EUROPARE Annual Report 2018 Europa Re Ltd. Contents FINANCIALSTATEMENTS................................................................................................................................................ 3 BALANCE SHEET. .......................................................................................................................................................... 3 INCOME STATEMENT .................................................................................................................................................... 4 CASH FLOW STATEMENT ............................................................................................................................................... 5 NOTES ......................................................................................................................................................................... 6 SIGNIFICANT ACCOUNTING PRINCIPLES ............................................................................................................................... 6 DISCLOSURES, BREAKDOWNS AND EXPLANATIONS RELATING TO ITEMS ON THE BALANCE SHEET AND THE INCOME STATEMENT .............. 7 1. Fixed-interest securities................................................................................................................................7 2. Other Investments .........................................................................................................................................7 2.1 Shares in real estate funds............................................................................................................................7 2.1 Insurance linked securities............................................................................................................................8 3. Cash and Cash equivalents...........................................................................................................................8 4. Insurance Receivables................................................................................................................................... 9 5. Accrued and prepaid expenses/Deferred Income..........................................................................................9 6. Technical Provisions...................................................................................................................................10 7. Other Liabilities .......................................................................................................................................... 10 8. Receivables from and liabilities to Related Parties ....................................................................................11 9. Statement of Changes in Equity .................................................................................................................. 11 10. Technical Incomes.......................................................................................................................................12 11. Claims Incurred..........................................................................................................................................12 12. Acquisition costs and administrative expenses............................................................................................12 13. Audit Fees ................................................................................................................................................... 13 14. Income/Expenses from Investments.............................................................................................................13 15. Other Incomes and Expenses......................................................................................................................13 16. Share capital and m ajor shareholder.......................................................................................................... 14 17. Personnel information.................................................................................................................................14 18. Events after the reporting date....................................................................................................................14 19. Commitments and contingencies ........................................................................................................... ...... 14 20. Liabilities to Pension Schemes.................................................................................................................... 14 21. Litigations...................................................................................................................................................15 22. Other legal requirements............................................................................................................................15 PROPOSAL FORTHE APPROPRIATION OF THE DISTRIBUTABLE EARNINGS .................................................................................... 16 MANAGEMENTREPORT...............................................................................................................................................17 ..........................................................................................................................................................22 REPORT OF THE STATUTORY AUDITORS.......................................................................................................................22 2 1 2018 Annual Report Europa Re Ltd. - Financial statements Balance Sheet. Assets CHF Note - 31.12.2018 31.12.2017 1.1 Investments 9,539,314 5,832,745 1.1.3 Fixed-interest securities 1 3,864,731 4,071,947 1.1.7 Other investments 2 5,674,583 1,760,798 - 1.5 Cash and cash equivalents 3 1,360,753 4,954,569 1.6 Reinsurers' share of technical provisions 6 70,466 42,986 1.7 Property and equipment 6,588 4,725 1.9 Intangible assets 7,707 9,022 1.10 Insurance receivables 4 634,974 124,423 1.11 Other receivables 8 - 13,000 1.14 Accrued and prepaid expenses 5 354,018 302,193 1.15 Total Assets 11,973,820 11,283,662 Liabilities and equity CHF Note 31.12.2018 31.12.2017 2.1 Technical provisions 6 596,567 156,687 2.6 Liabilities from deposits retained on ceded business 79,247 40,231 2.8 Other liabilities 7,8 383,189 583,251 2.9 Deferred income 6 45,025 - 2.11 Total Liabilities 1,104,029 780,169 2.12 Share capital 10,832,908 10,832,908 2.13 Legal capital reserves 3,613,019 3,613,019 2.13.1 Reserves from capital contributions 3,313,019 3,313,019 2.13.2 Organization fund 300,000 300,000 2.15 Voluntary retained earnings (3,576,135) (3,942,434) 2.15.1 Profit/loss carried forward (3,942,434) (3,720,343) 2.15.2 Profit/loss 366,299 (222,091) 2.17 Total Equity 9 10,869,792 10,503,493 Total Liabilities and Equity 11,973,820 11,283,662 3 1 2018 Annual Report Europa Reinsurance Facility Ltd. - Income statement CF-IF Note 31.12.2018 31.12.2017 1 Gross premium written 10 1'543'942 266'739 2 Premiums ceded to reinsurers 10 (147'568) (75'698) 3 Net Premiums Written (1+2) 1'396374 191'041 4 Change in unearned premium reserves 10 (294'270) 46'154 5 Change in reinsurers' share of unearned premium reserves 10 27'480 (5'220) 6 Net premiums earned (3+4+5) 1'129584 231'975 7 Other insurance income - - 8 Total technical income (6+7) 1'129'584 231'975 9 Gross claims and claim expenses paid 11 (2'902) - 10 Reinsurer's share of claims and claim expenses - - 11 Change in technical provisions 11 (145'610) - 12 Change in reinsurers' share of technical provisions - - 13 Change in technical provisions for unit-linked business - - 14 Net claims and claim expenses incurred (9+10+11+12+13) 11 (148'512) 15 Acquisition costs and administrative expenses 12 (711'071) (363'195) 16 Reinsurers' share of acquisition costs and administrative expenses - - 17 Net acquisition costs and administrative expenses (15+16) (711'071) (363'195) 18 Other technical expenses own business - - 19 Total Technical Expenses ( 14+17+18) (859'582) (363'195) 20 Income from Investments 311'514 119'036 21 Expensesfrom investments (114'041) (178'654) 22 Net income from investments (20+21) 14 197'473 (59'619) 24 Other financial income - - 25 Other financial expenses (90'275) (15'609) 26 Operating result (8+14+17+18+22+23+24+25) 377'199 (206'448) 27 Interest expenses from interest-bearing liabilities - - 28 Other income 15 _ _ 2'138'124 2'263'939 29 Other expenses 15 (2'138'124) (2'263'939) 30 Extraordinary income/expenses - (5'143) 31 Profit/loss before tax (26+27+28+29+30) 377'199 (211'591) 32 Income tax expense (10'900) (10'500) 33 Profit/loss (31+32) 366299 (222'091) See notes to the financial statements pages 6-15 4 1 2018 Annual Report Europa Re Ltd. - Cash Flow Statementu CHE 31.12.2018 31.12.2017 Profit/loss 366'299 (222'091) Depreciation, amortization and write-downs on Property and equipment 2'616 8'293 Intangible assets 4'548 6'015 Investments Net unrealized gains/losses on investments fixed-interest securities 56'103 100'277 Net unrealized gains/losses on investments shares 51'464 - Net unrealized gains/losses on other investments (176'461) 74'565 Increase/decrease in: Unearned premium reserves 294'270 (46154) Technical provisions 145'610 - Gains/losses on disposals of: - - Property and equipment - - Intangible assets - - Increase/decrease in assets and liabilities: Purchase/Proceeds from sale of real estate - - Purchase/Proceeds from sale of participations - - Purchase/Proceeds from sale of fixed-interest securities 151'112 494'931 Purchase/Proceeds from sale of loans - - Purchase/Proceeds from sale of mortgage loans - - Purchase/Proceeds from sale of shares (1'109'468) 13'000 Purchase/Proceeds from sale of other investments (2'679'320) - Receivables from derivative financial instruments - - Deposits on ceded reinsurance business 39'016 (18'419) Reinsurance share of technical provisions (27'480) 5'220 Deferred acquisition costs - - Insurance receivables (510'551) 217'499 Other receivables 13'000 10'656 Other assets - 2'021 Prepaid expenses (51'825) (32'321) Other liabilities (200'063) 190'494 Deferred income 45'025 (294'989) Cash flow from operating activities (3'952'403) 731'088 Purchase of property and equipment (4'480) (3'511) - Proceeds from sale of property and equipment - - Purchase of intangible assets (3'232) (4'244) Cash flow from investing activities (7'712) (7'756) Capital contribution - 2'778'360 Cash flow from financing activities - 2'778'360 Change in cash and cash equivalents (3'593'816) 3'279'602 Statement: Cash and cash equivalents as of 1 January 4954'569 1'674'967 Effects of exchange rate changes on cash and cash equivalents - - Cash and cash equivalents as of end ofreporting period 1'360'753 4'954'569 Change in cash and cash equivalents (3'593'816) 3'279'602 51 2018 Annual Report Europa Reinsurance Facility Ltd. - Notes Foreign currency translation: Significant Accounting Principles These financial statements are prepared in Swiss francs. Expenses and income in foreign currency are Basis of Presentation translated at the prevailing rate. Balance sheet items denominated in foreign currency are translated at the These financial statements as at 31 December 2018 prevailing rate as of the balance sheet date. of Europa Re Ltd., domiciled in Zug, Switzerland The main exchange rates used for the presentation of (Europa Re or the Company), have been prepared in these financial statements are presented below: accordance with the Swiss accounting and financial reporting legislation entered into force on 1 January 31.122018 31.12.2017 2013 based on partial revisions of the Swiss Code of EUR 1.1265 - 1.1691 Obligations (CO) (Art. 957-963b CO, which required USD 0.9850 0.9753 implementation in 2015. Apart from the Swiss Code of Obligations, the Company, as a reinsurance Valuation Principles: company, has, based on article ilib of the Ordinance on the Supervision of Private Insurance Uniform valuation principles were applied. Assets, Companies (AVO), also to follow the Insurance equity and liabilities were valued individually. The Supervisory Ordinance-FINMA (AVO-FINMA) that quoted or market price as of the balance sheet date entered into force on 15 December 2015. This AVO- is used for other investments subsequently valued at FIN MA contains specific guidance for presentation of observable market prices, while fixed income the balance sheet, the income statement and the securities are valued at amortized cost. Equity and notes of insurance companies and overrides the liabilities are stated at their nominal value. general guidance of the CO. Capital investments/property and equipment: Time: Shares are valued at cost less impairment losses. These financial statements comprise the accounting Fixed-interest securities are valued using the linear period from 1 January 2018 to 31 December 2018. cost amortization method. Other capital investments are valued at market Use of estimates in the preparation of annual financial value. statements: Intangible assets, are amortized using the useful life method. The Company has performed the The preparation of these financial statements impairment test for any impairment during the requires management to make significant estimates reporting period. and assumptions that affect the reported amounts of assets, liabilities, income and expenses as well as Technical provisions: the related disclosures. Actual results could differ significantly from these estimates. These are obligations due to insured parties determined based on an individual insurance agreement. They are calculated based on the business plans agreed with FIN MA. 6 1 2018 Annual Report Europa Re Ltd. - Disclosures, Breakdowns and explanations relating to items on the balance sheet and the income statement 1. Fixed-interest securities The Company has invested in 14 diversified bonds with maturities from 1 to 5 years denominated in Swiss Francs, US Dollars and Euro issued by institutions with credit ratings, BBB- and above. The valuation of the bonds as at 31 December 2018 was done based on the linear amortized cost method. 31.12.2018 Currency of Bonds at Amortized cost CHF denomination amount Market Value Fixed Income Securities Bonds held to maturity less than 1 year CHF 619,975 624,797 Bonds held to maturity from 1 to 3 years CHF 1,904,000 1,922,268 Bonds held to maturity from 3 to 5 years CHF 5,418 5,453 Bonds held to maturity from ito 3 years USD 1,119,986 1,102,530 Bonds held to maturity from 3 to 5 years EUR 215,352 214,234 Total 3,864,731 3,869,281 31.12.2017 Currency of Bonds at Amortized cost CHF denomination amount Market Value Fixed Income Securities Bonds held to maturity less than 1 year CHF 764,786 766,623 Bonds held to maturity from 1 t 3 years CHF 1,967,381 1,988,683 Bonds held to maturity from 3 to 5 years CHF 324,878 325,545 Bonds held to maturity from 3 to 5 years USD 1,014,902 1,026,562 Total 4,071,947 4,107,412 2. Other Investments 2.1Shares in real estate funds The company has invested approximately 10% of its investment portfolio in real estate funds in Switzerland, denominated in Swiss Francs. The two selected funds for investment have an observable share market price, published by the stock exchange market, therefore the company uses the market value for the valuation of this investment. Real estate funds Currency of In CHE denomination 31.12.2018 31.12.2017 BONHOTE IMMOBILIER CHF 452,140 - number of shares 3,478 - once ner share CHF 130.00 - 7 1 2018 Annual Report Europa Re Ltd. - SOLVL 61 PRI CHE 605,864 - number of shares 2,480 - price per share CHF 244.30 - Total 1,058,004 - 2.1 Insurance linked securities To mitigate and diversify investment risks, and gain attractive returns, uncorrelated to traditional asset classes, the company invests in Insured Linked Securities (ILS). At 31 December 2018, the investment consists of 46,745 shares with a nominal par value of 98.76 CHF/share in GAM FCM Cat Bonds Fund Institutional class, CHF denominated which holds a portfolio exposed mainly in Catastrophe Bonds. At 31 December 2017 the investment held in GAM FCM Cat Bonds Fund Open class US Dollars denominated, consisted of 13,361 shares with a nominal par value of 135.12 USD/share Investment in Insured Linked Securities Currency of In CHE denomination 31.12.2018 31.12017 GAM FCM CAT BOND Inst Class CHF 4,616,579 number of shares 46,745 price per share CHE 98.76 Exchange rate with CHE CHF 1.000 GAM FCM CAT BOND Open Class CHE - 1,760,798 number of shares - 13,361 price per share USD - 135.12 Exchange rate with CHF CHF - 0.9753 TTotal 4,616,579 3. Cash and Cash equivalents Cash and cash equivalents present the current accounts of the Company classified in two categories: Current Accounts and the Dedicated Accounts. The latest are the bank accounts which serves to the Company to perform transactions related to the project funded/administered by the International Bank for Reconstruction and Development (the World Bank). Significant decrease of cash and its equivalents compared with previous year period is explained with the allocation of the excess of liquidity in different types of investments : mainly ILS and real estate funds. CHF 31.12.2018 CHF USD EUR Total Current Accounts 340,895 54,403 854,250 1,249,549 Dedicated accounts - 111,204 - 111,204 Total 340,895 165,608 854,250 1,360,753 CHF 31.12.2017 CHE USD EUR Total Current Accounts 1,667,875 67,113 167,097 1,902,084 Dedicated accounts - 271,772 - 271,772 Dedicated accounts for capital contribution - 2,780,713 - 2,780,713 Total 1,667,875 3,119,597 167,097 4,954,569 8 1 2018 Annual Report Europa Re Ltd. - 4. Insurance Receivables At the reporting date, receivables from agents and brokers are mainly constituted from the amount due from commercial reinsurance treaties' premiums which are collected on a quarterly basis. The main increase compared to the year-end and previous year reporting period, consists of the additional premiums written during the period from 1 January to 31 December 2018. CHF 31.12.2018 31.12.2017 Receivables from Insurance Companies 41,622 35,124 Receivables from agents and brokers 593,352 89,299 Total 634,974 124,423 5. Accrued and prepaid expenses/Deferred Income CHF - 31.12.2018 31.12.2017 Accrued Interests Bonds 52,087 53,218 Prepaid Expenses 66,257 37,261 Deferred trust fund expenses 235,675 211,714 Total 354,018 302,193 Deferred trust fund expenses and income represent the amounts due from/to the World Bank for the eligible expenses incurred during the reporting period under two projects: - Southeast and Central Europe Technical Assistance for Catastrophe Risk Insurance Facility SECO Project, (SECO Trust Fund Grant No. 1F095647). This project was established in accordance with the grant agreement (the 2009 Grant Agreement) signed on 25 November 2009 between the Company and the World Bank. The World Bank, as an administrator of grant funds provided by the Swiss State Secretariat for Economic Affairs (SECO), has provided the Company grants in amount of USD 8,205,835: i. USD 4,231,835 with closing date 28 February 2015. At the closing date of this project, the Company performed all the project activities and used the funds for eligible expenses resulting with an outstanding balance not disbursed of CHE 405,516 (USD 450,060). U. An extension of the grant amount of USD 3,000,000 was signed in the grant agreement (the 2015 Grant Agreement) dated September 17, 2015. The closing date of the activities under this new grant is 30 June 2018. The amount available to be spent out of SECO project is CHE 3,309,568 (USD 3,450,060). iii. On 4April 2018 an extension of the grant amount of USD 974,000 was signed, increasing the grant amount to USD 8,205,835. CHF 31.12.2018 31.12.2017 Deferred trust Fund Incomes at 1 January (198,843) (168,449) Donation received out of SECO project 700,541 1,257,074 Amortization of deferred income to match related project expenses (456,673) (1,287,468) Deferred trust fund expenses/incomes 45,025 (198,843) 9 1 2018 Annual Report Europa Re Ltd. - - Global Environment Facility Special Climate Change Fund Grant Agreement (GEE KZ Project). A grant in an amount equal to USD $ 5,000,000 was signed on May 24, 2016. The project's closing date under the agreement is 31 December 2019. CHE 31.12.2018 31.12.2017 Deferred trust Fund Incomes at 1 January (12'871) 294'989 Donation received out of GEE KZ project 1'458'648 668'611 Amortization of deferred income to match related project expenses (1'681'452) (976'471) Deferred trust fund incomes (235'675) (12'871) Total (211'714) At 31.12.2017 the amount of CHE 211,714 was disclosed as a deferred trust fund expense and presented in the Balance Sheet under the item 1.14 Accrued and prepaid expenses. The Company does not offset the deferred trust funds incomes and expenses, for this reason the total amounts at 31.12.2018 for both projects are not shown. 6. Technical Provisions At the reporting period, the technical provisions of the company consist of the Unearned Premiums Reserve and the Case reserve for the claims incurred not settled at the end of the reporting period. The new case reserves combine claims that occurred in 2018 : one from the development business, the unrenewed Ansig XoL treaty and the Anadolu CA XoL treaty. Due to the quick development of these claims, there is no indication for adding any actuarial reserves in the form of IBNR. CHF 31.12.2018 31.12.2017 Unearned Premium Reserve gross 450'957 156'687 Reinsurers' share of unearned premium reserves (70'466) (42'986) Gross Claims provision 145'610 - Total Technical provision net 526'101 113'701 7. Other Liabilities Other liabilities are short-term obligations, which are usually settled within the next quarterly period. The accrued liabilities consist mainly of the accruals under trust funds for services performed but not invoiced as of 31.12.2018. CHF 31.12.2018 31.12.2017 Accounts Payables 67'747 94'908 Taxes Payables 2'829 20'283 Accrued Liabilities 258'581 373'148 Other Payables 2'917 3'879 Payable to Personel 51'115 91'034 Total 383'189 583'251 10 1 2018 Annual Report Europa Re Ltd. - 8. Receivables from and liabilities to Related Parties CHF 31.12.2018 Management Third Party Participants Bodies Participations Total Other Receivables - - - - - Other Payables 383'189 - - - 383'189 CHF 31.12.2017 Management Third Party Participants Bodies Participations Total Other Receivables 13'000 - - - 13'000 Other Payables 557'272 - 25'979 - 583'251 9. Statement of Changes in Equity Share capital Statutory Voluntary Total Equity Capital Retained CI-IF reserves Earnings As at 1 January 2017 10'832'908 834'659 (3'72('343) 7'947'224 Legal Capital Reserves - 2'778'360 - 2'778'360 Transfer to legal retained earnings - - - Transfer to voluntary retained earnings - - (222'091) (222'091) Purchase/Sale of treasury shares - - - - Dividend Payments - - - - As at 31December 2017 10'832'908 3'613'019 (3'942'434) 10'503'493 As at 1 January 2018 10'832'908 3'613'019 (3'942'434) 10'503'493 Legal Capital Reserves - - - - Transfer to legal retained earnings - - - Transfer to voluntary retained earnings - - 366'299 366'299 Purchase/Sale of treasury shares - - - - Dividend Payments - - - - As at 31December 2018 10'832'908 3'613'019 (3'576'135) 10'869'792 11 12018 Aiiiival Report Europa Re Ltd. - 10. Technical Incomes CHF 31.12.2018 31.12.2017 1. Gross RI Written Premiums 1'543'942 266739 SEE markets 533'144 266'739 Other markets 1'010'799 - 2 Premiums ceded to reinsurers (147'568) (75'698) SEE markets (103'283) (75'698) Other markets (44'285) - 3 Net Premiums Written 1'396'375 191'041 SEE markets 429'860 191'041 Other markets 966'514 - 4 Change in unearned premium reserves (294'270) 46'154 SEE markets 44'286 46'154 Other markets (338'556) - 5 Change in reinsurers' share of unearned premium reserves 27'480 (5'220) SEE markets (5'673) (5'220) Other markets 33'153 6 Net Premiums earned 1'129'584 231'975 SEE markets 468'474 231'975 Other markets 661'111 - 11.Claims Incurred CHE 31.12.2018 31.12.2017 Gross claims and claim expenses paid 2'902 - SEE markets 2'902 - Other markets - - Change in technical provisions 145'610 - SEE markets 115'767 - Other markets 29'842 - Net claims and claim expenses incurred 148'512 - SEE markets 118'670 - Other markets 29'842 - 12.Acquisition costs and administrative expenses Most of administrative expenses are financed from trust funds as detailed also in note 15. CHF 31.12.2018 31.12.2017 Acquisition Costs 210'177 35'233 Office rent and maintenance 1'023 203 Representative office expenses 95'245 97'330 IT services 5'883 4'550 Outsourced and consultancy services 88'564 8'634 Personnel expenses 203'865 84'404 Overhead Expenses 106'314 104'670 Stamp duty taxes - 27'784 Losses from receivables - 388 Total 711'071 363'195 12 12018 Annual Report Europa Re Ltd - 13.Audit Fees In 2018, the Company incurred CHE 62,122 fees for audit services and CHE 27,692 additional fees for other services. Most of audit services are financed from the SECO project as detailed also in note 15. CHF 31.12.2018 Audit Services -- - - - - 62,122 Other Services 27,692 Total 89,814 CHE 31.12.2017 Audit Services 91,044 Other Services 45,524 Total 136,568 14.Income/Expenses from Investments CHF 31.12.2018 Income Investment Appreciation/ Depreciation / Net realized Net Net Income Management Net Net gains realized from Expenses Unrealized Unrealized losses Investments Gains Losses Fixed Interest Securities 122'157 (5'134) - (56'103) - - 60'919 Shares (1'340) (51'464) 12'896 (39'908) Other Investments - - 176'461 - - 176'461 Total 122'157 (6'474) 176'461 (107'567) 12'896 - 197'473 CHF 31.12.2017 Income Investment Appreciation! Depreciation / Net realized Net Net Income - Management Net Net gains realized from Expenses Unrealized Unrealized losses Investments Gains Losses Fixed Interest Securities 119,036 (3,812) - (100,277) - - 14,947 Other Investments - - - (74,565) - - (74,565) Total 119,036 (3,812) - (174,843) - - (59,618) 15.Other Incomes and Expenses Other Expenses are trust fund eligible expenses under Projects' Grant Agreements. Other Incomes represent trust fund incomes recognized on a basis of matching the accrual trust fund expenses over the reporting period and as a result they are equal in amounts with those expenses. CHE 31.12.2018 31.12.2017 Consultants Payment 272'327 851'263 External Audit services 62'122 91'044 Training Services 9'027 12'554 Bank commissions 3'042 4'409 Travel expenses 15'914 69'785 Operational Costs 94'240 258'412 13 1 2018 Annual Report Europa Re Ltd. - Total Expenses under SECO TF 456'673 1'287'468 CHF 31.12.2018 31.12.2017 1.Project Management and Administrative Staff 255'398 72'170 2.a General Technical Service 401'271 213'769 2.b Actuarial Services 168'604 148'584 2.c Claim Services - - 2.d Agriculture insurance services 17'886 - 2.e IT Services 467'515 382'619 21 PR & Marketing services - - 3. Country Risk Assessment Services 75'715 - GEE KZ Operational Fund 295'062 159'329 Total Expenses under GEF TF 1'681'452 976'471 Total project income/expenses 2'138'124 2'263'939 16.Share capital and major shareholder The share capital of the Company amounts to CHF 10,832,908. lt is divided into 1,679 registered shares with a nominal value of CHE 6,452 each. The shares are fully paid-in and held by Republic of Albania (8 %), Republic of North Macedonia (19.9 %) and Republic of Serbia (19.9 %). The remaining shares (52.2 %) are held by a trustee; the trustee arrangement has been created to enable swift and unimpaired entrance in the Company of new shareholders. When new shareholders join, the trustee dispenses a certain number of shares in its possession in exchange for the shareholders' contribution. 17. Personnel information As of 31 December 2018, the Company employed less than ten full time employees. The total amount of personnel expenses amounted of CH F 203,865 consists of the salary of the few employees and social insurance expenses of all the personnel. For the reporting period, main core positions and the board members' remuneration were paid by GEE and SECO Trust Fund which are presented in Note 15. 18. Events after the reporting date After the reporting date of 31 December 2018 till the approval of these financial statements, there are no adjusting events that are not reflected in the financial statements or events that are materially significant for disclosure in these financial statements. 19.Commitments and contingencies Except of the amount of CHE 111,204 which represents the cash that the Company holds in bank's dedicated current accounts, committed to Trust Fund activities as per the Projects' Grant Agreements, there are no significant commitments contracted at 31 December 2018 that are not already recognized in the financial statements. 20. Liabilities to Pension Schemes At 31 December 2018, no obligations payable to employees' pension fund existed. 14 1 2018 Annual Report Europa Re Ltd. - 21. Litigations There are no legal or actual obligations for which a cash outflow either appears likely or is of an amount that can be reliably estimated. 22.Other legal requirements There are no further legal requirements to the notes of the Financial Statements. 15 1 2018 Annual Report Europa Re Ltd. - Proposal for the appropriation of the distributable earnings CHF 31.12.2018 31.12.2017 Losses carried forward (3,942,434) (3,720,343) Profit (Loss) of the year 366,299 (222,091) Total Accumulated losses (3,576,135) (3,942,434) Proposai of the Board of Directors: The profit of the year in the amount of CHF 366,299 to be carried forward to the new account. On behalf of the Board of bi I~ Hnsjürg Appnzelier OrsaIi Kala(ptzopoo[Ds Chairman of the Board of Directors Chief xecutive Officer Chief Financial Officer May 17th 2019 16 1 2018 Annual Report Europa Re Ltd. - Management Report Born during the uncertain times characterized by the areas of corporate organization, risk models, prolonged "soft" reinsurance business cycle and underwriting and financial expertise, to finally reduced entry barrier to the sector for providers of generate positive technical and investing results. The alternative reinsurance capacity, Europa Re profit forthe year was CHF 366 thousand, close to the nevertheless has made good progress towards projected results. This positive outcome should be becoming a well-managed profitable property mainly attributed to the successful underwriting reinsurer. strategy which not only strongly contributed to the company's bottom line but also laid the foundation The company's journey began in the Southeast for a profitable underwriting portfolio that the Europe, where it proved the ability to develop and company intends to build on in the future. launch innovative NatCat insurance products in the countries with almost non-existing catastrophe Accept small shares in commercial property and insurance coverage. Since then Europa Re has been motor liability treaties globally to achieve profitability successfully expanding into other lines of business in 2018. and new country markets. Improved diversification, While the NatCat and agricultural insurance pilot rigorous risk management and agile corporate projects launched by Europa Re in the SEE markets governance enable Europa Re to flexibly adopt its started to generate first positive results in 2018, business model to the constantly changing global Europa Re also made the first inroads into market conditions and timely mitigate material risks commercial reinsurance through small participations to the company's profitability. in commercial reinsurance treaties worldwide. The authorization obtained from FINMAto write business 2018 was the year of heightened political and globally allowed the company to extend its economic uncertainty for the global reinsurers. geographical scope of catastrophe and weather- Lower growth, higher debt burdens, and declining related reinsurance business beyond SEE countries financial market were all pointing to the upcoming and accept small shares in commercial property economic recession. Also, very troubling were the reinsurance treaties globally. As a result, the gross natural catastrophes that struck in all parts of the written premiums reached CHF 1.5 million for the world, thus making 2018 the fourth costliest year on year 2018 and a net technical result before operating record for the global insurance industry. expenses was CHF 771 thousand. Despite these challenges, for the first time ever, in Achieving adequate asset-liability management 2018, Europa Regenerated positive technical income without compromising investment returns. and investment incomes, successfully ending its start- In 2018, the company revised the investment limits in up phase. The company's new focus is on a more line with the increased volume of reinsurance efficient deployment of capital through selective premium and arising from that reinsurance liabilities underwriting and investing activities; further to attain a solid risk-based solvency ratio while enhancement of its risk management systems and generating adequate returns. As a result, despite the processes and expanding its premium base. In the financial market challenges and numerous large mid-term the company intends to gradually increase natural disasters throughout the year, Europa Re net its business volume, profitability and capital base financial income for the year 2018 was CHF 197 through organic growth. thousand, which corresponds to a 2.07% return on its investment portfolio. Year 2018 has been a challenging year for most asset 1. Strategy highlights 2018 classes due to the escalating trade wars, growth Attain profitability while remaining strongly slowdown in, unstable European politics and a committed to the developmental mission to- succession of Fed rate hikes. Below we present the increase catastrophe insurance penetration among relevant financial market indicators that adversely vulnerable homeowners, farmers, SMEs in disaster affected Europa Re portfolio: prone countries - Bonds interest rates : Borrowing costs in After four years of operations, Europa Re could advanced economies increased during most harvest the fruits of investments done in different of 2018, as inflation moved closer to central 17 1 2018 Annual Report Europa Re Ltd. - bank targets and monetary policy 16.5 bn in economic losses and US$ 12.5bn accommodation continued to be withdrawn. in insured loss), and Hurricane Michael (US$ After notable fluctuations, by the end of 16bn and US$ 10bn of economic and 2018, U.S. long-term yields increased by 30 insurance losses respectively). Such massive basis points. Notwithstanding the scaled wildfires seem to occur more frequently as a back asset purchases by the ECB in the Euro result of climate change. As in 2017, these Zone, the negative interest rate policies in catastrophic events in 2018 had an adverse most of EU economies continue to persist. As result on the company's investment in ILS. a result, finding attractive yields in CHF and The positive results achieved on this EUR denominated bonds has become a investment in 2018 should be attributed major challenge, while the US Dollar mainly to the foreign exchange gains from denominated bonds became the major the conversion of the USD denominated driver of the company's fixed income position in ILS to the CHE denominated one portfolio for the year. in August 2018, which benefited from the Global equity markets experienced a temporary appreciation of USD against CHF significant drop in the final quarter of 2018, at the time of the conversion. partly reflecting a deterioration in the market sentiment toward the global economic Expansion opportunities in Central Asia environment and structural trade policy As the project implementing agency for the World shifts. The FTSE All-World index, which tracks Bank project on agricultural and weather risk thousands of stocks across a range of insurance in Kazakhstan, the company designed an markets, plummeted 12% in 2018. lt was the innovative weather-related credit default insurance index's worst performance since the time of product for farmers and rural. The first several the global financial crisis, and a sharp contracts were sold on the pilot basis in Kazakhstan reversal from a gain of nearly 25% in 2017. during 2018. Although Europa Re's investment portfolio was less exposed in stocks during 2018, the Maintain a successful implementation track record of decline in the equity markets around the donor funded projects in developing weather risk globe, had an adverse impact on the real insurance estate fund shares held by the company, The extension of the existing SECO Grant Agreement which as a result lost 5% of their value. till the end of the year 2020 combined with the Currencies market: In 2018, the diverging allocation of the additional CHE 0.8 mm from the monetary policies pursued by the US and EU release of the forex provision, has given the central banks also contributed to a significant company more time and the necessary funds to appreciation of the U.S. dollar. The US successfully conclude the pilot project activities in Federal Reserve (Fed) continued to raise SEE. rates (four times) while the central banks of other advanced economies, including the Sustain a level of solvency under the Swiss Solvency ECB, refrained from doing so. In Europe, Test that is equivalent to an investment grade rate investors' worries about the Italian fiscal rating. policy temporarily boosted the CHE, The level of the SST remains well above the targeted perceived as a safe-haven currency by the EU level of 175% after the treaty renewals and the investors, while the Euro seemed to have rebalancing of the investment portfolio. With the SST declined in value relative to the USD below remaining at a high 241% for 2019, for the fifth its fair value. consecutive year Europa Re demonstrated its ability Natural catastrophes: 2018 witnessed to adequately manage the risks and comply with the several major natural catastrophes resulting strict FINMA regulatory requirements. in high insured losses. These included severe tropical cyclones occurring both in the US 2. Corporate Governance (Hurricane Irma Florence and Michael) and Focusing on corporate governance requirements in Japan; while the autumn wildfires devastated Switzerland and in its countries of operations, the parts of California. The most expensive company's Board of Directors continued to natural catastrophes occurred in the US: a demonstrate strong leadership by steering the wildfire in northern California causing US$ 18 1 2018 Annual Report Europa Re Ltd. - company toward higher transparency, efficiency and team. The Management Committee regularly reports agility. to the CEO, and in consultation with the CEO, to the Board of Directors. The Company's corporate governance framework ensures compliance with the governance principles 2.3. Corporate Governance assessment required by FINMA, and serves as a guide for proper Europa Re considered several comments received organization and conduct of business within Europa from FIN MA during the year 2018 on the Corporate Re. The Company is committed to continue improving Governance survey completed in June 2018. The its governance structure and internal business next Corporate Governance survey will be completed processes and policies to fully comply with existing as per FINMA's requirement on June 2019. and new regulatory requirements and business practices. 2.4. Europa Re team At the end of 2018, the Company had 13 core staff 2.1. Board appointments and renewals positions, which were filled by full-time employees On June 26, 2018, Europa Re announced the term and consultants and 10 part-time positions, where renewal of two members of the Board of Directors were filled by consultants. Our team is the core and and the appointment of a new member of Board of the main asset of the organization. Through their Directors. tireless daily work and strategic thinking, Europa Re Hansjürg Appenzeller and Anselm Smolka, has accumulated vast expertise in underwriting, members of the Board of Directors of Europa actuarial science, catastrophe risk modeling, finance, Re since 2009 and 2016 respectively, were risk and claims management. re-elected as members of the Board of Directors of Europa Re. 3. Risk Management Mr. Eugene Gurenko was newly elected as Risk management is a process, steered by Europa third member of the Board of Directors of Re's Board of Directors, and diligently executed by Europa Re. Mr. Gurenko is a Lead Insurance the company management and technical staff. Risk Specialist at the World Bank, where he management forms an integral part of the corporate managed and implemented dozens of World strategy that assists the company to manage the risk Bank advisory and investment projects in within its risk appetite. The rigorous implementation insurance in over 30 countries. He is a of risk management principles in every facet of the renowned international expert and company's operations also serves as a reasonable practitioner of catastrophe (re)insurance assurance of achieving the corporate objectives. with over 20 years of insurance industry experience world-wide. Among his most 3.1. Risk Management structure noteworthy professional accomplishments The Board of Directors is ultimately responsible for are the creation and operational the Company's risk governance principles and management of several national and multi- policies. lt defines fundamental risk management national catastrophe risk insurance principles and the Company's risk appetite and risk programs. Mr. Gurenko's joining of the tolerance. company' Board greatly contributed toward The Company's risk management function is raising the company's overall reinsurance responsible for the identification and evaluation of expertise and improving its business key risks that may adversely affect the ability of the strategy. company to stay within the approved risk management framework. 2.2. The Management Committee - The Risk Manager leads the risk management Created during the year 2016, the Committee function and reports to the CEO and the Board. consists of the Chief Executive Officer (CEO), the The role of Risk Management Officer is currently Chief Financial Officer (CFO), and the Chief carried out jointly by the CFO and the CUO. Underwriting Officer (CUO). The Committee plays an - The Compliance Officer manages the compliance important role in discussing the financial risks, and oversees the compliance with the performance of the company, setting performance applicable laws, regulations, rules and Europa targets and budgets, approving key policies and Re's Code of Conduct. The function also assists defining any other responsibilities and authorities the Board of Directors, and other management delegated by the Board to the senior management 19 1 2018 Annual Report Europa Re Ltd. - bodies in identifying, mitigating and managing SST ratio developement compliance risks. 12.02 284% 300% The Internal Audit performs independent assessments of adequacy and effectiveness of 10.2% 260% internal control systems. 2.00 20316 - The Designated Actuary ensures that the .2 6.00 100% Company adequately estimated its technical 100% reserves. 2.00 0101 0.00 026 3.2. Risk identification and Assessment 2016 71217 2012 2017 The Company's senior managers are responsible for SCI - J lIC SIT 6020 the identification and evaluation of key risks inherent Figure 1-SST Ratio development 2015-2019 to their areas of responsibility. These risks are continuously assessed and reported to the Board at Europa Re is mainly exposed to insurance risk and to least on a quarterly basis. market risk and, to a lesser extent, to credit risk. - The Company specifies objectives with sufficient The changes in the different risk components since clarity to enable the identification and last year can be observed in Figure 2. assessment of risks relating to objectives. The insurance risk increased slightly from CHF business objectives for the year under review 3.59 million to CHF 3.73 million. In light of are defined in the annual budgets and in the significant growth in the company's multi-year planning. reinsurance business, the net retentions - The Company identifies risks to the achievement were reduced for several treaties by means of its objectives, analyzes and determines how of retrocession. those risks should be managed. All potential market risk dropped by 23% from CHE 1.74 risks associated with a variety of internal or million last year to CHE 1.34 million this external sources including underwriting, year. This main standalone market risk now retrocession, financial reporting, investment, originates from the valuation risks of the disruption in information systems, political risk real estate and ILS funds, which add up to and regulatory requirements, are continuously EUR 1.32 million. The drop in the market risk assessed by the management. The CFO and CUO is attributed to the reduction of currency report to the Board on a quarterly basis the Risk exchange risk from CHE 1.8 million to 0.6 Matrix which serves as an exposé of the risks million as during 2018 the company assessed, how they are controlled and mitigated reinvested most of its foreign currency and what remains to be addressed at Board assets into CHE. level. Credit risk of CHE 0.28 million is essentially unchanged. 3.2.1. Core Risks Assessment Market Value Margin (MVM) increased from Europa Re's level of capitalization and its capital 0.1 million in 2018 into 0.7 million in 2019. structure are driven by regulatory requirements and As illustrated in the table below, although the risk management framework arising from its the market value margin increases underwriting and investing activities. Europa Re holds significantly in relation to last years, it its capital under all relevant capital adequacy remains a small component of the target requirements, such as the Swiss Solvency Test (SST). capital and still contributes little to the SST ratio. This comes as no surprise, given the The SST capitalization is comfortably achieved with a short-tailed nature of Europa Re's portfolio solvency ratio of 241% resulting from the quotient of of liabilities. The increase is mainly due to CHF 10.88 million risk bearing capital (RBC) over 4.22 the establishment for the first time of claims million solvency capital requirement (SCR). Overall reserves. there is little change of SST ratio compared to 249% Expected Insurance Result: The technical loss in 2018. decreased from CHF 0.19 to CHF 0.06 million due to a better cost management process and improvement in the technical results due to the successful underwriting year. 20 1 2018 Annual Report Europa Re Ltd. - Expected Financial Performance: The capabilities help protect the company from the company expects a financial income of 0.25 growing cyber threats as well as to develop and million CHE, which is almost similar to the implement its internal technological know-how in its previous year. core markets and new projects. 5. Orders and Assignments In 2018, the Company has renewed the excess of loss e treaty in Romania and signed nine new commercial proportional and non-proportional treaties. 6. Extraordinary events There were no extraordinary events outside the ordinary course of business during year 2018 or I SST2O19I subsequently that could have caused any adverse impact on the company's results. 7. Future Developments and Risks Since the beginning of its journey to the global reinsurance markets, the company strengthened its focus in monitoring the global economies trends that impact its present and future decisions for performing business in a specific territory. The forthcoming changes on the world scene urge a closer analysis before any underwriting or investment decision and a rapid adaptation of the internal risk management approaches and corporate structures. Despite the challenges, the company remains confident to the future perspectives. In the below Figure 2- Main components of risk bearing capital the section, are provided main changes expected in 2019 solvency capitol requirement in million CHF globally and in the financial markets. 4. Research and Developments activities. 7.1. Future Developments Product development. R&D remains one of the core business activities to Europa Re stays committed to achieve its which the company allocates significant internal development mission to increase catastrophe resources with the objective to design new insurance penetration among vulnerable catastrophe and weather-related insurance products homeowners, farmers and SMEs in disaster prone that can successfully fulfill its developmental role. countries. At the same time, the company intends to The company's range of in-house developed continue building a profitable commercial innovative products was further expanded in 2018, underwriting operation through participation in with the launch of a new AYII credit risk default global reinsurance treaties and through pro-active product in the Kazakhstan insurance market. The value-driven investment strategy. product offers insurance coverage against the risk of credit default by the borrower in case of a major drop Going into 2019, the company seeks to further grow in regional yields for major crops grown in the its reinsurance portfolio and achieve higher returns country regardless of the cause. on its investment portfolio while maintaining the level of SST equivalent to the investment grade IT technology development. rating. The company also intends to moderately With its highly experienced IT team, the Company can increase its capital base through organic growth and quickly adapt its business model and business internal investment that would further enhance its processes to the rapidly evolving realities of the business opportunities. modern reinsurance market place. The internal IT 21 1 2018 Annual Report Europa Re Ltd. - Report of The Statutory Auditors Report of the Statutory Auditors on the Financial Statement As statutory auditor, we have audited the accompanying financial statements of EUROPA Reinsurance Facility Ltd., which comprise the balance sheet, statement of income, statement of cash flow, change in shareholder's equity and notes to the financial statements (pages 3 to 15), for the year ended 31 December 2018. Board of Directors' responsibility The Board of Directors is responsible for the preparation of these 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 ap-propriate 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 2018 comply with Swiss law and the company's articles of incorporation. 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 Code of Obligations (CO) and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a para. 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 (page 16) complies with Swiss law 22 1 2018 Annual Report Europa Re Ltd. - and the company's articles of incorporation. We recommend that the financial statements submitted to you to be approved. Zurich, 17 May 2019 MAZARS AG / Angelo Accardi Daniel Müller Audit expert Audit expert Auditor in charge 23 1 2018 Annual Report Europa Re Ltd. - "The original is a PDF file with no Text. We were not able to OCR and extract the Text. Error:PDF01"