Catlin Re Switzerland Ltd

Catlin Re Switzerland Ltd
An AXA S.A. Company
Financial Condition Report
Year Ended December 31, 2020

Contents

Directors' statement

3

Management summary

4

A. Business activities

9

A.1 Strategy, objectives and business segments

9

A.2 Group information and group related transactions

9

A.3 Related undertakings

10

A.4 Major branches

11

A.5 External auditor

11

A.6 Significant unusual events

11

B. Business performance

13

B.1 Underwriting result

13

B.2 Investment income and expenses

14

B.3 Other income and expenses

16

C. Corporate governance and risk management

17

C.1 Corporate governance

17

C.2 Risk Management

21

C.3 Internal control system

24

D. Risk profile

26

D.1 Insurance risk

26

D.2 Market risk

29

D.3 Credit risk

31

D.4 Operational risk

33

D.5 Other material risks

34

D.6 Off-balance-sheet risks

36

D.7 Risks related to special purpose vehicles

37

D.8 Risk concentrations

37

E. Valuation

38

E.1 Assets

39

E.2 Provisions for insurance obligations

40

E.3 Provisions for other liabilities

41

E.4 Risk margin

41

F. Capital management

42

F.1 Goals, strategy and time horizon for capital planning

42

F.2 Structure and quality of equity capital reported in the annual report

42

F.3 Difference between statutory and solvency net assets

43

G. Solvency

44

G.1 Solvency model

44

G.2 Target capital

44

G.3 Breakdown of risk-bearing capital

47

G.4 Solvency ratio

47

Glossary

48

Appendices

49

01 Quantitative template "Performance solo reinsurance"

50

02 Quantitative template "Market-consistent balance sheet solo"

51

03 Quantitative template "Solvency solo"

52

04 Audited annual financial statements and report of the statutory auditor

53

Directors' statement
The Board of Directors acknowledge their responsibility for ensuring that this Financial Condition Report has been properly prepared in all material respects in accordance with FINMA regulations. The Board is satisfied that: (a) throughout the financial year disclosed in this report, Catlin Re Switzerland Ltd has complied in all material respects with the requirements of the FINMA regulations as applicable to the Company; and (b) it is reasonable to believe that, at the date of the publication of this report, the Company has continued to comply, and will continue to comply in future. This report was discussed and reviewed at the Board Meeting held in Zurich on April 23, 2021 and signed off on April 30, 2021.
By order of the Board

Andreas Weber Chairman of the Board April 30, 2021

Daniel Maurer Director April 30, 2021

3

Management summary
General remarks
This report should be read in conjunction with Catlin Re's ("CRCH", or "the Company") audited financial statements for the year ended December 31, 2020 disclosed in appendix 4. Unless otherwise stated, all amounts in this report are presented in Swiss Francs which is the reporting currency of the financial statements of Catlin Re Switzerland Ltd. Due to the capitalisation and the business environment in which the Company primarily operates, US Dollar is the currency for capital modelling and the Swiss Solvency Test. As such numbers reported in sections E, F and G are predominantly presented in US Dollars. Amounts shown in this report generally are rounded to the nearest million, with the consequence that the rounded amounts may not add up to the rounded total in all cases. Any references to AXA Group refer to AXA SA together with its direct and indirect subsidiaries.
Business activities
The Company is part of the AXA XL Division within AXA and became a member of the AXA Group during 2018. AXA XL is the property, casualty, and specialty division of AXA comprising global insurance and reinsurance companies that provide property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises on a worldwide basis. AXA XL’s operating entities underwrite both insurance and reinsurance business within its Property and Casualty (P&C) business segment. The P&C segment is structured into two segments; Insurance and Reinsurance with Reinsurance being further divided into Global Markets and Domestic Markets. AXA XL underwrites across all the platforms available to best service both brokers and clients. Catlin Re Switzerland Ltd, domiciled in Zurich, Switzerland, operates as a multi-line property, casualty and specialty reinsurance company and as one of AXA XL's Intra-Group Reinsurance ("IGR") carriers. Seaview Re Ltd ("Seaview Re") was established during 2019 and is a licensed Class 3a insurer regulated by the Bermuda Monetary Authority ("BMA") and a subsidiary of the US domiciled Seaview Re Holdings Inc ("Seaview Holdings"), which in turn is a fully owned subsidiary of Catlin Re. Further details of the Company's business activities are provided in section A.
Business performance
Towards the end of 2020 the Company benefited from favourable market conditions due to an acceleration of market hardening. However that growth was partly offset by the impact of COVID-19 in terms of exposure adjustments as well as ongoing disciplined underwriting policies. The Company remains focused on underwriting profitability over volumes. The 2020 loss ratio of 75% is mainly driven by the current accident year losses mostly due to COVID-19. The Company generated CHF 1,635m of gross premium written in 2020 and a combined ratio of 111%.
4

CHF millions
2020 Personal accident Motor Marine, aviation, transport Property Casualty Miscellaneous
Total 2020

Gross premium written 11 37 26 1,290 40 230
1,635

Net premium earned 16 24 14 1,229 21 208

Acquisition cost ratio 43 % 19 % 37 % 35 % 38 % 43 %

1,512

36 %

Loss ratio 89 % 52 % 99 % 74 % 43 % 82 %

Combined ratio 131 % 71 % 136 % 110 % 82 % 125 %

75 %

111 %

Gross premium written by FINMA line of business

Personal accident Motor Marine, aviation, transport Property Casualty Miscellaneous

CHF millions

1,600 1,400 1,200 1,000
800 600 400 200
0

2020

2019

Further details of the Company's performance are provided in section B and the Annual Financial Statements in appendix 4. Also refer to AXA's Annual Report for the year ended December 31, 2020 for additional information on AXA Group's performance.
Corporate governance and risk management
The Board of Directors ("Board", "BoD") and management are committed to ensure effective corporate governance with the objective to provide proper oversight over the Company. The Board regularly reviews its comprehensive corporate governance framework, policies and practices to ensure that it meets the expectations of its shareholder and evolves in compliance with the Swiss legal and regulatory requirements and AXA XL's best practice in corporate governance. The Board has the ultimate responsibility for setting the strategy regarding the business and is accountable for the performance of the Company towards the shareholder.
The Board is responsible for the Company's internal control system. The Company operates a 'Three lines of defense' model where (1) the business through its risk owners, (2) Risk Management and Compliance and (3) Internal Audit work together to ensure that the internal control system is effective.
The Board and Executive Management Committee composition is outlined in section C.
The risk management framework ("RMF") determines risk appetites and risk limits, establishes risk policies, identifies and manages the risks to the Company's objectives and monitors its resources and capital requirements. All these processes and monitoring activities are carried out throughout the year with oversight by the Board. The Company is supported by a number of Division-wide processes in the achievement of its risk management objectives.
5

Further details of the Company's corporate governance and RMF are provided in section C.

Risk profile
CRCH is materially exposed to insurance, market and credit risk. The Company uses the Swiss Solvency Test ("SST") basis at the 1% Tail Value at Risk ("TVaR") to calculate the capital requirements.
There have been material changes in the risk profile of CRCH during 2020. CRCH wrote Intra-Group reinsurance contracts for the US pool of companies from 2011-2017. During 2020 these contracts were novated to XL Bermuda Ltd. This has led to significant decline in reserves and corresponding investments in CRCH toward the end of 2020. On a CRCH standalone basis, reserve risk and market risk have reduced materially as a result of the novation. Seaview Re started writing a 30% Whole Account Quota Share from XL Reinsurance America Inc (Pool) ("XLRA") in 2019 which was renewed in 2020 and 2021. As a result, on a consolidated basis, we expect CRCH's underwriting risk profile to remain largely stable with reserve risk increasing over time again.
Underwriting risk and to a certain extent reserve risk are mitigated by a Whole Account Stop Loss ("WASL") with XL Bermuda Ltd, that has been renewed yearly since 2017. For 2020 and 2021, the cover protects combined CRCH and Seaview Re Ltd with any losses exceeding 72% loss ratio up to 92% loss ratio (2020: 87%). The 2017-2019 agreements protected CRCH standalone. Accident years 2017 and 2020 have attached and as such possible further adverse developments are covered by the WASL.
The key risks before diversification as per the SST for CRCH as at January 1, 2021, and the previous year are shown below:

USD millions

900 644

600

496

300

289 303

185 237

0 it risk
Cred

et risk Mark

ance risk Insur

January 1, 2021

January 1, 2020

Each separate category of risk is described in detail in section D including operational risks to which CRCH is exposed to.
Valuation
An analysis of the valuation of asset classes and the market consistent valuation of provisions for insurance obligations used in the SST balance sheet, together with the recognition and valuation bases applied, is provided in section E.
Capital management
The Company calculates and manages its capital requirements based on SST principles and in line with the Own Risk and Solvency Assessment policy which are further detailed in section C.2 and G.

6

USD millions Risk bearing capital ("RBC") Target capital ("TC") Market value margin ("MVM")
SST ratio

January 1, 2020 January 1, 2021

1,260 1,052
184

1,102 936 175

124 %

122 %

Change (158) (116)
(9)
(2)pts

Change in %
(13) % (11) %
(5) % (2)%

The SST ratio is calculated as: (RBC-MVM)/(TC-MVM).
The Company’s objectives in managing its capital are to:
• maintain financial strength to support new business; • satisfy the requirements of its policyholders and regulators; • match the profile of its assets and liabilities, taking into account risks inherent in the business; • achieve appropriate risk adjusted returns; and • maintain capital levels that are consistent with the risk appetite, corporate strategy, and the statutory requirements.
During 2020, to support BMA capital requirements, USD 150m was contributed from XL Bermuda Ltd to Seaview Re whereby Catlin Re retains 100% ownership of Seaview Re via Seaview Holdings.
Solvency
Section G provides information on the models used for the SST calculations with further breakdowns of the target capital as at January 1, 2021. Seaview Re is included within the 2021 and 2020 on a consolidated basis.
During 2020 CRCH developed a new internal model that was submitted to FINMA for approval. In January 2021, FINMA granted the use of this model for the 2021 SST with a temporary 6% loading on insurance risk. During 2021 CRCH expects to submit an update to the reserve risk module for approval. All 2021 results presented in this report are derived from the new model whereas the 2020 results are from the legacy model used for the 2020 SST submission to FINMA in April 2020.
The following chart shows a break-down of the SST target capital into the relevant categories as defined by FINMA:

7

USD millions

1200 1000

January 1, 2021
496

800

600 185
400 289
200
0 (18) (23)

-200

-400

l result l result

ica

ancia

Techn

Fin

it risk Cred

et risk ce risk

ark

suran

M

In

175

16

936

(183)

MVM

narios

ication

capital

Sce iversif

arget

D

T

Credit risk includes investment, external and internal reinsurance credit risk. The investment credit risk and external credit risk is calculated based on the FINMA standard model whereas internal reinsurance credit risk is calculated using the internal model.
Market risk is calculated using the FINMA standard model whereas insurance risk and the MVM ("Market value margin") are obtained from the internal model.
CRCH results are presented on a consolidated basis, as such risks associated with Seaview Re have been included within each risk category.
Overall, the target capital for the SST 2021 has decreased by USD 116m compared to last year. There have been a number of offsetting movements, the key drivers of which are highlighted below:
• Expected insurance result has decreased due to less discount benefit as yield curves have decreased; • Market risk has decreased as a result of the novation of US Intra-Group contracts; • Insurance risk has decreased from last year due to a number of offsetting factors:
◦ Decrease in reserve risk as a result of the novation of US Intra Group contracts; ◦ Decrease due to triggering the attachment and recovery in the 2020 WASL from the Q4 2020 reserves; ◦ Decrease due to protection of the 2021 accident year WASL agreement with XLB; partially offset by ◦ Increase due to less discount benefit as yield curves have decreased.
Significant events post year end:
Catlin Re entered into an internal equity transfer agreement whereby Catlin Re is purchasing 100% of the shares in XL Reinsurance (China) Company Limited. The ownership will become legally effective only after China Banking and Insurance Regulatory Commission ("CBIRC") approval which is expected by June 2021.
8

A. Business activities
A.1 Strategy, objectives and business segments
The Company is part of the AXA XL Division within AXA and became a member of the AXA Group during 2018. AXA XL is the property, casualty, and specialty division of AXA comprising global insurance and reinsurance companies that provide property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises on a worldwide basis.
Catlin Re Switzerland Ltd, domiciled in Zurich, Switzerland, operates as a multi-line property, casualty and specialty reinsurance company and as one of AXA XL's Intra-Group Reinsurance ("IGR") carriers.
The Company underwrites property, casualty and specialty classes of reinsurance in Continental Europe, Latin America, North America and Australia as well as trade credit, surety and political risk reinsurance on a global basis. The offerings include short-tail multi-peril property reinsurance as well as casualty, trade credit, surety, political risk, crop, accident & health, marine, engineering and other lines of reinsurance, mostly in the form of treaty reinsurance. Reinsurance coverage is distributed through reinsurance brokers and directly with cedants. The Company prudently manages reinsurance obligations through controlled risk taking, clear accountability and strong underwriting discipline. Market sentiment indicates the Company is successfully established amongst the 2nd tier reinsurers, which jointly with AXA’s strong balance sheet positively impacts negotiation leverage and overall opportunities. Through its Bermuda Branch, the Company underwrites US property and casualty business. The needs of the Central and South American, Brazilian and the Caribbean reinsurance markets are served through a local office in Colombia as well as a binder agreement with an AXA XL office in Miami. Brazil business is written both through Catlin Re on an admitted basis as well as through the partially owned Brazil domiciled subsidiary. The Pacific region is served through a binder agreement with the AXA XL Sydney office.
The focus of renewal 2021 was to further increase the quality of the existing book by ensuring adequate terms and conditions along with growing the business with rate adequacy levels at or above target. With this encompassing approach the Company ranked amongst the most conservative market players and feels encouraged by achievements, the improved quality of the portfolio and the growth in the most attractive markets. The markets have shown a clear hardening across most lines. Yet not all programs have registered a turn-around the Company felt is required; in some instances our stance has led to a deliberate loss of the across-the-board participations. Equally, the Company has only accepted new business opportunities meeting expectations, which in International Casualty were fewer than planned. Shortfall was registered in credit and surety due to a regulatory change for Israeli banks, which has reduced demand for reinsurance. The Company's initiative on introducing the Communicable Exclusion Clauses has been working in most cases.
A.2 Group information and group related transactions
The Company’s immediate parent is Catlin Luxembourg S.à r.l., a company incorporated in Luxembourg which holds 100% of CRCH's ownership interest and voting rights.
Catlin Luxembourg S.à r.l. 6B, rue Gabriel Lippmann L-5365 Munsbach, Luxembourg
R.C.S. Luxembourg: B154964; subscribed capital: USD 100m
9

The Company’s ultimate parent and controlling undertaking is AXA SA, a company incorporated in France. The Company consolidates its reporting into the group financial statements of AXA SA.
Catlin Re's position within the legal structure of the Group can be seen from the simplified structure chart below:
Axa SA 100% France

XL Group Ltd 100%
Bermuda

Catlin Luxembourg S.à r.l 100%
Luxembourg

Catlin Re Switzerland Ltd
Switzerland
Group Supervisor
Autorité de Contrôle Prudentiel et de Résolution (ACPR) 4, place de Budapest CS 92459 75436 PARIS CEDEX 09 France
Material related party transactions
The Company, together with Seaview Re Ltd, benefits from a purchased WASL agreement with XL Bermudat Ltd ("XLB"). The Company also makes regular payments to AXA Group companies in respect of services provided to the Company. The Company regularly purchases or sells financial investments from and to other Group companies. During 2020, the historic loss reserves of the US Intra-Groups, which have been in run-off since 2017, were novated to XLB. Other than the previously mentioned, there were no material transactions during 2020 with the Company's direct or indirect shareholders, with persons who exercise a significant influence on the Company or with members of the Board which are deemed material. The Company actively monitors all related party transactions.
A.3 Related undertakings
Catlin Re Switzerland Ltd is the parent company of the following subsidiaries:

in CHF millions as of December 31, 2020 Seaview Re Holdings Inc AXA XL Resseguros S.A. XL Re Latin America Argentina SA XL Value Offshore LLC Total investments in affiliated companies

Domicile Delaware, USA Sao Paulo, Brasil Buenos Aires, Argentina Hamilton, Bermuda

Net Book value Equity/Voting Shares

666.70

100 %

34.23

50 %

—

80 %

55.94

25 %

756.87

To simplify the AXA XL divisional legal entity structure, effective December 1, 2020 XL Resseguros Brasil S.A.("XL Re Brasil") was merged into AXA Corporate Solutions Brasil e Amèrica Latina Resseguros S.A. ("AXA Latam") with AXA Latam being the surviving entity. Prior to the merger AXA Latam was fully owned by XL Insurance Company SE, Dublin, ("XLICSE") and XL Re Brasil was fully owned by CRCH and therefore the merged entity now has combined ownership. Subsequent to the merger, AXA Latam was renamed to AXA XL Resseguros S.A. ("AXA XL Brasil Re") with an effective date of February 25, 2021.

Also refer to Seaview Re's Annual Report for the year ended December 31, 2020 for additional information on the Company's subsidiary (via Seaview Holdings) performance.

10