2017 … · 3ystem of governance s 20 3.1eneral information on the system of governance g 21 ......

QIC Europe Limited Solvency and Financial Condition Report 2017 1

Solvency and Financial Condition Report (SFCR)

QIC EUROPELIMITED

2017

2 QIC Europe Limited Solvency and Financial Condition Report 2017 QIC Europe Limited Solvency and Financial Condition Report 2017 3

1 Executive Summary 6

1.1 Business Performance 7

1.2 System of Governance 7

1.3 Risk Profile 8

1.4 Valuation for Solvency Purposes 9

1.5 Capital Management 10

1.6 Significant Events 11

1.7 Conclusion 11

2 Business and Performance 14

2.1 Business 15

2.2 Underwriting Performance 16

2.3 Investment Performance 17

2.4 Other Material Income and Expense 17

3 System of Governance 20

3.1 General Information on the System of Governance 21

3.2 Fit and Proper requirements 23

3.3 Risk Management System including Own Risk and Solvency Assessment 24

3.4 Internal Control System 26

3.5 Internal Audit function 27

3.6 Actuarial function 28

3.7 Outsourcing 28

3.8 Any other Material Information 29

4 Risk Profile 32

4.1 Insurance risk 33

4.2 Market risk 34

4.3 Credit risk 36

4.4 Liquidity risk 36

4.5 Operational risk 37

4.6 Other material risks 38

4.7 Risk Exposure arising from Off-balance Sheet Positions 38

4.8 Material Risk Concentrations 38

4.9 Risk Mitigation Techniques 39

4.10 Risk Sensitivity Stress and Scenario Testing 39

5 Valuation for Solvency Purposes 44

5.1 Assets 45

5.2 Technical Provisions 46

5.3 Other Liabilities 51

6 Capital Management 54

6.1 Own Funds 55

6.2 Solvency Capital Requirement and Minimum Capital Requirement 56

7 Appendices: Quantitative Reporting Templates (QRTs) for Public Disclosure 59

Table of Contents

QIC EUROPE LIMITED

Solvency and Financial Condition ReportFor the financial year ended 31 December 2017

4 QIC Europe Limited Solvency and Financial Condition Report 2017 QIC Europe Limited Solvency and Financial Condition Report 2017 54 5

Executive Summary

1


The Solvency and Financial Condition Report presents

the business performance, governance, risk profile, and

financial and solvency position of QIC Europe Limited

(‘’QEL’’ or “the Company”) covering the financial year

ending 31 December 2017.

This report is prepared in accordance with the supervisory

reporting and disclosure requirements under Solvency II,

including Malta Financial Services Authority’s (MFSA)

Insurance Rules Chapter 8 ‘Financial Statements and

Supervisory Reporting Requirements’ and its Annex 1

‘Guidelines on reporting and public disclosure’.

Overall, this report will highlight that the solvency

position of QEL improved during the year to 138% of

the Solvency Capital Requirement (“SCR”) despite

challenging conditions in certain lines of business that

led to a slim operating profit of USD 0.1 million.

Business growth during the year, in coordination and

collaboration with affiliates, was consistent with strategic

intentions and the system of governance and risk profile

remain consistent with the prior year and growth level

achieved. Consistent with wider Group strategy, it is

intended that QEL will become a subsidiary of Qatar

Reinsurance Company Limited (“Qatar Re”), a Bermuda

class 4 (re)insurer during 2018, recognising close

strategic alignment and interdependency.

The risks associated with Brexit have become more

relevant to QEL, given UK business represents a significant

part of the portfolio. Risk mitigation strategies are in place

both on a standalone basis and in a wider Group context.

Executive Summary

11.1 Business Performance

From its launch at the end of 2014, QIC Europe Limited has

pursued a strategy which is distinct from a classic insurance

company and focuses on coverholder or coinsurance part-

ners across the European Economic Area (EEA). The model

is designed to provide access to niche insurance business

either by line of business, geography, or both, and can ac-

commodate existing portfolios seeking new or alternative

capacity as well as entrepreneurial start-up ventures.

QEL’s income grew strongly in calendar year 2017 with

gross premium income of USD 411 million, which repre-

sents a 35% increase over 2016 income at USD 304 million.

Income growth continued to largely originate from the UK.

There was a small increase in income from southern Europe

as a result of the addition of Greek Motor and Marine accounts.

The net profit after tax of USD 0.1 million on a financial year

basis (based on net earned premium of USD 28.17 million)

reflects the high proportion of risk ceded to reinsurers.

Weaker performance across some parts of the portfolio

contributed to the reduction in profit – see section 2.2 for

further details.

1.2 System of Governance

QEL has established a sound and effective corporate gov-

ernance framework, which is appropriate to the size, nature,

complexity and risk profile of the Company. This enables

sound and prudent management of the Company’s activities

so that the interests of policyholders and other stakeholders

are appropriately protected.

The governance framework is administered by the Board,

Board committees, Chief Executive Officer and Delegated

Underwriting Authority Manager to provide robust over-

sight and clear accountability with specific focus on the

delegated underwriting and claims management arrange-

ments.

QEL has adopted a “Three Lines of Defence” model to ensure

appropriate segregation of roles and responsibilities across

the Company. The segregation of responsibilities applies

across all business functions and various layers of review exist

within each business function and between committees

and the Board. These controls are audited on a regular basis

by the Company’s internal and external auditors. The gov-

ernance flowchart as at April 2018 is as follows:

Executive Summary

6

3rd Line of Defence

Company Secretary

Underwriting Management

Investment Committee Risk & Compliance Committee

Claims Management

Delegated Underwriting Management

Insurance Management

Finance Function

1st Line of Defence 2nd Line of Defence

Audit Committee

Actuarial

QIC Europe Limited (“QEL”)

Investment Management

External Audit

Risk ManagementCEO Internal Audit

Compliance


1.3 Risk Profile

The most material risks for QEL are as follows:

Credit risk is the largest contributor to the capital require-

ments. Our exposure to credit risk arises as a result of premi-

um balances due from cedants and coverholders, and due

to the large proportion of risk ceded to reinsurance coun-

terparties, the majority being intra-group retrocessions

to Qatar Re, and to our parent company Qatar Insurance

Company S.A.Q Doha (“QIC”). Both Qatar Re and QIC are

rated A/Stable by S&P Global Ratings and A/Excellent by

A.M. Best.

Underwriting risk: QEL’s portfolio mainly comprises low

severity/high frequency business. The risk of an accumula-

tion relating to a natural catastrophe is low relative to the

size of the portfolio. Premium risk is the largest driver of

QEL’s insurance risk SCR.

Reserve risk: Reserve risk arises from the inherent uncertain-

ty surrounding the adequacy of the reserves or technical

provisions set aside to cover our insurance liabilities. Robust

controls are in place to ensure that reserving processes

are adequate and that reserving data is complete and ap-

propriate. Reserve risk is not a significant driver of QEL’s

insurance risk SCR, but will grow as the company matures

and reserve volumes build up.

Operational risk: Operational risk within the Standard

Formula SCR is linked to business volume and as a result

Operational risk represents a relatively high proportion of

the SCR. At QEL Operational risk is mitigated by:

• Implementation of a strong internal control culture.

• Effective corporate governance, including segregation

of duties, avoidance of conflicts of interest, clear lines

of management responsibility, adequate management

information reporting.

• Procedures for due diligence, monitoring and audit of

outsourced service providers.

• Training/awareness of staff in the control responsibilities

relating to their roles.

• Effective IT controls and adequate systems (in 2017 QEL

adopted a new business planning tool and underwriting

and claims system).

• Recruiting/retaining adequately skilled staff, adequate

performance assessment system.

• Procedures to minimise internal/external fraud.

• Operational loss monitoring process.

Market risk: The highest contributor to market risk is spread

risk, which arises on our fixed income portfolio. Currency

risk arises where we do not fully match foreign exchange

exposures. The Company monitors this risk on an ongoing

basis and the impact of adverse currency movements is

reviewed as part of QEL’s stress and scenario testing. The

key mitigant of foreign exchange risk is that QEL’s main re-

insurance contracts are USD denominated but written so

as to follow the fortunes of the ceded portion of risk, so

there is no mismatch between the foreign exchange rate

at which the gross claim is paid and the rate at which the

ceded portion is recovered.

Group risk: Group risk arises from the relationship between

QEL and its parent Group. Reinsurance cover is provided by

the affiliates QIC and Qatar Re (Qatar Re is subject to the

capital and solvency requirements of a Solvency II equivalent

jurisdiction). There is also some operational dependency

as a result of certain key functions being outsourced within

the Group - see section 3.7 for further details.

The key risk drivers, the rationale for the ranking of each

type of risk and the approach to managing them are docu-

mented in section 4, beginning on page 32.

1.4 Valuation for Solvency Purposes

The assessment of available regulatory capital is made by taking an economic view of our assets and liabilities, in accord-

ance with the Solvency II valuation principles.

Assets

The following table sets out the assets held within QEL’s balance sheet, alongside their value on the IFRS financial state-

ments and on the Solvency II balance sheet.

The asset base increased in size over the 12 months to 31 December 2017 in line with the growth of the business. Section

5.1 provides an explanation for the changes in the key asset types.

Technical Provisions

The main liabilities on the Solvency II balance sheet are the

technical provisions, net of reinsurance recoverables, which

consist of liabilities for claims outstanding and premium

provisions. Other liabilities consist mostly of insurance and

reinsurance balances payable.

Executive Summary

The key functions have defined responsibilities, which are

documented in various policies and procedures. The Board

and committees have approved terms of reference.

During 2017, QEL continued to consolidate the model.

Material changes to the system of governance included the

appointment of a Delegated Underwriting Authority (“DUA”)

Manager at the beginning of 2017 to manage and oversee all

outsourced DUA, Third Party Administrator (“TPA”) and ser-

vice arrangements ensuring that outsourcing is established

and operated within the appropriate governance and control

framework and in compliance with relevant regulations.

Board oversight of the critical functions continued with

a number of new or updated policies and procedures

approved by the Board throughout the year. Quarterly

monitoring by the Risk Management team revealed a grad-

ual improvement in risk mitigation as policies, procedures

and controls continued to be implemented.

Full details of the governance and risk management frame-

works are detailed in later sections of this report.

* In the 2017 financial statements ‘Deposits to Cedants’ and ‘Other Assets’ are presented separately, whereas in the 2016 financial

statements these items were aggregated under Insurance Receivables.

Executive Summary

As at 31 December 2017, QEL held technical provisions (“TP”)

for non-life business and for health business as defined

within the Solvency II articles. The following table sets out

the gross technical provisions and the expected reinsurance

recoveries on both an IFRS and Solvency II basis.

Overall, technical provisions increased in 2017 compared to

2016 by 152%; this is driven by:

• Business volume growth and

• Strengthening of reserves upon receipt and analysis of a

further year of experience.

Section 5.2.1 provides further details on the changes in TP

during 2017.

Non-Life & Health Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)

TP calculated as a whole 456,032,000 0 418,747,000 0

Best Estimate 0 383,228,132 0 352,424,124

Risk Margin 0 3,466,619 0 0

Gross TP – Non-Life (Including Health) 456,032,000 386,694,751 418,747,000 352,424,124

Liabilities- TP Assets- Recoverable TP

Class of Assets IFRS Basis IFRS Basis Solvency II Basis Solvency II Basis 31/12/2017 31/12/2016 31/12/2017 31/12/2016 (USD) (USD) (USD) (USD)

Deferred Acquisition Costs (DAC) 53,326,000 38,210,000 0 0

Deferred Tax Assets 0 0 745,719 1,570,633

Property Plant & Equipment 87,000 100,716 87,000 100,716

Investments (Bonds) 57,745,000 44,417,349 57,745,000 44,417,349

Reinsurance Recoverables 418,747,000 272,852,497 352,424,124 231,174,446

Insurance Receivables 104,139,000 126,190,000 104,139,000 126,190,000

Cash & Cash equivalents 39,555,000 20,735,100 39,555,000 20,735,100

Deposits to Cedants* 46,634,000 0 46,634,000 0

Other Assets* 400,000 0 400,000 0

Total Assets 720,633,000 502,505,662 601,729,844 424,188,244


Composition Eligible Capital Eligible to meet MCR

(USD) (USD)

Tier 1 Unrestricted 53,720,373 53,720,373

Tier 3 653,719 0

Total 54,374,093 53,720,373

Solvency Position Capital Eligible Solvency Requirement Captital Ratio

(USD) (USD)

SCR 39,370,392 54,374,093 138%

MCR 9,842,598 53,720,373 546%

Other Liabilities

The liabilities other than technical provisions are set out

below, alongside their value as at 31 December 2017 on

each of the IFRS and Solvency II bases.

The increase in liabilities during the 12 months to 31 Decem-

ber 2017 is in line with the business growth as described in

section 2.

The balance of Any Other Liabilities has reduced reflecting

the lower tax due, given the lower profit level in 2017.

Valuation bases, methods and assumptions

The description of the bases, methods and main assump-

tions used for the valuation of assets, liabilities and technical

provisions is summarised in section 5.

1.5 Capital Management

QEL maintained own funds in excess of the Minimum Capital

Requirement (MCR) and Solvency Capital Requirement (SCR)

throughout the reporting period. The solvency ratios as at

31 December 2017 are based on the Solvency II standard

formula and are as follows:

The SCR increased from USD 35.9 million as at 31 December

2016 to USD 39.4 million as at 31 December 2017 in line with

the increase in reserves and associated recoverables, along

with a reduction in the credit taken for the loss-absorbing

capacity of deferred tax assets to ensure that the credit

taken is in line with our 2018-2021 business plans. Consist-

ent with a Group-wide capital management strategy and the

Group restructuring involving Qatar Re, we have passed on

some of the credit risk associated with premium default to

Qatar Re, which is reflected in the counterparty default risk

module of the SCR.

The solvency ratio stood at 138% as at 31 December 2017

(compared to 117% as at 31 December 2016).

QEL’s own funds consist of paid-in share capital, retained

earnings and a deferred tax asset. The majority of own funds

Other Liabilities 31/12/2017 31/12/2016 31/12/2017 31/12/2016

IFRS IFRS Solvency II Solvency II (USD) (USD) (USD) (USD)

Deferred commission income 48,181,000 34,888,000 0 0

Reinsurance Payables 147,529,000 118,272,903 147,529,000 118,272,903

Trade Payables 1,152,000 180,097 1,152,000 180,097

Insurance and Intermediaries Payables 11,774,000 9,154,000 11,774,000 9,154,000

Any Other Liabilities 206,000 1,089,748 206,000 1,089,748

Total 208,842,000 163,584,748 160,661,000 128,696,748

Executive SummaryExecutive Summary

as of 31 December 2017 qualify as Tier 1 capital, confirming

that the Company meets the eligibility limits applied to each

tier to cover the MCR and SCR.

The own funds are split by tier as follows:

During 2017, QIC in its capacity as shareholder of the

Company made an additional capital cash contribution

amounting to USD 12.958 million. USD 0.9 million of the

capital contribution was not yet paid in at the end of the

reporting period and would have been considered Tier 2

capital. This amount has since been paid in and is consid-

ered Tier 1 unrestricted capital.

1.6 Significant Events

Brexit

The UK’s plan to leave the EU (Brexit) is relevant to the

Company as UK business represents a significant share

of the insurance portfolio. The Company currently enjoys

rights in the UK as an EEA insurer and has exercised both

passporting rights and the right of establishment (EEA

rights).

The UK and EU have indicated that they are likely to agree

to a transition period until the end of 2020, during which

time EEA rights will remain. If such an agreement is not

finalised and ratified then, without alternative authorisa-

tion by UK regulators, the Company will no longer be able

to operate within the UK after March 2019. While some

activities may continue to be permitted on a non-admitted,

cross-border basis there are sufficient practical difficulties

to mean this is not likely to be a satisfactory mechanism in

relation to most policies.

The Company has implemented contingency plans

alongside other affiliates. Notably Qatar Re is in the pro-

cess of acquiring certain Gibraltar-based insurers, with the

transaction expected to complete in the first half of 2018.

It is generally considered likely that Gibraltar insurers will

be permitted to access UK markets post Brexit. In some

scenarios it is likely that the Company will cease to write

certain business and a suitably authorised affiliate will offer

to take on that business. The Company is also in discussion

with UK regulators regarding the option of establishing

a third country branch in the UK, which would allow the

Company to continue to conduct authorised activities in the

UK post Brexit.

Change of control

An application was submitted to relevant regulators at the end

of 2017 seeking regulatory approval for a change of control

that involves the Company becoming a subsidiary of current

affiliate Qatar Re. The proposed change is part of a wider

Group reorganisation, which began in 2014. There is a strong

strategic alignment between the Company and Qatar Re.

Completion is expected during the first half of 2018.

Ogden discount rate

In March 2017, the UK government announced a change

in the discount rate (known as the Ogden rate) used in the

calculation of compensation awards for future losses for

victims of serious personal injury.

While QEL has exposure to UK motor, the nature of that

business, excess of loss reinsurance and the commission

structures in place with the coverholders substantially mitigate

any financial impact on the Company.

In Q3 2017, the UK government made further announcements

about the discount rate and more recently encapsulated the

plans in the Civil Liability Bill. The proposed changes are likely

to reduce rate volatility and better reflect realistic economic

factors.

1.7 Conclusion

Overall, QEL continued to develop in line with shareholder

expectations during 2017. Supported by a parental guaran-

tee, it also continues to benefit from an A/Stable rating by

S&P Global Ratings.

Further strengthening of the capital base can also take

place, if required, to support further growth.


2Business and Performance


22.1.1 The Company

QEL was established in November 2014 as a non-life insurance

and reinsurance company in Malta. QEL fulfils an impor-

tant role within the Qatar Insurance Company SAQ Group

(“QIC” or “the Group”), in enhancing the Group’s insurance

and reinsurance product offerings throughout the European

Economic Area (“EEA”), by providing access to this important

market. QEL also writes a limited number of additional covers

on a worldwide basis where licensing permits. QIC is among

the highest-rated insurers in the Gulf region, with a rating of

A/Stable from S&P and A/Excellent from A.M. Best.

QEL operates from its Head Office in Malta and supporting

operations in London and Milan.

QEL focuses on sustainable and profitable growth founded

upon a strong financial position and acknowledged technical

expertise. QEL has rating-agency-graded insurance paper

(A/Stable by S&P Global Ratings) that can be deployed across

the EEA on a freedom of service basis. QEL carefully selects

coverholder partners with specialist knowledge and distri-

butions to access businesses that are not accessible on a

treaty reinsurance basis. QEL obtained entry to the Italian

and UK markets on a freedom of establishment basis.

QEL is authorised and regulated by the Malta Financial

Services Authority.

Supervisory Authority

Malta Financial Services Authority

Notabile Road, Attard, BKR3000, Malta

External Auditor

Ernst and Young Malta Limited

Regional Business Centre, Achille Ferris Street,

Msida MSD 1751, Malta

2.1.2 Ownership Structure

QEL is a subsidiary of QIC, a leading Qatari publicly-listed insurer with total shareholder equity of USD 2.2 billion (as of

31 December 2017). The QIC Group structure is presented below:

Business and Performance

QIC owns 22,499,999 shares of the share capital (valued at

USD 1 each), and Khalifa Abdulla T. Al-Subaey (QIC Group

President & CEO) owns the remaining one share in the

Company.

Business and Performance

14

An application was submitted to the MFSA at the end of 2017

seeking regulatory approval for the proposed acquisition of

QEL by Qatar Re. The proposed acquisition is part of a wider

Group reorganisation, which began in 2014 and will better

align two strategically connected parts of the QIC Group.

2.1 Business

Antares Syndicate 1274

at Lloyd’s

Qatar Reinsurance Company Limited

(Bermuda)

Branch Office

(Singapore)

Qatar Insurance Company S.A.Q.(State of Qatar)

Note:

1. This structure chart shows only the key international subsidiary companies. It does not include, for example, the Antares Lloyd’s Corporate Members.

2. Qatar Re Underwriting Ltd is a Lloyd’s Corporate Member providing capital support to certain Lloyd’s Syndicates.

Current structure of QIC Group’s international operations

Branch Office(UK)

QIC Europe Limited(Malta)

QIC Capital LLC(Qatar Financial Centre) Branch Office

(Italy)

100%

95.74%

Branch Office

(Switzerland)

Branch Office(DIFC)

Branch Office

(UK)

Qatar Reinsurance Services LLC

(QFC)

Qatar International LLC(Qatar Financial Centre)

Qatar Re Underwriting Limited

(UK)

Qanit Ltd.(United Arab Emirates)

100%

100% 100% 100%

100%

Antares Group Holding Limited

(UK)

Antares Underwriting Services Limited

(UK)

Antares Managing Agency Limited

(UK)

Antares Underwriting Asia pte. Limited

(Singapore)

100%

100%

100% 100%

100%

100%


2.1.3 Insurance and Reinsurance Business written

QIC Europe Limited holds licences to write the following classes of general business insurance and reinsurance business:

– Class 1 - Accident

– Class 2 - Sickness

– Class 3 - Land vehicles

– Class 4 - Railway rolling stock

– Class 5 - Aircraft

– Class 6 - Ships

– Class 7 - Goods in transit

– Class 8 - Fire and natural forces

– Class 9 - Other damage to property

– Class 10 - Motor vehicle liability (in some countries)

– Class 11 - Aircraft liability

– Class 12 - Liability for ships

– Class 13 - General liability

– Class 14 - Credit

– Class 15 - Suretyship

– Class 16 - Miscellaneous financial loss

– Class 17 - Legal expenses

– Class 18 - Assistance

2.2 Underwriting Performance

The Company reported a net profit after tax of USD 0.11 million

compared to a profit of USD 2.3 million in 2016. The reduction

in profit was mostly attributable to deteriorating claims ex-

perience in the Agriculture, Aviation and Casualty portfolios.

Revenue in 2017 showed significant growth across the port-

folio, with Gross Written Premiums (“GWP”) increasing from

USD 304 million in 2016 to USD 411 million in 2017. This

reflected organic growth of existing business and the addi-

tion of new Motor, Space, Marine and Property portfolios.

The net technical result (prior to expenses and investment

income) was slightly lower than 2016 at USD 2.13 million

(USD 2.48 million in 2016). Results were impacted by weaker

performance in the Agriculture, Aviation and Non-UK

Motor sectors whilst Marine, Energy, Engineering, Property

and Structured Finance all delivered favourable results.

The gross written premiums for 2017 compared to 2016

by line of business are as follows:

The portfolio continues to be dominated by UK exposures

reflected by strong growth in Northern Europe in 2017. The

small increase in income in Southern Europe represents the

addition of Greek Motor and Marine accounts whilst the

small decrease in Asia reflects the reduction in the Aviation

account.

The 2017 GWP of USD 413 million shown is that used in the

analysis supporting the SCR calculation. This is USD 2 million

greater than the USD 411 million shown in the IFRS financial

statements. The GWP used in the SCR calculation recognises

premiums relating to policies issued under a binder contract

2.3 Investment Performance

QEL’s investment strategy is tailored to meet the Company’s

business needs, objectives and regulatory requirements.

The asset mix is closely managed to meet liquidity needs

and investment return targets. QEL’s investment income is

driven by investments in fixed income bonds.

The Company’s net investment income (net of investment

management expenses) was as follows:

The revaluation of bonds as at 31 December 2017 resulted in

USD 119 thousand fair value loss.

Line of business 2017 2016 (USD’000) (USD’000)

Medical Expense 0 4,014

Workers’ Compensation 5,554 9,616

Motor Vehicle Liability 198,068 148,381

Other Motor 59,399 42,305

Marine, Aviation & Transport 14,223 20,318

Fire & Other Damage to Property 89,261 31,334

General Liability 31,098 41,510

Legal Expenses 0 6,991

Miscellaneous Financial Loss 15,397 0

Total 412,999 304,469

late in 2017, which were reported to the Company after the

financial statement closing process had completed. During

2017, the increase in income was greatest in the motor lines

due to the inception of a major motor co-insurance deal in

the UK which began in April 2017.

The inception of the UK Homeowners programme in June

2017 generated similar income growth in the Fire and other

Damage to Property line of business.

Miscellaneous Financial loss income grew following the in-

ception of a number of individual Residual Value contracts.

A Greek Marine Binder incepted in May 2017, but the small

level of income from this source was offset by the reduction

in the Aviation portfolio, which explains the income reduction

for the Marine, Aviation & Transport line of business.

The reduction in General Liability income reflects the termi-

nation of the UK Solicitors’ Professional Indemnity business

during 2017.

The gross written premium by geographical region is as

follows:

Business and Performance Business and Performance

Region 2017 2016 (USD’000) (USD’000)

Northern Europe 388,892 286,705

Western Europe 1,871 320

Eastern Europe 148 616

Southern Europe 18,639 2,547

Asia 3,251 13,465

South America 199 817

Total 412,999 304,469


Net investment income 1,754 1,491

2.4 Other Material Income and Expense

The main expenses beyond underwriting and investment

relate to employee compensation:


Employee Related Costs 1,385 545


3System of Governance


3System of Governance

QEL has established an effective corporate governance

framework that is appropriate to the size, nature, complexity

and risk profile of the Company. This enables sound and

prudent management of the Company’s activities so that

the interests of policyholders and other stakeholders are

appropriately protected.

QEL has adopted the “Three Lines of Defence” model to

ensure appropriate segregation of roles and responsibilities

across the Company. The governance flowchart as at April

2018 is presented in section 1.2.

3.1.1 Responsibilities of the Board and Committees

The key responsibilities of the Board of Directors are:

– Approve QEL’s strategy, annual business plan, financial statements and Solvency II submissions.

– Oversee performance against the approved plan.

– Ensure there are adequate risk management and internal control frameworks and an adequate risk culture.

Discuss the emerging risks and their potential impact.

– Oversee the effectiveness of the Company’s governance structure and internal control system. Confirm that

corporate governance policies and practices are developed and applied in a sound and prudent manner.

– Approve the capital requirements. Ensure that the SCR and technical provisions continuously meet the Solvency II

requirements.

– Ensure that QEL meets all regulatory requirements.

– Oversee the performance of the outsourced functions.

20

The Board meets at least quarterly and at other times as required, and carries out its duties within established terms of

reference.

The Board has appointed an Investment Committee, a Risk and Compliance Committee and an Audit Committee to assist

in the effective discharge of its duties, although the Board retains ultimate responsibility.

The responsibilities of the committees are as follows:

• Review and approve for recommendation to the Board the Risk Management

Policy and Own Risk and Solvency Assessment (ORSA) Policy. Ensure that the

risk management framework remains adequate and effective.

• Consider the impact of current and future material risks, recommend the risk

appetite for approval to the Board and monitor actual exposures against risk

appetite and tolerances.

• Review the risk register and challenge the assessment of the key risks and

controls.

• Ensure maintenance of sufficient economic and regulatory capital.

• Promote a risk-aware culture and encourage risk-based decision making.

• Approve the Company’s compliance framework, including the annual Compliance

Plan, monitor progress against the plan.

• Oversee the investigation of any material instances of non-compliance with

applicable legislative or regulatory requirements or internal policies or procedures.

Risk and Compliance Committee (RCC)

3.1 General Information on the System of Governance

System of Governance



There are three operational level committees: Claims Man-

agement Committee, Underwriting Management Commit-

tee and Reserving Committee. They assist the CEO with

documentation and assessment of the key controls.

Communicate regularly with the business functions

to understand, challenge and monitor their risks and

controls.

• Investigate reported incidents of control failings or weak-

nesses, and document them in the Risk Events register.

• Update and maintain the risk register.

• Identify and assess the impact of emerging risks,

maintain the Emerging Risks register.

• Facilitate the stress, scenario and reverse stress testing.

• Provide advice, consultation and training to business

functions on risk and control-related matters.

• Coordinate assurance activities with the Actuarial, Com-

pliance and Internal Audit functions.

• Provide quarterly risk reports to the Risk and Compliance

Committee and the Board.

• Liaise with external parties, including regulators, as

appropriate.

Investment Committee (IC)

Audit Committee (AC)

3.1.2 Key Functions/Responsibilities

The key functions at QEL are the Compliance function, Risk

Management function, Actuarial function and Internal Audit

function.

Each of the key functions is independent from the Com-

pany’s operational functions, thereby ensuring they are able

to undertake their activities in an unbiased and objective

manner. The main responsibilities of the key functions are

as follows:

Risk Management function

• Develop, implement and maintain the Risk Management

Framework and associated risk management policies,

in liaison with the Group ERM function.

• Assist the Board in developing the Risk Appetite State-

ments. Facilitate the ongoing monitoring of the risk

appetite and tolerances and escalate any breaches to

the CEO, committees and the Board.

• Coordinate the Own Risk and Solvency Assessment pro-

cesses and prepare the ORSA report.

• Support the business functions in identifying, assess-

ing and managing their risks. Facilitate the identification,

Actuarial function

The key responsibilities are documented in section 3.6

Actuarial function.

Compliance function

The key responsibilities are documented in section 3.4.2

Compliance function.

Internal Audit function

The key responsibilities are documented in section 3.5

Internal Audit function.

• QEL’s representative office in London was authorised in

Q2 2017 as a branch permitted to undertake regulated

activities.

• Establishment in Italy - the application was approved in

April 2017. There are currently no permanent staff in Milan

other than an appointed General Representative.

• The Reserving Committee was established to support

the CEO in determining the best estimate of reserves.

• The Reinsurance function is now supported by the affili-

ated company Qatar Re’s Ceded Re team.

3.1.4 Remuneration Policy

QEL’s remuneration policy is to provide compensation that

is in line with the market rate and structured and calibrated

so as to attract, retain, motivate and reward its employees

to deliver enhanced performance in the eyes of customers

and shareholders. The policy is aimed at promoting sound

and effective risk management and does not encourage

excessive risk-taking activities.

Total compensation is influenced by factors such as busi-

ness performance and affordability, individual performance,

stakeholder aspirations, capital providers and legal require-

ments.

The QEL remuneration scheme includes both fixed and

variable components. These are appropriately balanced

so that the fixed component represents a sufficiently high

proportion of the total remuneration to avoid employees

being overly dependent on the variable components. QEL

provides some employees with a pension, however the

Company does not operate any early retirement schemes

or defined benefit pension schemes.

Details on Board and employee remuneration over the

reporting period can be found in section 2.4 Other Material

Income and Expense.

3.1.3 Material Changes in the System of Governance

The material changes in the system of governance during 2017 were as follows:

an evaluation of a person’s honesty, reputation and

financial soundness. This includes, if relevant, criminal

convictions or disciplinary offences.

The Fit and Proper Policy applies to the following positions

of responsibility:

• Board members and members of the committees;

• Key functions - Compliance, Risk Management, Actuarial

and Internal Audit;

• Officers and managers of the company; and

• Third-party service providers, including insurance man-

agers, auditors, actuaries and country representatives.

3.2 Fit and Proper requirements

The Company ensures that the Board members and key

function holders are fit and proper to discharge their res-

ponsibilities in accordance with the following definitions:

• An assessment of whether an individual is ‘fit’ involves

an evaluation of the person’s professional qualifica-

tions, knowledge and experience to ensure they are

appropriate to their role. It also demonstrates whether

the person has exercised due skill, care, diligence,

integrity and compliance with relevant standards that

apply to the area or sector in which the individual has

worked.

• An assessment of whether a person is ‘proper’ includes


• Approve the appointment of an external party to whom the internal audit function

is outsourced.

• Approve the three-year Internal Audit Plan and any subsequent material changes.

• Review internal audit reports and any responses provided by management.

• Monitor the integrity of the financial statements, including the annual reports.

Review and challenge the accounting policies.

• Recommend to the Board the appointment of external auditors. Review external

auditor’s reports.

• Review and approve the investment strategy, including the adoption of a prudent

approach to the holding and disposal of investments and the identification of

appropriate asset allocations.

• Monitor the implementation of the investment strategy.

• Review and approve the investment guidelines and monitor compliance.

• Identify and implement measures for the preservation and enhancement of the

invested assets for the purposes of ensuring continued solvency and adequate

liquidity to meet the Company’s obligations.

• Appoint investment managers and advisors and monitor their performance.

the oversight and management of underwriting, claims and

reserving.


In assessing the Fit and Proper requirements the following

procedures are followed:

• Ensure that a PQ (Personal Questionnaire) and the rel-

evant forms are filed with the regulator.

• At each Board meeting the directors are requested to

report any changes in their status in relation to Fit and

Proper requirements or any potential conflict of interest.

• An internal questionnaire is completed by all roles within

the company and reassessed on at least an annual basis.

When assessing the fitness of the Board of Directors, the

Company ensures that collectively the Board possesses the

appropriate qualifications, experience and knowledge in the

following areas:

• Insurance and financial markets knowledge;

• Business strategy and business model knowledge;

• System of governance knowledge;

• Financial and actuarial analysis knowledge and;

• Regulatory framework and requirements knowledge.

3.3.1 Risk Management System

QEL has designed, established and maintains a robust and

effective risk management framework, which supports the

implementation of the strategic objectives and business

plan. It allows for an appropriate understanding of the nature

and significance of the enterprise-wide risks to which the

Company is exposed, including sensitivity to those risks

and the Company’s ability to identify, assess, control and

mitigate them.

Risk governance is a major component of the overall risk

framework and provides for clear roles and responsibilities

in the oversight and management of risks. It also provides

a framework for the reporting and escalation of risk and

control issues across the Company. QEL has adopted the

Three Lines of Defence (LOD) approach to managing and

controlling risk:

The Board is responsible for ensuring that an appropriate risk

management framework is in place. The Board manages

the material risks in line with the risk appetite and ensures

that effective systems and controls are implemented.

The Risk and Compliance Committee provides oversight of

risk management, capital management and exposure man-

agement activities.

This section provides an overview of key aspects in the over-

all risk management framework.

Risk appetite

QEL maintains a risk appetite statement that is reviewed at

least annually and approved by the Board. The statement

defines acceptable levels of risk and requires quarterly

reporting of actual exposure against the level of appetite

and tolerances. The Risk and Compliance Committee is

responsible for discussing and approving risk appetite and

tolerance limits ahead of approval by the Board. The risk

appetite is reviewed and, if necessary, modified if there is

a change in QEL’s business strategy or attitude towards risk.

Risk register

The risk register summarises the overall risk profile of QEL.

The business functions are responsible for identifying mate-

rial risks associated with their activity. The risk identification

and assessment process is facilitated by the Risk Manage-

ment function.

Risk owners are required to assess the inherent and residual

risk position using standardised assessment ratings. As part

of the control self-assessment, the risk owners have a re-

sponsibility to assess the design and performance of the key

controls. The material risks and key controls are discussed


quarterly with the business functions and documented in

the risk register by the Risk Management function, which

also challenges the results of the risk and control-owners’

self-assessment.

Output from the risk register and key changes to the risk

profile are reported to the RCC with escalation to the Board

as appropriate.

Exposure management

Exposure management at QEL is supported by the Qatar

Re Risk Management team, who use specialist tools (closely

linked with the underwriting system) to measure and moni-

tor exposure.

QEL’s risk appetite includes limits for:

• a net event loss from a single Cat event (at the 1-in-250

return period) impacting one peril region in the financial

year.

• Probable Maximum Loss (PML) for any one programme.

The Company’s largest exposure to natural catastrophe risk

is presently driven by the risk of a wind storm hitting Europe.

This risk is monitored quarterly, ensuring that QEL’s expo-

sure remains within its approved risk appetite.

We also recognise that the 1-in-250 year event loss does

not capture the whole distribution of possible losses and

we therefore also monitor an aggregated limits view of the

maximum possible loss from peril events.

Emerging risks

Emerging risks are risks that have not yet been fully under-

stood or classified. The Risk Management function, with

input from the wider management team, identifies and

prioritises emerging risks for assessment. An emerging risk

register is maintained and reviewed quarterly by the RCC.

Emerging risks are also reported to the Board.

Risk reporting

The Risk Management function provides quarterly written

reports to the RCC and the Board that cover the following

core risk information:

• Exposures against risk appetite and tolerances;

• Results of quarterly self-assessment on risk register con-

trol activities;

• Emerging risks;

• Material operational risk events (and near misses); and

• Any proposed changes to the risk management frame-

work.

The Risk Management function also ensures that the results

from the Solvency Capital Requirement (SCR) calculations

are reported to the RCC and the Board.

Capital assessment

QEL’s SCR is calculated using the Solvency II standard for-

mula on a quarterly basis. The Board is responsible for

ensuring that the Company continuously holds sufficient

eligible own funds to cover the SCR and Minimum Capital

Requirement (MCR).

QEL has a target to maintain eligible capital above the SCR

(as defined in the Risk Appetite Statements) in the medium

term, where the medium term is defined as the time horizon

of the business plan (typically three years).

Material changes to the risk profile over the course of the

year could trigger ad-hoc recalculation of the SCR and po-

tentially an update of the ORSA.

A Capital Management plan is included in the ORSA report,

which demonstrates how QEL will maintain the required

regulatory and economic capital to support its business

plan over the three-year period.

Stress testing and scenario testing

Stress testing and scenario testing include consideration of

single stresses and multi-faceted scenarios across all mat-

erial risk categories to assess QEL’s ability to meet the capital

requirements under stressed conditions.

1st line of defence 2nd line of defence 3rd line of defence

– Risk owner (operational management)– Internal control owners

– Compliance

– Risk

– Actuarial

– Internal audit

– External audit

Responsible for managing the risk through deployment and execution of controls and management oversight.

Independently reports on 1st line of defence activities. Reporting typically involves bringing independent perspective or challenge.

Independently provide assurance over the process.


3.3.2 Own Risk and Solvency Assessment

The Own Risk and Solvency Assessment (ORSA) is defined

as the entirety of the processes and procedures employed

to identify, assess, monitor, manage and report the cur-

rent and emerging risks that QEL faces or may face, and to

determine the own funds necessary to ensure that overall

solvency needs are met at all times.

ORSA process

The risk management framework is implemented and in-

tegrated through the various committees, processes and

procedures described in section 3.3.1. These processes

contribute towards QEL’s solvency self- assessment, which

seeks to identify and measure all material risks to which the

Company is exposed, informing the decision-making pro-

cess. QEL’s ORSA includes all material risk, including:

• The quantifiable risks which are within the scope of the SCR;

• The material risks outside the scope of the SCR and the

assessment of their impact and;

• Assessment of the emerging risks.

3.3 Risk Management System including Own Risk and Solvency Assessment


The ORSA processes operate throughout the year, and the ORSA report summarises their outcome for the Board on an

annual basis. Some of the key processes that form part of the ORSA include:

• Risk appetite/tolerance statements (and their ongoing

monitoring);

• Business planning processes (and ongoing monitoring of

the implementation of the plan);

• Risks and controls assessment (documented in the risk

register);

• Emerging risk assessment;

• Capital calculations;

• Three-year capital projections;

• Stress & scenario testing (including reverse stress tests).

The ORSA processes are summarised in the following

figure:

ORSA report

The ORSA report summarises the outcome from the ORSA

processes for the Board and management on an annual

basis. Should there be significant changes to the business

strategy or risk profile, a non-scheduled ORSA update

would be produced and submitted to the MFSA. The trigger

events for such ad-hoc ORSA updates are documented

in the ORSA policy.

The ORSA report is prepared by the Risk Management

function with contributions from the relevant business func-

tions throughout the Company.

The Risk Management function coordinates the ORSA processes.

Three YearBusiness Plan

Executive Level Annual Process

Risk Appetite Statement

SCR Calculation & Assessment

Stress & Scenario Testing

Three YearCapital Projection Capital Plan

Risk Appetite and

Tolerance Monitoring

Risk RegisterReview and Self-

Certifications

Emerging Risk Assessement

Exposure Monitoring

Business Plan Monitoring

Technical Provisions

Other Risk Management ActivitiesOther ongoing aspects of risk management framework


Use of the ORSA results

The ORSA report is used by the Board to assess the solvency

capital needed to execute the business plan.

Other uses of the ORSA outputs may be as follows:

• Business plan, reinsurance and investment strategies

may be changed as a result of the ORSA.

• The results from the capital projections are used for capital

planning, including alternatives to ensure the contin-

ued solvency is maintained under normal and adverse

conditions.

• Risk appetite and tolerance limits may have to be updated.

• Risk management framework improvements may have

to be made, including risk register updates, risk policy

updates and internal control improvements.

3.4.1 Internal Control Framework

The internal control framework seeks to mitigate risks and

limit the probability of losses (or other adverse outcomes) as

well as providing a framework for the overall management

and oversight of the business. The internal control frame-

work at QEL follows the Three Lines of Defence model as

documented in section 3.3.1.

QEL’s internal control framework has the following elements:

• Adequate and transparent organisational structure with

clear allocation and segregation of responsibilities.

• Corporate policies defining key principles and rules for

operation; operating procedures detailing the activities

and controls individuals are expected to perform. The

policies and procedures are reviewed at least once a year.

• Specific focus on outsourcing procedures and controls.

• Management information and monitoring of business

performance. Monitoring the achievement of the busi-

ness plan.

• Ensuring financial and other records are complete and

accurate and reliably reflect the operation of the busi-

ness.

• Safeguarding assets against loss or misuse.

• Training staff to ensure that they understand their respon-

sibilities relating to internal controls. Ensuring that the

actions of staff are in compliance with QEL’s policies,

procedures and relevant laws and regulations.

The key controls mitigating material risks are documented

in the risk register and assessed as part of the quarterly risk

and control assessment process.

Internal and external auditors play a key role in the oversight

and assessment of the overall control environment. Find-

ings from audit reviews are shared with and discussed by

the Audit Committee, and feed into the risk and solvency

assessment processes.

3.4.2 Compliance Function

The Compliance function is responsible for directing and over-

seeing the management and monitoring of the Company’s

adherence to applicable regulatory and legislative require-

ments, and to the Company’s internal policies, procedures

and controls to ensure the effective mitigation of compli-

ance risk. The Compliance function also acts in an advisory

capacity to the Board and wider Company regarding the

impact of a range of regulatory and legislative requirements.

The Compliance function fulfils its obligations by carrying

out the following key activities:

• Act in an advisory, oversight and assurance capacity to

ensure that the Company has the necessary systems and

controls to enable it to adhere, on an ongoing basis, to

regulatory and legislative requirements.

• Develop Company-wide compliance policies and proce-

dures, as well as undertake regular and ad-hoc compliance

activities.

• Develop an annual compliance plan setting out the key


objectives and activities of the Compliance function in

the year ahead and ensure adequate resources are in

place.

• Provide guidance and support on regulatory and legis-

lative requirements. Ensure that staff receive adequate

training on various compliance matters.

• Ensure that business is written in accordance with

applicable licensing requirements in those jurisdictions

in which the Company writes business.

• Liaise with the regulator(s), in order to develop and main-

tain open and cooperative relationships and ensure that

appropriate disclosures are made to the regulator(s)

of anything relating to QEL that the regulator(s) would

reasonably expect notice of. Ensure that all regula-

tory returns are submitted to the regulator(s) within the

prescribed timescales.

• Promote and embed a strong compliance culture

throughout the Company.

3.5 Internal Audit function

The Internal Audit function is outsourced to PwC. The

Internal Audit function is segregated from all operational

functions and provides independent assurance on the

effectiveness of the risk management, internal control and

governance frameworks. It has unrestricted access to all

areas of the organisation so as to effectively conduct internal

audit reviews.

The main responsibilities of the function are to:

• Provide independent assurance on the effectiveness of

the risk management, internal control and governance

frameworks.

• Conduct internal audit reviews, discuss the findings and

agree action points with the relevant business areas,

prior to reporting to the Audit Committee.

• Develop a rolling three-year Internal Audit Plan and pro-

vide the Audit Committee with quarterly updates against

the plan.

• Review and evaluate the annual coverholder audit sched-

ule and the completed coverholder audit reports.

Further assurance is being obtained through the use of a

panel of coverholder auditors who examine in detail the

controls and transactions of all coverholder partners. This is

a management control under the oversight of the Delegated

Authority Manager but all audit reports are also provided to

the Internal Audit function to assist it in its work.

3.4 Internal Control System


3.7 Outsourcing

In each audit location, Internal Audit fulfils its responsibili-

ties in compliance with local legal and regulatory require-

ments (such as the MFSA Insurance Code of Conduct), and

in accordance with the guidelines of the Institute of Internal

System of Governance System of Governance

3.6 Actuarial function

In Q1 2017, QEL’s Actuarial function was brought in-house

following the recruitment of a Senior Reserving Actuary. In

addition, support was provided via outsourcing agreements

with an external consultant and an affiliated company,

enabling segregation of duties within the actuarial team.

The services provided to QEL, as they relate to actuarial

work are overseen by the Actuarial function.

The Actuarial function’s responsibilities are as follows:

• Ongoing development of reserving systems for QEL;

performing a reserving function and preparing the nec-

essary reserving reports for QEL’s financial statements

and external reporting including regulatory filings.

• Calculation of the technical provisions.

• Communication of reserve calculations to management

within QEL.

• Preparing financial projections for the purposes of assessing

potential future SCRs and QEL’s ability to meet these.

• Ongoing review of QEL’s recording of contract data

that is used within the preparation of financial statements

with the goal of improving accuracy.

• Supporting the Risk Management function in the calcula-

tion of the SCR.

• Providing support to ensure achievement and mainte-

nance of Solvency II compliance.

• Providing an actuarial opinion on the underwriting policy

and reinsurance strategy.

During 2017, the affiliated company provided the following

actuarial and modelling services to QEL:

• Advising QEL underwriters on technical price, profitability,

product design, portfolio impact, data quality, applicability

of modelling, uncertainties and third-party reliance.

• Assisting with business planning, researching new classes

and territories of business, assisting with portfolio optimi-

sation and improving return on capital.

Each outsourcing arrangement is subject to robust processes:

• The business function owner is responsible for demon-

strating the rationale for selecting and shortlisting the po-

tential provider.

• Each service provider is subject to due diligence.

• A formal approval process is in place (including review of

contracts by legal experts).

• The MFSA is notified of any new outsourcing arrange-

ments or changes to existing outsourcing arrangements.

• Comprehensive assessments of the service providers are

performed on a regular basis.

• Validation may be sought through an independent audit.

The business function owners are responsible for identify-

ing and assessing the risks associated with an outsourcing

arrangement and ensuring that the service providers have

adequate internal control systems in place.

Function / Work performed Jurisdiction of the Function

Insurance Management Malta

Internal Audit Switzerland (Critical Function) with support from Malta

Compliance (Critical Function) Malta

Company Secretarial Malta

Third Party Service Providers:

Function / Work performed Name of Provider

Operational and Underwriting Qatar Re advice and assistance

Reinsurance services

Compliance (Critical Function)

HR support

IT services

Legal services

Finance Qatar Reinsurance Services LLC

Investment Advisors Qatar Economic Advisors S.P.C.

Affiliated Service Providers:

The tables below outlines the outsourced functions that are considered critical or important as at December 2017:

3.7.1 Outsourcing Policy

QEL’s Outsourcing Policy applies to all internal and external

outsourcing arrangements and describes how all outsourc-

ing agreements are arranged, overseen, monitored and

managed.

Outsourcing is used to complement QEL’s overall business

strategy, objectives and risk appetite. Arrangements are only

considered and entered into where they offer improved

business performance, both operationally and financially.

QEL does not seek to enter into any outsourcing arrange-

ments that will result in reduced standards or an increased

level of risk exposure that breaches the risk appetite.

QEL understands that, in accordance with regulatory re-

quirements, where it outsources any of its activities either to

external third-party service providers or intra-group entities,

it will continue to be responsible and held accountable for

the performance and output of those activities.

Auditors and the International Standards for the Professional

Practice of Internal Auditing issued by the Institute of Internal

Auditors (IIA).

From January 2018 the Risk Management function is also performed by Qatar Re on an outsourced basis.

The Board maintains oversight and control of all outsourced functions.

3.7.2 Delegated Underwriting and Claims Management

QEL focuses on coverholder or coinsurance partners across

the EEA. QEL’s business model was designed to provide

access to niche insurance business either by line of busi-

ness, or geography, or both, for both existing portfolios and

entrepreneurial start-up ventures. The coverholder or an

appointed third-party administrator are responsible for

claims management, with QEL’s Claims team providing

oversight of performance in accordance with service level

agreements.

An appropriate governance structure is in place and is ad-

ministered by the CEO, Delegated Underwriting Authority

(DUA) Manager and the Board to provide robust oversight

and clear accountability of delegated underwriting and

claims management arrangements. QEL has a robust pro-

cess for selecting and managing coverholders and third

party administrators.

Careful evaluation of each proposition and analysis of each

part of the coverholder’s value chain (product management,

distribution, underwriting and claims) are critical to risk se-

lection. Actuarial and legal analysis is supported by pre-bind

meetings and onsite due diligence. Terms of engagement

frequently include profit commission clauses to ensure that

coverholder partners share in the performance of the port-

folio as well as termination clauses permitting early exit in

the event of poor profitability.

Post execution of any coverholder deal, monthly bordereau

reports, regular meetings with the coverholders to review

account developments and annual onsite audits are all

used to monitor the performance of both underwriting and

claims.

We maintain an approved panel of coverholder auditors and

we use a market standard for the scope of audit work, with

a specific focus on certain areas depending on the nature of

the deal and the performance of the coverholder. A detailed

spreadsheet is maintained for tracking the completion of

the audit recommendations.

3.8 Any other Material Information

There is no other material information regarding the business and performance of QEL.


4Risk Profile


4 The view of material risks at QEL is a combination of the

top risks from the risk register (based on their residual

rating) and the SCR risk ranking (based on the capital

impact).

The most material risk categories based on their capital

impact are outlined below. The counterparty default risk

and non-life underwriting risk continue to be the key

drivers of the SCR.

The ranking by risk category based on the 2017 SCR

calculations (as a percentage of the total SCR excluding

the loss absorbing capacity of deferred taxes, without

allowing for diversification between risk modules) is as

follows:

The key risk drivers, the rationale for the ranking of each

type of risk, and the approach to managing the risks are

documented in this chapter.

Risk Profile 4.1 Insurance risk

4.1.1 Insurance Risk Management

Insurance risk includes underwriting and reserve risk.

QEL manages the insurance risk through:

• Selection and implementation of the underwriting strat-

egy and guidelines;

• Adequate reinsurance arrangements;

• Exposure management;

• Adequate reserves and claims management processes.

Underwriting risk includes the unexpired risk on business

already incepted and reflects the risk that future premiums

will not be sufficient to cover future losses. We manage

underwriting risk through the use of defined limits, pricing

models, peer review processes and oversight from the

Underwriting Management Committee and the Board.

QEL’s underwriters ensure that:

• Inward business written, or authority delegated to cover-

holders is matched by suitable reinsurance;

• The net retained position of QEL remains within the risk

appetite; and

• QEL has appropriate licenses and regulatory approval for

any business written.

The pricing adequacy of the underlying business is assessed

as part of the evaluation of coverholder business proposi-

tions at inception and renewal through the use of various

pricing models, rating tools and related monitoring reports.

QEL benefits from underwriting advice and assistance from

affiliated companies.

Reserve risk arises from the inherent uncertainty surround-

ing the adequacy of the reserves set aside to cover insurance

liabilities. QEL’s reserve risk profile is primarily short-tail,

where claims are reported and settled quickly. However,

some classes include an element of long-tail run-off

(notably UK motor that includes third party liability) and they

expose QEL to reserve variations in the longer term.

Reserve risk exposure is managed within the Actuarial func-

tion and through defined reserving best practices, which are

overseen by the Reserving Committee and the Board.

4.1.2 Insurance Risk Measurement and Exposure

QEL targets a multi-class balanced portfolio. The portfo-

lio is composed of principally low severity/high frequency

business. The risk of an accumulation relating to a natural

catastrophe is low relative to the size of the portfolio.

The Company’s largest exposure to natural catastrophe risk

is driven by the risk of a wind storm in the European Channel.

This risk is continually monitored within the exposure man-

agement framework, ensuring that QEL’s exposure remains

within its approved risk appetite.

Stress tests are run to assess and quantify the impact on the

Company’s solvency position and to understand the severity

of stress that would be required to cause QEL to breach its

regulatory capital requirements, including:

• A significant and prolonged increase in the motor liability

loss ratio;

• Increased underwriting activity beyond the business

plan.

The outcome of these tests shows that it would require a

severe increase in the motor vehicle loss ratio for the com-

ing 12 months to result in a danger of breaching the SCR.

An increase in underwriting activity in excess of the business

plan would not result in a breach of the SCR, provided the

loss ratios remain broadly as planned.

Given that QEL is still at an early stage of development, there

are low levels of reserves relative to the size of the portfolio

(liability-related risk being just 10% of the premium-related

part of non-life risk in the SCR calculations). Reserve risk

is not considered a material contributor to the Company’s

overall risk profile.

While the majority of QEL’s insurance risk exposure is short-

tailed with claims reported and settled quickly, reserve risk

is increasing as the portfolio matures and the volume of

reserves increases. The Company’s highest exposure to

reserve risk comes from longer-tail lines of business, notably

motor liability, which is more exposed to reserve variations

in the longer term. The long-tail portion of the UK motor

portfolio contributes to around 10% of incurred losses within

this line of business each year.

Risk Profile

32

4.1 Insurance risk

20%

9%

21%1%

49%Market

Operational

Non-Life Underwriting

Health Underwriting

Counterparty Default

Solvency Capital Requirement Breakdown


Concentration risk can arise when the investment port-

folio is not appropriately diversified across counterparties,

geographical regions and industries. Concentration risk is

measured with reference to the Company’s risk appetite and

tolerance statements, which limit the concentration of asset

holdings.

Liquidity risk arises when the Company is unable to meet its

payment obligations as and when they fall due. Liquidity risk

management is discussed in section 4.4.

Solvency Capital Requirement

The diversified SCR for market risk at the end of 2017 com-

pared to 2016 is composed as follows:

As described above, QEL’s fixed income investment portfolio

grew over the year, driving an increase in the interest and

spread risk capital requirements.

The decrease in currency risk is mostly driven by the GBP

cash balances being higher at 31 December 2017 which

improved the GBP asset - liabilities matching.


The SCR using the standard formula provides an appropriate

method for QEL to quantify its exposure to insurance risk,

given the risk profile, size and complexity of the Company.

Material changes to the underwriting risk profile would trig-

ger a recalculation of the SCR and a reassessment of the

suitability of the standard formula for quantifying the risks to

which the Company is exposed.

The diversified SCR for insurance risk at the end of the report-

ing period and at the end of last year is composed as follows:

The SCR for non-life underwriting risk changed during 2017

for the following reasons:

• Premium & Reserve risk – the SCR accounts for risk as-

sociated with new business expected to be written in the

following 12 months. The expected Net Earned Premium

(NEP) for 2018 has reduced compared to the expected

NEP for 2017 as at 31 December 2016. This results in re-

duced premium risk in the SCR as at 31 December 2017.

The reduction is partially offset by an increase in reserve

risk associated with our increasing portfolio of reserves.

• Catastrophe risk – reduced as a result of refined assump-

tions around reinsurance.

• Lapse risk - increased in line with the GWP increase.

The highest contributor to premium and reserve risk is motor

vehicle liability, which is driven by the relatively high volume

of premium within QEL from this segment.

The capital charge for lapse risk is not significant.

4.2.1 Market Risk Management

Market risk arises as a result of QEL’s currency exposures,

interest rate and default risk on the fixed income portfolio.

The Board has adopted an investment strategy that com-

prises the following characteristics:

• A low-risk portfolio, structured to deliver a consistent

return.

• A low maintenance portfolio which is transparent and liquid.

• Matched duration of assets and liabilities.

The Investment Committee provides oversight of QEL’s

investment policy, strategy and performance. Qatar

Economic Advisors S.P.C. (“QEA”), the wholly-owned invest-

ment advisory services subsidiary of QIC, are the appointed

investment managers for QEL.

QEA manages the portfolio under an Investment Advisory

Agreement, which outlines the authorities granted, together

with an investment guidelines document, which provides

more specific policy guidance. QEA is responsible for moni-

toring the investment performance and providing quarterly

investment reports to the Investment Committee.

Liquidity requirements are monitored and management

ensures that sufficient funds are available to meet any rea-

sonably foreseeable commitments as they arise.

Risk Capital Requirement Capital Requirement 31/12/2017 31/12/2016

(USD) (USD)

Premium & Reserve 8,923,191 10,258,484

Lapse 2,659,955 1,422,996

Catastrophe 4,397,509 5,319,916

Total 15,980,655 17,000,396

Diversification (4,770,984) (4,240,124)

Diversified SCR 11,209,670 12,761,272

Investment of assets in accordance with the

prudent person principle

The investment strategy is heavily weighted towards fixed

income and cash deposits. Investment mandates include

details of permitted investments (including limits), minimum

credit ratings and maximum concentrations. QEL’s invest-

ment guidelines are approved by the Board and the Invest-

ment Committee provides oversight of QEL’s investment

policy, strategy and performance.

The investment strategy ensures that the Company only

invests in instruments that any reasonable individual with

objectives of capital preservation and return on investment

would own, in the best interests of its policyholders. The

guidelines only allow the assumption of investment risks

that can be properly identified, measured, responded to,

monitored, controlled, and reported. The guidelines are set

so as to ensure appropriate and adequate capital, liquidity

and ability to meet policyholder obligations.

Besides relying on credit rating agencies, QEL’s investments

are in companies that are familiar to the investment advi-

sors, thus the assessment is beyond the credit rating of the

investment selected by QEL.

Risk Profile

4.2.2 Market Risk Measurement and Exposure

Market risk is measured against the Company’s risk appetite

and tolerance statements, which define the investment

allocation limits by investment type, geographical region,

credit rating etc.

The investment portfolio is as follows:

The investment portfolio was comprised of cash and

bonds at the end of the reporting period. The cash balance

significantly exceeded the net technical provisions and

other liabilities expected to be settled in the short term.

The entire portfolio is made up of investments that are held

in fixed income bonds. The breakdown of the portfolio by

rating is as follows:

In addition, QEL’s exposure is further split amongst different

sectors, with the greatest reliance being on more than half

of the investments in the financial sector. The remainder

of the portfolio is spread across Materials, Utilities, Govern-

ment, Communication and Airlines.

The highest contributor to market risk is foreign exchange

risk, which arises due to mismatches in the currencies of the

assets held to match liabilities. The Company monitors this

risk on an ongoing basis, including the impact of adverse

currency movements as part of the stress and scenario

testing. QEL invests predominantly in USD denominated

investments to optimise the returns achieved. Given that liabi-

lities are mostly GBP and EUR denominated, QEL is exposed

to a weakening of the USD. However, the main reinsurance

contracts (which are with Qatar Re and the QIC Group) are

USD denominated, but written so as to follow the fortunes of

the ceded portion of risk so there is no mismatch between

the foreign exchange rate at which the gross claim is paid

and the rate at which the ceded portion is recovered.

Risk Capital Requirement Capital Requirement

31/12/2017 31/12/2016 (USD) (USD)

Interest Rate 1,403,979 837,176

Property 0 25,179

Spread 3,820,171 2,415,533

Currency 969,302 1,712,598

Concentration 1,817,068 1,551,893

Total 8,010,520 6,542,380

Diversification (3,179,574) (2,702,414)

Diversified SCR 4,830,946 3,839,966

Risk Profile

Investment Portfolio 31/12/2017 31/12/2016

(USD‘000) (USD‘000)

Cash and cash equivalents 39,555 20,735

Corporate Bonds 57,745 44,417

Total 97,300 65,152

4.2 Market riskCredit Rating

64%24%n A- to A+

n BBB- & BBB+

n AA- & above

12%


4.3.1 Credit Risk Management

Credit risk arises from both underwriting and investment

activities.

Failure of a reinsurer to settle claims in full, failure of a cover-

holder or a bank are the most material credit risks for QEL.

The key mitigating controls for credit risk include:

• Approval procedures for accepting new counterparties;

• Monitoring of the security rating of all banking and rein-

surance counterparties;

• Aged debt monitoring and reporting;

• Monitoring of the concentrations of credit risk arising

from similar geographic regions and activities.

In December 2017, consistent with a Group-wide capital

management strategy and the Group restructuring involving

Qatar Re, QEL took advantage of risk mitigation techniques

contemplated in Article 189 paragraph 2(d) of Commission

Delegated Regulation (EU) 2015/35 (“the Delegated Acts”).

This allows for the reclassification of certain counterparty

exposures where certain test criteria, set out in Articles

209-215 of the Delegated Acts can be satisfied. Qatar Re has

provided a facility to the Company that meets the require-

ments and thus causes a reduction in the required capital

of the Company.

4.3.2 Credit Risk Measurement and Exposure

Credit risk is measured through monitoring exposure in

accordance with the risk appetite and tolerance statements.

At the end of the reporting period, the Company’s largest

exposure to credit risk came from the large proportion of

risk ceded to reinsurance counterparties. The majority of

the exposure is intra-group due to the large proportion of

business ceded to affiliated companies. This exposure is

classified as type 1 in the SCR standard formula.

In addition, QEL is exposed to premium counterparty de-

fault risk as it transacts with a number of coverholders.

Exposure to coverholders is captured and actively monitored

by the Finance function. Exposures to receivables from inter-

mediaries and policyholder debtors are classified as type 2

exposures in the SCR standard formula.

The security rating of all banking and custodian counterpar-

ties is considered an appropriate metric for measuring credit

risk arising as a result of QEL’s need to hold cash at bank.

These ratings are monitored on a daily basis. Deposits with

banks and custodians are classified as type 1 exposures in

the SCR standard formula.


Credit risk is the largest contributor to the Company’s capital

requirements. The diversified SCR for credit risk at the end of

the reporting period, and at the end of last year is composed

as follows:

The type 1 credit risk capital requirement increased over

the reporting period. This is in line with the increase in the

volume of reserves and business written, driving a higher

reinsurance recoverable balance. The bank balance also

increased over the period, increasing the type 1 credit risk

exposure. The reduction in type 2 credit risk is consistent

with the reclassification of certain coverholder balances as

described in section 4.3.1.

In managing exposure to credit risk, the Company also con-

siders counterparty default risk arising as a result of the fixed

income portfolio, and continuously monitors the ratings of

its fixed income counterparties. This risk is considered with-

in the market risk module of the SCR.

Risk Profile

The Investment Committee has ultimate responsibility for

the management of liquidity risk and it has delegated over-

sight and ownership of liquidity management to the CFO.

Day-to-day management of liquidity is the responsibility of

the Finance function. Both short-term and long-term liquid-

ity risks are considered, with actions taken to ensure QEL

has a long-term view of its liquidity requirements, arising

from liabilities based on an actuarial assessment of risk, and

to ensure access to liquid funds to meet these liabilities.

Liquidity risk limits are defined in the risk appetite and in the

Investment Manager Guidelines (provided to the external

manager of the funds).

Other liquidity monitoring controls are:

• Review of settlement advices that provides a useful indi-

cator in forecasting short-term future cashflows;

• Bordereau monitoring process; and

• Monitoring of the debt positions.

4.4.2 Liquidity Risk Measurement and Exposure

The market value of liquid assets is compared to the

expected cash flows on a quarterly basis. Also, QEL

ensures that sufficient liquid funds will be available to meet

the largest probable maximum loss, such that minimal

costs are incurred to meet the cashflow requirements.

The Company remains within the liquidity risk appetite limits

as at December 2017.

4.4.3 Expected Profit Included in Future Premiums

The amount of expected profit included in future premiums

(EPIFP) was calculated in accordance with Article 260 of the

Solvency II Delegated Acts.

The EPIFP net of reinsurance (QEL’s profits are driven by net

results) is USD 1,082,017 at the end of the reporting period.

Risk Profile

Default Risk Capital Requirement Capital Requirement

Capital Requirements 31/12/2017 31/12/2016

(USD) (USD)

Type 1 12,829,535 9,875,091

Type 2 14,643,266 18,928,500

Diversification within counterparty default risk module (1,766,350) (1,670,834)

Diversified Total 25,706,452 27,132,757

4.4 Liquidity risk

4.4.1 Liquidity Risk Management

QEL ensures that sufficient liquidity is maintained to meet

both immediate and foreseeable cash flow requirements.

4.5 Operational risk

4.5.1 Operational Risk Management

Operational risk arises from inadequate processes or the fail-

ure of processes, people or systems, or from external events

that impact the operational capability of the Company.

Operational risk is managed through:

• Effective corporate governance, including segregation

of duties, avoidance of conflicts of interest, clear lines

of management responsibility, adequate management

information (MI) reporting.

• A strong internal control culture.

• Staff training/awareness of the control responsibilities

relating to their roles.

• Effective IT systems, Business Continuity and Disaster

Recovery plans.

• Ensuring compliance with regulatory requirements.

• Recruiting/retaining adequately skilled staff, adequate

performance assessment system.

• Procedures to minimise internal/external fraud.

• Ensuring accurate and timely financial (and other exter-

nal) reporting.

• Assessment of the impact of outsourcing material func-

tions on operational risks.

QEL monitors operational risk exposures through its risk

register and the operational loss monitoring (risk event

reporting) process, which are overseen by the Risk and

Compliance Committee.

4.5.2 Operational Risk Measurement and Exposure


The operational risk capital charge calculations within the

SCR standard formula are based on the volume of business,

and do not take into account the quality of the operational

risk management system or the internal control framework.

4.2 Liquidity risk

4.5 Operational risk

4.3 Credit risk


The calculation factors in the Company’s gross earned

premiums and gross technical provisions, and is capped at

30% of the Basic SCR. The premium-based operational risk

charge, calculated based on the earned gross premiums,

exceeds the maximum capped capital charge set at 30% of

the basic SCR, meaning that the charge is driven by 30% of

the Basic SCR.

The SCR for operational risk at the end of the reporting pe-

riod and at the end of last year was as follows:

The operational risk capital requirement reduced over the

period in line with the reduction in the Basic SCR.

4.6 Other material risks

Group risk

Group risk arises as a result of being part of an insurance

group, including exposures resulting from intra-group trans-

actions.

QEL has ceded a large proportion of risk to Qatar Re and

QIC, which are both rated A/Stable by S&P Global Ratings

and A/Excellent by A.M. Best.

There is also some operational dependency due to some

key functions being outsourced within the Group (see sec-

tion 3.7 for further details).

We have an excellent relationship with QIC and Qatar Re,

and ensure that we establish strong governance around our

agreements, including certain arms-length contractual ar-

rangements.

Strategic and reputational risk

Strategic and reputational risks are monitored through the

risk appetite, risk management oversight and stress/reverse

stress testing process. Other specific mitigants of strategic

risk include:

• Effective business planning and performance monitoring.

• Aligning the business strategy, risk appetite, business

plan, underwriting guidelines and capital requirements.

• Periodic review of the emerging risks and assessment of

the potential impact on the business.

• Capital management planning.

QEL ensures that Board members are fit and proper to dis-

charge their responsibilities which includes providing the

necessary strategic direction.

QEL recognises reputational risk as either a by-product of

inadequate management and mitigation of the material

risks, or as a result of contagion from external events be-

yond our control. The internal controls framework, effective

compliance and risk management functions, monitoring of

operations by the Board and the committees and the due

diligence/audit procedures for coverholders contribute to

minimising the reputational risk.

4.7 Risk Exposure arising from Off-balance Sheet Positions

QEL does not have any risk exposure arising from off-balance sheet positions.

Risk ProfileRisk Profile

4.8 Material Risk Concentrations

The Company’s risk appetite and tolerance statements, ap-

proved by the Board, govern the concentration limits in rela-

tion to counterparties, credit quality and geographical loca-

tions so as to avoid material risk concentration.

There are also a number of managerial level limits used

across different functions to manage risk exposures within

the approved risk appetites. For example, investments are

managed within the scope of the approved Investment

Mandate. Market risk concentrations are discussed in sec-

tion 4.2.2.

Similarly, for underwriting risk, catastrophe capacity is al-

located across both business lines and key perils/regions.

There is real-time monitoring of aggregate risk exposures by

peril and region. The approach to managing insurance risk

concentrations is presented in section 4.1.2.

QEL’s most material credit risk concentrations relate to re-

insurance recoverables and receivables from coverholders.

The approach to managing this risk is documented in sec-

tion 4.3.

4.9 Risk Mitigation Techniques

The internal control framework seeks to mitigate risks, pro-

tect our policyholders and limit the likelihood of losses or

other adverse outcomes, as well as providing a framework

for the overall management and oversight of the business.

QEL’s internal control framework is summarised in section

3.4. Key controls are captured within the risk register and

assessed as part of the risk and control assessment process

described under section 3.3.

The Company purchases both quota share and excess of

loss treaty reinsurance by line of business to provide stability

in claims costs and increase capacity to write new and larger

lines of business. QEL also purchases facultative reinsurance

to increase capacity, increase margins and take advantage

of opportunities where it is prudent and makes commercial

sense to do so. The effectiveness of the reinsurance pro-

gramme is also monitored to ensure it meets the defined

objectives.

As noted in section 4.3, QEL took advantage of risk miti-

gation techniques contemplated in Article 189 of the Del-

egated Acts.

4.10 Risk Sensitivity Stress and Scenario Testing

Stress and scenario tests

QEL’s risk management process includes a range of stress

and scenario tests, analysing and reporting on the outputs

as part of the ORSA processes. The Company explores plau-

sible adverse scenarios that may arise in the normal course

of business, which are derived from the key drivers of busi-

ness and the risks identified in the risk register. There is also a

quantitative analysis of the solvency and profit and loss im-

pacts of the various stress and scenario tests, supplemented

with qualitative analysis.

The stress tests cover the most material risks, and are used to

independently assess the level of capital buffer above the SCR.

The details of methods, assumptions and outcome of the

key stress tests are shown below:

1. Foreign exchange risk

The Company’s most significant insurance contracts are

euro and GBP denominated, meaning that any fluctuation

in the rate of exchange of the euro and GBP against the USD

(being the Company’s reporting currency) has an impact on

the Company’s surplus. Given this exposure to foreign ex-

change risk, the Company considered the impact of a 40%

decrease in the value of the USD against GBP and EUR on

its SCR coverage ratio.

Interpretation of results:

If the USD were to depreciate significantly against the GBP

and to an extent, the EUR, this would lead to a significant

increase in the Company’s technical provisions.

As mentioned in section 4.2.2, the main reinsurance con-

tracts (with Qatar Re and the QIC Group) are USD denomi-

nated but written so as to follow the fortunes of the ceded

portion of risk. As a result there is no mismatch between

the foreign exchange rate at which the gross claim is paid

and the rate at which the ceded portion is recovered. There

would therefore be a corresponding increase in the reinsur-

ance recoverables associated with the technical provisions.

The currency risk and underwriting risk capital requirements

would increase, as would the counterparty default risk capi-

tal requirements.

Risk in Scope Methods and Assumptions Impact on SCR

Market risk It is assumed that the USD falls in value by 40% against the euro SCR coverage ratio reduces and GBP on the valuation date, causing a significant change in the from 138% to 119%. USD value of liabilities and associated reinsurance recoveries.

Risk Capital Requirement Capital Requirement 31/12/2017 31/12/2016

(USD) (USD)

Operational Risk 10,364,402 11,001,334


2. Insurance risk – Loss Ratio

A number of stress tests were carried out to assess the im-

pact of an increase in the UK motor loss ratio, including a

standalone increase to 105% in 2018. More prolonged in-

Risk in Scope Methods and Assumptions Impact on SCR

Insurance risk It is assumed that the UK motor technical ratio increases to 105% SCR coverage ratio reduces (net of commission structures which pass on some of the risk of from 138% to 120%. adverse loss experience to cedants). The deterioration is assumed to apply at the end of 2017, affecting existing claims and premium provisions. It is assumed that management take action to respond appropriately through revised pricing so that technical ratios recover after the coming 12 months.

creases in the loss ratio and associated reduction in retained

earnings and balance sheet surplus were also considered as

part of the ORSA processes.

Interpretation of results:

A deterioration of the magnitude considered is seen by

management as extreme events for the UK motor portfo-

lio in question. The result shows the benefit of both quota

share and excess of loss covers to substantially mitigate the

financial impact of significant deterioration of the UK motor

loss ratios (as was seen across the industry during 2017 as

a result of the revision of the Ogden discount rate) on the

Company.

The mitigating action taken in the event of such deterio-

ration depends on the forecast for the loss ratio in future

years. Generally, the management maintains a vigilant eye

on the performance of the UK motor exposure with month-

ly monitoring. This frequent review on a short-tail account,

backed up by monthly reserve monitoring, means that the

management should have good early-warning indicators of

such scenarios materialising, and would be able to discuss

them with the clients concerned.

3. Expense risk

The impact of an accumulated annual increase in general

administrative expenses of 25% was assessed, leading to the

conclusion that it would not significantly threaten QEL’s sol-

vency position.

Reverse stress tests

Reverse stress tests identify individual and combined sce-

narios that would place significant stress upon the business

and threaten the financial viability of the Company. These

scenarios could cause a loss of market confidence, which

could render the business model unviable, albeit not neces-

sarily to the point where the business runs out of capital.

As part of this process, potential scenario drivers are identi-

fied. The likelihood of their occurrence is assessed and their

materiality defined, management actions are then identified

that could prevent and/or mitigate the scenarios.

Business model failure due to adverse outcomes of the re-

verse stress tests over the planning horizon is considered to

be highly unlikely.

QIC Europe Limited Solvency and Financial Condition Report 2017 41


5Valuation for Solvency Purposes


The following table sets out the assets held within QEL’s balance sheet, alongside their value as at 31 December 2017 for the

IFRS financial statements and the Solvency II balance sheet.

5.1.1 Valuation bases, methods and main assumptions

5Valuation for Solvency PurposesThe assessment of available and required regulatory

capital is made by taking an economic view of the

Company’s assets and liabilities, in accordance with

the Solvency II valuation principles. The Solvency II

balance sheet is produced on an economic basis

and is presented in Appendix 1.

Class of Assets IFRS Basis IFRS Basis Solvency II Basis Solvency II Basis 31/12/2017 31/12/2016 31/12/2017 31/12/2016 (USD) (USD) (USD) (USD)

Deferred Acquisition Costs 53,326,000 38,210,000 0 0

Deferred Tax Assets 0 0 745,719 1,570,633

Property Plant & Equipment 87,000 100,716 87,000 100,716

Investments (Bonds) 57,745,000 44,417,349 57,745,000 44,417,349

Reinsurance Recoverables 418,747,000 272,852,497 352,424,124 231,174,446

Insurance Receivables 104,139,000 126,190,000 104,139,000 126,190,000

Cash & Cash equivalents 39,555,000 20,735,100 39,555,000 20,735,100

Deposits to Cedants* 46,634,000 0 46,634,000 0

Other Assets* 400,000 0 400,000 0

Total Assets 720,633,000 502,505,662 601,729,844 424,188,244

Cash and cash equivalents, fixed income securities and all

other assets on the Solvency II balance sheet are recorded

at fair value in line with IFRS, with changes in fair value and

realised gains/losses net off against the own funds.

The Company is not using any alternative methods for

valuation of investments, in accordance with Article 263 of

the Solvency II Delegated Regulation.

In cases where the IFRS principles do not require fair value,

investments are valued using the Solvency II valuation hier-

archy, as defined in the Solvency II Delegated Regulation.

Receivable balances which are due in more than one year

are discounted using the risk-free discount curve.

Differences between the bases, methods and assumptions

used for the valuation for solvency purposes (Solvency II

balance sheet) and in financial statements (IFRS balance

sheet) are outlined below:

• Deferred acquisition costs (DAC) are valued at nil in the

Solvency II balance sheet as the Company does not

expect future cashflows to arise from this asset.

• Deferred tax assets in the Solvency II balance sheet arise

from the difference between the IFRS balance sheet and

the Solvency II balance sheet. As at 31 December 2017,

the movement from the IFRS valuation basis to the Sol-

vency II valuation basis has resulted in an instantane-

ous reduction in equity. This ‘loss’ would give rise to a

deferred tax asset. Deferred tax assets are recognised

within the Solvency II balance sheet if there is a reason-

able likelihood of the company making a large enough

profit over a reasonable time horizon so as to be able

to benefit from the deferred tax asset. The management

believe that it is not unreasonable to expect QEL to make

such a profit.

Valuation for Solvency Purposes

44

5.1 Assets

* Within the 2017 financial statements Deposits to Cedants and Other Assets are presented separately, whereas in the

2016 financial statements these items were aggregated in the Insurance Receivables.


Valuation for Solvency Purposes Valuation for Solvency Purposes

5.1.2 Comparison to previous year

QEL is a growing business and as such it is not unexpected

for the asset base supporting the business to have increased

in size over the 12 months to 31 December 2017, from USD

503 million to USD 721 million (IFRS basis).

The following asset items are directly affected by increases

in business volume, the larger portfolio directly driving an

increase in their value:

• DAC: deferred acquisition costs relate to the commis-

sions/brokerage paid on the portion of premium that

is written but not earned as at the valuation date. QEL

has written a greater volume of business during the last

12 months compared to the previous year. Assuming an

average rate of acquisition costs that is stable over the

two years, the greater level of business will generate a

larger amount of unearned premium and a correspond-

ingly larger amount of DAC.

On the Solvency II basis DAC is not recognised as an

asset. Its change in value on the IFRS basis has no direct

impact on the value of assets on the Solvency II basis.

• Reinsurance recoverables: the reinsurance recoverables

relate to the portion of claims, both reported outstand-

ing and incurred but not reported, that QEL expects to

be able to recover from its reinsurance contracts. Since

many of QEL’s reinsurance contracts are proportional

covers, the value of reinsurance recoverables is directly

proportional to the value of gross claims reserves, which

in turn increases with the increase in business written.

On the Solvency II basis the reinsurance recoverable also

increases for the same reasons. Further, the value of the

reinsurance asset on the Solvency II basis has only slightly

reduced from 84.7% of the IFRS value to 84.1%. This re-

flects the stability in the composition of the book over

class of business and consistency in the assumptions

that transform the technical provisions on an IFRS basis

to those on a Solvency II basis.

• Within the 2017 financial statements, deposits to cedants

are shown separately to the insurance receivables. Within

the 2016 financial statements, these items were shown

in aggregate. Comparing the aggregated amounts, the

increase relates to the amount of premium that is written

by coverholders which is yet to be passed on to QEL

under the relevant terms of the binding authority agree-

ments. As volume of business increases this asset will

increase in size.

There has also been an increase in the value of the invest-

ments held by QEL, much of which relates to the capital

contribution discussed in section 6.1. Investments also

yielded returns that were reinvested in the portfolio.

The value of cash increased during 2017 reflecting the grow-

ing business and the need to hold higher levels of funds for

paying claims, taxes (insurance premium tax or otherwise)

and generally ensuring sufficient liquidity of the asset base

to meet liabilities falling due within a reasonable timeframe.

The value of property, plant and equipment decreased in

line with depreciation and impairment costs.

Within the Solvency II balance sheet, the value of the de-

ferred tax asset reduced compared to 2016 as a result of the

reduction in the credit taken for the loss-absorbing capacity

of deferred tax assets (which is associated with our 2018 –

2021 business plan).

5.2 Technical Provisions

The main liabilities on the Solvency II balance sheet are the

technical provisions, net of reinsurance recoverables, which

consist of liabilities for claims outstanding and premium pro-

visions.

As at 31 December 2017, QEL held technical provisions (“TP”)

for non-life business and for health business (very limited

health exposure exists due to ancillary coverages on some

of the core business lines) as defined within Solvency II.

The following table sets out the gross technical provisions

and the expected reinsurance recoveries on both an IFRS

and Solvency II basis.


The above tables are compared to the analogous amounts as at 31 December 2016. These are set out in the tables below:

Non-Life Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)

TP calculated as a whole 450,672,923 414,076,000

Best Estimate 376,239,966 346,157,313

Risk Margin 3,388,575

Gross TP – Non-Life (Excluding Health) 450,672,923 379,628,541 414,076,000 346,157,313


Health Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)


Best Estimate 6,988,166 6,266,812

Risk Margin 78,044

Gross TP – Health 5,359,077 7,066,210 4,671,000 6,266,812


The technical provisions can be split as follows:

For a full breakdown of the technical provisions and reinsurance recoverables from reinsurance by line of business, see QRT

S.17.01.02 in Appendix 1.

Non-Life Technical Provisions as at 31/12/2016 IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)

TP calculated as a whole 278,197,658 258,133,466 0

Best Estimate 234,744,535 218,462,559

Risk Margin 4,838,514 0

Gross TP – Non-Life (Excluding Health) 278,197,658 239,583,049 258,133,466 218,462,559


Health Technical Provisions as at 31/12/2016 IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)


Best Estimate 13,729,754 12,711,887

Risk Margin 261,580

Gross TP – Health 15,889,252 13,991,334 14,719,031 12,711,887


Which were segmented as follows:

Non-Life & Health Technical Provisions as at 31/12/2016 IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)

TP calculated as a whole 294,086,910 0 272,852,497 0

Best Estimate 0 248,474,289 0 231,174,466

Risk Margin 0 5,100,094 0 0



Non-Life & Health Technical Provisions IFRS Solvency II IFRS Solvency II (USD) (USD) (USD) (USD)


Best Estimate 383,228,132 352,424,124

Risk Margin 3,466,619





5.2.2 Valuation Bases, Methods and Assumptions

Solvency II requires insurers to place an economic value

on their assets and liabilities for solvency purposes. More

specifically, the value of the technical provisions should be

the amount that the insurer would be required to pay in order

to transfer its obligations relating to its insurance contracts

to a willing third party in an arm’s-length transaction.

Insurance liabilities are difficult to value due to uncertainty of

both the amounts and timing of future payments. Therefore,

alongside the net present value of the expected future cash-

flows relating to claims liabilities, a risk margin is required to

cover the cost of the increased risk that the receiving party is

subject to, having taken on the obligations. The risk margin

can be thought of as the mechanism that moves the valu-

ation of the insurance liabilities to a mark-to-market basis.

The best estimate liability aims to represent the probability-

weighted average of future cash flows required to settle the

insurance obligations attributable to the lifetime of QEL’s

policies. The best estimate cash flows include future best

estimate premium payments, claim payments, expenses

expected to be incurred in servicing the Company’s policies

over their lifetime, investment costs and any payments to

and from reinsurers. The best estimate liability is discount-

ed using the currency-specific risk-free yield curves as

published by the European Insurance and Occupational

Pensions Authority (EIOPA).

The method and assumptions used within the estimation of

the technical provisions are equivalent to those used within

the estimation as at the previous reporting period.

In determining the technical provisions on a Solvency II

basis, QEL’s starting point is the technical provisions on an

IFRS basis. These are valued at best estimate, with no explicit


tion of the risk within the business than method 3, which

incorporates a larger number of simplifying assumptions.

The risk margin is also influenced by the magnitude of vari-

ous other components of the SCR, such as counterparty

default risk. This risk charge reduced compared to last year

and has the effect of reducing the estimated risk margin.

The segmentation of the business between non-life classes

and health classes changed over the 12 months to 31 De-

cember 2017, with a greater proportion of the technical

provisions relating to non-life classes, 98.2% compared to

94.5%. This is a result of the growth of the portfolio into

non-life classes of business as well as a full review of the

segmentation used within the Solvency II calculations.

Overall the technical provisions increased by 152% in 2017

compared to 2016; this is driven by:

• Business volume growth;

• Strengthening of reserves upon receipt and analysis of a

further year of experience.

Both the gross technical provisions and the reinsurance

recoverables increased by the same proportion, reflect-

ing the consistent structure of reinsurance in the later year

compared to the previous one.

Comparing the risk margin as at 31 December 2016 to that

as at 31 December 2017 shows a decrease. This reflects a

change in the methodology used to calculate the risk margin,

from method 3 to method 2. Method 2 is a closer reflec-

margin for prudence.

The reserves on an IFRS basis are estimated using the

following reserving classes:

– Agriculture, including pet, livestock and bloodstock;

– Aviation & Space;

– Property: contracts covering single risks;

– Energy: contracts covering single risks;

– Property: binding authority business;

– Engineering: contracts covering single risks;

– Liability professional lines & Liability General;

– Marine

– Motor - non-UK business; and

– Motor - UK business.

The reserving classes segment business into homogene-

ous groupings based on the underlying risks. The groupings

set out above have been used for estimating QEL’s reserves

consistently since QEL’s inception.

The reserves on an IFRS basis are split between earned

reserves, relating to periods of past exposure, and the

unearned premium reserve, relating to periods of future

exposure on already incepted policies.

The main differences between the value of the technical

provisions for solvency purposes and the IFRS valuation are

as follows:

• Expected losses on the unearned business are taken

into account in the calculation of premium provisions,

removing any portion of the unearned premium reserve

(“UPR”) that is in excess of this amount;

• The premium provisions and claims provisions include an

amount relating to all future expenses to run off the insur-

ance liabilities and for events not in the data set;

• Future cash flows are discounted to reflect the time value

of money;

• A risk margin is added, calculated using the cost of capital

approach.

The Company did not make use of any of the following:

• Matching adjustment referred to in Article 77b of the

Solvency II Directive;

• Volatility adjustment referred to in Article 77d of the

Solvency II Directive;

• Transitional risk-free interest term structure referred to

in Article 308c of the Solvency II Directive;

• Transitional deduction referred to in Article 308d of the

Solvency II Directive.

The best estimate of the amounts recoverable from rein-

surance contracts and other risk transfer mechanisms is

calculated separately from the gross best estimate. The

calculation is based on principles consistent with those

underlying the gross best estimate, projecting all cash flows

associated with the recoverables and discounting using the

risk free rate yield curve.

Further, on an IFRS basis, technical provisions are split into

an earned portion, relating to periods of risk exposure that

have already expired, and an unearned portion, relating to

periods of risk exposure that are yet to expire.

On the Solvency II basis, this distinction is also made, how-

ever profit within the yet-to-expire period of risk is recog-

nised immediately within the premium provisions.

Similarly any loss relating to the cession of assumed busi-

ness due to the reinsurer’s profit margin etc. is recognised

immediately. An adjustment is made to reflect the expected

losses on reinsurance recoverables due to counterparty

default. The adjustment is based on an assessment of the

probability of default of the counterparty and the average

loss resulting from the default.

Within the Solvency II regulations and guidelines, various

aspects of valuation should be considered. The section

below sets out the considerations that should be made,

alongside the approach QEL has taken:

• Contracts should be unbundled into material lines of

business. For the estimation of the Solvency II technical

provisions, contracts are segmented into Solvency II lines

of business. For those contracts that contain coverage

that could be considered to straddle more than one line

of business, a split of expected coverage types is assumed

based on the information that was available when pricing

the contract. For example, QEL underwrites pet business

where it would expect to incur both property damage

claims and liability (potentially bodily injury) claims. These

contracts are split into the Fire and other damage to

property and General Liability lines of business.

• The technical provisions estimate the mean of the com-

plete distribution of possible reserve values. As such, if

they are based on historical data, there is a potential for

the reserves to underestimate the mean, should extreme

or very rare events not be included within the historical

data set. QEL includes an allowance for events not in data

(ENIDs) within the provision for claims relating to future

periods of exposure. For claims relating to periods of past

exposure, it is assumed that the best estimate reserve, as

determined by traditional reserving methods, allows for

the potential of extreme or rare events.

• The technical provisions should include provisions for

claims on policies that have already been agreed or

bound by the valuation date, and for which QEL is there-

fore obligated to provide cover, even if the inception date

of these policies is after the date of valuation. For the val-

uation as at 31 December 2017, it has been determined

that there are no policies to which this definition applies.

Therefore, no additional provisions are required for such

policies.

• The discounting of the technical provisions relies on the

assumed timing of future claims payments. Payment pat-

terns have been assumed that are in line with the paid

claims development patterns assumed within claims

reserving on the statutory basis. These are based on

historic data, alongside market benchmarks for less

mature classes of business.

• The yield curves used for discounting are those pre-

scribed by EIOPA without adjustment.


Health IFRS Solvency IIReinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD)

Medical Expense* 0 0

Workers’ Compensation 4,671,000 6,266,812

Total Reinsurance Recoverables (Health) 4,671,000 6,266,812

believes are appropriate to the specifics of the business, and

they will be substituted for actual development experience

as the Company builds up a volume of statistically credible

data.

5.2.5 Reinsurance recoverables

The following table shows the reinsurance recoverables as

at 31 December 2017, valued under IFRS and under Solven-

cy II, split by line of business:

Reinsurers’ share of technical provisions by line of business

is as follows:

Valuation for Solvency PurposesValuation for Solvency Purposes

5.2.4 Uncertainty

Considering the short period of operation of the Company,

the growing and evolving portfolio and underlying volatility

of the reinsurance business written, there is no credible

volume of historical loss development triangles or factors,

which increases the need to rely on pricing estimates and

suitable benchmarks. QEL has selected benchmarks it

5.2.3 Risk margin

The risk margin is added to the best estimate to reflect the

uncertainty associated with the probability-weighted cash

flows. It is calculated using a cost of capital approach,

which calculates the cost of providing eligible own funds

for the duration of the run-off of the obligations to cover the

insurance risk, counterparty credit risk and operational

risk components of the SCR. The rate used in the deter-

mination of the cost of providing the own funds is called

cost-of-capital rate. A cost-of-capital rate of 6% is applied

to the cost of capital to cover the full period needed to run

off the insurance liabilities. The cost of capital in each future

year is discounted using the risk-free discount curve.

Given the size and complexity of QEL’s business model, pro-

jecting QEL’s balance sheet over the lifetime of its insurance

obligations in order to forecast the associated SCR at each

future period would be disproportionate to the amount of

analysis required. QEL therefore calculated the risk margin

using one of the simplifications set out within the Solvency

II regulations and guidelines, which is proportional to the

nature, scale and complexity of QEL’s business.

Under this simplification, the risk module elements of future

SCRs are assumed to be proportional to the value of the

undiscounted technical provisions or the value of the undis-

counted reinsurance recoverables. Under this assumption

the expected run-off of the technical provisions was used

to estimate the expected SCR over the lifetime of the insur-

ance obligations.

The estimation of the reinsurance recoverables is analogous

to that of the gross technical provisions with the excep-

tion that the estimate of the reinsurers’ share of technical

provisions is adjusted to allow for the potential default of

a reinsurer.

To estimate an appropriate adjustment for the potential

default of a reinsurer, the best estimate of the reinsurance

recoverable is multiplied by the counterparty recovery rate,

multiplied by the modified duration of the receivables and

again multiplied by the probability of default over a one-year

time horizon.

Non-Life IFRS Solvency IIReinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD)

Motor Vehicle Liability 201,614,588 177,959,826

Other Motor 58,797,450 51,800,687

Marine, Aviation & Transport 21,261,661 18,238,391

Fire & Other Damage to Property 71,864,448 51,910,555

General Liability 48,170,952 43,385,025

Legal Expenses* 0 0

Miscellaneous Financial Loss 12,366,900 2,862,829

Total Reinsurance Recoverables (Non-life – Excluding Health) 414,076,000 346,157,313

* Note: in 2017 Medical and Legal expenses were not unbundled into separate lines of business (as they were in 2016), but instead are

included in ‘Motor Vehicle Liability’, ‘Other Motor’ and ‘Fire & Other Damage to Property’ lines of business.

5.2.5.1 Comparison to previous year

The above tables are compared to the analogous amounts as at 31 December 2016. These are set out in the tables below:

Non-Life IFRS Solvency IIReinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD)

Motor Vehicle Liability 133,603,634 120,390,680

Other Motor 29,501,440 26,330,463

Marine, Aviation & Transport 17,086,825 12,935,624

Fire & Other Damage to Property 34,446,613 24,898,902

General Liability 37,278,908 28,682,251

Legal Expenses 6,216,046 5,224,639

Total Reinsurance Recoverables (Non-life – Excluding Health) 258,133,466 218,462,559

Health IFRS Solvency IIReinsurance Recoverables (Best Estimate) by Line of Business (USD) (USD)

Medical Expense 3,433,791 3,059,857

Workers’ Compensation 11,285,241 9,652,030

Total Reinsurance Recoverables (Health) 14,719,031 12,711,887

Changes in value over the past 12 months have been discussed in previous sections and are driven by growth in the busi-

ness. Growth was higher in some segments than others, resulting in the observed change in portfolio proportions between

classes of business.

5.3 Other Liabilities

The liabilities other than the technical provisions are set out below, alongside their value as at 31 December 2016 on each

of the IFRS and Solvency II bases.

Valuation bases, methods and main assumptions are:

a. Deferred commission income is valued at nil within the

Solvency II balance sheet as the Company does not

expect future cashflows from this liability.

b. Reinsurance payables due within three months are not

discounted. This is analogous to the treatment of insur-

ance receivables within the balance sheet assets.

c. Payables (trade, not insurance) relate to trade accruals

and are valued at face value.

d. Any other liabilities comprise the tax accrual at 35%

of the net profit before tax for basis year 2016 and are

recorded at face value.

d. Any other liabilities comprise the tax accrual at 35%

of the net profit before tax for basis year 2017 and are

recorded at face value.


The increase in balances during the 12 months to 31 December 2017 relate to business growth as described in previous

sections.

Any Other Liabilities reduced reflecting the lower profit level of 2017 and the smaller amount of tax due on company profit.

Other Liabilities Reference 31/12/2017 31/12/2016 31/12/2017 31/12/2016IFRS IFRS Solvency II Solvency II

(USD) (USD) (USD) (USD)

Deferred commission income a 48,181,000 34,888,000 0 0

Reinsurance Payables b 147,529,000 118,272,903 147,529,000 118,272,903

Trade Payables c 1,152,000 180,097 1,152,000 180,097

Insurance and Intermediaries Payables d 11,774,000 9,154,000 11,774,000 9,154,000

Any Other Liabilities e 206,000 1,089,748 206,000 1,089,748

Total 208,842,000 163,584,748 160,661,000 128,696,748


6Capital Management


6.1 Own Funds

6.1.1 Management of Own Funds

Capital adequacy is maintained with reference to QEL’s risk

appetite. At any given time, the Company aims to maintain

a strong capital base to enable QEL to support the business

plan based on its own view of the capital required, and meet-

ing regulatory capital requirements on an ongoing basis.

The ORSA process enables QEL to identify, assess, monitor,

manage and report on the current and emerging risks that it

faces, and to determine the capital necessary to ensure that

overall solvency needs are met at all times.

The Capital Management Action Plan identifies the various

thresholds below which available capital may be depleted,

and the actions QEL will adopt to maintain capital adequacy.

QEL can manage its capital position by either increasing the

amount of available capital or by taking action to reduce

the required capital. The approach taken is dependent on

the specific circumstances of the event giving rise to the

depletion of available capital.

6.1.2 Tiers of Own Funds

Solvency II legislation has introduced a three-tiered capital

system designed to assess the quality of insurers’ capital re-

sources eligible to satisfy their regulatory capital requirement

levels. The tiered capital system (Tiers 1, 2 and 3) classifies

capital instruments into a given tier based on their loss absor-

bency characteristics. The highest quality capital is eligible for

Tier 1, which is able to absorb losses under all circumstances,

including on a going-concern, run-off, wind-up and insol-

vency. Tier 2, while providing full protection to policyholders

in a wind-up or insolvency, has moderate loss absorbency on

a going-concern basis. Tier 3 meets, on a limited basis, some

of the characteristics exhibited in Tiers 1 and 2.

Eligibility limits are applied to each tier in determining the am-

ounts eligible to cover regulatory capital requirement levels.

The majority of our own funds as of 31 December 2017 qualify

as Tier 1 capital, confirming that the Company meets the eli-

gibility limits applied to each tier to cover the MCR and SCR:

6 The Company is required by the MFSA to hold available

own funds of an amount that is equal to or exceeds the

Minimum Capital Requirement (“MCR”) and Solvency

Capital Requirement, in accordance with the Solvency

II Directive. The SCR is calculated using the Solvency II

standard formula.

QEL benefits from its parent company’s credit rating

due to the backing provided from QIC in the form of

a parental guarantee and the quota share treaties with

Qatar Re and QIC.

Capital Management

The changes in own funds over the reporting period are presented in the table below. Please note: rounding differences

of +/- one unit can occur in the table.

There were no material changes to the sources of capital during the reporting period.

There are no planned redemptions, repayment or maturity dates linked to the share capital.

Composition Eligible Capital Eligible to meet MCR

(USD) (USD)

Tier 1 Unrestricted 53,720,373 53,720,373

Tier 3 653,719 0

Total 54,374,093 53,720,373

Basic Own Funds December 2017 December 2016 December 2017 December 2016 (USD million) (USD million) (USD million) (USD million)

Tier 1 Tier 1 Tier 3 Tier 3 Unrestricted Unrestricted

Ordinary Share Capital 22.5 22.5

Retained Earnings & Fair Value Reserve 0.3 2.3

Reconciliation Reserve (2.0) (4.5)

Deferred Tax Asset 0.7 1.6

Capital Contribution* 33.00 20.0

Total Basic Own Funds 53.7 40.3 0.7 1.6

Capital Management

54

*Note: The USD 33 million is made up of a capital contribution of USD 20 million (2016) and USD 13 million (2017).


6.1.3 Differences in Shareholder’s Equity as Stated in the Financial Statements vs. the Available Capital and Surplus for Solvency Purposes

The key differences between the total equity shown under IFRS and Solvency II are as follows:

a. Under Solvency II, a reconciliation reserve is recognised. This reserve is the amount of the adjustments made to the assets and liabilities to arrive at the Solvency II estimates by applying Solvency II valuation principles. This reserve reduces the company’s Total Basic Own Funds by USD 2.0 million. The reconciliation reserve is mostly driven by the differences between the value of insurance reserves and associated recoveries on an IFRS basis, and on a Solvency II basis, and is sensitive to changes in the yield curves used for discounting, the amount of business considered to be bound but not incepted business (BBNI) at the valuation date and other differences between the valuation of assets and liabilities under IFRS and under Solvency II, as described in more detail in section 5.

b. A net deferred tax asset (DTA) of USD 0.7 million has arisen due to the difference between the IFRS balance sheet and the Solvency II balance sheet. The DTA is mainly driven by the difference in the valuation of the net best estimate liability when compared to IFRS net reserves. The DTA is considered under Tier 3 capital up to a limitation of 15% of the total capital being taken as allowable against the SCR.

c. During 2017, QIC in its capacity as shareholder made an additional capital cash contribution amounting to USD 12.958 million. The remain-ing USD 20 million represents the capital contribution made in 2016.

6.1.4 Own Funds subject to Transitional ArrangementsAt the end of the reporting period, QEL does not hold any own funds which are subject to transitional arrangements.

The table below shows the comparison of QEL’s basic own funds under Solvency II and shareholders’ equity under IFRS as

of 31 December 2017:

6.1.5 Ancillary Own FundsAt the end of the reporting period, QEL does not hold any own funds which have been approved by the MFSA to be classi-

fied as ancillary own funds.

6.1.6 Factors Affecting the Availability and Transferability of Own Funds There are no factors affecting the availability and transferability of own funds.

6.2.1 Calculation of the SCR

The SCR and MCR have been determined using the stand-

ard formula approach set out in the Solvency II Delegated

Regulation.

QEL uses a simplified calculation of the recoverable from

reinsurance contracts under Article 57, which is proportion-

ate to the nature, scale and complexity of its risks.

QEL does not use undertaking-specific parameters pursuant

to Article 104(7) of the Solvency II Directive.

No internal or partial model has been used in the calculation

of the SCR.

QEL is not subject to any capital add-on at the end of the

reporting period.

The final amount of the SCR is subject to supervisory as-

sessment.

6.2.2 Calculation of the MCR

The maximum and minimum MCR as determined by the standard formula are as follows:

• The lowest allowed capital requirement, i.e. the floor,

is set at 25% of the SCR being USD 9.8 million.

6.2.3 SCR by risk module

The SCR and MCR for QEL, together with a split of the relevant risk modules that the Company is exposed to can be seen

in the following diagram:

Detail Reference IFRS Solvency II Base Variance (USD) (USD) (USD) Ordinary Share Capital 22,500,000 22,500,000 0

Retained Earnings 130,000 130,000 0

Fair value reserve 171,000 171,000

Reconciliation Reserve a 0 (2,038,626) (2,038,626)

Deferred Tax Assets (Net) b 0 653,719 653,719

Capital Contribution c 32,958,000 32,958,000 0

Total Basic Own Funds 55,759,000 54,374,093 (1,384,907)

• The MCR is capped at 45% of the Solvency Capital

Requirement (SCR) being USD 17.7 million, whilst

6.2.4 Movement in the SCR over the reporting period

The movements between the SCR and MCR over the reporting period are set out in the table below:

Lapse31,630

Catastrophe0

Premiums & Reserves

408,119

Market4,830,946

Equity0

Concentration1,817,068

Spread3,820,171

Interest Rate1,403,979

Property0

FX969,302

SCR Cover138%

MCR Cover546%

SCR39,370,392

MCR9,842,598

Default25,706,452

Health409,343

Lapse2,659,955

Catastrophe4,397,509

Premiums & Reserves

8,923,191

Counterparty Default

25,706,452

Non-Life11,209,670

BSCR34,548,007

Operational10,364,402

Adjustment-5,542,018

Risk Type 31 December 2017 31 December 2016 Movement (USD million) (USD million) (USD million)

Market Risk 4.831 3.84 0.991

Counterparty Default Risk 25.706 27.133 -1.427

Health Underwriting Risk 0.409 0.509 -0.1

Non-Life Underwriting Risk 11.21 12.761 -1.551

Undiversified SCR 42.156 44.243 -2.087

Diversification -7.608 -7.571 -0.037

BSCR 34.548 36.672 -2.124

Operational risk 10.364 11.001 -0.637

Adjustment for Deferred Tax Asset -5.542 -11.778 6.236

SCR 39.37 35.895 3.475

MCR 9.843 8.974 0.869

Capital ManagementCapital Management

6.2 Solvency Capital Requirement and Minimum Capital Requirement


The Company’ SCR increased over 2017 mainly due to

the reduction in the credit taken for the loss-absorbing

capacity of deferred tax assets (which is associated with

our 2018 – 2021 business plan), and the increase in the

invested assets, which impacts the market risk module.

The capital requirement for underwriting risk has remained

relatively stable, with increases in reserve risk being offset

by a reduction in future premium and catastrophe risk.

Counterparty Default Risk reduced as a result of QEL taking

advantage of risk mitigation techniques contemplated in

Article 189 of the Delegated Acts. Section 4 provides add-

itional information on the key risk drivers for each type of

risk.

The MCR has moved in line with the increase in the SCR

over the reporting period.

6.2.5 Solvency Position

The Company maintained own funds in excess of the MCR and the SCR throughout the reporting period.

The solvency ratio stood at 138% as at 31 December 2017 (compared to 117% as at 31 December 2016). The solvency posi-

tion is summarised in the table below:

Solvency Position Capital Requirement Eligible Capital Solvency MCR as % (USD) (USD) Ratio of SCR

SCR 39,370,392 54,374,093 138% –

MCR 9,842,598 53,720,373 546% 25%

Capital Management

Disclaimer

Some of the statements in this solvency and financial condition report

may consist of forward-looking statements or statements of QEL’s future

expectations based on the information available to it currently.

There are many factors and conditions, financial or economic, whether

owing to market conditions or the happening of catastrophic events,

that may cause actual events or results to be materially different from

those that may be anticipated by such statements.

Neither QEL, nor its parent and its affiliated companies, make any rep-

resentation or warranty, whether express or implied, as to the accuracy,

completeness of such statements, nor is any representation or warranty

made that they will be reviewed, amended or brought up to date.

Neither QEL, nor its parent and its affiliated companies, accept any liability

whatsoever for any decision made, or action taken or not taken, including

the consequences thereof, in connection or conjunction with, directly or

indirectly, the information and/or statements contained in this solvency

and financial condition report.

AAppendices

Quantitative Reporting Templates (QRTs) for

Public Disclosure

Balance Sheet

Non-Life Business (direct business/accepted proportional reinsurance and accepted non-proportional reinsurance)

Non-Life Technical Provisions

Gross Claims Paid

Gross Claims Paid Cumulative

Gross Undiscounted Best Estimate Claims Provisions

Gross Undiscounted Best Estimate Claims Provisions (Cumulative)

Own funds

Reconciliation Reserve

Basic Solvency Capital Requirement

Calculation of Solvency Capital Requirement

Minimum Capital Requirement

Background Information

59


Goodwill R0010

Deferred acquisition costs R0020

Intangible assets R0030

Deferred tax assets R0040 745,719

Pension benefit surplus R0050

Property, plant & equipment held for own use R0060

Investments (other than assets held for index-linked and unit-linked contracts) R0070 57,745,000

Property (other than for own use) R0080

Holdings in related undertakings, including participations R0090

Equities R0100

Equities - listed R0110

Equities - unlisted R0120

Bonds R0130 57,745,000

Government Bonds R0140 8,134,800

Corporate Bonds R0150 49,610,200

Structured notes R0160

Collateralised securities R0170

Collective Investments Undertakings R0180

Derivatives R0190

Deposits other than cash equivalents R0200

Other investments R0210

Assets held for index-linked and unit-linked contracts R0220

Loans and mortgages R0230

Loans on policies R0240

Loans and mortgages to individuals R0250

Other loans and mortgages R0260

Reinsurance recoverables from: R0270 352,424,124

Non-life and health similar to non-life R0280 352,424,124

Non-life excluding health R0290 346,157,313

Health similar to non-life R0300 6,266,812

Life and health similar to life, excluding health and index-linked and unit-linked R0310

Health similar to life R0320

Life excluding health and index-linked and unit-linked R0330

Life index-linked and unit-linked R0340

Deposits to cedants R0350 46,634,000

Insurance and intermediaries receivables R0360 104,139,000

Reinsurance receivables R0370

Receivables (trade, not insurance) R0380 400,000

Own shares (held directly) R0390

Amounts due in respect of own fund items or initial fund called up but not yet paid in R0400

Cash and cash equivalents R0410 39,555,000

Any other assets, not elsewhere shown R0420 87,000

Total assets R0500 601,729,844

Solvency II Solvency II value

C0010 Technical provisions – non-life R0510 386,694,751

Technical provisions – non-life (excluding health) R0520 379,628,540

Technical provisions calculated as a whole R0530

Best Estimate R0540 376,239,966

Risk margin R0550 3,388,575

Technical provisions - health (similar to non-life) R0560 7,066,211


Best Estimate R0580 6,988,166

Risk margin R0590 78,044

Technical provisions - life (excluding index-linked and unit-linked) R0600

Technical provisions - health (similar to life) R0610


Best Estimate R0630

Risk margin R0640

Technical provisions – life (excluding health and index-linked and unit-linked) R0650


Best Estimate R0670

Risk margin R0680

Technical provisions – index-linked and unit-linked R0690


Best Estimate R0710

Risk margin R0720

Other technical provisions R0730

Contingent liabilities R0740

Provisions other than technical provisions R0750

Pension benefit obligations R0760

Deposits from reinsurers R0770

Deferred tax liabilities R0780 92,000

Derivatives R0790

Debts owed to credit institutions R0800

Financial liabilities other than debts owed to credit institutions R0810

Insurance & intermediaries payables R0820 11,774,000

Reinsurance payables R0830 147,529,000

Payables (trade, not insurance) R0840 1,152,000

Subordinated liabilities R0850

Subordinated liabilities not in Basic Own Funds R0860

Subordinated liabilities in Basic Own Funds R0870

Any other liabilities, not elsewhere shown R0880 114,000

Total liabilities R0900 547,355,751

Excess of assets over liabilities R1000 54,374,093

Solvency II Solvency II value

C0010

Balance Sheet

Assets Liabilities


Line of Business for: non-life insurance and reinsurance obligations (direct business and accepted proportional reinsurance)

Workers’ Motor vehicle Other motor Marine, aviation Fire and other General liability Miscellaneous Total compensation liability insurance and transport damage to insurance financial loss insurance insurance insurance property insurance C0030 C0040 C0050 C0060 C0070 C0080 C0120 C0200 Premiums written Gross - Direct Business R0110 5,554,183 198,067,502 59,398,532 14,222,743 89,260,755 31,098,364 15,397,228 412,999,307

Gross - Proportional reinsurance accepted R0120

Gross - Non-proportional reinsurance accepted R0130

Reinsurers’ share R0140 4,816,265 185,777,973 55,573,470 13,351,419 77,130,235 28,201,718 14,627,366 379,478,446

Net R0200 737,918 12,289,529 3,825,062 871,324 12,130,520 2,896,646 769,862 33,520,861

Premiums earned Gross - Direct Business R0210 8,695,888 180,286,879 53,056,611 15,702,425 67,658,373 38,763,412 3,047,300 367,210,888



Reinsurers’ share R0240 7,846,663 170,108,611 49,959,719 14,991,830 58,599,264 34,425,088 2,894,935 338,826,110

Net R0300 849,225 10,178,268 3,096,892 710,595 9,059,109 4,338,324 152,365 28,384,778

Claims incurred Gross - Direct Business R0310 3,062,154 107,774,022 39,413,231 11,203,254 43,257,802 33,024,192 680,482 238,415,137



Reinsurers’ share R0340 2,710,165 101,530,641 37,142,306 10,466,409 37,055,341 28,675,984 578,986 218,159,832

Net R0400 351,989 6,243,381 2,270,925 736,845 6,202,461 4,348,208 101,496 20,255,305

Changes in other technical provisions Gross - Direct Business R0410



Reinsurers’ share R0440

Net R0500

Expenses incurred R0550 196,373 2,134,420 619,338 132,573 1,919,716 1,214,490 (338,513) 5,878,397

Other expenses R1200 2,007,000

Total expenses R1300 7,885,397

Non-Life (direct business/accepted proportional reinsurance and accepted non-proportional reinsurance)


Other than home country

France Germany Greece Ireland United Kingdom

C0090_76 C0090_83 C0090_85 C0090_106 C0090_234

Premiums written Gross - Direct Business R0110 892,775 588,033 15,726,416 2,303,440 368,542,501



Reinsurers’ share R0140 769,747 588,033 14,140,003 1,969,147 338,554,156

Net R0200 123,028 0 1,586,413 334,293 29,988,345

Premiums earned Gross - Direct Business R0210 931,316 647,314 9,073,445 2,112,948 334,371,403



Reinsurers’ share R0240 802,507 647,314 8,169,811 1,800,720 308,377,696

Net R0300 128,809 0 903,634 312,228 25,993,707

Claims incurred Gross - Direct Business R0310 1,218,567 68,100 5,359,428 952,555 218,361,424



Reinsurers’ share R0340 1,060,803 (20,600) 1,150,608 894,115 211,128,354

Net R0400 157,764 88,700 4,208,820 58,440 7,233,070





Net R0500

Expenses incurred R0550 21,760 176,365 37,166 3,323,486

Other expenses R1200

Total expenses R1300

Top 5 countries (by amount of gross premiums written) - non-life obligations

Total Top 5 and home country - non-life obligations Non-life and Health non-SLT Total Top 5 and home country C0140

Premiums written Gross - Direct Business R0110 388,053,165



Reinsurers’ share R0140 356,021,086

Net R0200 32,032,079

Premiums earned Gross - Direct Business R0210 347,136,426




Net R0300 27,338,378

Claims incurred Gross - Direct Business R0310 225,960,074




Net R0400 11,746,795





Net R0500

Expenses incurred R0550 3,558,777

Other expenses R1200

Total expenses R1300 3,558,777

Country (by amount of gross premiums written) - non-life obligations


Direct business and accepted proportional reinsurance

Workers’ Motor vehicle Other motor Marine, aviation Fire and other General liability Miscellaneous Total compensation liability insurance and transport damage to insurance financial loss Non-Life insurance insurance insurance property insurance obligation C0040 C0050 C0060 C0070 C0080 C0090 C0130 C0180 Solvency II


Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default associated to TP calculated as a whole R0050

Technical provisions calculated as a sum of BE and RM

Best estimate Premium provisions Gross R0060 1,112,898 67,231,329 19,828,180 9,435,409 26,596,907 6,178,428 2,423,577 132,806,727

Total recoverable from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default R0140 945,508 62,976,755 18,543,725 8,643,992 22,898,746 5,667,464 2,301,244 121,977,434

Net Best Estimate of Premium Provisions R0150 167,390 4,254,573 1,284,455 791,417 3,698,161 510,964 122,333 10,829,293

Claims provisions Gross R0160 5,875,269 121,958,495 35,311,472 10,311,262 33,513,440 42,860,025 591,442 250,421,405

Total recoverable from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default R0240 5,321,304 114,983,071 33,256,962 9,594,399 29,011,808 37,717,561 561,585 230,446,690

Net Best Estimate of Claims Provisions R0250 553,965 6,975,424 2,054,510 716,863 4,501,631 5,142,465 29,856 19,974,715

Total Best estimate - gross R0260 6,988,166 189,189,823 55,139,652 19,746,671 60,110,347 49,038,454 3,015,019 383,228,132

Total Best estimate - net R0270 721,355 11,229,997 3,338,965 1,508,280 8,199,792 5,653,429 152,190 30,804,007

Risk margin R0280 78,044 1,464,646 373,306 109,089 684,397 736,766 20,371 3,466,619

Amount of the transitional on Technical Provisions Technical Provisions calculated as a whole R0290 0 0 0 0 0 0

Best estimate R0300 0 0 0 0 0 0

Risk margin R0310 0 0 0 0 0 0

Technical provisions - total

Technical provisions - total R0320 7,066,211 190,654,469 55,512,958 19,855,760 60,794,744 49,775,220 3,035,389 386,694,751

Recoverable from reinsurance contract/SPV and Finite Re after the adjustment for expected losses due to counterparty default - total R0330 6,266,812 177,959,826 51,800,687 18,238,391 51,910,555 43,385,025 2,862,829 352,424,124

Technical provisions minus recoverables from reinsurance/SPV and Finite Re - total R0340 799,399 12,694,643 3,712,271 1,617,369 8,884,190 6,390,195 172,560 34,270,627

Non-Life Technical Provisions


0 1 2

C0010 C0020 C0030

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220

N-2 R0230 915,488 35,249,350 32,118,663

N-1 R0240 17,495,955 71,589,986

N R0250 18,408,226

In Current Sum of years year (cumulative)

C0170 C0180

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220

N-2 R0230 32,118,663 68,283,500

N-1 R0240 71,589,986 89,085,941

N R0250 18,408,226 18,408,226

Total R0260 122,116,874 175,777,668

0 1 2

C0200 C0210 C0220

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220

N-2 R0230 26,584,674 64,508,873 33,618,595

N-1 R0240 71,767,373 128,183,203

N R0250 94,094,759

Year end (discounted data)

C0360

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220

N-2 R0230 24,865,042

N-1 R0240 128,424,686

N R0250 250,421,405

Total R0260 403,711,133

Gross Claims Paid

Gross Claims Paid Cumulative

Gross Undiscounted Best Estimate Claims Provisions

Gross Undiscounted Best Estimate Claims Provisions (Cumulative)


Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds

Total Tier 1 - Tier 1 - Tier 2 Tier 3

unrestricted restricted

C0010 C0020 C0030 C0040 C0050

Ordinary share capital (gross of own shares) R0010 22,500,000 22,500,000

Share premium account related to ordinary share capital R0030

Initial funds, members’ contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R0040

Subordinated mutual member accounts R0050

Surplus funds R0070

Preference shares R0090

Share premium account related to preference shares R0110

Reconciliation reserve R0130 (2,038,627) (2,038,627)

Subordinated liabilities R0140

An amount equal to the value of net deferred tax assets R0160 653,719 653,719

Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 33,259,000 33,259,000

Own funds from the financial statements that should not be represented R0220

by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds

Deductions Deductions for participations in financial and credit institutions R0230

Total basic own funds after deductions R0290 54,374,093 53,720,373 653,719

Ancillary own funds Unpaid and uncalled ordinary share capital callable on demand R0300

Unpaid and uncalled initial funds, members’ contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand

R0310

Unpaid and uncalled preference shares callable on demand R0320

A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330

Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC

R0340

Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC

R0350

Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC

R0360

Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC

R0370

Other ancillary own funds R0390

Total ancillary own funds R0400

Available and eligible own funds Total available own funds to meet the SCR R0500 54,374,093 53,720,373 653,719

Total available own funds to meet the MCR R0510 53,720,373 53,720,373

Total eligible own funds to meet the SCR R0540 54,374,093 53,720,373 653,719

Total eligible own funds to meet the MCR R0550 53,720,373 53,720,373

SCR R0580 39,370,392

MCR R0600 9,842,598

Ratio of Eligible own funds to SCR R0620 138%

Ratio of Eligible own funds to MCR R0640 546%

Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation 2015/35

Own funds


C0060

Reconciliation reserve Excess of assets over liabilities R0700 54,374,093

Own shares (held directly or indirectly) R0710

Foreseeesable dividends, distributions and charges R0720

Other basic own fund items R0730 56,412,719

Adjustments for restricted own fund items in respect of matching adjustment R0740 portfolios and ring fenced funds

Reconciliation reserve R0760 (2,038,627)

Expected profits Expected profits included in future premiums (EPIFP) - Life business R0770

Expected profits included in future premiums (EPIFP) - Non-life business R0780 1,082,017

Expected profits included in future premiums (EPIFP) R0790 1,082,017

Value

C0100

Solvency II Operational risk R0130 10,364,402

Loss-absorbing capacity of technical provisions R0140

Loss-absorbing capacity of deferred taxes R0150 (5,542,018)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160

Solvency Capital Requirement excluding capital add-on R0200 39,370,392

Capital add-on already set R0220 39,370,392

Other information on SCR Capital requirement for duration-based equity risk sub-module R0400

Total amount of Notional Solvency Capital Requirements for R0410 remaing part

Total amount of Notional Solvency Capital Requirements for R0420 ring fenced funds

Total amount of Notional Solvency Capital Requirements for R0430 matching adjustment portfolios

Diversification effects due to RFF nSCR aggregation for article 304 R0440

Gross solvency Simplifications capital requirement

C0110 C0120

Market risk R0010 4,830,946

Counterparty default risk R0020 25,706,452

Life underwriting risk R0030 0

Health underwriting risk R0040 409,343

Non-life underwriting risk R0050 11,209,670

Diversification R0060 (7,608,404)

Intangible asset risk R0070

Basic Solvency Capital Requirement R0100 34,548,007

Reconciliation Reserve

Basic Solvency Capital Requirement

Calculation of Solvency Capital Requirement

MCR components

C0010

Solvency II MCRNL Result R0010 5,821,498

Minimum Capital Requirement

Net (of reinsurance/SPV)

best estimate and TP calculated

as a whole

Net (of reinsurance)

written premiums in the last 12 months

Medical expense insurance and proportional reinsurance R0020

Income protection insurance and proportional reinsurance R0030

Workers’ compensation insurance and proportional reinsurance R0040 721,355 737,918

Motor vehicle liability insurance and proportional reinsurance R0050 11,229,997 12,289,529

Other motor insurance and proportional reinsurance R0060 3,338,965 3,825,063

Marine, aviation and transport insurance and proportional reinsurance R0070 1,508,280 871,325

Fire and other damage to property insurance and proportional reinsurance R0080 8,199,792 12,130,520

General liability insurance and proportional reinsurance R0090 5,653,429 2,896,646

Credit and suretyship insurance and proportional reinsurance R0100

Legal expenses insurance and proportional reinsurance R0110

Assistance and proportional reinsurance R0120

Miscellaneous financial loss insurance and proportional reinsurance R0130 152,190 769,861

Non-proportional health reinsurance R0140

Non-proportional casualty reinsurance R0150

Non-proportional marine, aviation and transport reinsurance R0160

Non-proportional property reinsurance R0170

Background information

C0020 C0030

Background Information

76 QIC Europe Limited Solvency and Financial Condition Report 2017

QIC EUROPELIMITED

QIC Europe Limited

The Hedge Business Centre, Triq ir-Rampa ta’ San Giljan, Balluta Bay, St Julian’s, STJ 1062, Malta

De

sign

ed

by M

asu K

om

i

2017 … · 3ystem of governance s 20 3.1eneral information on the system of governance g 21 ......

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