FINANCIAL CONDITION REPORT 2019 SCOR SWITZERLAND AG CONTENTS 01 06 MANAGEMENT SUMMARY 4 VALUATION 22 02 07 BUSINESS ACTIVITIES 6 CAPITAL MANAGEMENT 28 03 08 PERFORMANCE 8 SOLVENCY 30 3.1 Technical Result 9 8.1 Internal Model 31 3.2 Net Investment Income 10 8.2 Target Capital 32 3.3 Other Income and Expenses 11 8.3 Risk-Bearing Capital 34 8.4 Solvency Ratio 34 04 CORPORATE GOVERNANCE 09 AND RISK MANAGEMENT 12 APPENDICES 36 4.1 Corporate Governance 13 Appendix A: Annual Report 2019 SCOR Switzerland AG 4.2 Risk Management 14 including the Report of the Statutory Auditors 37 Appendix B: Quantitative Templates 37 05 RISK PROFILE 16 5.1 Insurance Risk 18 5.2 Market Risk 19 5.3 Credit Risk 19 5.4 Operational Risk 20 5.5 Risk concentrations 21 5.6 Reinsurance and Risk Mitigating Techniques 21 5.7 Other Risk 21 01 MANAGEMENT SUMMARY 4 SCOR Financial Condition Report 2019 - SCOR Switzerland AG MANAGEMENT SUMMARY 01 MANAGEMENT SUMMARY SCOR Switzerland AG (hereinafter “the Company”) is The outbreak of COVID-19 is a major global event that the legal operating entity of SCOR, an independent will have health, societal, and economic impacts. Even global tier-1 reinsurance company, in Switzerland. It is with appropriate macroeconomic policies through licensed and supervised by the Swiss Financial Market well-targeted stimulus and public policies with effi- Supervisory Authority (“FINMA”) and operates in the cient containment measures, the damage to overall Property & Casualty (P&C) reinsurance segment. economic growth will be significant. The Company reports a profit for the financial year There is considerable uncertainty about the potential 2019 of EUR 89.2 million as compared to EUR 74.9 impact of the pandemic on the company based upon million in 2018. The overall results are backed by a current information. The company will continue to solid technical result from reinsurance operations, regularly assess the COVID-19 impact on its business. with premium growth from cession increases and a With respect to insurance business investments, the largely stable net loss ratio compared to the previous recent decline in stock prices and other market indices year. The investment portfolio showed a positive is also being closely monitored. performance in 2019 and includes realised gains from disposal of investments. As regards operational risks, SCOR has globally taken steps to lower the risk of infection for its employees, The shareholders’ equity reached EUR 1’214.4 million including office closures in affected countries. Further- at 31 December 2019, which represents an increase more, the management has business continuity plans of EUR 9.3 million compared to the previous year, in place that allow operations to continue even if the after an extraordinary dividend payment of EUR 80.0 office location is not accessible. Specifically, SCOR has million. put in place infrastructure and tools that ensure that employees can work remotely from home. The Company reports a solvency ratio of 191% accord- ing to the Swiss Solvency Test (SST), representing an increase of 10%-pts compared to the previous year, mainly driven by the elimination or reduction of regulatory charges and the change in new business volume, partly off-set by higher prior year reserve risk and an increased dividend payment. The continuous assessment and control of the various risks the Company is exposed to is an important man- agement objective. Several processes and tools for identifying and assessing risk have been implemented at SCOR Switzerland AG as well as at SCOR Group level to approach risk from different perspectives and to manage them in an exhaustive manner. SCOR Financial Condition Report 2019 - SCOR Switzerland AG 5 02 BUSINESS ACTIVITIES 6 SCOR Financial Condition Report 2019 - SCOR Switzerland AG BUSINESS ACTIVITIES 02 BUSINESS ACTIVITIES SCOR Switzerland AG is part of the SCOR Group, a tier-1 SCOR Switzerland AG buys reinsurance from its parent reinsurance group that provides insurance companies with company to mitigate peak risk and protect its capital. In a diversified and innovative range of solutions and services addition, the Company grants loans to other SCOR Group to control and manage risk, serving more than 4’000 entities and receives such loans from other entities of the clients in the Americas, EMEA and APAC. The Group’s SCOR Group. For further details we refer to the respective subsidiaries, branches and offices are connected through chapter in the Annual Report. a central network of applications and data exchange plat- forms, which allow local access to centralized risk analysis, The Company was formerly fully owned by SCOR Holding underwriting or pricing databases and also gives access to (Switzerland) AG. As a consequence of the cross-border information on local market conditions. merger between SCOR Holding (Switzerland) AG and its French parent company, SCOR SE, with effect as of SCOR Switzerland AG is the regulated legal operating 1 October 2019, all shares in the Company are now held entity of the SCOR Group in Switzerland and operates in directly by SCOR SE, the ultimate parent company of the the Property & Casualty (P&C) reinsurance segment. Since SCOR Group, listed on the Euronext stock exchange, Paris. 2001, the Company is fully licensed and supervised by the The Company holds a participation in SCOR Services UK Swiss Financial Market Supervisory Authority (“FINMA”). Ltd. (formerly SCOR Holding (UK) Ltd.). It hasn’t had any branches for the last two years. The Company plays an important role in the SCOR Group, carrying prior underwriting year business as well as being The annual financial statements have been prepared in the carrier of a significant amount of internal retroces- accordance with the provisions on commercial accounting sion business from various entities of the SCOR Group. of the Swiss Code of Obligations (CO) and have been The assumed underwriting business focus is on selected audited by Mazars SA, Herostrasse 12, 8048 Zurich. reinsurance and insurance risks, mostly mainstream risks covered in P&C. SCOR Switzerland is targeting a diversified portfolio in terms of business and geography covering various lines of business such as Property, Property Cat, Motor, Credit & Surety, Casualty, Engineering, Marine and Offshore and other smaller portfolios. The portfolio of assumed reinsurance business from other entities of the SCOR Group is slightly increasing in 2019 as the Company has entered into reinsurance contracts with new SCOR Group entities and / or assumes higher shares from existing ceding entities. SCOR Financial Condition Report 2019 - SCOR Switzerland AG 7 03 PERFORMANCE 3.1 TECHNICAL RESULT 9 3.2 NET INVESTMENT INCOME 10 3.3 OTHER INCOME AND EXPENSES 11 8 SCOR Financial Condition Report 2019 - SCOR Switzerland AG PERFORMANCE 03 PERFORMANCE The Company reports a profit for the financial year 2019 of EUR 89.2 million as compared to EUR 74.9 million in 2018. The main contributors to the net income in 2019 were the technical result from reinsurance operations as well as the positive contributions from investment activities. 3.1 TECHNICAL RESULT ______________________________________________ Gross premium written in 2019 amounted to EUR 1’641.4 The acquisition costs and administration expenses are million, which represents an increase of EUR 402.3 million slightly higher than one year ago at 36.0% of the net or 32.5% compared to 2018. Almost all premium written premium earned as compared to 34.5% in 2018. The by the Company in 2019 and 2018 was related to reinsur- increase of acquisition costs is driven by new business ance business accepted from other entities of the SCOR assumed in 2019 including portfolio transfers, whereas Group. The increase in premium is driven by new and / or the slight increase of administration expenses relates to higher cessions of business from other SCOR entities. The higher costs for services rendered by other SCOR entities. variation of foreign exchange rates had a positive effect on the gross premium written of EUR +24.0 million compared Overall, the technical result from reinsurance operations to the previous year. SCOR Switzerland AG is also a buyer recorded by the Company, which comprises technical in- of reinsurance to mitigate risk and to protect its capital. come, net claims expenses and technical expenses, resulted In 2019, it recorded ceded premium to reinsurers of EUR in a gain for the year 2019 of EUR 49.8 million compared 54.6 million as compared to EUR 33.9 million in 2018. to a gain of EUR 75.6 million in 2018. The Miscellaneous line, which includes Engineering, Credit & Surety and Agriculture, reports an increase in premium volume of EUR 195 million which represent almost 50% of the total increase, followed by the Casualty line with EUR 70 million increase. The Property line, as well as Marine, Aviation and Transport increase by EUR 60 million and EUR 65 million respectively. The only decrease in premium compared to the previous year was recorded in the line Personal Accident. The overall technical result amounts to EUR 49.8 million. This is mainly driven by the Property line which contributes EUR 184 million due to low cat activity during the year. The Casualty line contributes with EUR 42 million mainly driven by positive development of the prior years. In contrast, Miscellaneous lines, in particular Aviation and Agriculture are partially offsetting the positive result by EUR -89 million due to higher loss activity. Overall, the net loss ratio for the year 2019 is 58.5% compared to 54.8% one year ago. The result in the year 2018 was impacted by natural catastrophes such as the hurricanes Michael and Florence as well as the wildfires in California partially offset by positive development in the casualty book. SCOR Financial Condition Report 2019 - SCOR Switzerland AG 9 03 PERFORMANCE 3.2 NET INVESTMENT INCOME _______________________________________ Net income from investments amounts to EUR 76.0 mil- In addition, the Company received dividends from its lion in 2019, an increase of EUR 48.6 million compared participation SCOR Services UK Ltd.