Zurich Insurance : Reinsurance Company Ltd Annual Report 2023

Annual Report 2023

Zurich Reinsurance Company Ltd

Zurich Reinsurance Company Ltd

Annual Report 2023

Financial statements

Contents

Management report	1
Board of Directors, management
and auditors	3
Income statements	4
Balance sheets	5
Notes to the financial statements	7
Proposed appropriation of available
earnings and capital contribution reserve	14
Report of the statutory auditor	15
Disclaimer and cautionary statement	19

Zurich Reinsurance Company Ltd	1
Annual Report 2023

Management report

Zurich Reinsurance Company Ltd (ZRe or the Company) is a reinsurance company domiciled in Zurich, Switzerland. The Company was licensed in Switzerland on December 15, 2016. The Company is a standalone legal entity that has both a reinsurance and a direct non-life insurance license issued by Swiss Financial Market Supervisory Authority (FINMA). The Company belongs to the Zurich Insurance Group (Group). ZRe's focus is on providing reinsurance solutions primarily to affiliated companies of the Group, in particular to branches of Zurich Insurance Company Ltd (ZIC). To date, the retained business is predominantly from ZIC's operations in United Kingdom and Asia Pacific. ZRe has a direct book, which has been in run-off for over 35 years.

Financial review

ZRe reported a net loss after taxes of CHF 17 million for the twelve months to December 31, 2023. The loss is mainly driven by the adverse FX-development of the U.S. dollar compared to the Swiss Franc (presentation currency). The underwriting result has mainly developed as planned. Gross written premiums and policy fees were generated primarily by two regions/sources:

United Kingdom (UK) and the Asia Pacific region account for 72 percent and 17 percent, respectively, of the Company's gross written premiums and policy fees. The remaining 11 percent is with the rest of the world. Gross written premiums and policy fees are generated through non-International Programs Zurich (non-IPZ) business (58 percent) and International Programs Zurich (IPZ)-processed business (42 percent). The IPZ assumed business from ZIC branches is being retroceded to ZIC and the non-IPZ assumed business is mostly retained by ZRe. The non-IPZ business is mainly comprised of quota share reinsurance from ZIC branches, in Japan (motor and personal accident (PA) business), in UK (Whole Account Quota Share (WAQS)) and in Hong Kong (WAQS). It grew mainly due to the new UK contracts.

Business overview

The business opportunity triggered by the UK business following Brexit has materialized as per January 1, 2023, and on the gross side, ZRe has grown substantially in 2023. From an underwriting perspective, the active business performed mainly as expected in the twelve months ended December 31, 2023. As of January 1, 2023, the Company has started to write business from ZIC's branch in the UK, which is only partially retained, but the majority is retroceded to ZIC. In November 2023, ZRe has started to assume a small portion of a WAQS treaty with a Group entity in the United States (U.S.), which is fully retained. The run-off business continues to be managed carefully as consistent with previous years. During 2023, ZRe maintained its prudent policy regarding reserving for this portfolio. Overall, it evolves as expected. The investment income result was driven by a combination of third-party invested assets and Group internal loans and partially also driven by the overall rising interest rates. The net investment result for 2023 developed in line with management's expectations.

Risk review

ZRe has a risk management framework under the lead of ZRe's Chief Risk Officer (CRO) which is fully integrated into Zurich's Group-wide risk process. For closer information on ZRe's overall approach to risk management, please refer to the risk review section in the Zurich Insurance Group Annual Report 2023.

ZRe uses two key sources for the identification and assessment of risks. One is the risk and capital model as required by Swiss Solvency Test (SST). This model quantifies financial risks which threaten the capital of the Company over a one-year time horizon. The significant risks for ZRe, as measured by capital metrics, are premium and reserve risk, market and credit risk. The other source is the Total Risk ProfilingTM (TRP) methodology which identifies all risks that threaten capital, earnings and reputation over a three-year planning horizon. The TRP process is applied to identify, evaluate, control and monitor these risks. Mitigation actions are defined for key risks. The TRP is completed at least annually with management's participation. Key risks identified and assessed during the TRP conducted in 2023 included: dependency on counterparties, key-people dependency, underwriting, reserve adequacy and currency risk, but all managed and within the Company's risk appetite.

Throughout the year, quarterly risk reports to the ZRe Management Board and the ZRe Board of Directors (BoD) provide updates of the risk and solvency situation as well as on Internal Control System related matters. Annually, an Own Risk and Solvency Assessment (ORSA) for ZRe is completed and was submitted to FINMA at the beginning of 2024. To ensure the BoD is adequately involved in the ORSA process, ZRe's CRO provides regular update, thus allowing the BoD to challenge findings and consider its views in its decision making process.

Zurich Reinsurance Company Ltd	2
Annual Report 2023

Management report (continued)

Outlook

The business written by the Company in 2024 is structurally expected to be similar to 2023. The overall appetite of ZRe to retain, on a net base, business out of portfolios with low volatility will remain unchanged. Consequently, ZRe will continue focusing on a stable portfolio and similar risks in 2024 as it did in 2023, with the primary retained exposures being on ZRe's reinsurance of the Japan motor and personal accident business and the UK, U.S., Hong Kong as well as Singapore WAQS treaties. The underwriting results are expected to be driven by the profitability of these retained contracts and the stability and homogeneity of the underlaying portfolios, where the new WAQS treaties in UK and U.S. fit very well into and contribute to ZRe's further diversification.

On January 1, 2024, the revised Insurance Supervision Act (ISA) and the revised Insurance Supervision Ordinance (ISO) have entered into force. Following this revision, the requirements resulting from the delegation provisions will now be implemented at FINMA level. The total revision of the FINMA Insurance Supervision Ordinance (ISO-FINMA) and the revision of a series of FINMA circulars for insurance companies cover various points, including

• Regulation on technical details of the SST;
• Implementation of the provisions on technical reserves;
• Additional regulation in the area of supervision of insurance intermediaries.

The Company's management continues to carefully monitor any development of regulatory and legal requirements.

Zurich Reinsurance Company Ltd	3
Annual Report 2023

Board of Directors, management and auditors

Board of Directors,		Expiration of
	current term
management
and auditors		Residence	of office
	Board of Directors as of December 31, 2023
		Möriken-Wildegg,
	Juan José Beer, Chairman of the Board of Directors	Switzerland	2024
	Christian Carl	Hünenberg, Switzerland	2024
	Christian Felderer	Zurich, Switzerland	2024
	Andrea Stürmer	Vienna, Austria	2024

Andres Christen, Secretary of the Board of Directors

Chief Executive Officer

Felix R. Kuhn

Chief Financial Officer

Elena Kuratli

Chief Underwriting Officer

Roger Oberholzer

Auditors

Ernst & Young Ltd

As of December 31, 2023, the Board of Directors (BoD) for Zurich Reinsurance Company Ltd was chaired by Juan José Beer. There have been no changes to the BoD and the Chairperson of the BoD during the reporting period.

The Annual General Meeting was held on April 13, 2023.

The Audit & Risk Committee of Zurich Reinsurance Company Ltd as of December 31, 2023, consisted of Christian Felderer (Chair), Christian Carl and Andrea Stürmer.

As of December 31, 2023, the CEO of ZRe was Felix R. Kuhn. The management also included Elena Kuratli and Roger Oberholzer.

Juan José Beer	Christian Carl
Chairman of the Board of Directors	Member of the Board of Directors
Zurich, April 19, 2024

Zurich Reinsurance Company Ltd	4
Annual Report 2023

Income statements

Income statements	in CHF millions, for the years ended December 31	Notes	2023	2022
Gross written premiums and policy fees	3	4,216	1,125
	Premiums ceded to reinsurers		(3,578)	(594)
	Net written premiums and policy fees		638	530
	Change in reserves for unearned premiums, gross		(928)	(49)
	Change in reserves for unearned premiums, ceded		908	41
	Net earned premiums and policy fees		618	522
	Other income		4	1
	Total technical income		622	524
	Claims paid, annuities and loss adjustment expenses, direct business		(3)	(9)
	Claims paid, annuities and loss adjustment expenses, assumed		1,267	(338)
	Claims paid, annuities and loss adjustment expenses, ceded		(1,486)	133
	Change in insurance reserves, gross	12	(3,201)	(83)
	Change in insurance reserves, ceded	12	3,110	66
	Insurance benefits and losses, net of reinsurance		(313)	(231)
	Underwriting & policy acquisition costs, assumed		(1,045)	(350)
	Underwriting & policy acquisition costs, ceded		760	102
	Underwriting & policy acquisition costs, net of reinsurance		(285)	(248)
	Administrative and other expense	4	(46)	(9)
	Total technical expense		(645)	(487)
	Investment income	5	22	13
	Investment expenses	6	(2)	(5)
	Net investment result		20	7
	Other financial income		25	7
	Other financial expense		(9)	-
	Operating result		13	51
	Interest expense on debt and other interest expense		(29)	(10)
	Net income before taxes		(16)	41
	Direct tax expenses		(1)	(9)
	Net income after taxes		(17)	32

The notes to the financial statements are an integral part of these financial statements.

Zurich Reinsurance Company Ltd	5
Annual Report 2023

Balance sheets

Assets	in CHF millions, as of December 31	Notes	2023	2022
Investments
	Investments in subsidiaries and associates	7	-	-
	Debt securities		813	626
	Other loans		41	53
	Total investments		855	679
	Other assets
	Derivative assets		1	1
	Deposits made under assumed reinsurance contracts	8	164	177
	Cash and cash equivalents		2	2
	Insurance reserves, ceded	13	4,647	848
	Deferred acquisition costs, net of reinsurance	9	82	83
	Intangible assets	10	9	13
	Receivables from insurance and reinsurance business	11	252	163
	Other receivables		717	815
	Accrued assets		60	14
	Total other assets		5,934	2,117
	Total assets		6,788	2,796

The notes to the financial statements are an integral part of these financial statements.

Zurich Reinsurance Company Ltd	6
Annual Report 2023

Balance sheets (continued)

Liabilities and shareholder's equity

in CHF millions, as of December 31	Notes	2023	2022
Liabilities
Insurance reserves, gross	13	5,289	1,447
Senior and other debt	14	529	415
Derivative liabilities		1	1
Deposits received under ceded reinsurance contracts	8	80	97
Liabilities from insurance and reinsurance business	15	207	144
Other liabilities		39	26
Accrued liabilities		53	17
Total liabilities		6,198	2,147
Shareholder's equity (before appropriation of available earnings)	18
Share capital		12	12
Capital contribution reserve:
Beginning of year		551	576
Dividend paid		(43)	(25)
Capital contribution reserve, end of year		508	551
Retained earnings:
Beginning of year		87	55
Net income after taxes		(17)	32
Retained earnings, end of year		70	87
Total shareholder's equity (before appropriation of available earnings)		590	649
Total liabilities and shareholder's equity		6,788	2,796

The notes to the financial statements are an integral part of these financial statements.

Zurich Reinsurance Company Ltd	7
Annual Report 2023

Notes to the financial statements

1. Basis of presentation

The Company's financial statements are presented in accordance with the Swiss Code of Obligations and relevant insurance supervisory law, including ISO-FINMA of December 15, 2015.

All amounts in the financial statements, unless otherwise stated, are shown in Swiss Francs (CHF), rounded to the nearest million, with the consequence that the rounded amounts may not add up to the rounded total in all cases. All variances are calculated using the actual figures rather than the rounded amounts.

2. Summary of significant accounting policies

Investments

Investments in subsidiaries and associates are held at acquisition cost less necessary impairments.

Debt securities are carried at amortized cost using the effective interest rate method.

Other loans are carried at nominal value less impairments as necessary.

Other assets

Derivative financial instruments

Derivative financial instruments held for purposes of economic hedging are carried at fair value.

Deposits made under assumed reinsurance contracts

Reinsurance deposits consist of funds deposited with ceding insurers to guarantee contractual liabilities for assumed reinsurance.

Deferred acquisition costs

Acquisition costs related to reinsurance business are deferred. The deferred costs are subsequently amortized over the period in which the related assumed premiums are earned.

Accrued assets

This amount relates primarily to interest income accruals, other accrued income and other prepaid expenses.

Insurance reserves

Reserves for unearned premiums represent the portion of the premiums written relating to the unexpired term of insurance coverage as of the balance sheet date. In many insurance contracts, the insurance period for which the insurance company assumes a risk against a premium paid does not correspond to the Company's financial year. Thus, an amount equivalent to the unearned portion of the premium is set up as a reserve at the end of the financial year.

Reserves for losses and loss adjustment expenses represent reserves for reported claims and estimates for losses incurred but not yet reported (IBNR). The reserves represent estimates of future payments of reported and unreported claims for losses and related expenses with respect to insured events that have occurred. In addition, equalization reserves are included where these are accepted or required by the regulator in the country where such reserves are held. Reserving is a complex process dealing with uncertainty, requiring the use of informed estimates and judgments. Any changes in estimates are reflected in the income statements in the period in which estimates are changed.

Other income and administrative and other expense

Other income includes interest income on deposits received under ceded reinsurance contracts as well as other technical and other non-technical income. Administrative and other expense represent primarily technical expense in connection with the operation of the insurance business.

Investment income and expense

Realized capital gains/losses on investments occur when the sales price or redemption value is higher or lower than the carrying value at the time of sale. The gain/loss is the difference between carrying value and the sales price or redemption value.

Zurich Reinsurance Company Ltd	8
Annual Report 2023

Notes to the financial statements (continued)

Write-downson investments include losses arising from a decrease in the fair value below cost or the carrying value at the previous year-end and necessary impairments of debt securities and investments in subsidiaries and associates.

Other financial income and expense

Other financial income and expense include interest income on cash and cash equivalents as well as realized gains and losses on senior debt.

Direct tax expenses

Direct tax expenses include both Swiss and foreign income tax expense and capital tax expense in Switzerland as well as foreign withholding tax expense on investment income.