This annual Financial Condition Report (“FCR”) for the year ended 31 December 2019 has been prepared for MS Amlin AG (“MS AAG” or “the Company”). As of 1 January 2020, MS Amlin AG is a wholly owned subsidiary of Mitsui Sumitomo Insurance Co., Ltd. (MSI) with its ultimate parent being MS&AD Insurance Group Holdings, Inc. (MS&AD). The Company was previously a wholly owned subsidiary of MS Amlin plc, however its share ownership in the Company transferred to MSI on 1 January 2020.
Basis of preparation
This Financial Condition Report has been prepared in line with the requirements as set out in the Swiss Financial Market Supervisory Authority (“FINMA”) Circular 2016/2 “Disclosure – insurers”. The circular expands on Articles 111a and 203a of the Insurance Supervision Ordinance (ISO; SR 961,011) on the FCRs of supervised insurance companies, groups and conglomerates. This report is to meet the regulatory reporting requirements of MS Amlin AG, and for no other purpose and should not be relied upon for any other such purpose.
Financial information included in this report is based on MS Amlin AG’s 2020 Swiss Solvency Test’s (“SST”) Market Consistent Balance Sheet (for Balance Sheet financial information) and the 2019 Swiss CO Annual Report (“Swiss CO”), (for Profit or Loss information); both have been prepared in accordance with their relevant regulatory or accounting standards. Unless stated otherwise, this report represents the position of MS Amlin AG as at 31 December 2019 only and will not necessarily reflect all changes in MS Amlin AG’s operations since that date. All quantitative information in this report is disclosed in USD, MS Amlin AG’s functional currency, unless otherwise specified.
Business and Performance
The Company is incorporated in Switzerland and is headquartered in Zurich with branches in Hamilton, Bermuda and Labuan, Malaysia, and conducts business in the USA through a binder with MS Amlin Reinsurance Managers Inc. The Company is supervised by FINMA, with the Bermuda branch also registered under the authority of the Bermuda Monetary Authority (“BMA”), and the Malaysia branch under the authority of the Labuan Financial Services Authority (“LFSA”).
The operation in Switzerland was set up to write European non-life reinsurance from Zurich. It offers comprehensive reinsurance solutions over all non-life classes and products.
Through the Bermuda branch, the Company carries out reinsurance business, focussed on Catastrophe, Property, Casualty, Financial Lines and Specialty accounts.
In addition, other MS Amlin entities have placed a number of intercompany reinsurance contracts with the Company. These intercompany reinsurance contracts are:
- a number of proportional treaty and excess of loss contracts covering cessions of various classes of business; and
- a whole account quota share with Syndicate 2001 (“the Syndicate”), a Lloyd’s Syndicate managed by MS Amlin Underwriting Limited, which covers a specific cession from all classes except P&C UK business including Marine, Non-marine and Aviation on a global basis.
MS Amlin Reinsurance Managers Inc. writes Latin American property reinsurance through its Miami office and US Casualty and Professional treaty reinsurance through its New Jersey office.
The operation in Labuan stopped writing business in early 2018 and has been put into run-off. Historically it carried out reinsurance business geographically located in East and South East Asia.
System of Governance
The Company operates a two-tier board governance structure with the Supervisory Board made up of NonExecutive directors who are not actively engaged in the day-to-day management of the Company, of which at least one third are independent of the Company. The Supervisory Board appoints a Chairman from its members.
The Executive Board is the Company’s managing body and consists of the Chief Executive Officer (Chairman) and other senior officers and managers of the Company. These appointments are at the discretion of the Supervisory Board.
The Supervisory Board also appoints Board Committees for specific purposes from among its members. Currently these committees comprise:
- the Audit Committee;
- the Risk and Solvency Committee;
- the Underwriting Committee; and
- the Nomination Committee.
The Company has a “Fit & Proper Standard” which sets out how the organisation ensures that senior management and other key function holders are fit and proper in accordance with both internal and external regulatory requirements.
Risk management objectives seek to bring business strategy, capital management, and enterprise risk management together to optimise the relationship between these elements to achieve the best long-term sustainable outcome for shareholders, insured parties, employees and other stakeholders. As part of the Risk Management Framework, risk tolerances are monitored and reported on a quarterly basis to the Company’s Risk & Solvency Committee and Boards.
As part of its risk management system MS Amlin AG conducts, at least annually, an Own Risk and Solvency Assessment (“ORSA”) taking into account its risk profile, business strategy and related capital requirements. The ORSA is fully embedded into the overall Risk Management Framework and is aligned to capital strategy and business planning related processes.
The Company operates a system of internal controls. These internal controls contribute to meeting various objectives, including operational effectiveness, reliable financial reporting, compliance with laws and regulations and management of reputational and strategic risk.
The Internal Audit function guarantees its independence and objectivity through direct reporting lines to the MS Amlin AG Audit Committee and Supervisory Board. The Supervisory Board has delegated its responsibility for overseeing the internal audit activity to its Audit Committee. The Internal Audit function’s programme of work is based on an annual audit plan compiled by the Chief Internal Auditor and presented to the MS Amlin AG Audit Committee for approval annually.
The Company has a dedicated Compliance function as part of its management structure. The role of the Compliance function is to provide assurance to the Boards that the Company complies with all regulatory requirements, associated laws, and MS Amlin AG internal policies. The Compliance function reports to the MS Amlin AG Risk & Solvency Committee regarding progress against the Compliance annual plan, regulatory returns, integrity risks, and monitoring activities.
MS Amlin AG has a local actuarial team supported by the actuarial function in MS Amlin Business Services in some areas. The core actuarial function focuses on providing capital modelling and reserving services. The pricing actuaries report directly to the underwriting function and there is close co-operation between the pricing actuaries and the core team in the areas of business planning, reserving and setting of technical pricing standards.
Risk Management
MS Amlin AG’s vision and core values provide the strategic focus for the risk management system to deliver “effective risk management which optimises return for the risks we take” with the objective to deliver longterm value. This is achieved by actively seeking and accepting risk while managing that risk within acceptable bounds.
A Risk Management Framework has been developed and documented which provides:
- A strong, risk-based organisation, supported by an appropriate risk management system;
- A robust governance framework supporting its organisational structure;
- Clear roles and responsibilities and effective escalation processes;
- Effective monitoring; and
- Clear and effective communication and reporting lines.
Valuation for Solvency purposes
The MS Amlin AG SST 2020 Capital Ratio described in detail later in this report is 200%, which compares favourably with the minimum FINMA SST solvency requirement of 100%. The SST One-year risk capital is USD 942.6m, the risk margin is USD 106.8m, the Target capital is USD 1,049.4m and the SST Risk Bearing Capital is USD 1,987.8m. Please note that the SST 2020 was filed with FINMA on May 2020, simultaneously to this document.
As described throughout this document, the MS Amlin AG SST Target Capital continues to be dominated by the risk of natural catastrophe losses. This is to be expected and in-line with the Company’s business model, with property catastrophe business remaining the largest single business class.
The relevant measure of available own funds is the Risk Bearing Capital (“RBC”) calculated on the SST market consistent balance sheet. MS Amlin AG has net assets under Swiss CO of USD 1,850.6m compared to USD 1,987.8m net assets based on SST market consistent balance sheet.
The adjustments made to move from Swiss CO balance sheet to SST market consistent balance sheet are set out below:
