Euler Hermes SA Solvency and Financial Condition Report (SFCR)
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Euler Hermes SA Solvency and Financial Condition Report (SFCR) Fiscal Year 2019 Euler Hermes SA Entreprise d’assurance belge agréée sous le code 418 Avenue des Arts 56 Immatriculée au Registre des Personnes Morales (Bruxelles) 1000 Bruxelles, Belgique sous le n° 0403 248 596 Tél. + 32 2 289 31 11 Branches: 07,09,13,14,15,16 www.eulerhermes.com EH SA - Solvency and Financial Condition Report 2019 Contents Contents __________________________________________________________________ 2 Summary __________________________________________________________________ 5 Business and performance (A) _____________________________________________________ 5 System of governance (B) _________________________________________________________ 6 Risk profile (C) __________________________________________________________________ 6 Valuation for solvency purposes (D) ________________________________________________ 7 Capital management (E) __________________________________________________________ 7 Business and performance ________________________________________________ 8 A.1. Business _________________________________________________________________ 8 Legal entity, auditor and supervisor _______________________________________________ 8 Group structure and qualified holdings _____________________________________________ 8 Material lines of business and geographical areas ____________________________________ 9 Significant events _____________________________________________________________ 10 A.2. Underwriting Performance_________________________________________________ 11 Aggregated underwriting performance ____________________________________________ 11 Underwriting performance by material line of business _______________________________ 13 Underwriting performance by material geographical area _____________________________ 14 A.3. Investment Performance __________________________________________________ 16 Income and expenses arising from investments _____________________________________ 16 Gains and losses recognized directly in equity ______________________________________ 17 Investments in securitization ____________________________________________________ 17 A.4. Performance of other activities _____________________________________________ 18 A.5. Any other information ____________________________________________________ 18 System of governance ___________________________________________________ 19 Risk profile ____________________________________________________________ 42 C.1. Underwriting Risk ________________________________________________________ 42 Description of the measures used ________________________________________________ 42 Description of the risk exposure _________________________________________________ 42 Risk concentration ____________________________________________________________ 42 Risk mitigation _______________________________________________________________ 42 C.2. Market Risk _____________________________________________________________ 43 Description of the measures used ________________________________________________ 43 Description of the risk exposure _________________________________________________ 43 Description of assets invested ___________________________________________________ 43 Risk concentration ____________________________________________________________ 44 Risk mitigation _______________________________________________________________ 44 C.3. Credit Risk ______________________________________________________________ 45 Description of the measures used ________________________________________________ 45 Description of the risk exposure _________________________________________________ 45 Risk concentration ____________________________________________________________ 45 Risk mitigation _______________________________________________________________ 46 C.4. Stress tests and scenario analysis ___________________________________________ 46 Standard financial stress scenarios _______________________________________________ 46 Scenario analysis ______________________________________________________________ 47 C.5. Liquidity Risk ____________________________________________________________ 47 Description of the measures used ________________________________________________ 47 Description of the risk exposure _________________________________________________ 47 Risk concentration ____________________________________________________________ 48 Risk mitigation _______________________________________________________________ 48 Expected Profits Included in Future Premiums ______________________________________ 48 Stress tests and scenario analysis ________________________________________________ 48 C.6. Operational Risk _________________________________________________________ 49 Page 2 of 88 EH SA - Solvency and Financial Condition Report 2019 Description of the measures used ________________________________________________ 49 Description of the risk exposure _________________________________________________ 50 Risk concentration ____________________________________________________________ 50 Risk mitigation _______________________________________________________________ 51 C.7. Reputational risk _________________________________________________________ 51 C.8. Any other information ____________________________________________________ 51 Valuation for solvency purposes ___________________________________________ 52 D.1. Assets _________________________________________________________________ 52 Valuation of assets ____________________________________________________________ 52 Changes to the recognition and valuation bases used or to estimations __________________ 57 Assumptions and judgments on the future and other major sources of estimation uncertainty 57 Material financial assets ________________________________________________________ 57 Financial and operating leases ___________________________________________________ 58 Material deferred tax assets ____________________________________________________ 59 D.2. Technical Provisions ______________________________________________________ 59 Valuation of Technical Provisions (TP) for solvency purposes __________________________ 59 Level of uncertainty ___________________________________________________________ 63 Material changes in calculation assumptions for Technical Provisions ___________________ 64 Differences with Technical Provisions in financial statements __________________________ 64 Matching Adjustment __________________________________________________________ 65 Volatility Adjustment __________________________________________________________ 65 Transitional risk-free interest rate-term structure ___________________________________ 66 Transitional deduction _________________________________________________________ 66 Recoverable from mitigation techniques ___________________________________________ 66 D.3. Other liabilities __________________________________________________________ 66 Valuation of other liabilities _____________________________________________________ 66 Financial liabilities _____________________________________________________________ 69 Leasing arrangements__________________________________________________________ 69 Deferred Tax Liabilities _________________________________________________________ 69 Economic benefits ____________________________________________________________ 69 Employee benefits ____________________________________________________________ 70 Contingent liabilities ___________________________________________________________ 71 D.4. Any other information ____________________________________________________ 71 Capital Management ___________________________________________________ 72 E.1. Own funds ______________________________________________________________ 72 Information on the own funds ___________________________________________________ 72 Additional ratios ______________________________________________________________ 74 Loss absorbency mechanism ____________________________________________________ 74 Reconciliation reserve _________________________________________________________ 75 E.2. Solvency Capital Requirement and Minimum Capital Requirement ________________ 75 Evolution of SCR and MCR ratios _________________________________________________ 75 Standard formula and Undertaking Specific Parameters ______________________________ 76 Inputs to calculate the MCR _____________________________________________________ 76 Material changes to SCR and MCR ________________________________________________ 76 E.3. Use of the duration-based Equity Risk sub-module in the calculation of the Solvency Capital Requirement ____________________________________________________________ 76 E.4. Differences between the standard formula and any Internal Model used ___________ 76 Description of the Internal Model ________________________________________________ 76 Methodologies _______________________________________________________________ 79 Data quality __________________________________________________________________ 83 Risks not covered by standard formula but covered by Internal Model __________________ 83 E.5. Non-compliance with the MCR and/or with the SCR ____________________________ 83 Non-compliance with the MCR __________________________________________________ 83 Non-compliance with the SCR ___________________________________________________ 83 E.6. Any other information ____________________________________________________ 83 Page 3 of 88 EH SA - Solvency and Financial Condition Report 2019 Appendix 1: