2018 - qiceuropeltd.com · qel was registered as a limited liability company on 20 november 2014...

QIC Europe Limited Solvency and Financial Condition Report 2018 1

QIC EUROPELIMITED

2018Solvency and Financial Condition Report

2 QIC Europe Limited Solvency and Financial Condition Report 2018 QIC Europe Limited Solvency and Financial Condition Report 2018 3

1 Executive Summary 4

1.1 Main topics covered in this report 5

1.2 Notable developments during the year and in the subsequent period 5

1.3 Conclusion 5

2 Business and Performance 5

2.1 Business 7

2.2 Business Performance 8

2.3 Underwriting Performance 8

2.4 Investment Performance 10

2.5 Other Material Income and Expense 10

2.6 Any other Information

3 System of Governance 12

3.1 Introduction 13

3.2 Responsibilities of the Board and Committees 14

3.3 Key functions/responsibilities 15

3.4 Material Changes in the System of Governance 16

3.5 Fit and Proper requirements 17

3.6 Risk Management System including Own Risk and Solvency Assessment 17

3.7 Internal Control System 20

3.8 Outsourcing 20

3.9 Any other Material Information 21

4 Risk Profile 22

4.1 Insurance risk 23

4.2 Market risk 24

4.3 Credit risk 26

4.4 Liquidity risk 27

4.5 Operational risk 28

4.6 Other material risks 29

4.7 Risk Exposure arising from Off-Balance Sheet Positions 29

4.8 Material Risk Concentrations 29

4.9 Risk Mitigation Techniques 29

4.10 Risk Sensitivity Stress and Scenario Testing 30

5 Valuation for Solvency Purposes 32

5.1 Assets 33

5.2 Technical Provisions 34

5.3 Other Liabilities 38

6 Capital Management 40

6.1 Own Funds 41

6.2 Solvency Capital Requirement and Minimum Capital Requirement 43

7 Subsequent Events 46

7.1 Board and executive management changes 47

7.2 Portfolio Transfer 47

7.3 Minority Interest 47

A Appendices 48

Appendix 1: Quantitative Reporting Templates (QRTs) for Public Disclosure 50

Appendix 2: Technical Provisions split by Non-Life and Health 64

Table of Contents

QIC EUROPE LIMITED

Solvency and Financial Condition ReportFor the financial year ended 31 December 2018

Disclaimer

Some of the statements in this solvency and financial condition report

may consist of forward-looking statements or statements of future

expectations of QIC Europe Limited (QEL) 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.

© 2019 QIC Europe Limited. All rights reserved. This document contains items used under licence from other copyright holders.


The Solvency and Financial Condition Report presents the business

performance, governance, risk profile, and financial and solvency

position of QIC Europe Limited (QEL) covering the financial year

ending 31 December 2018.

This report is prepared in accordance with the supervisory report-

ing and disclosure requirements under Solvency II, including the

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’.

While the solvency and financial position are as at 31 December

2018, certain changes such as board and management appoint-

ments made between that date and the reporting date are reflected

in the body of this report. Details of subsequent events can be

found in section 7.

Financial and solvency position:

• The solvency position is 125% of the Solvency Capital Requirement

(SCR), versus 138% and 117% at the end of 2017 and 2016 respec-

tively. The SCR coverage ratio has fallen since the end of 2017 due

to the increased volume of premiums expected to be written dur-

ing 2019, as per the 2019 business plan.

• The asset base has increased from USD 603 million to USD 687

million on a Solvency II basis and from USD 721 million to USD 939

million on an IFRS basis.

• Growth in gross written premium (GWP) in the 2018 underwriting

year was strong at USD 578 million, versus plan of USD 416 million

and prior year GWP of USD 413 million.

• Profits (after tax) rose to USD 1.2 million on an IFRS basis.

• QEL continues to be rated A/Stable by S&P Global Ratings.

Management and governance changes:

• Internal management and operations remained relatively stable.

• In line with previously reported intentions, ownership of QEL

transferred to Qatar Reinsurance Company Limited (Qatar Re)

from Qatar Insurance Company Q.S.P.C. (QIC, QIC Group).

• Late in 2018 there was a change of Chief Executive Officer and

there have been various changes in Board membership.

Risk profile changes:

• The portfolio has grown but the business mix has not changed

materially. Credit risk remains the predominant contributor to

the SCR.

• Brexit remains a carefully monitored risk. Immediate risks

associated with UK business and QEL’s UK branch have reduced

with the availability of a temporary permissions regime.

Executive Summary

11.1 Main topics covered in this report

This report encompasses the following sections:

Section 2: Business and Performance

This part of the report contains information on QEL, de-

tailing its performance in the reporting period, comparison

to the previous reporting period, and commentary on any

material differences.

Section 3: System of Governance

QEL’s system of governance, internal controls and the roles

and responsibilities of the Board and committees are de-

tailed in this section.

Section 4: Risk Profile

In this section, the key business risks are discussed and details

of the Own Risk and Solvency Assessment (ORSA) process

are provided, including sensitivity and stress tests to validate

the adequacy of the available capital to withstand significant

and/or unexpected shocks to QEL’s business model.

Section 5: Valuation of Solvency Purposes

This section details the Solvency II metrics for valuing QEL’s

assets and liabilities, noting that this basis varies from the

IFRS basis used in the statutory accounts.

Section 6: Capital Management

This section of the report details the size and characteristics

of QEL’s capital base and compares it to the SCR and Mini-

mum Capital Requirement (MCR).

Solvency II prescribes quantitative reporting templates (QRTs)

to be disclosed within or alongside the SFCR and these are

disclosed in Appendix 1 at the end of the report.

Section 7: Subsequent Events

Various subsequent events have been referred to in this

report and are identified in this section.

1.2 Notable developments during the year and in the subsequent period

Significant material developments since 31 December 2017 are as follows:

CEO And Executive Management Appointments

On 12 December, the Board appointed Mike Van der

Straaten as CEO and a director of QEL, with regulatory ap-

proval subsequently provided by the MFSA on 13 March

2019. This followed the resignation of Andrew Ross as CEO

in early December, and from the Board in January 2019.

Further changes to QEL’s Board composition took place

with the appointments of a non-executive director and

three executive directors. The changes have been identified

as a change in the system of governance, of which further

details can be found in section 3.4.

Change of control

Effective 1 September 2018, as part of a broader Group

reorganisation, the ownership of QEL was transferred from

QIC to Qatar Re, though QIC remains the ultimate parent.

The change in ownership reflects a strong strategic align-

ment between QEL and Qatar Re.

Brexit

The UK is currently due to leave the European Union and

a large proportion of QEL’s business is UK business writ-

ten on a freedom of services and/or freedom of establish-

ment basis. Contingency plans were put in place includ-

ing Board approval to convert the current UK branch to a

third-country branch, if needed. Immediately post-Brexit,

Executive Summary

4

QEL will benefit from a temporary permissions regime that

will provide for continuity of service, including the ability

to write new business. As a result no action has been taken

to convert the branch registration at this time.

Portfolio Transfer

The QEL Board approved the transfer to QEL of non-UK

EEA obligations of ZIP Insurance PLC (ZIP), a sister com-

pany of QEL. An application associated with the transfer has

been submitted to the Gibraltar Financial Services Com-

mission (GFSC), though the decision to execute the transfer

remains under review and subject to Brexit developments.

If the transfer completes, the SCR impact is expected to be

positive but immaterial.

Alignment of QIC’s international platforms

In 2018, QIC Group started a natural evolution of its strategy

for international platforms, including QEL, to join forces

with the primary goal of delivering profitable growth over

the medium term. A key objective of this strategic initiative

is to enhance operational efficiency and to further QIC’s

vision of becoming a leading player in the global insurance

and reinsurance industry. While there were no material

changes ahead of the 2018 year-end, further details are

provided in section 3.1.3.

1.3 Conclusion

Overall, QEL continued to develop in line with shareholder expectations during 2018.

Supported by a parental guarantee, it also continues to benefit from an A/Stable rating by S&P Global Ratings.

4 QIC Europe Limited Solvency and Financial Condition Report 2018


2Business and Performance

Business and Performance

6

2.1.1 The Company

QEL is a wholly owned subsidiary of Qatar Re, a Class 4

Bermuda-based (re)insurer. Qatar Re is a wholly-owned

subsidiary of QIC Capital LLC, which in turn is a 95.74%

majority-owned subsidiary of QIC, the ultimate parent of the

QIC Group of companies and a leading Qatari publicly-

listed insurer with an underwriting footprint across the Middle

East, Africa and Asia. QEL is supported by a parental guar-

antee by QIC, and is rated A/Stable by S&P Global Ratings.

From its launch at the end of 2014, QEL has pursued a strategy

of working closely with coverholders and coinsurance part-

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

was designed to provide access to niche insurance business

either by line of business, or geography, or both, for existing

portfolios and entrepreneurial start-up ventures.

QEL was registered as a limited liability company on 20

November 2014 and was initially authorised to write nine

classes of insurance business. QEL’s authorisation was

extended during 2015 to include the remaining classes of

insurance business and all classes of reinsurance business.

On 1 September 2018, QIC Group transferred ownership

of QEL to Qatar Re, to bring the Company more in line with

its predominant reinsurance partner and add operational

efficiencies. This does not change the ultimate parent

company, QIC.

QEL operates from its Head Office in Malta and supporting

operations in London and Milan.

Supervisory Authority

Malta Financial Services Authority (MFSA)

Notabile Road, Attard, BKR3000, Malta

External Auditor

Ernst and Young Malta Limited (EY)

Regional Business Centre, Achille Ferris Street,

Msida MSD 1751, Malta

2.1.2 Ownership Structure

The QIC Group structure is presented below:

Qatar Re owns 22,500,000 (twenty-two million five hundred thousand) ordinary shares that have a nominal value of

USD 1.00 (one US Dollar) in QEL.

2.1 Business


95.74%*

Qatar Reinsurance Company Limited(Bermuda)

QIC Capital LLC (Qatar)

Qatar Insurance Company Q.S.P.C (Qatar)

Zurich Branch

London Branch

DIFC (Dubai) Branch

Singapore Branch**

Qatar Reinsurance Services LLC

(Qatar)

Markerstudy Insurance Company Limited

(Gibraltar)

Zenith Insurance Plc

(Gibraltar)

St Julians Insurance Company Limited

(Gibraltar)*

Italy Branch

UK Branch

QIC Europe Limited

(Malta)

100% 100% 100% 100%100%

100%

* With effect from 19 March 2019 QIC owns 100% of the entity which is the parent of QEL’s parent, Qatar Re.

** Qatar Re’s branch office in Singapore was placed into run-off with effect from 20 July 2018.

n Non-insurance or non-reinsurance business n Insurance or reinsurance business


Business and Performance Business and Performance

2.1.3 Insurance and Reinsurance Business written

QEL is authorised 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 Business Performance

QEL’s income grew strongly in calendar year 2018 with

gross premium income of USD 578 million which repre-

sents a 40% increase over 2017 at USD 413 million. Income

Income growth in the Fire and other Damage to Property

line of business. This growth has fully offset the reduction in

premium that relates to QEL ceasing to write (and then cede

to Qatar Re) large, open market, property risks.

Miscellaneous Financial loss income reduced in 2018 as

fewer Residual Value Insurance contracts were written.

The overall decrease is the MAT portfolio is the result of

strategic reduction in the Aviation business and a moderate

increase in the volume of business provided by a European

marine binder.

Finally, it should be noted that review of the segmentation of

QEL’s business across Solvency II lines of business has result-

ed in changes to the distribution of GWP. The segmentation

has been reviewed based on further granular information

from coverholders and the revised allocation provides a more

accurate view of the overall portfolio.

growth has continued to largely originate from the UK. The

increase was primarily from the Motor and Fire & Other

Damage to Property lines of business.

The GWP by geographical territory is as follows:

The portfolio continues to be dominated by UK exposures,

with strong growth in 2018 of USD 167.6m. The small increase

in income in Greece represents the growth of Greek Motor

and Marine accounts while the small decrease in worldwide

reflects the reduction in the Aviation account. All other ter-

ritories remained relatively stable.

The following table sets out the estimated GWP as at

31 December 2018, for the 2018 underwriting year (on a

Solvency II basis), with a comparison against the 2018

planned GWP by line of business.

2.3 Underwriting Performance

The Company reported a net profit after tax of USD 1.8 mil-

lion in 2018 compared to a profit of USD 0.11 million in 2017.

The increase in profit is a reflection of QEL’s growing port-

folio alongside a relatively benign claims experience over

the year.

Revenue in 2018 showed strong growth across the portfolio,

with GWP increasing from USD 413 million in 2017 to USD

578 million in 2018. This reflected organic growth of existing

business and the addition of a new Motor contract. Addition-

ally 2017 contracts exceeded EPI and therefore, upon their

maturity, a level of GWP that was greater than planned was

recognised.

The 2018 net technical result (prior to expenses and invest-

ment income) was slightly greater than in 2017 at USD 4.7

million (USD 2.1 million in 2017). This drove the overall net

profit. Favourable results were delivered across all lines of

business except aviation, where losses incurred on the 2017

underwriting year earned through.

The gross underwriting result for 2018 on a financial year

basis currently shows a 97.8% technical ratio and a 98.5%

combined ratio.

The GWP for 2018 compared to 2017 by line of business is

shown in table 1.

During 2018 the increase in income was greatest in the motor

lines due to the organic growth of QEL’s co-insurance agree-

ment with ZIP; the inception of a new motor coverholder

agreement; and, to a lesser extent, adjustments to GWP

for contracts incepting during 2017.

The growth of UK Homeowners programme generated

Line of Business Actual GWP Actual GWP Difference

2018 2017 (USD’000) (USD’000)

Fire & Other Damage to Property 155,665 89,261 66,405

General Liability 38,601 31,098 7,503

Motor vehicle liability 292,858 198,068 94,790

Marine, Aviation & Transport (MAT) 11,568 14,223 (2,655)

Other motor 78,013 59,399 18,6146

Workers’ Compensation (70) 5,554 (5,624)

Miscellaneous financial loss 1’300 15,397 (14,0971)

Total 577’900 412’900 165’000

Territory Actual GWP Actual GWP Difference

2018 2017 (USDm) ($m)

France 0.5 0.9 (0.4)

Germany 0.1 0.6 (0.5)

Greece 25.6 15.7 9.8

Ireland 2.6 2.3 0.3

Italy - - -

Spain 1.2 2.0 (0.7)

Trinidad and Tobago 0.0 (0.0) 0.03

UK 536.1 368.5 167.6

Denmark 0.4 - 0.4

Worldwide 11.4 23.0 (11.6)

Total 577.9 412.9 165.0

Analysis of performance versus plan

In aggregate, GWP for the 2018 underwriting year (UWY)

were above the level planned as at 31 December 2017.

The initial business plan for UWY 2018 anticipated USD 416

million of written premium income but actual income was

Line of Business Actual GWP Plan GWP Difference

2018 2018 (USDm) (USDm)

Fire & Other Damage to Property 155.7 94.6 61.1

General Liability 38.6 26.5 12.2

Motor vehicle liability 292.9 213.2 79.7

Marine, Aviation & Transport 11.6 0.6 11.0

Other motor 78.0 63.8 14.3

Workers’ Compensation (0.1) 12.1 (12.2)

Miscellaneous financial loss 1.3 4.9 (3.6)

Total 577.9 415.6 162.4

Table 1: GWP for 2018 compared to 2017 by line of business.

Table 2: GWP by geographical territory.

Table 3: Estimated GWP as at 31 December 2018, for the 2018 un-

derwriting year (on a Solvency II basis), with a comparison against

the 2018 planned GWP by line of business.

USD 578 million, a favourable variance of 38% against the

business plan.

The business plan was reviewed and updated throughout

2018 reflecting the changing business environment and un-

derwriting strategy.

The following factors contributed to the variances against

the plan:

Exchange Rate Variations

Exchange rate variations impact the final actual gross

written premium, particularly as much of QEL’s portfolio is

written in GBP, which has been relatively volatile over the

last 12 months.

Agriculture

Agriculture is included within the Solvency II classes of

Fire & Other Damage to Property and General Liability.

Agriculture business via an existing coverholder was not

planned for within the 2018 plan, contract performance

having been poor during 2017. However, re-underwriting

and change of the terms of the deal made renewal of the

contract possible. This reflects an additional USD 16 million

of EPI that was not within the business plan.

Furthermore, the agriculture portfolio was expanded to

include a new coverholder. This relates to an additional

USD 9 million of estimated premium income (EPI) that was

not within the business plan.

Marine and Aviation

The Marine and Aviation segment exceeded business plan

due to the decision to renew certain re-underwritten business

and the expansion of an existing relationship.

Motor

The motor segments out-performed the plan due to the

inception of a new motor account that is 50% greater in

volume than the USD 20 million of new business that was

originally planned.

ZIP and another coverholder wrote a greater premium vol-

ume than expected. The General Liability segment has a

greater than expected GWP in 2018 due to ZIP writing more

within the liability term sheet than previously.

Property

Finally within the property segment, our largest property

contract generated significantly more business than was

expected within the plan.

The geographical distribution of business written during

2018 was in line with projections. Business was under-

written mainly in the UK, dominated by QEL’s UK motor

contracts.


Line of business 2018 2017 (USD’000) (USD’000)

Net investment income 2,028 1,754

Line of business 2018 2017 (USD’000) (USD’000)

Employee Related Costs 1,071 1,385

2.4 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:

Investment income increased from USD 1.8 million in 2017

to USD 2.4 million in 2018, mainly driven by the increased

coupons in the year from portfolio size as well as improved

yield due to US rate changes.

2.5 Other Material Income and Expense

The main expenses beyond underwriting and investment

relate to employee compensation:


Business and Performance

2.6 Any other Information

There is no other material information regarding the busi-

ness and performance.


3System of Governance 3.1 Introduction

QEL has established a sound and effective corporate

governance framework, which is appropriate to the size,

nature, complexity and risk profile of the Company. This

enables sound and prudent management of the Com-

pany’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 oversight

and clear accountability with specific focus on the delegat-

ed underwriting and claims management arrangements.

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

sure 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 governance chart, shown below, as at

31 December 2018, but with names updated to reflect

the position at time of publishing.

The key functions have defined responsibilities, which are

documented in various policies and procedures. The Board

and committees have approved terms of reference.

Board oversight of the critical functions continued with

a number of new or updated policies and procedures

12

approved by the Board throughout the year. Quarterly

monitoring by the Risk Management team revealed a

gradual improvement in risk mitigation as policies, proce-

dures and controls continued to be implemented.

System of Governance


George Prescott

Independent Non- Executive Director

James Bonello

Independent Non- Executive Director

Richard Sutlow

Non-Executive Director

Michael van der Straaten

CEO & Executive Director

Alok Sahi

Executive Director

Meera Rajoo-Oakley

Executive Director

Faraz Khalid

Executive Director

Third Line of DefenceFirst Line of Defence Second Line of Defence

Governance-based structure

Risk Management function

Faraz Khalid

Internal Audit(Outsourced to PwC*)

Reuben Balzan

Company Secretary (Outsourced to Valetta Legal)

Risk & Compliance Committee

George Prescott (Chairman)

James Bonello

Richard Sutlow

Michael van der Straaten (CEO)

Alok Sahi

Meera Rajoo-Oakley

Faraz Khalid

Audit Committee

George Prescott (Chairman)

James Bonello

Richard Sutlow

Investment Committee

James Bonello (Chairman)

George Prescott

Richard Sutlow

Alok Sahi

Investment ManagementQatar Economic Advisors

QEA

Insurance ManagementMarsh Management Services

Malta Limited

Actuarial functionMeera Rajoo-Oakley

External Audit(Outsourced to EY*)

Underwriting Management

Claims Management

Finance function

Delegated Underwriting Management

Reserving Committee

QIC EUROPELIMITED

n Committee of the Board n Management Committee n Business Operational Function n Key Control Function

n Outsourcing arrangements for Key Control Functions approved by the MFSA

Compliance functionAntonio Vella (Marsh)



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 is adequate risk management and inter-

nal control frameworks and an adequate risk culture.

Discuss emerging risks and their potential impact.

• Oversee the effectiveness of the Company’s govern-

ance structure and internal control system. Confirm that

corporate governance policies and practices are dev-

eloped and applied in a sound and prudent manner.

• Approve the capital requirements. Ensure that the SCR

Investment Committee (IC)

Audit Committee (AC)

3.2 Responsibilities of the Board and Committees

and technical provisions continuously meet the Sol-

vency II requirements.

• Ensure that QEL meets all regulatory requirements.

• Oversee the performance of the outsourced functions.

The Board meets at least quarterly and at other times as re-

quired, 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 as-

sist in the effective discharge of its duties, although the Board

retains ultimate responsibility.

CEO with the oversight and management of underwriting,

claims and reserving.

There are three management level committees: the Claims

Management Committee, Underwriting Management

Com mittee and Reserving Committee. They assist the

3.3 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 Company’s operational functions, thereby ensuring they are able to under-

take their activities in an unbiased and objective manner. The main responsibilities of the key functions are as follows:

A brief description of the responsibilities of the Board Committees are provided in the table below.

3.3.1 Risk Management function

• Develop, implement and maintain the Risk Management

Framework and associated risk management policies, in

liaison with the Group Risk 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 ORSA processes and prepare the ORSA

report.

• Support the business functions in identifying, assess-

ing and managing their risks. Facilitate the identification,

documentation and assessment of the key controls.

Communicate regularly with the business functions to

understand, challenge and monitor their risks and controls.


• 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 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.

• 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 ap-

petite 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 plan.

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

plicable legislative or regulatory requirements or internal policies or procedures.

Risk and Compliance Committee (RCC)

Board Committee Responsibilities

• 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, main-

tain 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 ap-

propriate.

3.3.2 Compliance function

The Compliance function is outsourced to Marsh, with

support services provided by a wider team at Qatar Re.

The Compliance function is responsible for directing and

overseeing the management and monitoring of the Com-

pany’s adherence to applicable regulatory and legisla-

tive requirements, and to the Company’s internal policies,

procedures and controls to ensure the effective mitigation

of compliance 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 compli-

ance 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) to develop and maintain open

and cooperative relationships and ensure that appropri-

ate disclosures are made to the regulator(s) of anything

relating to QEL that the regulator(s) would reason-

ably expect notice of. Ensure that all regulatory returns

are submitted to the regulator(s) within the prescribed

timescales.

• Promote and embed a strong compliance culture

throughout the Company.


3.3.3 Internal Audit function

The Internal Audit function is outsourced to Pricewater-

houseCoopers (PwC). The Internal Audit function is segre-

gated from all operational functions and provides independ-

ent assurance on the effectiveness of the risk management,

internal control and governance frameworks. It has unre-

stricted access to all areas of the organisation so as to ef-

fectively 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 provide

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 Delegat-

ed Authority Manager but all audit reports are also provided

to the Internal Audit function to assist it in its work.

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

Auditors and the International Standards for the Professional

Practice of Internal Auditing issued by the Institute of Internal

Auditors (IIA).


3.3.4 Actuarial function

QEL’s Actuarial function was provided via outsourcing

agreements with an external consultant and an affiliated

company, enabling segregation of duties within the actu-

arial 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 as-

sessing potential future SCRs and QEL’s ability to meet

these.

• Ongoing review of QEL’s recording of contract data that

is used for 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 the achievement and main-

tenance of Solvency II compliance.

• Providing actuarial opinion on the UW policy and reinsur-

ance strategy.

The affiliated company provides 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.

3.4 Material Changes in the System of Governance

The material changes in the system of governance are noted as follows:

CEO And Executive Management Appointments

On 12 December, the Board appointed Mike Van der

Straaten as CEO and a director of QEL, with regulatory

approval subsequently provided by the MFSA on 13 March

2019. This followed the resignation of Andrew Ross as CEO

in early December, and from the Board in January 2019.

The following executive appointments were also approved

by the Board and subsequently approved by the MFSA in

March 2019:

• Alok Sahi (KFH – Finance)

• Faraz Khalid (KFH – Risk Management)

• Meera Rajoo-Oakley – Executive Director (KFH – Actuarial)

• Richard Sutlow – Non-executive Director

Mr Sutlow is the Deputy Chief Executive of QIC Global

and represents the ultimate parent. In early 2019, Gunther

Saacke and Sunil Talwar, who were also representatives

of the ultimate parent, resigned from the Board.

Alignment of QIC’s international platforms

In 2018, QIC Group started a natural evolution of its strat-

egy for international platforms, including QEL, to join forces

with the primary goal of delivering profitable growth over

the medium term. A key objective of this strategic initiative

is to enhance operational efficiency and to further QIC’s

vision of becoming a leading player in the global insurance

and reinsurance industry.

As part of this initiative, the boards of the international plat-

forms endorsed a QIC Group plan to align certain activities

in order to:

• Deliver efficiencies by leveraging operational synergies;

• Enhance risk management; and

• Facilitate the coordination and alignment of strategies.

While the key functions at entity level remain unchanged,

some changes have taken place to the organisation of the

services currently provided by Qatar Re, notably in relation

to those supporting:

• Risk management, actuarial and capital modelling

• Legal, claims and compliance

• Finance and operations

3.4.1 Remuneration Policy

QEL’s remuneration policy is to provide compensation

in line with the market rate and structured and calibrated

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

to deliver enhanced performance. 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 re-

porting period can be found in section 2.5 Other Material

Income and Expense.

3.5 Fit and Proper requirements

The Company ensures that the Board members and key

function holders are fit and proper to discharge their re-

sponsibilities in accordance with the following definitions:

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

an evaluation of the person’s professional qualifications,

knowledge and experience to ensure they are appropri-

ate to their role. It also demonstrates whether the person

has exercised due skill, care, diligence, integrity and com-

pliance 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

an evaluation of a person’s honesty, reputation and finan-

cial soundness. This includes, if relevant, criminal convic-

tions or disciplinary offences.

The Fit and Proper Policy applies to the following positions

of responsibility:

• Board and committee members;

• 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.

The following procedures are followed in assessing the Fit

and Proper requirements:

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

evant forms are filed with the regulator.

• 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.


System of Governance System of Governance

3.6 Risk Management System including Own Risk and Solvency Assessment

3.6.1 Risk Management System

QEL has designed, established and maintains a risk man-

agement 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 approach to managing and control-

ling 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 (RCC) provides over-

sight of risk management, capital management and expo-

sure management activities.

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

all risk management framework.

Risk appetite

QEL maintains risk appetite statements that are approved by

the Board. The statement defines acceptable levels of risk

and requires quarterly reporting of actual exposure against

appetite and tolerance. The Risk and Compliance Commit-

tee 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.

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

potentially an update of the ORSA.

Risk register

The risk register summarises the overall risk profile of QEL. The

business functions are responsible for identifying material risks

associated with their activity. The risk identification and assess-

ment process is facilitated by the Risk Management 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 responsi-

bility to assess the design and performance of the key con-

trols. The material risks and key controls are discussed with

the business functions quarterly and documented in the risk

register by the Risk Management function, which challenges

the risks and controls ratings.

Output from the risk register and key changes to the risk pro-

file are reported to the RCC with escalation to the Board as

appropriate.

Exposure management

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.

QEL also recognises that the 1-in-250 year event loss does

not capture the whole distribution of possible losses and

therefore also monitors an aggregated limits view of the

maximum possible loss to 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 pri-

oritises emerging risks for assessment. An emerging risk reg-

ister is maintained and reviewed 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;

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

• Any proposed changes to the risk management framework.

The Risk Management function also ensures that the results

from the Solvency Capital Requirement (SCR) calculations

are reported to the RCC and the Board.

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 mate-

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

requirements under stressed conditions.

3.6.2 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 inte-

grated through the various committees, processes and pro-

cedures described in section 3.3.1. These processes contrib-

ute towards QEL’s solvency self- assessment, which seeks to

identify and measure all material risks to which the Com-

pany is exposed, thereby informing the decision-making

process. 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.

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).

business strategy or risk profile, a non-scheduled ORSA

update would be produced and submitted to the Board

shared with the MFSA. The trigger events for such ad-hoc

ORSA updates are documented in the ORSA policy.

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

The ORSA processes are summarised in the following figure:

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.

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


System of Governance System of Governance

Function / Work performed Jurisdiction of the Function Name of Provider

Insurance Management Malta Marsh Management Services Malta Limited

Internal Audit (Critical Function) Switzerland PWC

Compliance (Critical Function) Malta Marsh Management Services Malta Limited

Company Secretarial and Malta Payroll Malta Valletta Legal

Third Party Service Providers:

Function / Work performed Jurisdiction of the Function Name of Provider as at 31 December 2018

Compliance Bermuda Qatar Reinsurance Company Limited

Investment Advisors Doha Qatar Economic Advisors S.P.C.

Finance1 Doha/London Qatar Reinsurance Services LLC / Qatar Reinsurance Company Limited

HR Support London Qatar Reinsurance Company Limited

IT Services Zurich Qatar Reinsurance Company Limited

Risk Management1 Bermuda Qatar Reinsurance Company Limited

Affiliated Service Providers:

The ORSA report is prepared by the Risk Management func-

tion with contributions from the relevant business functions

throughout the Company.

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 continued

solvency is maintained under normal and adverse condi-

tions.

• 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.

3.7 Internal Control System

3.7.1 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 framework

at QEL follows the Three Lines of Defence model as docu-

mented in section 3.3.

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 per-

formance. Monitoring the achievement of the business plan.

• Ensuring financial and other records are complete and

accurate and reliably reflect the operation of the business.

• Safeguarding assets against loss or misuse.

• Training staff to ensure that they understand their re-

sponsibilities 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 also feed into the risk and solvency

assessment processes.

1 In March 2019, the Risk Management function was insourced back to QEL with the appointment of Faraz Khalid as Head of Risk,

as was Finance with the appointment of Alok Sahi.

3.8 Outsourcing

3.8.1 Outsourcing Policy

QEL’s outsourcing policy applies to all internal and external

outsourcing arrangements and describes how all outsourcing

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 arrangements

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 require-

ments, where it outsources any of its activities either to exter-

nal 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.

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 arrangements

or changes to existing outsourcing arrangements.

• Service provider assessments are performed.

• 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.

The following two tables outline the outsourced functions that are considered critical or important:

The Board maintains oversight and control of all outsourced functions.

3.8.2 Delegated Underwriting and Claims Management

QEL focuses on business involving coverholder or coinsur-

ance partners across the EEA. QEL’s businessmodel was

designed to provide access to niche insurance business

either by line of business, 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 Author-

ity (DUA) Manager and the Board to provide robust over-

sight and clear accountability of delegated underwriting

and claims management arrangements. QEL has a robust

process 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

selection. 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.

QEL maintains an approved panel of coverholder auditors

and uses a market standard for the scope of audit work, with

a specific focus on certain areas depending on the nature

of the agreement and the performance of the coverholder.

A detailed spreadsheet is maintained for tracking the com-

pletion of the audit recommendations.

3.9 Any other Material Information

There is no other material information regarding the system of governance of QEL.


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 2018 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. QEL manages

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.

Premium risk is the largest driver of QEL’s insurance risk SCR.

Reserve risk arises from the inherent uncertainty surround-

ing the adequacy of the reserves or technical provisions

set aside to cover our 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.

Robust controls are in place to ensure that reserving pro-

cesses are adequate and that reserving data is complete and

appropriate. 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.

Reserve risk exposure is managed within the Actuarial func-

tion and through defined reserving 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 portfolio

is composed of principally low severity/high frequency busi-

ness. The risk of an accumulation relating to a natural catas-

trophe is low relative to the size of the portfolio.

The Company’s largest exposure to natural catastrophe risk

is driven is driven by European windstorm. This risk is moni-

tored within the exposure management framework, ensur-

ing 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 sever-

ity 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. While not considered a material contributor to

the Company’s overall risk profile currently, reserve risk

is increasing as the portfolio matures and the volume of

reserve increases.

The majority of QEL’s insurance risk exposure is short-tailed

with claims reported and settled quickly. 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

22

43%

20%

Operational Risk

Counterparty Default Risk

Solvency Capital Requirement Breakdown

8%

Market Risk

29%Non-Life Underwriting Risk


43+29+20+8+ T


Solvency Capital Requirement

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 2018

for the following reasons:

• Premium & Reserve risk – The increase in non-life risk is

mostly driven by the increase in net premium volumes

expected to be earned over the 12-month period com-

mencing 1 January 2019, when compared to the previ-

ous 12 months. Net claims provisions also increased.

• Catastrophe risk – QEL’s exposure to catastrophe risk has

increased in line with the increase in premium volumes.

• Lapse risk – The increase in lapse risk is a function of an

increase in premium volumes.

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.

Risk Capital Requirement Capital Requirement 31/12/2018 31/12/2017

(USD) (USD)

Premium & Reserve 13,967,14 8,923,191

Lapse 3,585,448 2,659,955

Catastrophe 4,965,810 4,397,509

Total 22,518,404 15,980,655

Diversification (6,169,858) (4,770,984)

Diversified SCR 16,348,547 11,209,670

Risk Profile Risk Profile

4.2 Market risk

We continuously monitor the wider external risk environ-

ment, which includes emerging risks identified through the

emerging risk process, as outlined in section 3.3.

The following risks have been identified as having a potential

to impact the business, and have led to implementation of

associated mitigation and contingency planning:

• Brexit: While Qatar Re is a Class 4 Bermuda reinsurer,

we balance our exposure to property catastrophe risks

with lower volatility business, notably quota share con-

tracts relating to UK motor. Due to the structure of the UK

motor insurance industry, Brexit is a relevant issue to many

of our cedents, including our subsidiaries. Qatar Re,

alongside our parent company and affiliates implement-

ed a risk mitigation plan during 2017. In conjunction with

other commercial reasons, this led to the acquisition of

the Gibraltar Insurers. Through the Gibraltar Insurers we

are able to access the UK insurance market on a cross-

border basis under any Brexit scenario. In the immediate

term, QEL is still able to access the UK market on both a

freedom of service and freedom of establishment basis.

QEL will continue to be able to operate across the EU/EEA.

• Tax reform: We continue to monitor the international tax

agenda and note the inclusion of Bermuda on the EU

blacklist of non-cooperative jurisdictions in March 2019.

The UAE, where we also have a presence is also on the

list, while Switzerland remains on the grey list. At present

the blacklisting is not causing any direct difficulties for

the Company and there some optimism that Bermuda is

likely to be removed from the blacklist in the near future.

Regardless, post Brexit, a relatively small proportion of

our business will have a direct connection to the EU.

• Local political tensions in the Middle-East: In May 2017,

diplomatic tensions between the State of Qatar and cer-

tain neighbours led to a local embargo and international

attention. The situation remains largely unchanged. Qatar

Re is a Bermuda headquartered company with a very lim-

ited presence in Qatar. In 2017 we took action to remind

cedants and brokers of our strong capital base in Bermuda

and our investment portfolio held mainly by a Swiss cus-

todian bank, part of a major international banking group.

In 2018 we have not taken any specific action in relation

to this risk condition.

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 Eco-

nomic Advisors S.P.C. (QEA), the wholly-owned investment

advisory services subsidiary of QIC, is the appointed invest-

ment advisor 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.

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), min-

imum credit ratings and maximum concentrations. QEL’s

investment guidelines are approved by the Board and the

Investment Committee provides oversight of QEL’s invest-

ment policy, strategy and performance.

The investment strategy ensures that the Company only

invests in instruments that any reasonable individual aim-

ing for capital preservation and return on investment would

own, in the best interests of its policyholders. The guide-

lines 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 en-

sure 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.

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 allo-

cation 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 sig-

nificantly 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:

Investment Portfolio 31/12/2018 31/12/2017

(USD‘000) (USD‘000)

Cash and cash equivalents 18,304 39,555

Corporate Bonds 60,026 57,745

Total 78,330 97,300

Credit Rating Exposure

66%31%n A- to A+

n BBB- & BBB+

n AA- & above

3%

66+31+3+RThe investment portfolio consists of mainly A- to A+ rated

bonds.

In addition, QEL’s exposure is further split amongst dif-

ferent sectors, with the greatest reliance being around

investments in the financial sector. The remainder of the

portfolio is spread across Government, Airlines and Basic

Materials.

The highest contributor to market risk is foreign exchange


4.3 Credit risk

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.


Default risk Capital Capital

capital requirements 31/12/2018 31/12/2017

(USD) (USD)

Type 1 15,612,390 12,829,535

Type 2 10,962,110 14,643,266

Diversification within counterparty default risk module (1,662,020) (1,766,350)

Diversified Total 24,912,480 25,706,452

Risk Capital Requirement Capital Requirement

31/12/2018 31/12/2017 (USD) (USD)

Interest Rate 1,311,588 1,403,979

Property 0 0

Spread 2,675,603 3,820,171

Currency 2,088,373 969,302

Concentration 1,637,093 1,817,068

Total 7,712,658 8,010,520

Diversification (3,231,155) (3,179,574)

Diversified SCR 4,481,502 4,830,946

Region Exposure

52+32+7+6+3+ R52%

32%

7%6% 3%

n MENA

n Asia

n Australia

n US

n Europe

risk, which arises due to mismatches in the currencies of

the assets held to match liabilities. The Company moni-

tors 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 de-

nominated investments to optimise the returns achieved.

Given that liabilities are mostly GBP and EUR denominat-

ed, 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.

Concentration risk can arise when the investment portfo-

lio 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.

Credit risk is measured through monitoring exposure in ac-

cordance with the risk appetite and tolerance statements.

Credit risk is the largest contributor to capital requirements.

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 i.e. intra-Group ret-

rocessions to Qatar Re and QIC. Both Qatar Re and QIC

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

A.M. Best. 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 moni-

tored by the Finance function. Exposures to receivables

from intermediaries 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 (45% of the undiversified SCR). The diversified

SCR for credit risk at the end of the reporting period, and at

the end of last year is composed as follows:

4.3.2 Credit Risk Measurement and Exposure

• Type 1 credit risk - As our earned reserve volumes increase

as the business matures, so do the expected recoveries

associated with these reserves, causing an increase in the

type 1 counterparty default risk. The scope of the Qatar

Re guarantee of certain premium receivables (which are

now treated as type 1 counterparties rather than type 2)

has also increased.

• Type 2 credit risk – QEL has amended the technical provi-

sions methodology to include the variable commission

cashflows associated with the losses. This reduces the

amount previously considered within the receivable bal-

ance sheet item, reducing type 2 counterparty risk. QEL

has also increased the scope of the guarantee of certain

receivable balances provided by Qatar Re, resulting in a

movement from type 2 to type 1 counterparty default risk.

In managing exposure to credit risk, the Company also

considers 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 consid-

ered within the market risk module of the SCR.

Consistent with a Group-wide capital management strategy

and the group restructuring involving Qatar Re, QEL takes

advantage of risk mitigation techniques contemplated in

Article 189 paragraph 2(d) of Commission Delegated Regu-

lation (EU) 2015/35 (the Delegated Acts).

This allows for the reclassification of certain counterparty

exposures where certain tests 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 re-

quirements and thus causes a reduction in the required

capital of the Company.


The diversified SCR for market risk at the end of 2018 com-

pared to 2017 is composed as follows:

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.

The Investment Committee has ultimate responsibility

for the management of liquidity risk and it has delegated

oversight and ownership of liquidity management to the

finance function. Day-to-day management of liquidity is the

responsibility of the finance function. Both short-term and

long-term liquidity risks are considered, with actions taken

to ensure QEL has a long-term view of its liquidity require-

ments, arising from liabilities based on an actuarial assess-

ment 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;

• Monitoring of the debt positions.

• Interest, spread and currency risks – Risks associated with

the fixed income portfolio have reduced as a result of

the improvement in the average credit quality of the fixed

income portfolio, combined with a reduction in the aver-

age duration of the portfolio.

• Concentration risk – Offsetting the reduction in fixed in-

come risks, there has been an increase in the proportion

of GBP denominated liabilities, given most reserves are

GBP denominated, combined with a small increase in the

gap between GBP liabilities and GBP assets.


Risk ProfileRisk Profile

Risk Capital Capital 31/12/2018 31/12/2017

(USD) (USD)

Operational Risk 11,255,915 10,364,402

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 as a result of

some key functions being outsourced within the Group

(see section 38 for further details).

QEL has an excellent relationship with QIC and Qatar Re,

and ensures that it establishes strong governance around

its agreements, including certain arms-length contractual

arrangements.

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 beyond

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 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.


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.

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 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

period and at the end of 2017 were as follows:

The operational risk capital requirement increased over the

period in line with the reduction in the basic SCR.

4.5.2 Operational Risk Measurement and Exposure

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.

• The implementation of a strong internal control culture.

• Staff training/awareness of the control responsibilities re-

lating to their roles.

• 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 external)

reporting.

• Assessment of the impact of outsourcing material func-

tions on operational risks.

• Procedures for due diligence, monitoring and audit of

outsourced service providers.

• Operational loss monitoring process.

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 Operational risk

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 6,646,684 at the end of the reporting pe-

riod. This is an increase from USD 1,082,017 reported in the

prior year and results from an increase in the volume of busi-

ness written, and an increase in the overrider/commissions

which QEL receives from Qatar Re under the variable quota

share (now 3%).

4.4.3 Expected Profit Included in Future Premiums

The market value of liquid assets is compared to the

expected cash flows on a quarterly basis. In addition, 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 2018.

4.4.2 Liquidity Risk Measurement and Exposure

4.8 Material Risk Concentrations

The Company’s risk appetite and tolerance statements,

approved by the Board, govern the concentration limits in

relation to counterparties, credit quality and geographical

locations so as to avoid material risk concentration.

There are also a number of managerial level limits used

across different functions to manage risk exposures with-

in the approved risk appetites. For example, investments

are managed within the scope of the approved invest-

ment mandate. Market risk concentrations are discussed in

section 4.2.2.

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 in 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 the risk

mitigation techniques contemplated in Article 189 of the

Delegated Acts.


Risk in Scope Methods and Assumptions Impact on SCR

Insurance risk It is assumed that the UK motor technical ratio increased by 20% SCR coverage ratio reduces (net of commission structures which pass on some of the risk of from 125% to 112%. adverse loss experience to cedants). The deterioration is assumed to apply at the end of 2018, affecting existing claims and premium provisions. It is assumed that management takes action to respond appropriately through revised pricing so that technical ratios recover after the coming 12 months.


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

solvency 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

reverse stress tests over the planning horizon is considered

to be remote.

Interpretation of results:

A deterioration of the magnitude considered is seen by

management as extreme events for the UK motor portfolio

involved. The result shows the benefit of both quota share

and excess of loss covers in substantially mitigating the fi-

nancial 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, management maintains a vigilant eye

on the performance of UK motor exposure with monthly

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

backed up by monthly reserve monitoring, means that

management should have good early-warning indicators

of such scenarios, and would be able to discuss them with

the clients concerned.

2. Insurance risk – Loss Ratio

A number of stress tests were carried out to assess the

impact of an increase in the UK motor loss ratio, including

a standalone increase of 20% in 2019. More prolonged in-

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:

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. 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 por-

tion is recovered. There would therefore be a corresponding

increase in the reinsurance recoverables associated with the

technical provisions. The currency risk and underwriting risk

capital requirements would increase, as would the counter-

party default risk capital requirements.

Risk in Scope Methods and Assumptions 1 year P&L Impact Impact on SCR

Market risk It is assumed that the USD falls in value by 10% against the $1.7 million SCR coverage ratio EUR and GBP on the valuation date, causing a significant reduces from change in the USD value of liabilities and associated 125% to 111%. reinsurance recoveries.

1. Foreign exchange risk

The Company’s most significant insurance contracts are

EUR and GBP denominated, meaning that any fluctuation

in the rate of exchange of the EUR 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 10%

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

its SCR coverage ratio.

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

plausible adverse scenarios that may arise in the normal

course of business, which are derived from the key driv-

ers of business and the risks identified in the risk register.

There is also a quantitative analysis of the solvency and

profit and loss impacts 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:

4.10 Risk Sensitivity Stress and Scenario Testing



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 IFRS Solvency II Basis Solvency II Basis 31/12/2018 31/12/2017 31/12/2018 31/12/2017 (USD) (USD) (USD) (USD)

Deferred Acquisition Costs (DAC) 91,996,000 53,326,000 0 0

Deferred Tax Assets 0 0 1,328,289 745,719

Property Plant & Equipment 63,000 87,000 63,000 87,000

Investments (Bonds) 60,026,000 57,745,000 60,026,000 57,745,000

Reinsurance Recoverables 562,070,396 418,747,000 431,583,575 352,424,124

Insurance Receivables 140,384,000 104,139,000 109,996,458 104,139,000

Cash & Cash equivalents 18,304,000 39,555,000 18,304,000 39,555,000

Deposits to Cedants 65,507,000 46,634,000 65,507,000 46,634,000

Other Assets 273,000 400,000 273,000 400,000

Total Assets 938,623,396 720,633,000 687,081,322 601,729,844

2018, the movement from the IFRS valuation basis to the

Solvency II valuation basis resulted in an instantaneous

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 reasonable likeli-

hood 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 believes

that it is not unreasonable to expect QEL to make such

a profit.

Cash and cash equivalents, fixed income securities and all

other assets on the Solvency II balance sheet are record-

ed at fair value in line with IFRS. Changes in fair value of

available-for-sale investments being included in the state-

ment of other comprehensive income, with the total com-

prehensive income (or loss) increasing (or decreasing) the

own funds.

The Company does not use 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

Valuation for Solvency Purposes

32

5.1 Assets

The following table sets out the assets held within QEL’s bal-

ance sheet, alongside their value as at 31 December 2018

for the IFRS financial statements and the Solvency II balance

sheet.



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 2018, from USD

721 million to USD 939 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 portion of premium that is writ-

ten but not earned as at the valuation date. QEL wrote a

greater volume of business during 2018 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 correspondingly larger amount of DAC.

DAC is not recognised as an asset on a Solvency II basis.

Its change in value on an IFRS basis has no direct impact

on the value of assets on a 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 increase with the increase in business written.

On a Solvency II basis, the reinsurance recoverable also

increases for the same reasons.

• The increase in deposits to cedants relates to the amount

of premium written by coverholders which is yet to be

passed on to QEL under the relevant terms of the binding

authority agreements. As volume of business increases

this asset will increase in size.

Furthermore, there was an increase in the value of the

investments held by QEL, with a corresponding reduction

in cash. Investments also yielded returns that were rein-

vested in the portfolio. QEL continues to actively manage

cash balances, ensuring it holds sufficient liquidity to meet

liabilities falling due within a reasonable timeframe.

The value of property plant and equipment has decreased

in line with depreciation and impairment costs.

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

provisions.

As at 31 December 2018, QEL held technical provisions (TP)

for non-life business and for health business (health expo-

sure is very limited 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 2017. These are set out in the tables below:

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 3,461,585 0 0

Gross TP – Non-Life (Including Health) 456,032,000 386,689,716 418,747,000 352,424,124

% Increase/Decrease from 2018 135% 123% 134% 123%

Liabilities- TP Assets- Recoverable TP

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

TP calculated as a whole 613,700,478 0 562,070,396 0

Best Estimate 0 473,602,693 0 431,583,575

Risk Margin 0 3,460,961 0 0

Gross TP – Non-Life (Including Health) 613,700,478 477,063,654 562,070,396 431,583,575


reserving 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 increased slightly over the 12 months to

31 December 2018, with a greater proportion of the techni-

cal provisions relating to non-life classes, 99.7% at the end

of 2018 compared to 98.8% in 2017. 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. Appendix 2 shows the non-life and

health split of the technical provisions, for year-end 2018

versus 2017.

Overall the technical provisions increased by 135% on an

IFRS basis (123% on a Solvency II basis) in 2018 compared to

2017; 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.

Comparing the risk margin as at 31 December 2017 to that

as at 31 December 2018 shows a decrease. This reflects an

update to the payment patterns assumed within reserving.

As the company matures, QEL begins to place more weight

on the actual experience of the Company in developing our

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 spe-

cifically, 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 ex-

pected 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 discounted

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

lished by the European Insurance and Occupational Pen-

sions 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

margin for prudence.

The reserves on an IFRS basis are estimated using the fol-

lowing reserving classes:

• Agriculture, including pets, livestock and bloodstock;

• Aviation & Space;

• Property: contracts covering single risks;For a full breakdown of the technical provisions and reinsurance recoverables from reinsurance by line of business, see

QRT S17.01 01.01 in Appendix 1.


Valuation for Solvency Purposes Valuation for Solvency Purposes

• Energy: contracts covering single risks;

• Property: binding authority business;

• Engineering: contracts covering single risks;

• Liability professional lines & General Liability;

• 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 un-

earned premium reserve, relating to periods of future expo-

sure on already incepted policies.

The main differences between the value of the technical provi-

sions 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, re-

moving 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,

however profit within the yet-to-expire period of risk is

recognised 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 expect-

ed losses on reinsurance recoverables due to counter-

party default. The adjustment is based on an assessment

of the probability of default of the counterparty and the

average loss resulting from the default.

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 insur-

ance risk, counterparty credit risk and operational risk com-

ponents of the SCR. The rate used in the determination 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 insur-

ance liabilities. The cost of capital in each future year is dis-

counted 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.

Health IFRS

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

Medical Expense 0 0

Workers’ Compensation 2,347,356 1,427,2932

Total Reinsurance Recoverables (Health) 2,347,356 1,427,293

5.2.5 Reinsurance recoverables

The following table shows the reinsurance recoverable as at

31 December 2018, valued under IFRS and under Solvency

II, split by line of business:

Reinsurers’ share of technical provisions by line of business

is as follows:

5.2.4 Uncertainty

Considering the short period of operation of the Company,

the growing and evolving portfolio and underlying volatil-

ity 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 be-

lieves 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.

The estimation of the reinsurance recoverable is analogous

to that of the gross technical provisions with the exception

that the estimate of the reinsurers’ share of technical provi-

sions 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

(which is set at 50%), multiplied by the modified duration

of the receivables and again multiplied by the probability of

default over a one-year time horizon which is set at 0.05%.

Non-Life IFRS


Motor Vehicle Liability 160,864,683 205,206,403

Other Motor 43,626,776 55,152,800

Marine, Aviation & Transport (MAT) 9,332,299 11,782,106

Fire & Other Damage to Property 54,413,642 87,868,270

General Liability 61,576,945 66,194,383

Legal Expenses 0 0

Miscellaneous Financial Loss 1,741,807 3,952,321

Total Reinsurance Recoverables (Non-life – Excluding Health) 334,556,152 430,156,283

5.2.5.1 Comparison to previous year

The above tables are compared to the analogous amounts

as at 31 December 2017. These are set out in the tables

below:

Non-Life IFRS


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

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

Marine, Aviation & Transport (MAT) 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

Health IFRS


Medical Expense 0 0

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

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

Changes in 2018 have been discussed in previous sec-

tions and are driven by growth in the business. Growth was

greater in some segments than in others, resulting in the

observed change in portfolio proportions between lines of

business.


Valuation for Solvency Purposes

5.3 Other Liabilities

The liabilities other than the technical provisions as at 31 December 2018 are set out below, alongside their value as at

31 December 2017 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. Insurance and intermediary payables relate to amounts

owed to intermediaries and for IPT and are valued at face

value.


The increase in balances during the 12 months to 31 December 2018 relate to business growth as described in previous

sections.

Other Liabilities Reference 31/12/2018 31/12/2017 31/12/2018 31/12/2017 IFRS IFRS Solvency II Solvency II (USD’000) (USD’000) (USD’000) (USD’000)

Deferred Commission Income a 82,950 48,181 0 0

Reinsurance Payables b 170,045 147,529 140,557 147,529

Trade Payables c 1,199 1,152 1,199 1,152

Insurance and Intermediaries Payables d 14’144 11,980 14,144 11,980

Total 268,338 208,842 155,900 160,661



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) classi-

fies capital instruments into a given tier based on their loss

absorbency characteristics. The highest quality capital is

eligible for Tier 1, which is able to absorb losses under all

circumstances, including as a going concern, during run-off,

wind-up or insolvency. Tier 2, while providing full protection

to policyholders in a wind-up or insolvency scenario, has

moderate loss absorbency on a going-concern basis. Tier 3

meets, on a limited basis, some of the characteristics exhib-

ited in Tiers 1 and 2.

Eligibility limits are applied to each tier in determining the

amounts eligible to cover regulatory capital requirement

levels.

The majority of our own funds as of 31 December 2018

qualify as Tier 1 capital, confirming that the Company meets

the eligibility 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 (“SCR”), in accordance with the

Solvency II Directive. The SCR is calculated using the

Solvency II standard formula.

QEL benefits from a subsidiary company credit rating

and the reinsurance protection provided by Qatar Re

and QIC.

Capital Management

The changes in own funds over the reporting period are

presented in the table below. Please note: rounding differ-

ences 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 52,789,808 52,789,808

Tier 3 1,328,289 0

Total 54,118,097 52,789,808

Basic Own Funds December 2018 December 2017 December 2018 December 2017 (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

Reconciliation Reserve (2.7) (2)

Deferred Tax Asset 1.3 0.7

Capital Contribution* 33 33

Total Basic Own Funds 52.8 53.7 1.3 0.7

Capital Management

*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 2.7 million.

b) A net deferred tax asset (DTA) of USD 1.3 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) In 2017, QIC in its capacity as shareholder made an additional capital contribution of cash amounting to USD 12.958 mil-

lion. The remaining USD 20 million represents a capital contribution made in 2016. There were no capital contributions

made during 2018.

6.1.4 Own Funds subject to Transitional Arrangements

At 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 2018:

6.1.5 Ancillary Own Funds

At 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 was 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 MCR is determined by the standard formula as follows:

• The MCR is then the greater of the Combined MCR

and the Absolute floor of the MCR (aMCR). The aMCR

is equivalent to EUR 3,700 thousand for (re)insurers au-

thorised for liability business, and for the period ended

31st December 2018, the aMCR equated to $4,209

thousand. The Company’s MCR is therefore $10,819

thousand.

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

Surplus Funds 1,126,918 1,126,918

Fair Value Reserve

Reconciliation Reserve a (2,668,192) (2,668,192)

Deferred Tax Assets (Net) b 1,328,289 1,328,289

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

Total Basic Own Funds 56,584,918 54,118,097 (2,466,821)

• The Linear MCR is calculated based on the net best

estimate liability and net written premiums by Solvency

II lines of business. The Company’s Linear MCR equated

to $8,132 thousand at 31st December 2018.

• The Combined MCR is based on the Linear MCR and

this should fall within a range between 25% and 45% of

the SCR, being $10,819 thousand and $19,474 thousand

respectively. As the Linear MCR is below the lower limit,

the Combined MCR is the lower limit of this range being

$10,819 thousand.

Capital ManagementCapital Management

6.2 Solvency Capital Requirement and Minimum Capital Requirement

Lapse0

Catastrophe0

Premiums & Reserves

0

Market4,481,502

Equity0

Concentration1,637,093

Spread2,675,603

Interest Rate1,311,588

Property0

FX2,088,373

SCR Cover125%

MCR Cover488%

SCR43,275,331

MCR10,818,833

Default24,912,480

Health0

Lapse3,585,448

Catastrophe4,965,810

Premiums & Reserves

13,967,146

Counterparty Default

24,912,480

Non-Life16,348,547

BSCR37,519,716

Operational11,255,915

Adjustment-5,500,300


The Company’s SCR increased over 2018 mainly due to the

growth in the business and associated increase in premium

risk. The capital requirement for market risk remained rela-

tively stable, with increases in currency risk being offset by

a reduction in the risk associated with our fixed income

portfolio due to improved average credit quality and a re-

duction in the weighted average duration of the portfolio.

Counterparty Default Risk reduced slightly, as QEL contin-

ues to utilise risk mitigation techniques contemplated in

Article 189 of the Delegated Acts. Qatar Re guarantees certain

balances due to QEL from agencies, therefore allowing QEL

to look through to Qatar Re’s rating when assessing the

counterparty default risk associated with these balances.

Section 4 provides additional information on the key risk

drivers for each type of risk.

The MCR 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 125% as at 31 December 2018

(compared to 138% as at 31 December 2017). The solvency

position is summarised in the table below:

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

SCR 43,275,331 54,118,097 125% –

MCR 10,818,833 52,789,808 488% 25%

Capital Management

45QIC Europe Limited Solvency and Financial Condition Report 2018 45

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:

Risk Type 31 December 2018 31 December 2017 Movement (USD million) (USD million) (USD million)

Market Risk 4.482 4.831 (0.349)

Counterparty Default Risk 24.912 25.706 (0.794)

Health Underwriting Risk 0.000 0.409 (0.409)

Non-Life Underwriting Risk 16.349 11.21 5.139

Undiversified SCR 44.389 42.156 2.233

Diversification (7.926) (7.608) (0.318)

Basic SCR 37.520 34.548 2.972

Operational risk 11.256 10.364 0.892

Adjustment for Deferred Tax Assets (5.500) (5.542) 0.042

SCR 43.275 39.37 3.905

MCR 10.819 9.843 0.976


7Subsequent Events 7.1 Board and executive management changes

These are detailed in section 3.4,

7.2 Portfolio Transfer

At the September 2018 meeting of the Board, approval was

given to initiate the transfer of non-UK EEA obligations of

ZIP, a sister company of QEL, to QEL. At the March 2019

meeting of the Board, the management were authorised to

proceed with the transfer subject to further clarification of

some detailed matters.

The transfer is in response to the UK (and therefore also

Gibraltar) exiting the EU. At the time of writing, the Brexit

situation is rapidly evolving. While the current intention is

that the transfer will complete, external factors may mean

the transfer is reconsidered.

If the transfer does proceed, all of the assets, liabilities, rights

and obligations of ZIP relating to the transferring business,

which is in run-off, will be transferred to QEL in H1 2019.

A risk margin is established such that QEL’s SCR coverage

does not fall below the level before the transfer.

Subsequent events

7.3 Minority Interest

With effect from 19 March 2019, there is no longer a minor-

ity interest in QIC Capital LLC, with QIC now owning 100%

of the entity which is the parent of QEL’s parent, Qatar Re.



AAppendices

Appendix 1:

Quantitative Reporting Templates (QRTs) for Public Disclosure

Balance Sheet

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

Top 5 countries (by amount of GWP) - Non-Life Business

Total Top 5 countries (by amount of GWP) - Non-Life Business

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

Overall MCR Calculation

Appendix 2 Technical Provisions split by non-life and health



Balance Sheet

Goodwill R0010

Deferred acquisition costs R0020

Intangible assets R0030

Deferred tax assets R0040 1,328,289

Pension benefit surplus R0050

Property, plant & equipment held for own use R0060 63,000

Investments (other than assets held for index-linked and unit-linked contracts) R0070 60,026,000

Property (other than for own use) R0080

Holdings in related undertakings, including participations R0090

Equities R0100

Equities - listed R0110

Equities - unlisted R0120

Bonds R0130 60,026,000

Government Bonds R0140

Corporate Bonds R0150 60,026,000

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 431,583,575

Non-life and health similar to non-life R0280 431,583,575

Non-life excluding health R0290 430,156,283

Health similar to non-life R0300 1,427,293

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 65,507,000

Insurance and intermediaries receivables R0360 109,996,458

Reinsurance receivables R0370

Receivables (trade, not insurance) R0380 273,000

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 18,304,000

Any other assets, not elsewhere shown R0420

Total assets R0500 687,081,322

Assets

Solvency II Solvency II value

C0010 Technical provisions – non-life R0510 477,063,654

Technical provisions – non-life (excluding health) R0520 475,556,612

Technical provisions calculated as a whole R0530

Best Estimate R0540 472,098,686

Risk margin R0550 3,457,926

Technical provisions - health (similar to non-life) R0560 1,507,042


Best Estimate R0580 1,504,007

Risk margin R0590 3,035

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

Derivatives R0790

Debts owed to credit institutions R0800

Financial liabilities other than debts owed to credit institutions R0810

Insurance & intermediaries payables R0820 14,144,000

Reinsurance payables R0830 140,556,571

Payables (trade, not insurance) R0840 1,199,000

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

Total liabilities R0900 632,963,226

Excess of assets over liabilities R1000 54,118,097

Liabilities

Solvency II Solvency II value

C0010

Appendix 1: Quantitative Reporting Templates (QRTs) for Public Disclosure

Appendices Appendices


Non-Life Business 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 (70,069) 292,857,917 78,012,861 11,568,160 155,665,429 38,601,066 1,299,998 577,935,362

Gross - Proportional reinsurance accepted R0120

Gross - Non-proportional reinsurance accepted R0130

Reinsurers’ share R0140 (66,565) 274,089,456 73,142,013 10,878,157 134,520,647 35,074,856 1,503,634 529,142,198

Net R0200 (3,503) 18,768,461 4,870,848 690,002 21,144,782 3,526,210 (203,635) 48,793,165

Premiums earned Gross - Direct Business R0210 (70,069) 263,006,736 69,273,912 20,767,375 135,348,258 38,971,247 5,094,846 532,392,305



Reinsurers’ share R0240 (66,565) 246,113,027 64,965,288 19,344,552 116,834,764 35,213,214 4,968,991 487,373,271

Net R0300 (3,503) 16,893,708 4,308,625 1,422,823 18,513,494 3,758,033 125,855 45,019,035

Claims incurred Gross - Direct Business R0310 (6,643,823) 160,513,350 53,812,881 19,143,602 80,526,621 40,865,135 1,196,198 349,413,964



Reinsurers’ share R0340 (5,971,176) 149,823,373 50,542,739 17,611,311 69,628,545 35,855,981 1,162,821 318,653,594

Net R0400 (672,647) 10,689,976 3,270,143 1,532,291 10,898,075 5,009,153 33,377 30,760,368

Changes in other technical provisions Gross - Direct Business R0410



Reinsurers’ share R0440

Net R0500

Expenses incurred R0550 19,718 2,915,629 794,098 177,564 4,948,847 723,017 (35,748) 9,543,125

Other expenses R1200 4,552,405

Total expenses R1300 14,095,528

Appendices


Other than home country

France Greece Ireland Spain United Kingdom

C0090_76 C0090_85 C0090_106 C0090_208 C0090_234

Premiums written Gross - Direct Business R0110 464,642 25,560,656 2,603,740 1,247,425 536,099,789



Reinsurers’ share R0140 393,856 23,185,522 2,228,923 1,167,976 490,623,701

Net R0200 70,787 2,375,134 374,816 79,448 45,476,089

Premiums earned Gross - Direct Business R0210 611,495 21,425,564 2,498,583 769,893 482,948,610



Reinsurers’ share R0240 518,503 19,488,221 2,138,935 717,335 441,758,510

Net R0300 92,993 1,937,343 359,648 52,558 41,190,101

Claims incurred Gross - Direct Business R0310 171,694 11,923,957 1,832,880 453,775 315,932,785



Reinsurers’ share R0340 144,606 10,712,241 1,560,438 409,644 288,193,093

Net R0400 27,088 1,211,716 272,442 44,131 27,739,692





Net R0500

Expenses incurred R0550 18,612 376,983 96,921 14,929 8,939,421

Other expenses R1200

Total expenses R1300

Top 5 countries (by amount of GWP) - Non-Life Business

Total Top 5 countries (by amount of GWP) - Non-Life Business Non-life and Health non-SLT Total Top 5 and home country C0140

Premiums written Gross - Direct Business R0110 565,976,252



Reinsurers’ share R0140 517,599,978

Net R0200 48,376,274

Premiums earned Gross - Direct Business R0210 508,254,144




Net R0300 43,632,642

Claims incurred Gross - Direct Business R0310 330,315,091




Net R0400 29,295,069





Net R0500

Expenses incurred R0550 9,446,867

Other expenses R1200

Total expenses R1300 9,446,867

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

Appendices


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 74,926,309 20,232,063 2,657,873 36,444,489 8,058,719 2,326,930 144,646,384

Total recoverable from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default R0140 (500,867) 64,377,347 17,347,677 2,337,603 30,824,105 7,334,719 2,237,688 123,958,271

Net Best Estimate of Premium Provisions R0150 500,867 10,548,962 2,884,386 320,270 5,620,384 724,000 89,243 20,688,113

Claims provisions Gross R0160 1,504,007 144,311,182 38,570,046 10,334,426 65,633,739 66,824,172 1,778,737 328,956,309

Total recoverable from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default R0240 1,928,160 140,829,055 37,805,123 9,444,503 57,044,165 58,859,665 1,714,633 307,625,304

Net Best Estimate of Claims Provisions R0250 (424,153) 3,482,127 764,923 889,922 8,589,574 7,964,507 64,104 21,331,005

Total Best estimate - gross R0260 1,504,007 219,237,492 58,802,110 12,992,298 102,078,228 74,882,891 4,105,667 473,602,693

Total Best estimate - net R0270 76,715 14,031,089 3,649,310 1,210,192 14,209,958 8,688,507 153,346 42,019,117

Risk margin R0280 3,035 1,342,224 335,108 97,619 862,582 800,219 20,175 3,460,961

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

Best estimate R0300

Risk margin R0310

Technical provisions - total

Technical provisions - total R0320 1,507,042 220,579,715 59,137,218 13,089,917 102,940,810 75,683,109 4,125,842 477,063,654

Recoverable from reinsurance contract/SPV and Finite Re after the adjustment for expected losses due to counterparty default - total R0330 1,427,293 205,206,403 55,152,800 11,782,106 87,868,270 66,194,383 3,952,321 431,583,575

Technical provisions minus recoverables from reinsurance/SPV and Finite Re - total R0340 79,750 15,373,313 3,984,418 1,307,811 15,072,540 9,488,726 173,521 45,480,079

Non-Life Technical Provisions

Appendices


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 17’382’520 90,880,465

N-2 R0230 41’825’992 130,911,933

N-1 R0240 142’293’129 160,701,354

N R0250 30’444’657 30,444,657

Total R0260 237’160’741 412,938,408

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 28,651,781

N-2 R0230 74,795,784

N-1 R0240 142,146,911

N R0250 83,361,833

Total R0260 328,956,309

Gross Claims Paid

Gross Claims Paid Cumulative

Gross Undiscounted Best Estimate Claims Provisions

Gross Undiscounted Best Estimate Claims Provisions (Cumulative)

0 1 2 3

C0010 C0020 C0030 C0040

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220 915,487 35,249,351 37,333,107 17,382,520

N-2 R0230 17,495,955 71,589,986 41,825,992

N-1 R0240 18,408,225 142,293,129

N R0250 30,444,657

0 1 2 3

C0200 C0210 C0220 C0230

Prior R0100

N-9 R0160

N-8 R0170

N-7 R0180

N-6 R0190

N-5 R0200

N-4 R0210

N-3 R0220 33,618,594 29,067,869

N-2 R0230 128,183,202 75,881,987

N-1 R0240 94,094,759 144,211,203

N R0250 84,572,434



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 (2,668,192) (2,668,192)

Subordinated liabilities R0140

An amount equal to the value of net deferred tax assets R0160 1,328,289 1,328,289

Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 32,958,000 32,958,000

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 54,118,097 52,789,808 1,328,289

Other ancillary own funds R0390

Total ancillary own funds R0400

Available and eligible own funds Total available own funds to meet the SCR R0500 54,118,097 52,789,808 1,328,289

Total available own funds to meet the MCR R0510 52,789,808 52,789,808

Total eligible own funds to meet the SCR R0540 54,118,097 52,789,808 1,328,289

Total eligible own funds to meet the MCR R0550 52,789,808 52,789,808

SCR R0580 43,275,331

MCR R0600 10,818,833

Ratio of Eligible own funds to SCR R0620 125.06%

Ratio of Eligible own funds to MCR R0640 487.94%

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

Own funds

Appendices


C0060

Reconciliation reserve Excess of assets over liabilities R0700 54,118,097

Own shares (held directly or indirectly) R0710

Foreseeesable dividends, distributions and charges R0720

Other basic own fund items R0730 56,786,289

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

Reconciliation reserve R0760 (2,668,192)

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

Expected profits included in future premiums (EPIFP) - Non-life business R0780

Expected profits included in future premiums (EPIFP) R0790

Value

C0100

Solvency II Operational risk R0130 11,255,915

Loss-absorbing capacity of technical provisions R0140

Loss-absorbing capacity of deferred taxes R0150 (5,500,300)

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

Solvency Capital Requirement excluding capital add-on R0200

Capital add-on already set R0210

Solvency capital requirement R0220 43,275,331

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 4,481,502

Counterparty default risk R0020 24,912,480

Life underwriting risk R0030 0

Health underwriting risk R0040 0

Non-life underwriting risk R0050 16,348,547

Diversification R0060 (8,222,814)

Intangible asset risk R0070

Basic Solvency Capital Requirement R0100 37,519,716

Reconciliation Reserve

Basic Solvency Capital Requirement

Calculation of Solvency Capital Requirement

MCR components

C0010

Solvency II MCRNL Result R0010 8,132,315

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 76,715

Motor vehicle liability insurance and proportional reinsurance R0050 14,031,089 18,768,461

Other motor insurance and proportional reinsurance R0060 3,649,310 4,870,848

Marine, aviation and transport insurance and proportional reinsurance R0070 1,210,192 690,002

Fire and other damage to property insurance and proportional reinsurance R0080 14,209,958 21,144,782

General liability insurance and proportional reinsurance R0090 8,688,507 3,526,210

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 153,346

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


C0070

Linear MCR R0300 8,132,315

SCR R0310 43,275,331

MCR cap R0320 19,473,899

MCR floor R0330 10,818,833

Combined MCR R0340 10,818,833

Absolute floor of the MCR R0350 4,209,120

Minimum Capital Requirement R0400 10,818,833

Overall MCR Calculation


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

TP calculated as a whole 611,767,171 560,226,260

Best Estimate 472,098,686 430,156,283

Risk Margin 3,457,926

Gross TP – Non-Life (Excluding Health) 611,767,171 475,556,612 560,226,260 430,156,283


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


Best Estimate 1,504,007 1,427,293

Risk Margin 3,035

Gross TP – Health 1,933,306 1,507,042 1,844,136 1,427,293


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


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

Risk Margin 3,383,594

Gross TP – Non-Life (Excluding Health) 450,672,923 379,623,560 414,076,000 346,157,313



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


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

Risk Margin 77,990

Gross TP – Health 5,359,077 7,066,157 4,671,000 6,266,812



Non-Life and Health technical provisions split as at 31 December 2017

Non-Life and Health technical provisions split as at 31 December 2018

Appendix 2: Technical Provisions split by Non-Life and Health

Appendices


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