Euler Hermes SA Solvency and Financial Condition Report (SFCR) Fiscal Year 2020 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 2020 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 Auditor ______________________________________________________________________ 8 Group structure and qualified holdings _____________________________________________ 8 Material lines of business and geographical areas ____________________________________ 9 Significant and subsequent events________________________________________________ 10 A.2. Underwriting Performance_________________________________________________ 10 Aggregated underwriting performance ____________________________________________ 11 Underwriting performance by material line of business _______________________________ 12 Underwriting performance by material geographical area _____________________________ 13 A.3. Investment Performance __________________________________________________ 15 Income and expenses arising from investments _____________________________________ 15 Gains and losses recognized directly in equity ______________________________________ 16 Investments in securitization ____________________________________________________ 16 A.4. Performance of other activities _____________________________________________ 17 A.5. Any other information ____________________________________________________ 17 System of governance ___________________________________________________ 18 B.1. General information on the system of governance _____________________________ 18 Structure of the system of governance ____________________________________________ 18 Remuneration policy___________________________________________________________ 21 B.2. Fit and Proper requirements _______________________________________________ 23 Description of requirements for Fit & Proper _______________________________________ 23 Description of processes and procedures in place ___________________________________ 25 B.3. Risk management system and ORSA process __________________________________ 26 Description of risk management system ___________________________________________ 26 Risk function _________________________________________________________________ 28 Governance of the Internal Model ________________________________________________ 29 Conduct of an internal risk and solvency assessment _________________________________ 32 B.4. Internal control system ___________________________________________________ 33 Internal control framework _____________________________________________________ 33 General and specific control elements ____________________________________________ 34 B.5. Compliance Function _____________________________________________________ 35 Compliance tasks _____________________________________________________________ 35 Independence of the compliance function _________________________________________ 36 B.6. Internal Audit Function____________________________________________________ 36 Implementation of the Internal Audit Function _____________________________________ 36 Independence of the Internal Audit Function _______________________________________ 37 B.7. Actuarial Function ________________________________________________________ 38 Role of the Actuarial Function ___________________________________________________ 38 Status of the Actuarial Function __________________________________________________ 39 B.8. Outsourcing _____________________________________________________________ 39 Description of the outsourcing policy _____________________________________________ 39 B.9. Any other information ____________________________________________________ 39 Risk profile ____________________________________________________________ 41 Page 2 of 90 EH SA - Solvency and Financial Condition Report 2020 C.1. Underwriting Risk ________________________________________________________ 41 Description of the measures used ________________________________________________ 41 Description of the risk exposure _________________________________________________ 41 Risk concentration ____________________________________________________________ 41 Risk mitigation _______________________________________________________________ 41 C.2. Market Risk _____________________________________________________________ 42 Description of the measures used ________________________________________________ 42 Description of the risk exposure _________________________________________________ 42 Description of assets invested ___________________________________________________ 43 Risk concentration ____________________________________________________________ 44 Risk mitigation _______________________________________________________________ 44 C.3. Credit Risk ______________________________________________________________ 44 Description of the measures used ________________________________________________ 44 Description of the risk exposure _________________________________________________ 44 Risk concentration ____________________________________________________________ 45 Risk mitigation _______________________________________________________________ 45 C.4. Stress tests and scenario analysis ___________________________________________ 45 Standard financial stress scenarios _______________________________________________ 46 Scenario analysis ______________________________________________________________ 46 C.5. Liquidity Risk ____________________________________________________________ 47 Description of the measures used ________________________________________________ 47 Description of the risk exposure _________________________________________________ 47 Risk concentration ____________________________________________________________ 47 Risk mitigation _______________________________________________________________ 47 Expected Profits Included in Future Premiums ______________________________________ 48 Stress tests and scenario analysis ________________________________________________ 48 C.6. Operational Risk _________________________________________________________ 48 Description of the measures used ________________________________________________ 48 Description of the risk exposure _________________________________________________ 50 Risk concentration ____________________________________________________________ 50 Risk mitigation _______________________________________________________________ 50 C.7. Reputational risk _________________________________________________________ 50 Description of the measures used ________________________________________________ 50 Description of the risk exposure _________________________________________________ 51 Risk Mitigation _______________________________________________________________ 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 __________________ 58 Assumptions and judgments on the future and other major sources of estimation uncertainty 58 Material financial assets ________________________________________________________ 58 Financial and operating leases ___________________________________________________ 59 Material deferred tax assets ____________________________________________________ 59 D.2. Technical Provisions ______________________________________________________ 60 Valuation of Technical Provisions (TP) for solvency purposes __________________________ 60 Level of uncertainty ___________________________________________________________ 64 Material changes in calculation assumptions for Technical Provisions ___________________ 65 Differences with Technical Provisions in financial statements __________________________ 65 Matching Adjustment __________________________________________________________ 66 Volatility Adjustment __________________________________________________________ 66 Transitional risk-free interest rate-term structure ___________________________________ 67 Transitional deduction _________________________________________________________ 67 Recoverable from mitigation techniques ___________________________________________ 67 D.3. Other liabilities __________________________________________________________ 67 Page 3 of 90 EH SA - Solvency and Financial Condition Report