spreads and limits exist per asset category.Based on the above mentioned business principles, the following risk-related principles canbe derived for GRAWE RE:1. Safeguarding the continuance and sustainable prosperity of the company2. Safeguarding the financial objectives3. Achievement of the strategic objectives4. Compliance with the legal provisions5. Customer oriented serviceThe risk management and the internal control systems of GRAWE RE are aligned with thestrategy of the company and thus ensure that both the financial and the strategic objectivesare achieved as well as the legal and Solvency requirements are fulfilled.A.1.2 Ownership structure and group affiliationGRAWE RE is a 100% subsidiary of Grazer Wechselseitige Versicherung AG. At the top ofGRAWE Group and as direct majority owner of Grazer Wechselseitige Versicherung AG,with shares in the volume of 100% of its capital, there is GRAWE-Vermögensverwaltung,9
with its registered office in Graz, a mutual insurance association and a mixed financialholding company pursuant to the Financial Conglomerate Act.GRAWE RE is incorporated entirely into the consolidated annual financial statements ofGRAWE-Vermögensverwaltung, 8010 Graz, Herrengasse 18-20.The following simplified GRAWE Group structure shows the integration of GRAWE RE inGRAWE Group as of 31 December 2017:(AT) GRAWE-Vermögensverwaltung(AT) Grazer Wechselseitige Versicherung AG(AT) HYPO BANKBURGENLAND AGSubgroup Banks(AT) GRAWE ImmoHolding AG(Re-)insurancecompanies in Centraland Eastern EuropeSubgroup Real estate(CY) GRAWEReinsurance Ltd.Affiliated undertakingsAs of 31 December 2017 GRAWE RE was 100% owner of: Medlife Insurance Ltd.Flutrana Enterprises Ltd.A.1.3 AuditorThe annual financial statements of GRAWE RE are audited by the appointed auditing andtax consulting company, Deloitte Ltd., as of the balance sheet reference date 31 December2017.Contact details:Deloitte Limited24 Spyrou Kyprianou Avenue1075 NicosiaCyprusTel: 357 22 360300https://www.deloitte.com/cyA.1.4 Supervisory authorityThe responsible supervisory authority for GRAWE RE is the Superintendent of Insurance (SI)which is also the Head of the (Re-)insurance Companies Control Service (ICCS).10
Contact details:(Re-)insurance Companies Control Service (ICCS)P.O. Box 23364,1682 NicosiaCyprusTel.: 357 22 602 ce-companies-control-serviceA.2 Underwriting performanceThe following tables provide an overview of the underwriting performance according to theIFRS financial statements for non-life and life reinsurance.Premiums written20172016Gross amountNon-life reinsuranceLife reinsuranceTotalEarned The following table gives an overview of claims incurred and operating expenses:Claims incurred Operating expenses2017201620172016Gross amountkEURkEURkEURkEURNon-life reinsurance4,9654,7094,8994,849Life 56,535A.2.1 Non-life reinsuranceThe following table shows the premiums written and the earned premiums in the non-lifereinsurance in 2017 according to the material lines of business from the IFRS annualfinancial statements.Premiums writtenEarned premiums2017201620172016Gross amountkEURkEURkEURkEURIncome protection reinsurance3,8784,0303,8394,116Fire and other damage to propertyreinsurance5,2685,0065,2174,954General liability 0,793Total11
GRAWE RE has long-lasting relationships with clients. The chart below gives a breakdown ofthe premiums written of the non-life reinsurance according to geographical regions, whichremains stable compared to last year.The following table gives an overview of claims incurred and operating expenses of non-lifereinsurance:Claims incurredOperating expenses2017201620172016Gross amountkEURkEURkEURkEURIncome protection reinsurance1,3051,0731,7401,860Fire and other damage to 7244,9654,7094,8994,849General liability reinsuranceTotalA.2.2 Life reinsuranceThe following table shows the gross premiums written and earned premiums of lifereinsurance:Premiums written20172016Earned premiums20172016Gross amountkEURkEURkEURkEURLife reinsurance6,7366,5306,7016,632GRAWE RE has long-lasting relationships with clients. The following chart provides anoverview of the composition of the premiums written in life reinsurance as of31 December 2017, broken down according to geographical regions. It also shows that thedistribution of the business is very stable.12
A.3 Investment performanceA.3.1 Structure of the investmentsIn the individual annual financial statements according to IFRS that are set in accordance toArticle 2 of the Cyprus Company Law chapter 113, the investments (incl. liquid funds) in thenon-life insurance amounted as of 31 December 2017 to kEUR 97,627 (2016: kEUR 94,224).In life insurance, the investments amounted to kEUR 44,626 (2016: kEUR 36,950).The total portfolio of the investments at book values according to IFRS/CCL (incl. cash atbank and in hand) is comprised as follows as of 31 December 2017:The investments as of the reference date 31 December 2017 do not include any investmentsin securitisations.13
With regard to the transfer of the book values in the annual financial statements according toIFRS/CCL at the market values in the economic balance sheet, reference is made tosection D.A.3.2 Result of the investmentThe net total income incorporates current income from investments, realised profits andlosses as well as depreciations from the following investment groups:InvestmentIncome andrealised ProfitsResult of theinvestmentsAvailable for sale financialassets securitiesAvailable for sale financialassets managed fundsInvestments in other equitysecuritiesInvestments in subsidiariesLoans and receivablesincluding bank balancesTotal result of theinvestmentsDepreciationsand realisedLossesNet TotalIncomeAmortisations20172016201720162017 7-19-3211,2857,694The investment income is higher from the previous year mainly due to the income frominvestment in subsidiaries coming from the much higher dividend paid by Medlife to GRAWERE during the year. Apart from that, the investment income continues to deteriorate due tothe low-interest environment that results in lower income in the sector of fixed interestbearing securities.In the reporting year, the annual financial statements drawn up pursuant to the provisions ofthe IFRS/CCL include profits or losses that were recognised directly in equity as per thebelow table.Income for the yearProfit for the yearOther comprehensive income:Items that may be reclassified subsequently to the Income Statement:Available-for-sale financial assetsNet fair value gain/loss on available-for-sale financial assets during the yearNet gain transferred to the income statement on sale of available-for salefinancial assetsOther comprehensive income for the year, net of taxTotal comprehensive income for the 0,5655,84214
A.4 Performance of other activitiesAll material income and expenses were explained in the previous sections. In addition, thereare no other material income and expenses that need to be listed in the reporting year 2017.A.5 Any other informationAny relevant information regarding business and results are incorporated in the previoussections.15
B. SYSTEM OF GOVERNANCEB.1 General information on the system of governanceB.1.1 AppropriatenessThe system of governance of GRAWE RE guarantees a solid and prudent companymanagement and is appropriate to the nature, scope and complexity of the business. Theappropriateness and effectiveness of the internal control systems and
A Business and Results In the reporting year in the two business segments non-life reinsurance and life reinsurance, GRAWE RE generated in total written premiums of kEUR 17,651 (2016: kEUR 17,304) with focus on fire and other damage to property reinsurance, general liability, income protection and life reinsurance.
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Emphasis of Matter - Basis of Accounting We draw attention to the 'Valuation for solvency purposes' and 'Capital Management' sections of the SFCR, which describe the basis of accounting. The SFCR is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and
General Guidance This document provides an overview of the regulatory requirements on traceability, as found in Part 5 of the Safe Food for Canadians Regulations (SFCR). In addition to traceability requirements, industry must also ensure that mandatory labelling requirements found in the SFCR (including, but not limited
Emphasis of Matter - Basis of Accounting We draw attention to the 'Valuation for solvency purposes ' and 'Capital Management ' sections of the SFCR, which describe the basis of accounting. The
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