Qatar Re Annual Report 2017

Creating lasting value Annual Report 2017 including financial statements and financial condition report

Contents

Overview 1 About Qatar Re and financial highlights 2 At a glance 3 Our message 10 Message from the Chief Executive Officer Strategy and performance 12 Market overview 14 Strategy and achievements 15 Risk management 18 Underwriting overview 20 Financial performance overview Corporate governance 25 Corporate governance Financial statements 26 Independent auditor’s report to the shareholders of Qatar Reinsurance Company Limited 28 Consolidated statement of income 28 Consolidated statement of comprehensive income (loss) 29 Consolidated statement of financial position 30 Consolidated statement of changes in equity 31 Consolidated statement of cash flows 32 Notes to the consolidated financial statements Financial condition report 69 Executive summary 70 Business and performance 78 Governance structure 88 Risk profile 93 Solvency valuation 95 Capital management 98 Subsequent events 98 Declaration Additional information 99 Glossary of selected insurance and other terms 104 Contact us

About Qatar Re

Financial highlights Five year data

Qatar Reinsurance Company Limited (‘Qatar Re’ or ‘the Company’) is licensed as a Class 4 Insurer by the Bermuda Monetary Authority. We are recognised as a global multi-line reinsurer, underwriting all major property, casualty and specialty lines of business.

Net profit USD millions

Our teams of seasoned professionals combine in-depth technical and business expertise with industry experience across all markets. By connecting deep sector experience to technical underwriting expertise, we can tackle the most exacting of reinsurance challenges, managing risk and uncertainty for our clients with precision in the US, Europe and the Far East.

38.0 25.0

15.9 0.5 2013

2017 2014

2015

2016

(56.2)

Net technical result USD millions

64.7

54.0

27.7

Strong account management underpins what we do and we pride ourselves on the quality of our relationships. We particularly focus on working with mono-line, specialty and regional insurance companies, and strategically develop strong partnerships with reinsurers. Similarly, we work closely with risk originators and our sister company QIC Europe Limited (‘QEL’) to deploy reinsurance, providing capital relief solutions to open a market which is usually the domain of large retail insurance companies.

In tough times, our business has continued to grow, and our people can respond clearly and quickly to market conditions and clients’ changing needs because of our unusually flat structure.

Qatar Re is rated ‘A/Stable’ by S&P Global and ‘A (Excellent)’ by A. M. Best.

11.2 2013

2015

2016

(66.8)

Gross written premiums USD millions

336.6 2013

1,625.5

1,156.2

1,249.4

2015

2016

94.2

98.5

2015

2016

535.9

2014

Combined ratio % 118.5

2013

Qatar Re Annual Report 2017

2017 2014

1

108.2

2014

2017

121.9

2017

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

At a glance

Qatar Re writes business out of five strategically important underwriting locations: Bermuda, London, Zurich, Dubai and Singapore.

London

Zurich

Bermuda

Dubai

Singapore

Gross written premiums by domicile of reinsured 2017

Gross written premiums by line of business 2017 Property Catastrophe 3% North American Property 2% Property (outside North America) 11% Casualty (including Motor) 61% Marine and Aviation 3% Agriculture 6% Credit and Financial Risks 3% Facultative 7% Non-traditional 4%

Europe 73% Asia and Middle East 9% Americas 16% Africa 1% Oceania 1%

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We serve our markets with a number of dedicated business lines, each of which offers a unique blend of highly specialist knowledge and experience.

Combining long-term client support with flexible product offerings, our aim is to provide solutions that meet the needs of our customers wherever they are: 1 Property Catastrophe Our Property Catastrophe team offers lead quotations for per event and aggregate treaty reinsurance in property catastrophe. We use proprietary pricing and well-understood modelling tools, strict accumulation control, an integrated portfolio management approach and we write against one single balance sheet.

2 North American Property Treaty This unit positions us as a quoting market for both proportional and non-proportional business. Our experienced team of underwriters focus on any type of short tail treaty reinsurance within North America. Our Bermuda office sources business directly from brokers based in North America.

6 Agriculture Our Agriculture specialists offer a range of solutions, with packages ranging from standard quota share and stop loss contracts to more specific treaty or facultative covers. We operate in all major risk classes such as crop-hail or multi-peril crop, livestock, aquaculture, bloodstock, pet and forestry, serving clients of varying sizes in both mature and developing markets.

7 Credit and Financial Risks In Credit and Financial Risks, we help clients diversify their reinsurance panels. Our capital is not dependent on Western equity markets, and we offer credit and surety covers on a facultative, proportional and non-proportional basis. We also have a dedicated team that focuses on structured finance/ reinsurance, mortgage indemnity, and residual value insurance.

3 Property (outside North America) Our team underwrites a worldwide account of property per risk and multi-line outside North America and offers lead quotation services for both proportional and non-proportional treaty reinsurance for property portfolios. Qatar Re also provides multi-line risk excess, pro rata and casualty solutions to our per risk customers.

8 Facultative lines of business We offer lead capacity in commercial lines for business written from our regional hub in Dubai. We also support cedents from our Zurich and Singapore offices for a number of major international programmes in property, power generation, energy, engineering, marine, casualty lines and professional indemnity. Qatar Re has employed risk engineers and experienced lead market claim handlers as a part of the company’s commitment to providing a lead facultative market capability.

4 Casualty (including Motor) Using their deep knowledge of local markets and technical expertise, our Casualty team operates around the world, providing quotations and reinsurance structuring on a proportional and non-proportional basis. We target lines in motor and non-standard auto, public and product liability, employers’ liability, workers’ compensation, professional indemnity and directors’ and officers’ liability.

9 Non-traditional Up to the end of 2017, we used our Lloyd’s Corporate Member to facilitate the provision of third party capital to selected businesses, as well as providing reinsurance to other capital providers of these businesses. Results to date have not materialised to the levels expected. As a result, we have not renewed our support of various syndicates in 2018, based on historic performance and poor outlook.

5 Marine and Aviation In 2017 we decided to exit the marine retro and energy treaty business as well as the airline reinsurance market as performance did not meet with our expectations. We, however, continue to underwrite a smaller marine hull and cargo portfolio where it meets our risk appetite and has adequate rate.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Creating lasting value

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By being close to our clients and brokers How this benefits our business – Our proximity to our clients and brokers enables us to better understand their needs and build lasting relationships. – Our recently established London branch provides us with improved access to a leading reinsurance market.

What this means for the future – Our local access to key markets means we are there for our clients and brokers when they need us and allows us to further enhance the service we provide for them.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Creating lasting value

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By fostering innovation in insurance How this benefits our business – The challenging market conditions have not diminished our support for carefully selected insurance entrepreneurs where we see an alignment of interests and the ability to build a lasting relationship.

What this means for the future – As the relationships we have developed continue to mature, our extensive knowledge and understanding of our clients provides us with a valuable foundation on which to further develop both new and existing opportunities.

Qatar Re Annual Report 2017

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Creating lasting value

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By ensuring financial security How this benefits our business – Our capital base has continued to grow and now offers increased diversity following a successful and oversubscribed capital raise in early 2017.

– Our planned acquisition of direct platforms in Malta and Gibraltar will ensure we have ‘locked-in’ a meaningful and stable income stream.

What this means for the future – Our increased maturity, financial stability and strong capital base provide our clients and business partners with the support and protection they require and mean we are well placed to respond to future opportunities.

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Overview

Strategy and performance

Corporate governance

Message from the Chief Executive Officer

Financial statements

Financial condition report

Additional information

Contending with a tough operating environment Following many years of loss activity below a modelled longterm average, our industry finally found itself on the wrong side of the odds, with the annual aggregate insured loss from natural catastrophes in 2017 reaching a level well in excess of USD 130 billion. With continued reserve releases barely masking unsustainable pricing levels and a continued deterioration in terms of trade, shareholders and investors have faced a costly reminder of the inherent volatility that ultimately provides the raison d’etre for our industry.

From its outset 2017 was a challenging year, with the unexpected reduction in the ‘Ogden Rate’ announced in February 2017 resulting in a hit to the industry of some GBP 10 billion.

More generally we observed a number of changes in the geopolitical, regulatory, legislative and judicial landscapes, the effects of which we have had to mitigate in order to continue to provide our clients and business partners with the level of risk management, financial security and sound and reliable products and services that they expect and deserve.

2017 provided a further reminder of the raison d’etre for our industry. As part of QIC Group’s international operations, we demonstrated resilience with a well-balanced portfolio and an increasing and more diversified capital base.

Gunther Saacke Chief Executive Officer and Director

Protectionism and, at times, aggressive management of currencies has left the industry adopting a reactive approach that has left little room for sound strategic planning in the longer term.

Notwithstanding these challenges, insurance and reinsurance markets continued to soften across almost all lines of business and geographies. One of the few silver linings has been the synchronised acceleration of global economic growth, with all major regions gathering steam. However, these macro-economic tailwinds were insufficient to alleviate the significant mismatch between supply and demand which has been plaguing the markets in which we operate for a number of years now.

Performance reflective of record global catastrophe losses and adverse claims trends With the increased depth and global spread of our reinsurance portfolio it is not surprising that Qatar Re – like many, if not all, of its peers – has been affected by the year’s unprecedented string of disasters. This has resulted in a bottom line loss commensurate with the severity of the industry experience for 2017. A key driver for this has been the fierce price competition that has inexorably gripped the historically less price sensitive specialty lines such as Marine, Energy and Aviation. To some extent our negative underwriting performance reflects a deliberate decision to run relatively high retentions on our facultative book of business as we are part of a strongly capitalised group committed to our mission as risk underwriters rather than risk traders.

Additional challenges arose from the diplomatic rift in the Middle East between Qatar and other states; however, this had only a limited impact on our portfolio, reflecting the strength of our franchise and capital base.

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Structured business performing as expected Notwithstanding the challenging market conditions, we are pleased to report that our structured low-severity/low-volatility capital relief and growth financing business – the backbone of our long-term underwriting strategy – continued to perform well. Our sustained premium growth in 2017 reflects the growing maturity and important contribution of these structured transactions that offer both conservative and predictable levels of profitability.

The tough trading environment has not diminished Qatar Re’s commitment to supporting entrepreneurship in insurance where we see the potential for innovation in product design, risk management, distribution or financing, with a number of carefully selected ventures benefiting from our private equity-style support and our willingness and capacity to ‘follow their fortunes’.

We are fortunate that our invested assets once again yielded strong returns, benefiting from the Qatar Insurance Company (‘QIC’) Group’s proven investment expertise. Qatar Re continued to outperform its peers while maintaining a conservative asset allocation, with much of our investment portfolio comprised of fixed-income securities and cash and cash equivalents.

Reorganising our underwriting function There were two important corporate developments during the year that deserve special mention. Firstly, we reorganised our underwriting function led by the newly appointed Chief Underwriting Officers Luke Roden (Short Tail Classes & Ceded Re) and Michael van der Straaten (Long Tail & Specialty Classes).

Under their leadership, Qatar Re has successfully reengineered its non-structured, traditional property and casualty and specialty portfolios, establishing an important foundation for future profitable growth in a market that is showing some early signs of improvement. This comprehensive ‘stocktake’ has re-energised our underwriting approach and leaves us wellpositioned and prepared for the next phase in our development.

Boosting and internationalising our capital base Secondly, we successfully issued USD 450 million of subordinated Tier 2 capital notes in the first quarter of the year.

The issue attracted over 290 orders of more than USD 6.5 billion and achieved a balanced global distribution of investors (Asia 30%, UK 29%, Middle East 20%, Continental Europe 19% and Rest of the World 2%). Institutional investors from Hong Kong, Singapore, London and Zurich now provide roughly one third of Qatar Re’s capital base of over USD 1 billion; an important threshold to potential clients who make this a prerequisite.

With this in mind, a great deal of effort has gone into pursuing structured opportunities which will materialise in 2018. The most sizeable of these transactions is Qatar Re’s proposed acquisition of the Markerstudy Group’s Gibraltar-based insurers which was announced in early January 2018. The Markerstudy Group underwrites more than 5% of the UK motor insurance market, generating annual premiums in the region of GBP 750 million. This acquisition will provide Qatar Re with a greater share of lower volatility business that has performed consistently well, balancing our specialty and catastrophe books.

Prepared to benefit from hardening rates in higher volatility and specialty areas With some early signs of improvement in the trading environment we continue to be focused on the value driving elements in our strategy mix and to be well placed to capitalise on changes in market conditions in the coming year and beyond.

In support of this, I am pleased to report that Qatar Re received regulatory approval for the establishment of a branch office in the UK that provides us with an important platform from which to better access London market business, bringing us closer to our clients and broking partners.

I would like to take this opportunity to thank our parent company, QIC, for their unwavering support in a year that has laid bare the challenges associated with global diversification.

My special thanks goes to our brokers and clients. Their trust and support has been instrumental in firmly establishing Qatar Re as a global top 30 reinsurer. I am, of course, also very grateful to my colleagues at Qatar Re whose commitment has remained undiminished in what has been perhaps our most challenging year so far.

With the hard work we’ve undertaken in 2017 we are looking forward to the next phase of Qatar Re’s development and to contributing to the continued success of the QIC Group’s international operations.

Gunther Saacke Chief Executive Officer and Director

Continued focus on lower volatility business One of the more pertinent lessons of the year has been that the benefits of portfolio diversification are undermined where there exists pricing inadequacy. Consequently, the systematic review and reengineering of our portfolio led us to deemphasise the contribution of the previously less price-sensitive, knowledgeintense specialty classes. In contrast, Qatar Re’s lower volatility structured business has proven resilient despite the adverse market conditions experienced in 2017. A shift in focus towards more structured business will be vital to our future profitability.

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Overview

Strategy and performance

Corporate governance

Market overview

There are fundamental shifts in our industry and growing areas of unmet demand, entrepreneurial reinsurers with proven expertise in modern capital management can make a major contribution.

Financial statements

Financial condition report

Additional information

Record catastrophe losses, a protracted low yield environment and adverse legal developments meant that the industry’s resilience and ability to perform its core mission – that of absorbing volatility – was again tested in 2017. In response, the industry demonstrated its ability to absorb the uncertainties of what was an especially challenging year.

For the first time, investors in Insurance Linked Securities (‘ILS’) suffered severe losses but, for the most part, demonstrated a good degree of resilience. They regrouped and set their sights on the opportunities offered by improved conditions in certain markets. This no doubt contributed to a less pronounced upswing in rates than had been expected following Hurricanes Harvey, Irma and Maria. This outcome has prompted some market commentators to declare an end to the cyclicality of global reinsurance markets, with ILS capacity assuming a role akin to that of “swing producers” in global oil markets, smoothing out traditional reinsurance cycles.

This is, of course, not the first time we’ve heard that there is to be an end to the cyclical nature of our market, with repeated predictions made over the past 25 years. This change in view is often accompanied by a perception that there has been a systemic change in the supply side of reinsurance markets.

It appears that, two decades after its emergence, the ILS market is now positioned in such a way that it is set to blur the historical lines of demarcation between the worlds of finance and insurance. However, it will take time for a new market equilibrium to establish itself and there will inevitably be a number of challenges along the way. Global oil markets perhaps offer a helpful analogy, with the traditional equilibrium being challenged by US shale companies in their role as the new “swing producers”. The global reinsurance market is set to undergo a similar supply-driven transformation, with cyclicality inevitably here to stay, albeit as a result of new market pressures.

Against this backdrop, reinsurers are again looking closely at their existing strategies. A growing number of executives believe that property catastrophe reinsurance, historically one of the most profitable segments of the business, is unlikely to stage a cyclical recovery and is poised to remain relatively unresponsive to the events of 2017. This is in contrast to its reaction to major events in previous years. Furthermore, it is likely to be only a matter of time before the ILS concept turns its attention to the longer-tail and non-modelled market segments.

Innovative transactional features can a go a long way in promoting non-catastrophe ILS. Here, the key challenge is liquidity, as clarity of the underlying exposure to losses is more difficult to establish than with shorter-tail lines and, perhaps most importantly, transactions need to offer investors a clear exit point.

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In addition to financial innovation, advanced analytics and Big Data could boost non-catastrophe ILS and casualty transactions by addressing one of the key obstacles: the lack of predictive models. Overcoming this weakness would pave the way for a much broader adoption of non-catastrophe ILS in the form of parametric covers, which are now long established in property catastrophe insurance.

In order to respond to these inexorable trends, reinsurers will have to make more and better use of retrocessional capacity, at the expense of traditional “relationship” business. Modern capital management supported by efficient sources of retrocession capacity is very likely to be a prerequisite for survival for many reinsurers, as traditional and alternative capital sources converge. Some market participants will look to specialty and long-tail classes as the prospects for high-margin property catastrophe business diminish over time. However, this is unlikely to provide lasting relief as ILS begins its expansion into non-catastrophe segments. Others will resort to mergers and acquisitions, which, while possibly attractive, should not become a way of camouflaging poor performance. In the age of increasingly efficient and highly flexible sources of reinsurance capacity, critical mass is no longer a key success factor.

The dynamics of the demand side of global reinsurance markets are equally intriguing. On the political front, we are seeing an increasing shift towards globalisation and liberalisation, and the re-emergence of protectionism. For us, this trend started long before US President Donald Trump’s “America First” campaign, with the revival of mandatory domestic cessions and national risk retention requirements now a common feature of a number of developing and emerging markets. The result is that much of the reinsurance potential offered by new, fast growing markets has yet to be unlocked by liberalisation and deregulation. China provides a good example of this. The country’s insurable property assets far exceed those of Florida, a core area of focus for global reinsurers writing property catastrophe business. Should China recognise the benefits of “outside help” in managing its catastrophe exposure, new opportunities will emerge for what has become an increasingly overcrowded marketplace.

Any assessment of what is to come would be incomplete without considering the prospect of technology giants entering the insurance space, leveraging their superior client intimacy and ultimately disrupting incumbent primary insurers. This may provide an opportunity for reinsurers to partner with technology platforms less keen on retaining insurance risks on their balance sheets. However, the market capitalisation of a growing number of technology firms already eclipse the balance sheets of even the largest global reinsurers, such that it may not be necessary for them to formally enter the insurance business, instead offering cover without charge. This becomes a very real possibility where the generating, harvesting and use of customer data is found to be more lucrative than underwriting for profit. Under such conditions, reinsurers would be reduced to partners in risk management, with sufficient “skin in the game” to validate their technology partners’ risk algorithms.

We are facing fundamental shifts in the supply side of our industry which, for many of us, will necessitate a fundamental change to our existing business models. At the same time, we are seeing a growing number of areas of unmet demand.

Entrepreneurial reinsurers with proven expertise in modern capital management will be well placed to meet the challenges – and to access the potential rewards – of this evolving landscape.

Gunther Saacke Chief Executive Officer and Director

In other classes, too, there are significant gaps in protection that have yet to be filled by the (re)insurance community. Global coverage shortfalls in mortality and longevity protection exceed an estimated USD 40 trillion each. Ultra-low risk free rates and an increasingly adverse regulatory environment have, however, created a number of obstacles for traditional reinsurers which will need to be mitigated by innovative reinsurance-based capital management solutions. The health sector, too, offers a number of opportunities. In emerging markets such as India and Indonesia, about 50% of all healthcare expenses are funded “out-of-pocket” by families and individuals, with private sector health insurance of only marginal importance. In the reinsurance space, opportunities are likely to be reserved to entrepreneurial carriers, rather than market trackers. For those reinsurers able to successfully identify and effectively support quality in distribution and product development – catering to growing middle classes and their rising expectations – there exists the potential for significant rewards.

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Overview

Strategy and performance

Corporate governance

Strategy and achievements

Our strategy of building a balanced portfolio of reinsurance comprising low volatility business, specialty lines and property catastrophe reinsurance has provided some mitigation against what has been an exceptionally eventful year.

Our loss for the year of USD 56.1 million demonstrated the value of a carefully underwritten property catastrophe book and the stabilising effect of lower volatility business, while also confirming the exposure we take by being a lead market for facultative business, part of an intentional strategy that reflects the appetite of our parent company for us to be risk underwriters rather than risk traders.

A challenging year for all, but one in which we continue to make progress against key strategic drivers and improving organisational capability and resilience.

Strategic achievements Proximity to clients and brokers: –– Establishing a branch in London comprising seven underwriters and various supporting staff.

–– Expanding our Bermuda underwriting presence with three additions to the underwriting team operating from our Head Office.

–– Bringing us closer to the managing agents who source much of our lower volatility business by embarking on the acquisition of three Gibraltar insurers, currently part of important business partner the Markerstudy Group and the restructuring within the QIC Group to make QEL a subsidiary of the Company.

Qatar Re Annual Report 2017

Financial statements

Financial condition report

Additional information

Strengthening and protecting our capital base: –– Successfully completed Tier 2 capital raise of USD 450 million in March 2017 which both strengthened the capital position but also provided a balanced global distribution of investors comprising 30% Asia, 29% UK, 20% Middle East, 19% Continental Europe and 2% from other regions. This took our total equity beyond USD 1.2 billion.

–– Agreeing a strategic reinsurance arrangement to support the growth of our facultative book with a third party retrocessionaire that is very well rated.

–– At the end of 2017, we have a capital coverage ratio of over 400% of the Bermuda Solvency Capital Requirement.

Supporting insurance entrepreneurs: –– We continue to bring on new clients who benefit from the capital relief we provide in the form of reinsurance based on the principle of alignment of interests.

–– Redefining the relationship with the Makerstudy Group by acquiring three Gibraltar insurers from them. An important strategic relationship for both parties and a move that allows us each to focus on our core strengths.

A maturing organisation 2017 also represented a year in which progress was made in a number of ways less visible outside of the Company: –– Reorganisation of the underwriting function including the appointment of two chief underwriting officers, internally promoted, supported by two externally hired seasoned actuaries, both of whom are former Chief Actuaries.

–– Successful implementation of a new policy administration system, based on common technology from within the QIC Group laying the foundation for further efficiencies and collaboration.

–– Upgrade of the exposure management tool, developed by Qatar Re, and now deployed to other parts of the wider QIC Group allowing for better groupwide aggregation of exposures to natural perils and other geographic concentrations.

Our business model remains largely unchanged, designed to provide proximity to clients and optimise operational and cost efficiency, all based on the principle of distributed decision making within a simple, responsive, responsibility focused organisational structure.

Our underwriting teams are based in Bermuda, Dubai, London, Singapore and Zurich, with operational support increasingly distributed across our offices, notably in Zurich and London.

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Risk management

Our risk management framework, the principal risks to which we were exposed and our overall risk appetite remained consistent throughout 2017. However, the external environment was less stable.

It was a year marked with natural catastrophe events and continued geo-political instability in our two largest markets.

External risk events and their impact on Qatar Re Brexit While Qatar Re is a Class 4 Bermuda reinsurer with a property catastrophe element to our book, we balance this with lower volatility business, notably quota share contracts relating to the UK motor market.

Due to the structure of the UK motor insurance industry, Brexit is an issue with relevance for many of our cedents, including our affiliate QEL whose headquarters are in Malta. With our ultimate parent company QIC and affiliates, Qatar Re implemented a risk mitigation plan during 2017. Together with various commercial reasons, this led us to enter a sale and purchase agreement for three insurers based in Gibraltar. Together with QEL, these companies will mitigate many aspects of the Brexit risk the Company is exposed to in relation to continued business from both the EU and UK. The change in the UK’s Ogden discount rate During 2017, there was a significant change in the UK’s Ogden discount rate which is used to value lump sum bodily injury awards affecting prior year reserves. As a result of Qatar Re’s involvement with the UK motor market, Qatar Re has some exposure to this risk event.

Qatar Re has a modest portfolio of excess of loss motor business and the change in rate led to the strengthening of reserves. Like many others, Qatar Re had already allowed for some downward movement in the rate, but was not expecting the quantum of the move to be as great as it was. The movement in reserves was, however, within the range of reserve risk volatility expectations of our internal capital modelling.

The impact on Qatar Re was relatively modest. This reflects our limited appetite for excess of loss exposure, with the Company favouring the more stable quota share arrangements, and exposures being capped either before the business was assumed or using outwards protection. Qatar Re’s relatively few back-years also limited exposure.

Tax reform Tax reform came in two main areas: US tax reform and the EU Blacklist.

US tax reform is a topic we have monitored closely but ultimately the changes in legislation have negligible impact on us. While Qatar Re does write certain US business, it does so primarily from Bermuda and has no presence, nor affiliated presence, in the US.

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Overview

Strategy and performance

Corporate governance

Risk management continued The so-called EU tax Blacklist was another matter we monitored closely. Qatar Re has a branch office based in the Dubai International Financial Centre in the United Arab Emirates, which was on the initially announced blacklist, and a presence in three on the ‘grey list’: Bermuda, Switzerland and Qatar.

Each of these countries has stated their commitment to tax transparency. We continue to monitor the situation, though after the anticipated Brexit a relatively small proportion of our business will have a direct connection to the European Union.

Local political tensions in the Middle-East In June 2017, diplomatic tensions between the State of Qatar and certain neighbours led to a local embargo which resulted in international attention. Although Qatar Re’s headquarters are in Bermuda and it has a very limited presence in Qatar, these matters led to questions from certain cedents and a small amount of business from the Middle East being lost. There was also some inconvenience when travelling between our parent company in Qatar and our branch office in Dubai.

Qatar Re reminded cedents and brokers of our strong capital base in Bermuda and our investment portfolio held mainly by a Swiss custodian bank, which is part of a major international banking group.

Financial statements

Additional information

Consistency in approach Qatar Re maintains a robust and effective risk management framework. Risk governance is a major component of the overall risk management framework and clearly defines and allocates roles and responsibilities for the oversight and management of risk. The risk management framework is embedded throughout the Company and allows for an integrated approach to the identification, assessment, control and mitigation of risk.

Risk appetite and tolerance statements are defined by the Board.

These did not change materially during 2017 and most areas are summarised in the table on the following page.

Looking ahead to 2018 Operational risk in 2018 will increase with the acquisition of the three Gibraltar based insurance companies currently in process, and the proposed move of QEL to become a subsidiary of Qatar Re. Careful planning is underway to ensure risks are mitigated during the execution of these projects.

Qatar Re will also become increasingly financially selfsufficient, reducing what regulators refer to as ‘group risk’, and having reduced the whole account quota share support from our ultimate parent from 70% in 2016, to 50% in 2017 and 30% in 2018. The March 2017 capital raise was the first time Qatar Re had raised capital from a source other than its parent.

Natural catastrophe events Qatar Re has exposure to the Atlantic Hurricane season and thus Harvey, Irma and Maria. Losses incurred were largely in line with our modelling expectations.

Internal risks Overall, the internal risk environment saw a general improvement in residual risk scores within the risk framework, notably with improvements in the quality of controls in areas such as Finance and IT. As the Company was fast outgrowing its existing IT platform, we managed this noteworthy risk during the year by implementing a new policy administration and accounting system. The system chosen is a variant of an in-house system developed by our affiliate at Lloyd’s, Antares.

While this project took slightly longer than expected, project risks were managed and the implementation was ultimately successful. The system now provides a base from which further consistency of the systems landscape across the QIC Group is made possible, and the next step is a move to a common general ledger system.

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Financial condition report

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Summary of status against risk appetite and what we have done to manage the risk category during 2017: Risk increased since 2016 Risk decreased since 2016 Risk remained the same since 2016 Trend in 2017

Risk catergory and description

Key trends and status of risk appetite during 2017

Overall risk appetite and tolerance Measures which focus on capital requirements and probability of loss.

Strong capital position maintained –– Remained in excess of 400% coverage of Bermuda Solvency Capital Requirement.

–– Minimum of 199% of a targeted capital requirement.

–– The internal model view of the expected frequency of not making a profit is one year less frequent than the frequency allowed for within our appetite.

Within appetite.

Insurance risk exposure measures Qatar Re limits exposures on various bases including modelled Probable Maximum Loss (‘PML’) by peril region and programme limits.

Further diversification and use of risk mitigation techniques means reduce net exposure Year-end modelled 1 in 250 PML was 68% of appetite at year end.

Within appetite.

Operational risk measures A comprehensive set of risk measures are deployed, including multiple probability and severity data points.

Broadly consistent with 2016

Within appetite.

Exposures to reinsurers Qatar Re’s outwards reinsurance programme is focused on highly rated or fully collateralised reinsurers, with risk appetite and tolerance statements to set limits.

Broadly consistent with 2016 –– External reinsurance exposures are with highly rated carriers.

–– All non-affiliated single counterpart exposure is at a level which is less than half our defined appetite.

Within appetite.

Investment and concentration risk Investment appetite is conservative but some geographic concentrations exist.

Broadly consistent with 2016 –– Single counterparty level concentration exposure remained well within our risk appetite.

–– While our investment risk appetite allows us to place up to 10% of investments in non-investment grade assets, our actual exposure is significantly lower (less than 2%).

–– We continue to have some geographic exposures in the Middle East, with temporary variation to appetite approved by the Board due to superior performance.

Within appetite.

Liquidity risk Qatar Re constantly manages its asset and liability matching and maintains a significant portion of investments in highly liquid assets.

Broadly consistent with 2016

Within appetite.

Foreign exchange risk Our foreign exchange risk is measured by assessing the probability of foreign exchange losses and defined limits are in place for asset and liability matching by currency.

Broadly consistent with 2016 –– Hedging of GBP and EUR liabilities is in place to bridge any gap beyond matched assets.

–– With hedge, at year end GBP fully matched, EUR 85% matched.

–– Revenue is exposed to currency fluctuations, notably in GBP given high proportion of GBP premium income.

Within appetite.

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17

Overview

Strategy and performance

Corporate governance

Underwriting overview

2017 presented challenging underwriting conditions that reflected an industry with substantial excess capital.

Financial statements

Financial condition report

Additional information

We also experienced a number of notable events in 2017. These included a significant change to the UK’s Ogden discount rate used to value lump sum bodily injury awards affecting prior year reserves, and several catastrophe events including hurricanes Harvey, Irma and Maria, and the California wildfires.

For Qatar Re, 2017 was to be a year of taking stock, as we recognised that we had made the transition from startup reinsurer to one with a maturing portfolio. We started this process in March by appointing two Chief Underwriting Officers (‘CUOs’), Luke Roden and Michael van der Straaten, who were tasked with optimising our existing business and identifying areas for future investment to support sustainable growth.

Since their appointment, the CUOs have made substantial progress in recalibrating the portfolio based on a comprehensive review of our portfolio and views on the long term market fundamentals. We continue to underwrite a diverse book of business but with a greater focus on those aspects of the market where we bring greatest value and differentiation.

Through our strong account management, we build high-quality relationships. We particularly focus on working with mono line, specialty and regional companies where strong partnerships with reinsurers is a strategic imperative. Similarly, we work closely with risk originators and our sister company QEL to deploy reinsurance to provide capital relief solutions and open a profitable market.

During 2017, Qatar Re demonstrated our commitment to forgo top–line growth for underwriting profit. While the financial results in 2017 highlight continued premium growth, on a written basis our growth in lines where the greatest opportunities were found was offset by selectivity in other lines. Further details of our portfolio development follows.

Property Treaty The Property treaty account experienced a significant number of large manmade and natural peril events that has led to some improvement in rates. In particular, loss impacted catastrophic covers experienced modest rate increases during the fourth quarter 2017 renewal period. Underlying rates for property in USA continued to move upwards on homogenous lines such as homeowner and light commercial.

The proportional and per risk portfolio grew during 2017.

This was in part due to the previously mentioned creation of reinsurance through QEL in Malta. We also expanded the portfolio in USA, providing surplus relief to homeowner and small commercial package insurers.

Qatar Re Annual Report 2017

18

Casualty and Motor The Company continued to grow the casualty book at a steady rate. Over 80% of the casualty business is derived from international Motor which has performed as expected. The impact of the Ogden discount rate change dented the 2017 results, thereby affecting our excess of loss reinsurance portfolio, but has had minimal impact on the larger quota share arrangements and managing general agent business sourced via QEL. During the year, Qatar Re employed a US Casualty underwriter in the Bermuda office. A portfolio of primarily non-standard auto has been developed.

Marine and Aviation In 2017 we decided to withdraw from the marine retro and energy treaty as the returns/margins were not in line with our expectations. We are continuing to underwrite a smaller marine hull and cargo portfolio which fits our current risk appetite.

We have also decided to exit the Airline reinsurance market due to the long-term outlook on the market, as rates are continuing to fall and exposures are not reducing.

Facultative Our Facultative business includes property, energy and engineering facultative lines. Qatar Re is committed to providing a lead facultative market capability and just over a year ago we developed a new facultative underwriting team which has resulted in a growth in gross written premiums. The team includes risk engineers and experienced lead market claims handlers.

The team has developed its book of business since we opened a branch office in the Dubai International Financial Centre, as well as supporting cedents from our Zurich and Singapore offices. It has allowed us to move from writing a net retained following line on facultative risks to underwriting a lead facultative position.

Despite the rate pressures and events of 2017, Qatar Re made good progress in 2017 and is strongly positioned to continue to provide high quality, bespoke reinsurance solutions to clients, with a focus on creating and developing partnerships of mutually beneficial interest.

Agriculture The Agriculture book of business is diversified by region, peril and coverage (crop, livestock, pet insurance). This account remains an important part of Qatar Re’s strategy of creating a diverse, balanced global portfolio. We will continue to calibrate this business in line with market conditions.

Credit and Financial Risks Margins for reinsurers have become tighter due to a deterioration in general terms and conditions. We continue to work with cedents but are declining business where the returns are inadequate or too uncertain.

Structured deals protecting asset values and portfolios are considered where they can provide a strong return on the risk exposure and contribute to portfolio diversity and optimisation.

However, they remain a modest part of our overall book.

Credit & Financial Risks remains an attractive diversifying business subject to terms, conditions and good performance outlook.

Qatar Re Annual Report 2017

19

Overview

Strategy and performance

Corporate governance

Financial performance overview

The net loss for 2017 was USD 56.1 million at a 121.9% combined ratio, compared to net profit of USD 38.0 million with a combined ratio of 98.5% in 2016.

Financial statements

Financial condition report

Additional information

Summary income statement 2017 USD (’000)

2016 USD (’000)

1,625,549 540,728 (517,488) (90,015) (66,775)

1,249,371 351,242 (256,032) (41,181) 54,029

Operating Expenses including Depreciation Net Foreign Exchange Investment Return Net (Loss) Profit

(51,527) (472) 62,617 (56,157)

(49,847) 1,173 32,691 38,046

Ratios: Claims Ratio Commission Ratio Expense Ratio Combined Ratio

95.7% 16.6% 9.6% 121.9%

72.9% 11.7% 13.9% 98.5%

Gross Written Premiums Net Earned Premiums Net Claims Incurred Net Commission Net Underwriting Result

Net profit (loss) USD millions

38.0 25.0

15.9 0.5 2013

2017 2014

2015

2016

(56.2)

2017 has proven to be a challenging year. Despite a healthy growth in gross written premium, the result for the year amounted to a loss of USD 56.1 million compared to a net profit of USD 38.0 million for 2016. This result reflects a number of notable events, such as the changes to the UK’s Ogden discount rate, and the occurrence of several natural catastrophes.

Qatar Re Annual Report 2017

20

Combined ratio % 118.5

108.2

Net technical result USD millions

64.7

121.9 94.2

98.5

54.0

27.7 11.2 2013

2013

2014

2015

2016

Net underwriting results

1,156.2

336.6 2013

1,625.5 1,249.4

535.9

2014

2015

2016

2015

2016

2017

The change in the Ogden discount rate and the losses from the 2017 catastrophes have been the main causes of the deterioration in the combined ratio from 98.5% in 2016 to 121.9% in 2017. The combined ratio takes into consideration the sum of the claims ratio, commission ratio and expense ratio.

Gross written premiums USD millions

2017 2014

2017

During 2017 the Company continued to deliver solid portfolio growth across its key geographical markets, specific lines of business and client segments. In 2017, Qatar Re increased its gross written premiums by 30.1% to USD 1.63 billion, compared with USD 1.25 billion in 2016. Net earned premiums grew by 53.9% to USD 540.7 million, compared with USD 351.2 million in 2016. This growth was achieved in selective, more profitable lines of business where greater opportunities were recognised, while at the same time reducing premiums in less attractive lines.

(66.8)

The net underwriting result decreased from a net technical profit of USD 54.0 million in 2016 to a net technical loss of USD 66.8 million in 2017. The claims ratio on the Company’s net earned premiums increased from 72.9% in 2016 to 95.7% in 2017.

These results include a net strengthening of loss reserves of just over USD 9.0 million caused by the change in the Ogden discount rate. Also included are net losses of approximately USD 53.9 million attributable to Hurricanes Harvey, Irma and Maria.

The Company will look for continued growth in classes and sectors which are performing well and a reduction in the commitment to poorly performing sectors by declining or discontinuing some accounts.

Property, consisting of Property Catastrophe, Property Treaty and Property (outside North America), saw steady growth during the year from a total gross premium of USD 213.5 million in 2016 to USD 263.0 million in 2017. The Property Catastrophe line contributed USD 51.2 million in premium written in 2017, up from USD 46.1 million in 2016. The large manmade and natural peril events experienced during the year have led to some improvements in the property rates, which was reflected in modest rate increases during the renewal season in the fourth quarter of 2017.

Gross written premiums in the Agriculture book of business have grown significantly with premiums written in 2017 of USD 91.9 million versus USD 66.7 million in 2016. The net loss ratio for the year amounted to 88.6% and the net commission ratio 16.1%. The loss ratio has been impacted by multiple events which include the Chile forest fires, Australia Crop and Hail and Italian Frost and Crop.

Qatar Re Annual Report 2017

21

Overview

Strategy and performance

Corporate governance

Financial statements

Financial performance overview continued

Gross written premiums in the Marine and Aviation line saw a reduction from USD 94.7 million in 2016 to USD 53.6 million in 2017. The returns in the marine retro and energy treaty lines were not in line with expectations which led to us withdrawing from those particular lines while continuing to underwrite a smaller marine hull and cargo portfolio. The Marine combined net loss and commission ratio has been negatively impacted by the 2017 hurricanes and has amounted to 250.4% for 2017.

The Company has also decided to withdraw from the Airline reinsurance market as rates continue to fall. The Aviation loss ratio for 2017 was 111.3% with a commission ratio of 23.1%.

Credit and Financial Risks gross written premiums decreased to USD 45.0 million in 2017 versus USD 57.0 million in 2016.

Margins for reinsurers have become tighter throughout the year. However, the Company continues to identify the credit and financial risks line as an attractive diversifying business.

Unfavourable loss development on prior years contributed to an increase in the loss ratio to 100.7% for 2017.

The Facultative business includes property, energy and engineering facultative lines. The newly developed facultative underwriting team has resulted in a growth in gross written premiums from USD 59.8 million in 2016 to USD 119.3 million in 2017. The Company is committed to providing a lead facultative market capability.

Net investment income

Interest Income Dividends Advisory Fees Net Realised Gains (Losses) Financing Costs Net Investment Income

62,971 1,844 (4,904) 8,723 68,634 (6,017) 62,617

2016 USD (’000)

37,975 3,855 (2,606) (2,476) 36,748 (4,057) 32,691

19.6

2013

62.6

32.7

27.4 10.7 2014

2015

2016

2017

The Company has experienced stable investment returns on the back of improved interest income on time deposits and on an improved bond book. The higher interest income of USD 63.0 million in 2017 versus USD 38.0 million in 2016 reflects an increase in the average cash and fixed income invested assets as well as a firming up of term deposit rates on the Company’s time deposit portfolio. The increase in the average invested assets is largely driven by the raising of USD 450 million of subordinated perpetual debt (‘Tier 2 Capital’) in March 2017 and the additional capital invested by QIC of USD 200 million in the fourth quarter of 2016.

Dividend income has decreased from USD 3.9 million in 2016 to USD 1.8 million in 2017. This reduction has been directly impacted by the downsizing of the Company’s equity portfolio as a result of the de-risking strategy of the Company.

Net realised gains and losses include trading gains and losses on the fixed income and equity portfolios. They also include hedging gains on the foreign exchange and interest rate swaps that the Company utilises in managing its risks and exposures.

Operating and Administrative Expenses Operating and Administrative Expenses excluding depreciation can be summarised as follows:

Employee Related Costs Rental Expenses Maintenance and IT Expenses Other Expenses Operating and Administrative Expenses Foreign Exchange (Gain) Loss Total Expenses

Net investment income grew significantly over the year, from USD 32.7 million in 2016 to USD 62.6 million in 2017.

Qatar Re Annual Report 2017

Additional information

Net investment income USD millions

The Casualty lines including Motor showed strong growth in premiums written by 35.9% year on year, amounting to USD 989.9 million in 2017 versus USD 728.2 million in 2016.

Over 80% of the Casualty business is derived from international Motor whose losses have been negatively impacted in 2017 by the change in the Ogden discount rate. More positively, the reduction in the Ogden discount rate has contributed to premium rate increases in 2017. The US book continues to grow with added resources in the Bermuda office. The net loss ratio for the Casualty and Motor book of business for 2017 amounted to 85.2% with a 13.3% net commission ratio.

2017 USD (’000)

Financial condition report

22

2017 USD (’000)

2016 USD (’000)

33,418 4,981 3,280 8,610

33,434 3,411 3,180 8,824

50,289 472 50,761

48,899 (1,173) 47,726

Employee related costs have remained relatively flat when comparing 2017 to 2016. The headcount at the end of 2017 remained comparable at 162 versus 161 at the end of 2016. Rental expenses have increased by USD 1.6 million which has been mainly driven by the expansion of the offices in Bermuda and London.

The Company experienced a net foreign exchange loss of USD 0.5 million in 2017 versus a gain of USD 1.2 million in 2016.

The Company does not speculate on foreign currency and actively hedges a large proportion of its foreign currency assets and liabilities. The foreign exchange loss has been the result of the revaluation of the remaining unhedged net positions in foreign currency.

Summary balance sheet 2017 USD (’000)

Cash and Cash Equivalents Investments Reinsurance Contract Assets Insurance and Other Assets Total Assets Reinsurance Contract Liabilities Provisions, Reinsurance and Other Payables Due to Related Parties Short Term Borrowing Total Liabilities Equity Total Liabilities and Equity

2016 USD (’000)

963,697 717,698 1,145,901 714,959 1,684,659 1,129,827 1,330,638 1,076,355 5,124,895 3,638,839 2,534,179

1,608,685

135,332 987,330 319,379 3,976,220

147,008 727,001 384,392 2,867,086

1,148,675

771,753

5,124,895 3,638,839

Total investments combined with cash and cash equivalents grew from USD 1,432.7 million at the end of 2016 to USD 2,109.6 million at the end of 2017. The growth of USD 676.9 million has been fuelled by net cash inflow from underwriting activity, investment returns during the year, and an additional Tier 2 capital injection of USD 450 million in the first quarter of 2017.

The Company’s investment strategy is heavily weighted towards fixed income and cash deposits, with concentration limits also in place. The Company invests in a combination of sovereign and high investment grade fixed income securities, seeking enhanced investment returns through access to certain Gulf Cooperation Council (‘GCC‘) country investments. The total investments held in fixed income securities and cash deposits totalled USD 2,054.2 million in 2017 and USD 1,371.6 million in 2016. The balance of the portfolio standing at USD 55.4 million in 2017 and USD 61.1 million in 2016 is invested in quoted equities, mutual funds, private equity funds and derivative instruments.

Reinsurance Contract Assets as presented on the balance sheet consist of reinsurance recoverable balances and unearned ceded premiums on business ceded outwards to reinsurers.

The growth in these assets are in line with the growth of inward business assumed by Qatar Re and the related Reinsurance Contract Liabilities, consisting of loss reserves and unearned assumed premium. The relationship between the reinsurance assets and the liabilities remains relatively comparable at 66% for 2017 versus 70% for 2016, with the minor decrease explained largely by the reduction in the whole account quota share with QIC from 70% in 2016 to 50% in 2017.

The Net Reinsurance Contract liability position amounted to USD 849.5 million at the end of 2017 versus USD 478.9 million at the end of 2016. This net liability position can be further split between net liability loss reserves of USD 477.1 million in 2017 (USD 287.1 million in 2016), and net liability unearned premiums of USD 372.4 million in 2017 (USD 191.8 million in 2016).

The movement in the net liability loss reserves has been driven by an occurred net loss of USD 540.5 million in 2017 (USD 231.4 million in 2016) inclusive of foreign exchange impact, less net paid losses in the year of USD 344.4 million (USD 138.6 million in 2016). As previously discussed, significant increases in the net incurred losses have been largely impacted by the change in the Ogden discount rate and the occurrence of natural peril events including hurricanes Harvey, Irma and Maria.

The increase in the net liability unearned premium is largely driven by the increase in net premiums written in 2017 versus 2016 as the overall earning patterns of business written have remained relatively consistent.

A large portion of the Insurance and Other Assets consist of net premiums receivable and premiums withheld totalling USD 1,104.9 million and USD 921.2 million for 2017 and 2016, respectively. The increase in receivables of USD 183.7 million is in line with the overall increase in business written for the year.

Qatar Re Annual Report 2017

23

Strategy and performance

Overview

Corporate governance

Financial statements

Financial performance overview continued The amount due to related parties consists primarily of reinsurance premiums net of reinsurance recoveries due to our ultimate parent company QIC under an intercompany retrocession agreement. Outstanding amounts are interest free and are settled on a regular basis.

As a part of the Company’s margin trading strategy, the Company uses short term borrowings to finance its fixed income securities and time deposits. The amount of these borrowings amounted to USD 319.4 million and USD 384.4 million at the end of 2017 and 2016, respectively.

Total equity USD millions

1,148.7 771.8 531.7

166.2

225.5

2013

2014

2015

2016

2017

Total Equity has increased by USD 376.9 million, from USD 771.8 million at the end of 2016 to USD 1.14 billion at the end of 2017. A net USD 443.8 million increase represents the funds received from the raising of the USD 450 million of subordinated perpetual debt (Tier 2 capital). Also contributing to this increase has been an appreciation of USD 7.1 million in fair value of available-for-sale investments.

Qatar Re Annual Report 2017

24

Financial condition report

Additional information

Corporate governance

Qatar Re has established a sound and effective corporate governance framework. The framework is appropriate for its size, nature, complexity and risk profile and allows for the sound and prudent management of its activities.

Since 2015, Qatar Re has operated as a standalone regulated entity in Bermuda. Its corporate governance framework has been developed with reference to the Company’s constitution, to Bermuda Companies Act legislation, and rules and guidance issued by the Bermuda Monetary Authority as well as that of other regulators in jurisdictions in which the Company has a presence.

The Board of Directors is responsible for ensuring the Company is effectively directed and managed, its activities are conducted with due care, skill and integrity and that corporate governance policies and practices are developed and applied in a sound and prudent manner.

The Board has appointed Audit, Investment and Risk and Capital Committees to assist it in the effective discharge of its duties, although it continues to retain ultimate responsibility. In addition to the Committees of the Board, the Company has also established an Executive Management Committee, a Reserving Committee and an Underwriting/Portfolio Management Committee. These committees assist the Chief Executive Officer and Senior Executives in discharging their duties and responsibilities in relation to the prudent management and oversight of the Company’s activities.

The Board and each Committee meets at least quarterly and at other times as required, to carry out duties within established terms of reference. A summary of the governance structure and Committees of the Board are shown in the Financial Condition Report on page 79.

Qatar Re Annual Report 2017

25

Overview

Strategy and performance

Corporate governance

Independent auditor’s report to the shareholders of Qatar Reinsurance Company Limited Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of Qatar Reinsurance Company Limited (the ‘Parent Company’) and its subsidiary (collectively the ‘Group’), which comprise the consolidated statement of financial position as at 31 December 2017 and the related consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’).

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

Key Audit Matters Estimation of insurance contract liabilities Reinsurance contract liabilities include Outstanding Claims reserve (‘OCR’), Unearned Premiums Reserve (‘UPR’) and Incurred But Not Reported reserve (‘IBNR’). As at 31 December 2017, the reinsurance contract liabilities are significant to the Group’s total liabilities. As disclosed in Note 11 to the consolidated financial statements, the determination of these liabilities involves significant judgment over uncertain future outcomes related to loss payments and changing risk exposure of the businesses, including primarily the timing and ultimate full settlement of reinsurance liabilities. The Group uses several valuation models to support the calculations of the reinsurance contract liabilities. The complexity of the models may give rise to errors as a result of inadequate/ incomplete data, inappropriate methods and assumptions, or the design or application of the models.

Economic assumptions such as investment return, inflation rates, interest rates and actuarial assumptions such as loss reported patterns, loss payment patterns, frequency and severity of loss trends, customer behaviour and regulatory changes, along with Group’s historical loss data are key inputs used to estimate these liabilities. Due to the significance of estimation uncertainty associated with determination of insurance technical reserves, this is considered a key audit matter.

Qatar Re Annual Report 2017

Financial statements

Financial condition report

Additional information

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (‘IESBA Code’) together with the ethical requirements that are relevant to our audit of the financial statements in Qatar, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

How our audit addressed the key audit matter Our audit procedures focused on analysing the rationale for economic and actuarial assumptions used by management in estimating insurance contract liabilities and evaluating the competence, capabilities and objectivity of the experts used by management in estimation.

We involved internal actuarial experts to assist us in evaluating the reasonableness of key inputs, assumptions and methodologies followed. Our work on the liability adequacy tests included assessing the accuracy of the historical data used, and reasonableness of the assumptions adopted, in the context of both the Group and industry experience and specific product features.

Further, we assessed the adequacy of the disclosures relating to these reserves given in Note 11 to the consolidated financial statements.

26

Other matter The consolidated financial statements of the Group as at and for the year ended 31 December 2016 were audited by another auditor whose report dated 18 February 2017 expressed an unqualified opinion on those consolidated financial statements.

Other information Other information consists of the information included in the Group’s 2017 Annual Report other than the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information. The Group’s 2017 Annual Report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Qatar Re Annual Report 2017

–– Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

–– Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

–– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

–– Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.

However, future events or conditions may cause the Group to cease to continue as a going concern.

–– Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

–– Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters.

We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Ihab Marzouk of Ernst&Young Qatar Auditor’s Registry No. 338 Doha, State of Qatar Date: 28 March 2018

27

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Consolidated statement of income For the year ended 31 December 2017

Notes

Gross written premiums Premiums ceded to reinsurers Net premiums Movement in net unexpired risk reserve Net earned premiums

5 5 5

2017 USD (’000)

2016 USD (’000)

1,625,549 (912,985) 712,564 (171,836) 540,728

1,249,371 (885,810) 363,561 (12,319) 351,242

Gross claims paid Reinsurance recoveries Movement in net outstanding claims Commission income Commission expense Net underwriting results

5 5 5 5

(755,431) 411,057 (173,114) 212,904 (302,919) (66,775)

(450,155) 311,589 (117,466) 220,041 (261,222) 54,029

Investment income Finance costs Net investment income Total (loss) income

6 6 6

68,634 (6,017) 62,617 (4,158)

36,748 (4,057) 32,691 86,720

7 13

(50,761) (1,238) (56,157)

(47,726) (948) 38,046

Operating and administrative expenses Depreciation (Loss) profit for the year

Consolidated statement of comprehensive income (loss) For the year ended 31 December 2017 2017 USD (’000)

2016 USD (’000)

(Loss) profit for the year

(56,157)

38,046

Other comprehensive income (OCI) OCI to be reclassified to profit or loss in subsequent periods: Net changes in fair value of available-for-sale investments Total comprehensive (loss) income for the year

7,116 (49,041)

1,959 40,005

The accompanying notes are an integral part of these consolidated financial statements.

Qatar Re Annual Report 2017

28

Consolidated statement of financial position As at 31 December 2017

Notes

Assets Cash and cash equivalents Insurance and other receivables Reinsurance contract assets Investments Property and equipment Total assets

2017 USD (’000)

2016 USD (’000)

9 10 11 12 13

963,697 717,698 1,327,773 1,074,010 1,684,659 1,129,827 1,145,901 714,959 2,865 2,345 5,124,895 3,638,839

14 19 20 11

135,332 319,379 987,330 2,534,179 3,976,220

147,008 384,392 727,001 1,608,685 2,867,086

21 22 23

1,000 695,368 (3,868) 12,330 704,830 443,845 1,148,675

1,000 695,368 (10,984) 86,369 771,753 – 771,753

Liabilities and equity Liabilities Provisions, reinsurance and other payables Short term borrowing Amounts due to related parties Reinsurance contract liabilities Total liabilities Shareholders’ equity Share capital Contributed Surplus Fair value reserve Retained earnings Total shareholders’ equity Subordinated perpetual debt Total equity

24

Total liabilities and equity

Sunil Talwar Chairman

5,124,895 3,638,839

Gunther Saacke CEO and Board Member

The accompanying notes are an integral part of these consolidated financial statements.

Qatar Re Annual Report 2017

29

Overview

Strategy and performance

Financial statements

Corporate governance

Financial condition report

Additional information

Consolidated statement of changes in equity For the year ended 31 December 2017

Balance as at 1 January 2016 Profit for the year Net changes in fair value on availablefor-sale investments Total comprehensive income for the year Contribution from Parent Company (Note 22) Balance as at 31 December 2016 Loss for the year Net changes in fair value on availablefor-sale investments Total comprehensive income (loss) for the year Subordinated perpetual debt – Tier 2 capital (Note 24) Interest on perpetual debt Balance as at 31 December 2017

Fair value reserve USD (’000)

Retained earnings USD (’000)

Contributed surplus USD (’000)

1,000 –

495,368 –

(12,943) –

48,323 38,046

531,748 38,046

– –

531,748 38,046

– –

– –

1,959 1,959

– 38,046

1,959 40,005

– –

1,959 40,005

– 1,000 –

200,000 695,368 –

– (10,984) –

– 86,369 (56,157)

200,000 771,753 (56,157)

– – –

200,000 771,753 (56,157)

–

–

7,116

–

7,116

–

7,116

–

–

7,116

(56,157)

(49,041)

–

(49,041)

– – 1,000

– – 695,368

– – (3,868)

– (17,882) 12,330

– (17,882) 704,830

443,845 – 443,845

443,845 (17,882) 1,148,675

The accompanying notes are an integral part of these consolidated financial statements.

Qatar Re Annual Report 2017

Total shareholders’ Subordinated equity perpetual debt USD (’000) USD (’000)

Share capital USD (’000)

30

Total equity USD (’000)

Consolidated statement of cash flows For the year ended 31 December 2017

Note

Operating activities (Loss) profit for the year Adjustments for: Depreciation of property and equipment Investment income Provision for employees’ end of service benefits Loss on disposal of property and equipment

2017 USD (’000)

2016 USD (’000)

(56,157)

38,046

1,238 (62,617) 165 – (117,371)

948 (32,691) 221 16 6,540

(254,012) 370,661 5,722 235,655 240,655 (38) 240,617

(85,761) 92,709 7,512 168,022 189,022 (110) 188,912

(423,171) (1,758) 62,617 (362,312)

9,351 (935) 32,691 41,107

Financing activities Net movement in short-term borrowings Proceeds from perpetual debt issued Issuance cost on perpetual debt issued Interest paid on perpetual debt Additional capital contribution Net cash generated from financing activities

(65,013) 450,000 (6,155) (11,138) – 367,694

(32,020) – – – 200,000 167,980

Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year

245,999 717,698 963,697

397,999 319,699 717,698

13 6 15

Movements in working capital Insurance and other receivables Net movement in insurance reserves Provisions, reinsurance and other payables Due to related parties Cash generated from operations Employees’ end of service benefits paid Net cash generated from operating activities

15

Investing activities Net cash movements in investments Purchase of property and equipment Investment income received Net cash (used in) from investing activities

13

9

The accompanying notes are an integral part of these consolidated financial statements.

Qatar Re Annual Report 2017

31

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 1. Legal status and principal activities Qatar Reinsurance Company Limited (the ‘Company’) is primarily engaged in the business of reinsurance and was authorised as a Class 4 Insurer by the Bermuda Monetary Authority (‘BMA’) on 24 November 2015.

The Company was originally incorporated on December 6, 2009 in the Qatar Financial Centre in Doha, Qatar (‘QFC’) under the name of ‘Qatar Reinsurance Company LLC’ and with a Registration Number 00117. On 24 November 2015, the Company completed the transfer of its seat of incorporation from the QFC to Bermuda and was incorporated in Bermuda under the name of Qatar Reinsurance Company Limited as an exempted company with limited liability and registration number 50896.

The address of the registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, and the address of the head office is 71 Pitts Bay Road, Pembroke HM 08, Bermuda.

The consolidated financial statements incorporate the financial information of the Company and its subsidiary collectively (the ‘Group’) both of which have 31 December as the financial year end.

The Company is fully owned by a single shareholder – QIC Capital L.L.C. The ultimate parent company of the Group is Qatar Insurance Company S.A.Q. (‘QIC’) a public shareholding company incorporated in the State of Qatar. The Company operates from its head office located in Bermuda and has branches established in Switzerland, United Arab Emirates, Singapore and the United Kingdom.

Subsidiary The Company holds 100% of the share capital of Qatar Reinsurance Services L.L.C. The subsidiary is a limited liability company registered with QFC, in the State of Qatar and is primarily engaged in providing management services to the Group. The incorporation date of the subsidiary was 13 October 2015.

These consolidated financial statements were approved by the Board of Directors on 25 March 2018.

Qatar Re Annual Report 2017

2. Application of new and revised International Financial Reporting Standards (‘IFRS’) New and amended standards and interpretations in effect: The Group applied for the first time certain International Accounting Standards Board (‘IASB’) Standards and amendments, which were effective for annual periods beginning on or after 1 January 2017. The Group has not early adopted any other standard interpretation or amendment that has been issued but is not yet effective. The nature and impact of each new standard and amendment is described below. Although these new standards and amendments have been applied for the first time in 2017, they did not have a material impact on the annual consolidated financial statements of the Group.

– A mendments to International Accounting Standard (‘IAS’) 7 – ‘Disclosure Initiative’ The amendments requires entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign currency gains or losses). The Group has adopted this standard and assessed that the impact is insignificant on its disclosure (see Note 19).

– A mendments to IAS 12 – ‘Income taxes: Recognition of Deferred Tax Assets for Unrealised Losses’ The amendments clarify that an entity needs to consider whether the tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible temporary difference related to unrealised losses.

Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profits may include the recovery of some assets for more than their carrying amount.

The Group applied these amendments retrospectively.

However, their application has no effect on the Group’s financial position and performance as the Group’s accounting policy has been consistent with the amendments.

– A nnual Improvement Cycle – 2014-2016 – Amendments to IFRS 12 – ‘Disclosure of Interests in Other Entities: Clarification of the Scope of Disclosure Requirements in IFRS 12’ The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10-B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or associate) that is classified (or include in a disposal group that is classified) as held for sale. During the years ended 31 December 2017 and 2016, the Group had no interests classified as such, and therefore these amendments did not affect the Group’s consolidated financial statements.

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New and revised standards in issue but not yet in effect: The following IASB Standards and interpretations of the International Financial Reporting Standards Interpretations Committee (‘IFRIC’) which have been issued but, are not yet effective for the year ended 31 December 2017, are disclosed below. The Group has not early adopted any standard, interpretation or amendment that had been issued but is not yet effective. The Group intends to adopt these standards, if applicable, when they become effective.

– IFRS 15 – ‘Revenue from Contracts with Customer’ IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group expects that it will apply IFRS 15 using the modified retrospective application. However, given insurance contracts are scoped out of IFRS 15, the Group does not expect any material impact as a result of the new standard.

– IFRS 16 – ‘Leases’ IFRS 16 was issued in January 2016 and it replaces IAS 17 – ‘Leases’, IFRIC 4 – ‘Determining whether an Arrangement contains a Lease’, Standing Interpretations Committee (‘SIC’) -15 – ‘Operating Leases-Incentives’ and SIC-27 – ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.

The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019.

Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group does not expect the impact of the adoption of this standard to be significant.

– A mendments to IFRS 4 Applying IFRS 9 – ‘Financial Instruments’ with IFRS 4 – ‘Insurance Contracts’ IFRS 4 standard issued September 2016 amendments to the standard to introduce two alternative options for entities issuing contracts within the scope of IFRS 4, notably a temporary exemption and an overlay approach. The temporary exemption enables eligible entities to defer the implementation date of IFRS 9 for annual periods beginning before 1 January 2021 at the latest.

An entity may apply the temporary exemption from IFRS 9 if: i) it has not previously applied any version of IFRS 9 before and ii) its activities are predominantly connected with insurance on its annual reporting date that immediately precedes 1 April 2016.

The overlay approach allows an entity applying IFRS 9 to reclassify between profit or loss and other comprehensive income an amount that results in the profit or loss at the end of the reporting period for the designated financial assets being the same as if an entity had applied IAS 39 to these designated financial assets. The temporary exemption from IFRS 9 is available from 1 January 2018 while the overlay approach applies when IFRS 9 is applied for the first time. The Group has assessed the above options available and criterion thereof and concluded to adopt IFRS 9 from 1 January 2018.

Qatar Re Annual Report 2017

33

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 2. Application of new and revised International Financial Reporting Standards (‘IFRS’) continued – IFRS 17 – ‘Insurance Contracts’ In May 2017, the IASB issued IFRS 17 Insurance Contracts which replaces IFRS 4 Insurance Contracts. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The standard is effective for annual periods beginning on or after 1 January 2021 with an earlier application is permitted.

IFRS 17 provides comprehensive guidance on accounting for insurance contracts and investment contracts with discretionary participation features. For general insurance contracts, IFRS 17 requires discounting of loss reserves expected to be paid in more than one year as well as risk adjustment, for which confidence level equivalent disclosure will be required. In order to further evaluate the effects of adopting IFRS 17 in the consolidated financial statements, an IFRS 17 Group Implementation Team has been set up sponsored by the Group Chief Financial Officer of the QIC Group, comprising senior management from Finance, Risk, Operations and Investment Operations.

– IFRS 9 – ‘Financial Instruments’ The Group will fully adopt IFRS 9 on 1 January 2018 and will not restate the comparative information in accordance with the IFRS guidelines. IFRS 9 Financial Instruments Standard issued July 2014, replaces the existing IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments from IAS 39.

Key requirements of IFRS 9: All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by

Qatar Re Annual Report 2017

collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income (FVOCI). All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods.

In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognised by an acquirer in a business combination) in other comprehensive income, with only dividend income generally recognised in profit or loss.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of a financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss.

Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting.

In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’.

Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

34

a) Classification and measurement Financial Assets

Debt instruments (Bonds)

Equity instruments including Private equity investments (Qatari public shareholding companies and International quoted shares)

Note

12

12

Classification IAS 39 IFRS 9

AFS

AFS

FVOCI

FVTPL

Description

The instruments that were classified as available-for-sale (‘AFS’) investments and carried at fair value. These instruments are held within a business model whose objective is achieved both by collecting contractual cash flows and selling in the open market, and the instruments contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest on the principal outstanding.

Accordingly, such instrument will continue to be subsequently measured at fair value through other comprehensive income (‘FVOCI’) upon the application of IFRS 9.

Equity instruments (quoted and unquoted) were classified as available-for-sale investments carried at fair value. The instrument will be measured at fair value through profit and loss (‘FVTPL’) under IFRS 9 and the fair value gains or losses will be recognised in the income statement.

All other financial assets and financial liabilities will continue to be measured on the same basis as is currently adopted under IAS 39. b) Impairment Financial assets measured at amortised cost, the bond portfolio carried at fair value through OCI (‘FVTOCI’) under IFRS 9 (see classification and measurement section above), due from customers, and reinsurance and insurance companies will be subject to the impairment provisions of IFRS 9.

The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its receivables as permitted

by IFRS 9. As regards the quoted debt instrument as disclosed in note 12, the Group considers that they have low credit risk given their strong external credit rating and hence expect to recognise 12-month expected credit losses for these items.

The Group anticipates that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses for the respective items and will increase the amount of loss allowance recognised for these items.

The new hedge accounting requirements will align more closely with the Group’s risk management policies. When initially applying IFRS 9, the Group has the option to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9. However, the Group determined that any hedge relationships that would currently be designated in effective hedging relationships would continue to qualify for hedge accounting under IFRS 9. The Group does not anticipate that the application of the IFRS 9 hedge accounting requirements will have a material impact on the Group’s consolidated financial statements. c) Disclosure IFRS 9 also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption of IFRS 9.

Hedge accounting IFRS 9’s hedge accounting requirements are designed to align the accounting more closely to the risk management framework; permit a greater variety of hedging instruments; and remove or simplify some of the rule-based requirements in IAS 39. The elements of hedge accounting: fair value, cash flow and net investment hedges are retained.

Overall, the Group performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the Management of the Group concluded that the impact is not material on its balance sheet and equity.

Qatar Re Annual Report 2017

35

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 2. Application of new and revised International Financial Reporting Standards (‘IFRS’) continued Annual improvement – 2014 – 2016 cycle (issued in December 2016) Standards

Content

IFRS 1

First-time Adoption of International Financial Reporting Standards – Deletion of short-term exemptions for first-time adopters Financial Instruments with IFRS 4 Insurance Contracts – Amendments to IFRS 4 Foreign Currency Transactions and Advance Consideration Uncertainty over Income Tax Treatment

IFRS 9 IFRIC Interpretation 22 IFRIC Interpretation 23

Effective date*

1 January 2018 1 January 2018 1 January 2018 1 January 2018

The Group is currently in the process of evaluating the potential effect of these amendments in the presentation of the consolidated financial statements.

A number of new standards, amendments to standards and interpretations that are not yet effective for the year ended 31 December 2017 have not been applied in preparing these consolidated financial statements. The Group does not expect the proposed amendments which will become mandatory for the consolidated financial statements for the year 2017 or thereafter, to have a significant impact on the consolidated financial statements.

3. Basis of preparation and significant accounting policies Statement of compliance The consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for available for sale financial assets, held for trade financial instruments and derivative instruments that are measured at fair value. These consolidated financial statements are presented in United States Dollars (USD) and rounded to the nearest thousand (USD ‘000), unless otherwise indicated.

The consolidated financial statements also provide comparative information in respect of the previous financial year. a) Consolidation, translation and financial instruments i) Basis of consolidation Subsidiaries The consolidated financial statements incorporate the financial statements of the Company and its investee that is considered as a subsidiary as at 31 December 2017. Subsidiaries are investees that the Company has control over. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In particular, the Company controls an investee if it directly or indirectly (i) has power over the investee, (ii) has exposure or rights to variable returns from its involvement with the investee and (iii) has the ability to use its power to affect those returns.

Qatar Re Annual Report 2017

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including (i) the contractual arrangement with the other voter holders of the investee, (ii) rights arising from other contractual arrangements and (iii) the Company’s voting rights and potential voting rights.

The Company reassesses whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases.

The financial statements of the subsidiary companies are prepared for the same reporting period as the Company, using consistent accounting policies.

Profit or loss and each component of other comprehensive income (‘OCI’) are attributed to the owners of the Company and to the non-controlling interests, even if this results in the non-controlling interest having a deficit balance. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

36

Changes in the Company’s ownership interests in a subsidiary that do not result in the Company losing control over the subsidiaries are accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

The carrying amounts of the Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated statement of financial position, separately from company shareholders’ equity.

Transactions eliminated on consolidation Inter-company balances and transactions, and any unrealised gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Business combination Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred in a business combination, measured at fair value on the date of acquisition and the amount of any non-controlling interest (‘NCI’) in the acquire. Total fair value is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised and expensed as a part of administrative expenses in the consolidated statement of income.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for NCI in the acquiree, over the net identifiable assets acquired and liabilities assumed as at the date of acquisition. If the net of the acquisition date amounts of identifiable asset acquired and liabilities assumed exceeds the sum of the consideration transferred and the amount of any non-controlling interests in the acquiree (if any), then the excess is recognised immediately in the consolidated statement of income as a bargain purchase gain.

Common control transactions Business combinations involving the transfer of business and net assets in a transaction under common control, are accounted for at the carrying values of the underlying net assets of the transferred business. There are no bargain gain or goodwill on transfer of assets recognised by the Group on common control transactions.

Goodwill After the initial recognition, goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cashgenerating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated statement of income. An impairment loss recognised for goodwill is not reversed in subsequent periods.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Qatar Re Annual Report 2017

37

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 3. Basis of preparation and significant accounting policies continued ii) Foreign currency translation Foreign operations The individual financial statements of the Group entities are presented in the currency of the primary economic environment in which they operate (functional currency). For the purpose of these consolidated financial statements, the results and financial position of the subsidiary is expressed in the presentation currency of the Company.

The assets and liabilities of foreign operations are translated to United States Dollars using exchange rates prevailing at the reporting date. Income and expenses are also translated to United States Dollars at the exchange rates prevailing at the reporting date, which do not significantly vary from the average exchange rates for the year. Foreign currency translation reserve is not shown separately under equity due to the insignificance of the amount.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences are recognised in other comprehensive income.

Foreign currency transactions are recorded in the respective functional currencies of Group entities at the rates of exchange prevailing at the date of each transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the respective functional currencies at the rate of exchange prevailing at the yearend. The resultant exchange differences are included in the consolidated statement of income. b) Financial instruments Financial instruments represent the Group’s financial assets and liabilities. Financial assets include cash and cash equivalents, insurance and other receivables and investments. Financial liabilities include short term borrowings amounts due to related parties, reinsurance contract liabilities and other payables.

Financial asset or liability is initially measured at fair value.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the consolidated statement of income.

Qatar Re Annual Report 2017

Financial assets Initial recognition The Group initially recognises cash and cash equivalents, insurance and other receivables, short term borrowings and other payables at the date that they originate. All other financial assets and liabilities are initially recognised at the trade date or settlement date when the Group becomes a party to the contractual provisions of the instrument.

Measurement The measurement of financial assets and liabilities is disclosed under accounting policy for respective financial assets and liabilities.

Investment activities The Group classifies its investments into financial assets at fair value through profit or loss and available for sale financial assets. The classification depends on the purpose for which the investments were acquired or originated.

Non-derivative financial instruments All investments are initially recognised at cost, being the fair value of the consideration given including acquisition charges associated with the investment.

Financial assets at fair value through profit or loss (Held for trading) Financial assets at fair value through profit or loss include financial assets held for trading and those designated upon initial recognition at fair value through profit or loss.

Investments typically bought with the intention to sell in the near future are classified as held for trading. These investments are carried at fair value (marked to market) with any gain or loss arising from the change in fair value included in the profit or loss in the year in which it arises.

Available for sale – Quoted Subsequent to initial recognition, investments which are classified ‘available for sale – quoted’ are re-measured at fair value. The unrealised gains and losses on re-measurement to fair value are recognised in other comprehensive income and accumulated under the heading of fair value reserve until the investment is sold, collected or otherwise disposed of, or the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income for the year.

Available for sale – Unquoted shares and private equity The fair value of these investments cannot be reliably measured due to the nature of their cash flows, these investments are therefore carried at cost less any provision for impairment.

38

De-recognition The Group derecognises a financial asset when the contractual rights to receive cash flows from that asset expire or it transfers the right to receive the contractual cash flow of that asset in a transaction in which substantially all the risks and rewards of ownership of the financial assets are transferred. Any interest in the transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expired.

Impairment of financial asset At each reporting date, the Group assesses whether there is objective evidence that any financial asset is impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows of the asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a customer or insurer or reinsurer, indications that the customer or insurer or reinsurer will enter bankruptcy or the disappearance of an active market for a security. In addition for an investment in equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Impairment loss on assets are recognised in the consolidated statement of income and reflected as an allowance against receivables or investments.

Financial liabilities Initial recognition and measurement Financial liabilities are classified at initial recognition, as financial liabilities at fair value through profit and loss, borrowings, or payables. All financial liabilities are recognised initially at fair value and, in the case of borrowings, net of directly attributable transaction costs. The Group’s financial liabilities include provisions reinsurance and other payables, and short term borrowings and amounts due to related parties.

Subsequent measurement Subsequent measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit and loss The Group does not have any financial liabilities designated as fair value through profit and loss.

Borrowings After initial recognition, interest bearing loans and borrowings, and issued notes are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Qatar Re Annual Report 2017

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance cost in the statement of profit or loss.

Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Fair values of financial instruments Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties on an arm’s length transaction at the measurement date. Differences can therefore arise between the book values under the historical cost method and fair value estimates.

Underlying the definition of fair value is a presumption that an enterprise is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the profit or loss as they arise.

Fair values of marketable investments are determined by reference to their bid prices at the close of business at the reporting date. In respect of unquoted available for sale financial assets, the fair value is determined based on various valuation techniques, as deemed appropriate. The fair values of the Group’s other financial assets and financial liabilities are not materially different from their carrying values.

39

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 3. Basis of preparation and significant accounting policies continued i) Derivative financial instruments Derivative financial instruments are classified as held for trading unless they are designated as effective hedging instruments.

Derivative financial instruments held for trading are typically entered into with the intention to settle in the near future.

The Group uses derivative financial instruments for economic hedging purposes such as forward currency contracts and interest rate swaps to hedge its foreign currency risks interest rate risks and equity price risk, respectively.

Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. All derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The fair value of a derivative is the equivalent of unrealised gain or loss from marking to market the derivative using prevailing market rates or internal pricing models.

Any gains or losses arising from changes in fair value on derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which are recognised in OCI and later reclassified to profit or loss when the hedged item affects profit or loss. ii) Fair value reserve The fair value reserve represents the unrealised gain or loss of the year-end fair valuation of available for sale investments. In the event of a sale or impairment, the cumulative gains or losses recognised under the investments fair value reserve are included in the consolidated statement of income for the year. c) Reinsurance operations i) Insurance and other receivables Insurance and other receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. The carrying value of the receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the consolidated statement of income. After initial measurement, premiums and other receivables are measured at amortised cost as deemed appropriate.

Premiums receivables are derecognised when the derecognition criteria for financial assets, as described in Note 3 (b), have been met.

Qatar Re Annual Report 2017

ii) Reinsurance contract assets The Company cedes insurance risk in the normal course of business as part of its businesses model. Reinsurance assets represent balances recoverable from reinsurance companies.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurers’ policies and are in accordance with the related reinsurance contract.

Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. The impairment loss is recorded in the income statement. iii) Reinsurance and other payables Reinsurance and other payables are recognised when due and measured on initial recognition at the fair value of the consideration received less directly attributable transaction costs. Subsequently, reinsurance and other payables are measured at amortised cost, as deemed appropriate. iv) Gross written premiums Gross written premiums are recognised when written and include an estimate for written premiums receivable at the reporting date. Gross written premiums are comprised of premiums on business incepting in the current financial year together with adjustments to estimates of premiums written in prior accounting periods. Estimates are included for pipeline premiums.

Premium on reinsurance contracts are recognised as revenue (earned premiums) proportionally over the period of risk coverage. The portion of premium recognised as written on in-force contracts that relates to unexpired risks at the reporting date are reported as the unearned premium reserve. v) Premiums ceded to reinsurers Reinsurance premiums comprise the total premiums payable for the reinsurance cover provided by retrocession contracts entered into during the year and are recognised on the date on which the policy incepts. Reinsurance premiums also include any adjustments arising in the accounting period in respect of retrocession contracts incepting in prior accounting periods.

Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date.

40

vi) Reinsurance contract liabilities Reinsurance contract liabilities include the outstanding claims provision and the provision for unearned premium. Reinsurance contract liabilities are recognised when contracts are entered into and premiums are charged.

– Provision for outstanding claims Provision for outstanding claims is recognised at the date the claims are known and covers the liability for losses and loss adjustment expenses based on loss reports from independent loss adjusters and management’s best estimate.

Claims provision also includes liability for claims incurred but not reported as at the reporting date. The liability is calculated at the reporting date using a range of historic trends, empirical data and standard actuarial claim projection techniques. The current assumptions may include a margin for adverse deviations. The liability is not discounted for the time value of money.

– Unexpired risks reserve The provision for unearned premiums represents that portion of premiums received or receivable, after deduction of the reinsurance share, which relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the nature and type of reinsurance contract written by the Company.

Reinsurance contract liabilities are derecognised when the contract expires, discharged or cancelled by any party to the insurance contract.

At each reporting date, the Company reviews its unexpired risk and a liability adequacy test is performed in accordance with IFRS 4 to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant non-life insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the income statement by setting up a provision for premium deficiency.

viii) Commission earned and paid Commissions earned and paid are recognised at the time the policies are underwritten or deferred and amortised over the same period over which the corresponding premiums are recognised in accordance with the earning pattern of the underlying reinsurance contract. d) Investment income Interest income Interest income is recognised in the income statement as it accrues and is calculated by using the effective interest rate method, except for short-term receivables when the effect of discounting is immaterial.

Dividend income Dividend income is recognised when the right to receive the dividends is established or when received. e) General i) Cash and cash equivalents Cash and cash equivalents comprise cash in banks and on hand and short-term deposits with an original maturity of three months or less in the consolidated statement of financial position. The cash equivalents are readily convertible to cash. ii) Property and equipment Property and equipment are carried at historical cost less accumulated depreciation and accumulated impairment losses.

Subsequent expenditure is capitalised only when it is probable that future economic benefits associated with the expenditure will flow to the Group.

Ongoing repairs and maintenance are charged to the consolidated statement of income during the financial period they are incurred.

The assets’ residual values, useful lives and method of depreciation applied are reviewed and adjusted, if appropriate, at each financial year end and adjusted prospectively, if appropriate. Impairment reviews are performed when there are indicators that the carrying value may not be recoverable.

Impairment losses are recognised in the consolidated statement of income as an expense.

vii) Gross claims paid Gross claims paid include all claims paid during the year and the related external claims handling costs that are directly related to the processing and settlement of claims.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 3. Basis of preparation and significant accounting policies continued An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in the consolidated statement of income in the year the asset is derecognised. iii) Depreciation Depreciation is provided on a straight line basis on all property and equipment and investment properties, other than freehold land which is determined to have an indefinite life. The rates of depreciation are based upon the following estimated useful lives: Furniture & fixtures Motor vehicles

2 to 5 years 3 years

Depreciation methods, useful lives and residual values are reviewed and adjusted if appropriate at each financial year end. iv) Impairment of non-financial assets An assessment is made at each reporting date to determine whether there is objective evidence that an asset or group of assets is impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and an impairment loss is recognised for the difference between the recoverable amount and the carrying amount. Impairment losses are recognised in the consolidated statement of income. v) Provisions The Group recognises provisions in the consolidated financial statements when the Group has a legal or constructive obligation (as a result of a past event) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The provision is created by charging the consolidated statement of income for any obligations as per the calculated value of these obligations and the expectation of their realisation at the reporting date. vi) Employees’ end of service benefits Provision is made for amounts payable in respect of employees’ end of service benefits based on contractual obligations or respective local labour laws of the Group entities, whichever is higher, and is calculated using the employee’s salary and period of service at the reporting date.

Qatar Re Annual Report 2017

vii) Current income tax Although the Company is domiciled in Bermuda where there is no tax levied on corporate profits, the Group does have branch offices in taxable jurisdictions. Current income tax assets and liabilities in these branches for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates branches and generates taxable income. viii) Share capital The Company has issued ordinary shares that are classified as equity instruments. Incremental external costs that are directly attributable to the issue of these shares are recognised in equity. ix) Segment reporting An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.

All operating segments’ operating results are reviewed regularly by the management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

4. Critical judgements and key sources of estimation uncertainty The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions in the application of the Group’s accounting policies, which are described in Note 3, that could affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and other factors and parameters that are considered to be relevant and available when the consolidated financial statements were prepared.

Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.

Uncertainty about these assumptions and estimates could result in outcomes that require material adjustment to the carrying value of assets or liabilities affected in future reporting periods.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

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Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimations, that management has made in the process of applying its accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements: Classification of investments Quoted securities are classified either as held-for-trading or as available-for-sale. The Group invests substantially in quoted securities and management has primarily decided to account for them for their potential long term growth rather than the short term profit basis. Consequently, such investments are recognised as available for sale rather than at fair value through profit or loss.

Financial assets are classified as fair value through profit or loss where the assets are either held for trading or designated as at fair value through profit or loss. The Company invests in mutual and managed funds for trading purposes.

Impairment of financial assets The Company determines whether available for sale financial assets are impaired when there has been a significant or prolonged decline in their fair value below cost. This determination of what is significant or prolonged requires considerable judgment by the management. In making this judgment and to record whether impairment occurred, the Company evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology and operational and financial cash flows.

Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

For certain line of businesses (non-life), in order to estimate the liabilities, the expected loss ratios are calculated for all underlying insurance contracts. The amounts estimated as the difference between the current estimated losses and the reported loses are set aside as the incurred but not reported reserve for the losses that have been incurred but which are not yet known or have still to be reported.

Impairment of insurance and other receivables An estimate of the collectible amount of insurance and other receivables is made when collection of the full amount is no longer probable. This determination of whether these insurance and other receivables are impaired entails the Company evaluating, the credit and liquidity position of the policyholders and the insurance companies, historical recovery rates including detailed investigations carried out as at reporting date and feedback received from their legal department. The difference between the estimated collectible amount and the book amount is recognised as an expense in the consolidated statement of income. Any difference between the amounts actually collected in the future periods and the amounts expected will be recognised in the consolidated statement of income at the time of collection.

As of 31 December 2017 the net carrying values of insurance receivable and reinsurance receivables amounted to USD 685,923,000 (2016: USD 586,546,000) which includes a provision for impairment on insurance receivable and reinsurance receivable amounting to USD 355,000 (2016: USD 355,000).

Liability adequacy test At each reporting, liability adequacy tests are performed to ensure the adequacy of insurance contract liabilities. The Company makes use of the best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities in evaluating the adequacy of the liability. Any deficiency is immediately charged to the statement of income.

Claims made under insurance contract Claims and loss adjustment expenses are charged to the consolidated statement of income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company and management estimations for the claims incurred but not reported. The method for making such estimates and for establishing the resulting liability is continually reviewed. Any difference between the actual claims paid and the provisions made are included in the consolidated statement of income in the year of settlement. As of 31 December 2017, the net estimate for unpaid claims amounted to USD 477,159,000 (2016: USD 287,036,000).

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Overview

Strategy and performance

Financial statements

Corporate governance

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 5. Segment information For management reporting purposes, the Company is organised into business segments based on their products and structure.

The reportable operating segments are comprised of Property, Casualty and Other Segments. These segments are the basis on which the Company reports its operating segment information. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. No inter-segment transactions occurred in 2017 and 2016.

The Property Segment includes business written under the lines of business that includes Property Catastrophe, North America and International Property, Energy, Aviation, Marine, Agriculture and Engineering.

The Casualty Segment includes all casualty lines and the motor lines of business.

Other Segment includes business recognised by the Company as credit and surety, residual value insurance, structured finance and Lloyd’s capacity.

Segment statement of income for the year ended 31 December 2017

Investments USD (’000)

Un-allocated (expenses)/ income USD (’000)

1,625,549 (912,985) 712,564

– – –

– – –

1,625,549 (912,985) 712,564

(19,172) 31,305

(171,836) 540,728

– –

– –

(171,836) 540,728

(28,619) 16,771 (25,667) 17,151 (25,212) (14,271) – – – (14,271) – – (14,271)

(755,431) 411,057 (173,114) 212,904 (302,919) (66,775) – – – (66,775) – – (66,775)

– – – – – – 68,517 (6,017) 62,500 62,500 – – 62,500

– – – – – – 117 – 117 117 (50,761) (1,238) (51,882)

(755,431) 411,057 (173,114) 212,904 (302,919) (66,775) 68,634 (6,017) 62,617 (4,158) (50,761) (1,238) (56,157)

Property USD (’000)

Casualty USD (’000)

Gross written premiums Premiums ceded to reinsurers Net premiums Movement in net unexpired premium reserve Net earned premiums

554,802 (332,522) 222,280

962,905 (523,098) 439,807

107,842 (57,365) 50,477

(38,010) 184,270

(114,654) 325,153

Gross claims paid Reinsurance recoveries Movement in net outstanding claims Commission income Commission expense Net underwriting results Investment income Finance costs Net investment income Total (loss) income Operating and administrative expenses Depreciation Segment results

(335,909) 192,932 (59,958) 82,545 (121,155) (57,275) – – – (57,275) – – (57,275)

(390,903) 201,354 (87,489) 113,208 (156,552) 4,771 – – – 4,771 – – 4,771

Qatar Re Annual Report 2017

Other USD (’000)

44

Total insurance USD (’000)

Total USD (’000)

Segment statement of income for the year ended 31 December 2016

Investments USD (’000)

Un-allocated (expenses)/ income USD (’000)

1,249,371 (885,810) 363,561

– – –

– – –

1,249,371 (885,810) 363,561

6,381 33,509

(12,319) 351,242

– –

– –

(12,319) 351,242

(19,936) 13,927 (13,258) 27,959 (35,897) 6,304 – – – 6,304 – – 6,304

(450,155) 311,589 (117,466) 220,041 (261,222) 54,029 – – – 54,029 – – 54,029

– – – – – – 36,293 (4,057) 32,236 32,236 – – 32,236

– – – – – – 455 – 455 455 (47,726) (948) (48,219)

(450,155) 311,589 (117,466) 220,041 (261,222) 54,029 36,748 (4,057) 32,691 86,720 (47,726) (948) 38,046

Property USD (’000)

Casualty USD (’000)

Other USD (’000)

Gross written premiums Premiums ceded to reinsurers Net premiums Movement in net unexpired premium reserve Net earned premiums

480,277 (348,054) 132,223

682,606 (478,396) 204,210

86,488 (59,360) 27,128

(4,789) 127,434

(13,911) 190,299

Gross claims paid Reinsurance recoveries Movement in net outstanding claims Commission income Commission expense Net underwriting results Investment income Finance costs Net investment income Total income Operating and administrative expenses Depreciation Segment results

(196,036) 133,734 (28,994) 82,837 (94,971) 24,004 – – – 24,004 – – 24,004

(234,183) 163,928 (75,214) 109,245 (130,354) 23,721 – – – 23,721 – – 23,721

Total insurance USD (’000)

Total USD (’000)

The profit or loss for each segment does not include the allocation of finance costs on Group borrowings or net investment income on Group investments. The results also excludes the allocation of any Group operating expense and depreciation on assets. Assets and liabilities of the Group are commonly used across the operating segments.

The geographical split of gross written premiums based on the location of the customer is as follows:

Africa Americas Asia Europe Oceania

Qatar Re Annual Report 2017

45

2017 USD (’000)

2016 USD (’000)

13,341 271,391 146,272 1,185,500 9,045 1,625,549

11,681 159,788 207,223 861,997 8,682 1,249,371

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 6. Net investment income 2017 USD (’000)

Interest income Dividend income Net realised gain on sale of available-for-sale financial assets Other gains/(losses)

62,971 1,844 1,181 7,542 73,538 (4,904) (6,017) 62,617

Less: Advisory fee

Finance costs (Note 19)

2016 USD (’000)

37,975 3,855 2,449 (4,925) 39,354 (2,606) (4,057) 32,691

7. Operating and administrative expenses

Employees related costs Rental expenses Maintenance and IT expenses Travel expenses Professional fees Board of Directors’ remuneration (Note 8) Miscellaneous expenses

2017 USD (’000)

2016 USD (’000)

33,418 4,981 3,280 2,211 1,496 415 4,960 50,761

33,484 3,411 3,180 2,993 1,812 326 2,520 47,726

8. Board of Directors’ remuneration In accordance with the Bye-Laws of the Company, the Board of Directors’ remuneration for the year 2017 has been proposed at USD 415,000 (2016: USD 326,000).

9. Cash and cash equivalents Cash and cash equivalents include cash in banks and on hand, as well as short-term time deposits which are considered as highly liquid investments that are readily convertible to known amounts of cash.

Cash in hand and bank balances Time deposits – short term

2017 USD (’000)

2016 USD (’000)

89,551 874,146 963,697

65,195 652,503 717,698

Time deposits are held for various periods of maturity which are less than three months. These time deposits are subject to an insignificant risk of change in value. As such, the carrying values disclosed above reasonably represent the approximate fair value of the deposits as at 31 December 2017 and 2016. The average interest rate on time deposits is 3.25% (2016: 2.27%) per annum.

Qatar Re Annual Report 2017

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10. Insurance and other receivables

Insurance receivables from insurance companies In course of collection Not yet due Provision for doubtful receivables Other receivables Deferred commission Deposit premium/Funds withheld Accrued income Loan receivable Prepayments Local debtors Advances against indemnity Others receivables

2017 USD (’000)

2016 USD (’000)

29,403 656,875 (355) 685,923

61,898 525,003 (355) 586,546

199,835 419,022 13,221 6,515 986 265 58 1,948 641,850 1,327,773

144,112 334,695 6,972 – 676 185 67 757 487,464 1,074,010

2017 USD (’000)

2016 USD (’000)

11. Reinsurance contract liabilities and reinsurance contract assets

Gross reinsurance contract liabilities Claims reported unsettled Claims incurred but not reported Unearned premiums

998,797 485,174 698,361 477,130 837,021 646,381 2,534,179 1,608,685

Retrocedants share of reinsurance contract liabilities Claims reported unsettled Claims incurred but not reported Unearned premiums

Net reinsurance contract liabilities Claims reported unsettled Claims incurred but not reported Unearned premiums

Qatar Re Annual Report 2017

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715,770 504,229 464,660 1,684,659

338,859 336,409 454,559 1,129,827

283,027 194,132 372,361 849,520

146,315 140,721 191,822 478,858

Overview

Strategy and performance

Financial statements

Corporate governance

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 11. Reinsurance contract liabilities and reinsurance contract assets continued Movements in claims provision during the year are as follows: 2017

As at 1 January Claims incurred and other movement during the year Claims paid during the year Portfolio transfer to the Ultimate Parent As at 31 December

Reinsurance contract liabilities USD (’000)

Retrocedant’s share USD (’000)

962,304 1,496,449 (755,431) (6,164) 1,697,158

2016

Net USD (’000)

Reinsurance contract liabilities USD (’000)

Retrocedant’s share USD (’000)

Net USD (’000)

675,268

287,036

605,126

410,893

194,233

955,983 (411,057) (195) 1,219,999

540,466 (344,374) (5,969) 477,159

807,333 (450,155) – 962,304

575,964 (311,589) – 675,268

231,369 (138,566) – 287,036

Net USD (’000)

Reinsurance contract liabilities USD (’000)

191,822 712,564 (532,025) 372,361

636,164 1,249,371 (1,239,154) 646,381

Movements in provision for unearned premium during the year are as follows: 2017 Reinsurance contract liabilities USD (’000)

As at 1 January Premiums written Premiums earned As at 31 December

646,381 1,625,549 (1,434,909) 837,021

Retrocedant’s share USD (’000)

454,559 912,985 (902,884) 464,660

2016 Retrocedant’s share USD (’000)

Net USD (’000)

444,248 885,810 (875,499) 454,559

191,916 363,561 (363,655) 191,822

2017 USD (’000)

2016 USD (’000)

12,009 3,994 16,003

11,293 364 11,657

33,105 – 1,090,513 6,280 1,129,898 1,145,901

38,165 11,276 653,861 – 703,302 714,959

12. Investments Investments are carried at fair value as at 31 December 2017 and 2016.

Held-for-trading investments Managed funds Derivative financial investments (Note 18) Total held-for-trading investments Available-for-sale investments Qatari public shareholding companies Quoted shares – International Bonds Unquoted shares and private equity Total available-for-sale investments – net

Investments held for trading are typically bought with the intention to sell in the near future. These investments are carried at fair value (marked to market) with any gain or loss arising from the change in fair value included in the profit and loss in the year in which the change arises.

Subsequent to initial recognition, investments which are classified ‘available for sale – quoted’ are re-measured at fair value.

The unrealised gains and losses on re-measurement to fair value are recognised in other comprehensive income and accumulated under the heading of fair value reserve until the investment is sold, collected or otherwise disposed of, or the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income for the year.

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13. Property and equipment Furniture and fixtures USD (’000)

Motor vehicle USD (’000)

Total USD (’000)

Cost At 1 January 2016 Additions during the year Disposals during the year At 31 December 2016 Additions during the year Disposals during the year At 31 December 2017

4,693 935 – 5,628 1,758 – 7,386

246 – (191) 55 – (55) –

4,939 935 (191) 5,683 1,758 (55) 7,386

Accumulated depreciation At 1 January 2016 Charge during the year Disposals during the year At 31 December 2016 Charge during the year Disposals during the year At 31 December 2017

2,369 914 – 3,283 1,238 – 4,521

196 34 (175) 55 – (55) –

2,565 948 (175) 3,338 1,238 (55) 4,521

Net book value: At 31 December 2017 At 31 December 2016

2,865 2,345

– –

2,865 2,345

2017 USD (’000)

2016 USD (’000)

112,694 8,132

100,869 33,442

664 383 1,019 1,497 4,034 6,744 165 135,332

537 29 609 2,336 8,176 – 1,010 147,008

14. Provisions, reinsurance and other payables

Deferred commission Due to reinsurance companies Other payables: Employees’ end of service benefits (Note 15) Board of Directors’ remuneration payable Derivative financial liabilities (Note 18) Local creditors Accrued expenses Accrued interest on subordinated perpetual debt Other credit balances

The carrying values disclosed above reasonable approximate the fair values at the reporting date.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 15. Employees’ end of service benefits 2017 USD (’000)

As at 1 January Charge for the year Adjusted during the year Payment made during the year As at 31 December

2016 USD (’000)

537 165 – (38) 664

635 221 (209) (110) 537

Provision is made for amounts payable in respect of employees’ end of service benefits based on contractual obligations or respective local labour laws of the Group entities, whichever is higher, and is calculated using the employee’s salary and period of service at the reporting date.

16. Fair value of financial instruments The following table compares the fair values of the financial instruments to their carrying values: 2017

Cash and cash equivalents Loans and receivables: Insurance and other receivables Reinsurance contract assets Investments: Held for trading Available for sale investments

Reinsurance and other payables Short term borrowings Due to related parties Insurance contract liabilities

Carrying amount USD (’000)

2016 Fair value USD (’000)

Carrying amount USD (’000)

Fair value USD (’000)

963,697

963,697

717,698

717,698

1,111,725 1,219,999

1,111,725 1,219,999

921,426 675,268

921,426 675,268

16,003 1,129,898 4,441,322

16,003 1,129,898 4,441,322

11,657 703,302 3,029,351

11,657 703,302 3,029,351

22,638 22,638 319,379 319,379 987,330 987,330 1,697,158 1,697,158 3,026,505 3,026,505

46,139 384,392 727,001 962,304 2,119,836

46,139 384,392 727,001 962,304 2,119,836

17. Determination of fair value and fair values hierarchy The different levels of the fair value hierarchy have been defined by IFRS standards as follows: –– Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.

–– Level 2: fair values measured using inputs other than quoted prices included within Level 1 that are based on market observable data for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

–– Level 3: fair values measured using valuation techniques for which significant inputs for the asset or liability are not based on observable market data (unobservable inputs).

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The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

31 December 2017 Held for trading Available-for-sale

31 December 2016 Held for trading Available-for-sale

Level 1 USD (’000)

Level 2 USD (’000)

Level 3 USD (’000)

Total fair value USD (’000)

– 1,123,618 1,123,618

16,003 – 16,003

– 6,280 6,280

16,003 1,129,898 1,145,901

– 703,302 703,302

11,657 – 11,657

– – –

11,657 703,302 714,959

Valuation techniques Listed investment in equity securities and debt securities.

When fair values of publicly traded equity securities and debt securities are based on quoted market prices, or binding dealer price quotations, in an active market for identical assets without any adjustments, the instruments are included within Level 1 of the hierarchy.

Managed funds In the absence of a quoted price in an active market, they are valued using observable inputs such as recently executed transaction prices in securities of the issuer or comparable issuers and yield curves. Adjustments are made to the valuations when necessary to recognise differences in the instrument’s terms. To the extent that the significant inputs are observable, the Group categorises these investments as Level 2.

Over-the-counter derivatives The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives are valued using valuation techniques with market observable inputs are mainly options contracts.

Unlisted equity investments Unquoted available for sale equity investments are recorded at fair values adopting market approach and applying price to book value multiple to arrive at the value of investment. There are no active markets for these investments and the Group intends to hold them for the long term Unlisted managed funds The Group invests in managed funds, including private equity funds, which are not quoted in an active market and which may be subject to restrictions on redemptions such as lock up periods, redemption gates and side pockets.

The Group’s investment managers considers the valuation techniques and inputs used in valuing these funds as part of its due diligence prior to investing, to ensure they are reasonable and appropriate and therefore the NAV of these funds may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the funds is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the fund and fund manager. In measuring fair value, consideration is also paid to any transactions in the shares of the fund. Depending on the nature and level of adjustments needed to the NAV and the level of trading in the fund, the Group classifies these funds as Level 3.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 17. Determination of fair value and fair values hierarchy continued Level 3 reconciliation The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period: 2017 USD (’000)

Balance at 1 January Additions during the year Net gain in fair value reserve Balance at 31 December

– 5,342 938 6,280

18. Derivative instruments In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial instruments.

A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial instrument, reference rate or index. Derivative financial instruments include forward contracts, swaps and equity options structures.

The Company employs various derivative option strategies which are intended for hedging currency exposure, managing interest rate and insurance risk, and for income enhancement. The derivative financial instruments held by the Company include forward contracts, swaps and equity options structures.

The Group has purchased interest rate swap contracts to match the expected liability duration of insurance contracts, to swap floating rates of the backing assets, to fixed rates over the main duration of the related insurance contracts. The Group also manages exchange rate risk on the Group’s net currency exposure by using forward exchange contracts. Both of these strategies are considered as economic hedges, but do not meet the hedge accounting criteria.

Derivative products valued using a valuation technique with market observable inputs (Level 2) are mainly interest rate swaps, currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves.

The table below shows the notional amounts analysed by the term to maturity. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year end and are neither indicative of the market risk nor credit risk.

31 December 2017

Over the Counter Derivatives: Credit and interest rate derivatives Equity derivatives Foreign exchange derivatives

31 December 2016

Over the Counter Derivatives: Credit and interest rate derivatives Equity derivatives Foreign exchange derivatives

Qatar Re Annual Report 2017

Notional amount USD (’000)

Derivative asset USD (’000)

311,550 41,592 196,819 549,961

503 1,892 1,599 3,994

Notional amount USD (’000)

Derivative asset USD (’000)

150,000 39,558 98,844 288,402

364 – – 364

52

Derivative liability USD (’000)

– – (1,019) (1,019) Derivative liability USD (’000)

– (200) (409) (609)

Within 3 months USD (’000)

3 to 12 months USD (’000)

– 41,592 186,819 228,411

311,550 – 10,000 321,550

Within 3 months USD (’000)

3 to 12 months USD (’000)

– 39,558 73,844 113,402

150,000 – 25,000 175,000

Various option strategies are employed for hedging, risk management and income enhancement. All calls sold are on assets held by the Group.

Foreign exchange derivatives Foreign exchange derivatives include forwards and options and are contractual agreements in relation to a specified currency at a specified price and date in the future. The options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, to either buy or sell at fixed future date or at any time during a specified period, a specified amount of a currency, at a pre-determined price. The interest rate and credit derivative contracts are over-the-counter contracts transacted in the over-the-counter market and changes in contract values are settled daily.

Equity derivatives Equity derivatives include options and swaps and are contractual agreements in relation to a specified equity instrument at a specified price and date in the future. The equity derivative contracts are over-the-counter contracts transacted in the over-thecounter market and changes in contract values are settled daily.

Interest rate and credit derivatives Interest rate and credit derivatives include swap contracts to exchange one set of cash flows for another, generally fixed and floating interest payments in a single currency without exchanging principal. In the case of credit default swaps the counterparties agree to make payments with respect to defined credit events based on specified notional amounts. The forward exchange derivative contracts are over-the-counter contracts transacted in the over-the-counter market and changes in contract values are settled daily.

19. Short-term borrowings As part of the Group’s margin trading strategy, the Group uses borrowings to finance its fixed income securities.

Borrowings against fixed income securities

2017 USD (’000)

2016 USD (’000)

319,379

384,392

The net decrease in short-term borrowings consists of a net repayment of USD 65,013,000 in the form of cash. There was nil impact on the net decrease due to any impact of foreign currency exchange differences.

As of 31 December 2017 and 2016, interest expense related to these short-term borrowings amounted to USD 6,017,000 and USD 4,057,000, respectively.

20. Due to related parties The balance due to related parties represents balances due to Qatar Insurance Company S.A.Q (the ‘ultimate parent company’) and its subsidiaries for transactions which occurred in the normal course of business during the year. The pricing policies and terms of these transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions.

The significant transactions with related parties are disclosed in Note 25.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 21. Share capital 2017

Authorised Ordinary shares of USD 1 each Issued and fully paid up Ordinary shares of USD 1 each

2016

No of shares

USD

No of shares

USD

1,200,000

1,200,000

1,200,000

1,200,000

1,000,000

1,000,000

1,000,000

1,000,000

There has been no movement in the authorised or issued and fully paid share capital of the Company during 2017 and 2016.

22. Contributed surplus The Contributed surplus reflects the amount of consideration received from QIC Capital L.L.C. in excess of the par value of the shares issued. On 28 November 2016, QIC Capital L.L.C. contributed an additional USD 200 million of Contributed surplus into the Company.

The Contributed surplus recognised in the consolidated statement of financial position is distributable to the shareholders as a dividend in the normal course of business, subject to certain restrictions and provisions in this respect that are specified in the Bermuda Companies Act 1981.

The Contributed surplus as at 31 December 2017 and 2016 is comprised of the following:

(i) On cancellation of shares after change in legal domicile (ii) On merger of Antares Re business as on 31 December 2015 (iii) Contribution from Parent Company during 2016

2017 USD (’000)

2016 USD (’000)

251,651 243,717 200,000 695,368

251,651 243,717 200,000 695,368

23. Fair value reserve The fair value reserve arose from the revaluation of available for sale investments as per the accounting policies detailed in Note 3.

24. Perpetual subordinated tier 2 fixed rate notes On 13 March 2017, the Company issued USD 450 million Regulation S Perpetual non-call 5.5 year subordinated Tier 2 notes into the international debt capital markets listed on the the Irish Stock Exchange. The carrying value of the notes is USD 443,844,932 which reflects the net proceeds received after related expenses.

These notes meet the characteristics as set forth in the Insurance (Eligible Capital) Rules 2012 issued in Bermuda to be treated as Tier 2 capital. The notes are guaranteed on a subordinated basis by QIC. The initial coupon has been set at 4.95% per annum and will remain fixed until the first call date in September 2022, when it will be reset on the basis of the mid swap rates for U.S. dollar interest rate swap transactions with a maturity of five years plus the initial margin, and will be reset every five years thereafter. The notes have been assigned an issue rating of ‘BBB+’ by S&P Global Ratings and have provided eligible Tier 2 capital to further enhance the Company’s financial strength.

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25. Related party transactions a) Transaction with related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions and directors of the Group and companies of which they are key management personnel. Parties are also considered to be related through common ownership.

The Group enters into transactions with its associate and key management personnel in the normal course of business. The pricing policies and terms of these transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions.

Significant related party transactions included reinsurance agreements with QIC and QIC Europe Limited (‘QEL’). QEL is a subsidiary of QIC and as such is related to the Company through common ownership.

The significant related party transactions were as follows:

Reinsurance premium to QIC Reinsurance premium from QEL Reinsurance recoveries from QIC Commission from QIC

2017 USD (’000)

2016 USD (’000)

(798,423) 162,299 394,235 204,481

(839,149) 77,323 310,204 213,508

2017 USD (’000)

2016 USD (’000)

1,821 90 1,911

1,981 154 2,135

(b) Compensation of key management personnel

Salaries and other short-term benefits Employees’ end of service benefits Total

Outstanding related party balances at reporting date are unsecured and interest free. Also, the Board of Directors’ remuneration proposed for the year ended 31 December 2017 is detailed in Note 8.

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55

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management The Group in the normal course of its business derives its revenue mainly from assuming and managing insurance risks for profit while also benefiting from the investment return on its invested asset base. The Group is mainly exposed to the following risks: –– Insurance risk; –– Market, investment, liquidity and concentration risk; –– Credit risk; –– Operational and systems risk; –– Group risk; –– Strategic risk; and –– Reputational.

The primary objective of the Group’s risk and financial management framework is to protect the Group’s shareholders from events that hinder the sustainable achievement of financial performance objectives, including failing to exploit opportunities. In order to achieve this it is of critical importance to have efficient and effective risk management systems in place. (a) Governance framework The Group has established a sound and effective Corporate Governance framework that is appropriate to the size, nature, complexity and risk profile of the Group. The governance framework supports the sound and prudent management of the Company’s activities to ensure the protection of policyholders and other applicable stakeholders.

A risk management function has been established with clear terms of reference from the board of directors, its committees and the associated executive management committees. This is supplemented with a clear organisational structure with documented delegated authorities and responsibilities from the board of directors to executive management committees and senior managers.

Lastly, a Group policy framework which sets out the risk profiles for the Group, risk management, control and business conduct standards for the Group’s operations has been put in place. Each policy has a member of senior management charged with overseeing compliance with the policy throughout the Group.

The Board of Directors approves the Group’s risk appetite and risk management policies, and meets regularly to approve any commercial, regulatory and organisational requirements of such policies. These policies define the Group’s identification of risk and its interpretation, limits its structure to ensure the appropriate quality and diversification of assets, align underwriting and reinsurance strategy to the corporate goals, and specify reporting requirements. (b) Capital management framework Capital adequacy is maintained with reference to risk appetite and tolerance statements, which reference regulatory and internal model solvency ratios.

The Group is required by the Bermuda Monetary Authority (‘BMA’) to hold available statutory capital and surplus of an amount that is equal to or exceeds the Enhanced Capital Requirement (‘ECR’). The ECR is the higher of the Bermuda Solvency Capital Requirement (‘BSCR’) (the BMA standard formula capital requirement) and the Minimum Margin of Solvency (‘MSM’). The BSCR forms part of the regulatory regime that has achieved equivalence with Europe’s Solvency II. (c) Risk management framework The Group has established a risk management framework by which risks are identified, measured, mitigated and managed.

The Group has established a framework of internal controls which seeks to mitigate risks and limit the probability of losses or other adverse outcomes during the implementation of the strategic objectives and business plan, as well as providing a framework for the overall management and oversight of the business. The controls are rated according to their effectiveness of both design and performance, with independent challenge provided by the risk management function. Internal audit also provides independent assurance. The framework provides a basis for understanding the risks that the Group is exposed to and its ability to identity, assess, control and mitigate these risks.

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(d) Insurance risk The principal risk the Group faces under insurance contracts is that the actual claims or the timing thereof, differ from expectations.

This is influenced by the frequency of claims, severity of claims, and subsequent development of long-tail claims.

The Group manages the insurance risk through the careful selection and implementation of its underwriting strategy and guidelines together with the adequate reinsurance arrangements and proactive management of claims. The concentration of insurance risk exposure is mitigated by careful selection and implementation of the underwriting strategy of the Group. Underwriting limits are in place to enforce risk selection criteria, and an exposure management framework monitors and limits exposure to peak peril zones within the context of defined risk appetite.

Insurance risk can be broken down into underwriting (including catastrophe risk) and reserve risk.

Underwriting risk relates to the unexpired risk on business already incepted or bound and reflects the risk that premiums are not sufficient to cover future losses. The Group manages underwriting risk through various governance and control mechanisms under the oversight of the Underwriting and Portfolio Management Committee (‘UPMC’), which comprises senior representatives from the underwriting, risk, claims and actuarial functions.

Detailed policies and guidelines exist relating to: –– Underwriting authorities; –– Pricing methodologies; and –– Risk accumulations.

In relation to catastrophe risk pricing utilises proprietary pricing tools blended with internal analysis. Aggregate catastrophe risk is subject to defined limits which are monitored using an internally developed exposure management tool.

The Group purchases both treaty and facultative reinsurance to manage insurance risk in the context of the defined risk appetite, to protect the capital base and manage volatility.

The Group actively manages claims in order to identify, measure and manage losses while delivering on obligations to policyholders.

The reserve risk element of insurance risk arises from the inherent uncertainty surrounding the adequacy of the reserves or technical provisions set aside to cover the insurance liabilities. The risk is that the current reserves, including those incurred but not yet reported, are not sufficient to cover the run off of the claims which have already occurred.

Reserve risk exposure is managed within the actuarial function and through defined reserving practices which are overseen and approved by the Reserving Committee, which comprises various members of the executive management team. The Reserving Committee ultimately determines the management best estimate or reserves based on advice from the reserving actuaries and consultation with underwriters, exposure management and claims. If there were any disagreement between the Reserving Committee and the loss reserve specialist (a role defined under Bermuda regulatory requirements), these would be escalated to the Board for resolution.

Key assumptions The principal assumption underlying the liability estimates is that the Group’s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claim handling costs, claim inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example one-off occurrence changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures.

Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimated. Other key circumstances affecting the reliability of assumptions include variation in interest rates, delays in settlement and changes in foreign currency rates.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management continued Sensitivities The general insurance claims provisions are sensitive to the key assumptions shown below. It has not been possible to quantify the sensitivity of certain assumptions such as legislative changes or uncertainty in the estimation process.

The analysis below is performed for possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, net profit and equity.

Change in assumptions

Impact on liabilities USD (’000)

Impact on net profit USD (’000)

Impact on equity USD (’000)

31 December 2017 Incurred claim cost Incurred claim cost

10% -10%

51,749 (51,749)

(51,749) 51,749

– –

31 December 2016 Incurred claim cost Incurred claim cost

10% -10%

25,603 (25,603)

(25,603) 25,603

– –

Claims development table The Group maintains reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. The following tables show the estimates of cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each reporting date, together with cumulative payments to date. The top half of each table below illustrates how the Group’s estimate of total claims outstanding for each accident year has changed at successive year-ends. The bottom half of the table reconciles the cumulative claims to the amount appearing in the consolidated statement of financial position.

With the exception of the proportional and non-proportional reinsurance business, an accident-year basis is considered to be most appropriate for the business written by the Group. Given the nature of reinsurance claims and the difficulties in identifying an accident year for each reported claim, these claims are reported separately and aggregated by reporting year (reporting year basis) – that is, with reference to the year in which the Group was notified of the claims. This presentation is different from the basis used for the claims development tables for the other insurance claims and entities of the Group, where the reference is to the actual date of the event that caused the claim (accident-year basis).

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The following table represents claims development on gross claims. The impact of ceded outward reinsurance has not been taken into consideration.

Details

At end of accident year One year later Two years later Three years later Four years later Estimate of cumulative claims Claims paid in same year One year later Two years later Three years later Four years later Cumulative claims paid Total gross claims liabilities Current estimate of surplus/(deficiency) Surplus/(deficiency) % of initial gross reserve

2013

86,114 95,931 101,256 100,083 110,049 110,049 (9,084) (51,861) (56,994) (62,134) (62,760) (62,760) 47,289 (23,934) (28%)

2014

2015

2016

2017

233,063 269,068 271,792 293,194

516,878 440,528 502,495

878,671 943,351

1,342,132

293,194 (62,971) (144,313) (146,187) (152,941)

502,495 (90,042) (247,772) (314,220)

943,351 (282,841) (730,200)

1,342,132 (233,942)

(152,941) 140,253 (60,131) (26%)

(314,220) 188,275 14,383 3%

(730,200) 213,151 (64,680) (7%)

(233,942) 1,108,190 – –

Total

3,056,858 1,748,878 875,543 393,277 110,049 3,191,221 (678,880) (1,174,146) (517,401) (215,075) (62,760) (1,494,063) 1,697,158

(e) Market risk Market risk can cause the Group to suffer losses due to unfavourable developments in the financial markets. Market risk arises as a result of our currency exposures, interest rate and default risk on the fixed income portfolio, and equity price risk as a result of the equities that the Group holds within the investment portfolio.

The Group limits market risk by maintaining a diversified portfolio and by continuous monitoring of developments in equity and bond markets. In addition, The Group actively monitors the key factors that affect stock and bond market movements, including analysis of the operational and financial performance of investees. The Group’s investment guidelines and associated mandates are intended to limit its exposures to market risk and volatility, and the adherence to these guidelines and their continued suitability are overseen by the Investment Committee of the Board. In particular the Group limits its exposure to assets such as fixed income securities, cash deposits, private equity, hedge funds and other (non-fixed income/non-equity) managed funds. However the investment portfolio is heavily weighted towards the fixed income securities and cash deposits. The allocation to other investments such as equities and alternatives is less than 3% (2016: 5%) of the overall invested assets.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management continued (i) Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument (asset or liability) will fluctuate because of changes in foreign exchange rates. The Group is exposed to currency risk to the extent that its assets are denominated in different currencies to its liabilities. Certain currency risk is managed through hedging.

The table below summarises the Group’s exposure to foreign currency exchange rate risk at reporting date by categorising assets and liabilities by major currencies.

31 December 2017

USD and Others* USD (’000)

QAR USD (’000)

GBP USD (’000)

Euro USD (’000)

Total USD (’000)

212 145,207 6,040 2,516 153,975

963,697 1,327,773 1,145,901 1,684,659 5,122,030

Cash and cash equivalents Premiums and other receivables Investments Reinsurance contract assets Total Assets

82,415 276,082 1,106,755 1,682,024 3,147,276

880,851 11,036 33,106 – 924,993

219 895,448 – 119 895,786

Provisions, reinsurance and other payables Short-term borrowings Reinsurance contract liabilities Total Liabilities

129,692 319,379 1,020,127 1,469,198

1,599 – – 1,599

3,180 – 1,240,918 1,244,098

QAR USD (’000)

GBP USD (’000)

55,433 443,842 676,430 477,181 1,652,886

654,070 130 38,165 – 692,365

1,365 560,262 – 555,066 1,116,693

6,830 717,698 69,531 1,073,765 – 714,595 97,580 1,129,827 173,941 3,635,885

87,990 384,392 675,055 1,147,437

676 – – 676

45,084 – 793,002 838,086

12,649 – 140,628 153,277

31 December 2016

Cash and cash equivalents Premiums and other receivables Investments Reinsurance contract assets Total Assets Provisions, reinsurance and other payables Short-term borrowings Reinsurance contract liabilities Total Liabilities *

USD and Others* USD (’000)

Others mainly represents exposure in minor currencies with immaterial currency risk.

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861 135,332 – 319,379 273,134 2,534,179 273,995 2,988,890 Euro USD (’000)

Total USD (’000)

146,399 384,392 1,608,685 2,139,476

The analysis that follows is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit before tax and equity due to changes in the fair value of currency sensitive monetary assets and liabilities including insurance contract claim liabilities. The correlation of variables will have a significant effect in determining the ultimate impact on market risk, but to demonstrate the impact due to changes in variables, it is necessary to change the variables on an individual basis.

Impact on profit or loss Changes in variables

Currency

31 December 2017 USD (’000)

31 December 2016 USD (’000)

Euro GBP

+10% +10%

(6,499) (25,404) (31,903)

2,709 17,666 20,375

Euro GBP

-10% -10%

6,499 25,404 31,903

(2,709) (17,666) (20,375)

The method used for deriving sensitivity information and significant variables did not change from the previous year. (ii) Interest rate risk Interest rate risk is the risk of changes in market interest rates which may reduce the overall return of interest bearing securities, or reduce the fair market value of the fixed income security. The Group invests in fixed income securities, and holds cash deposits that are subject to interest rate risk.

The Group’s interest risk policy requires managing interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities.

The Group manages and limits its interest rate risk by monitoring changes in interest rates in the currencies in which its cash and investments are denominated, and reacting to these changes in a timely and efficient manner. The Group diversifies its portfolio such that it has no significant concentration of interest rate risk.

The sensitivity of the Group’s investment portfolio to interest rate movements is detailed below, assuming linear movements in interest rates: 31 December 2017

Currency

Qatari Riyals Qatari Riyals

Qatar Re Annual Report 2017

Changes in variables

+50 basis points -50 basis points

61

Impact on profit or loss USD (’000)

5,968 (5,968)

Impact on equity USD (’000)

(24,008) 24,008

31 December 2016 Impact on profit or loss USD (’000)

1,341 (1.341)

Impact on equity USD (’000)

(10,789) 10,789

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management continued The Group’s interest rate risk based on contractual arrangements is as follows: Up to 1 year USD (’000)

1 to 5 years USD (’000)

Over 5 years USD (’000)

Total USD (’000)

963,697 112,960 1,076,657

– 256,512 256,512

– 721,041 721,041

963,697 1,090,513 2,054,210

319,379

–

–

319,379

Up to 1 year USD (’000)

1 to 5 years USD (’000)

Over 5 years USD (’000)

Total USD (’000)

Cash and cash equivalents Investments

717,698 266,834 984,532

– 44,893 44,893

– 342,134 342,134

717,698 653,861 1,371,559

Short-term borrowings

384,392

–

–

384,392

31 December 2017

Cash and cash equivalents Investments

Short-term borrowings

31 December 2016

Effective interest rate (%)

2.97% 3.16%

Effective interest rate (%)

2.27% 3.90%

(iii) Price risk Price risk is the risk that the fair value of or income from a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

The Group’s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate as a result of changes in market prices. The Group’s risk appetite and tolerance statements, and Investment Mandate limit the exposures to equity price risk.

The analysis below is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit or loss and equity.

31 December 2017

Currency

Changes in variables

Qatar Market International Markets Qatar Market International Markets

+10% +10% -10% -10%

Impact on profit or loss USD (’000)

– 1,201 – (1,201)

Impact on equity USD (’000)

3,311 – (3,311) –

31 December 2016 Impact on profit or loss USD (’000)

– 1,129 – (1,129)

The method used for deriving sensitivity information and significant variables did not change from the previous year.

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Impact on equity USD (’000)

3,817 1,128 (3,817) (1,128)

(f) Investment risk Investment risk can arise as a result of implementing an inappropriate investment strategy. The Group’s investment strategy is tailored to meet the Group’s business needs, objectives and regulatory requirements.

The Investment Committee of the Board approves and monitors the implementation of the Investment Mandate by the investment advisors, taking into consideration these objectives and requirements. An update on the investment portfolio is included in the Investment Committee meeting materials. Asset allocations are compared to minimum and maximum allocations and constraints per the investment mandate and, risk appetite and, tolerance statements to ensure compliance. (g) Liquidity risk Liquidity risk arises when the Group is unable to meet its payment obligations as and when they fall due. The Group measures this risk by assessing the appropriateness of the controls in place to monitor and manage liquidity risk exposure and supplement this with cash flow analysis arising from stress testing exercises such as those conducted as part of the Exposure Management Framework.

Liquidity risk is managed through the Group’s overall investment strategy which is focused on allocations to more liquid instruments and wider monitoring of the overall liquidity profile of the investment portfolio. At an operational level liquidity requirements are monitored on a regular basis, and management ensures that sufficient funds are available to meet any commitments as they arise.

The actuarial team provide information to the investment managers on a quarterly basis relating to the maturity profile of the insurance liabilities in order to facilitate appropriate asset allocations. The Group risk appetite statements in relation to liquidity require that the average duration of assets is no longer than the average duration of liabilities.

Maturity profiles The table below summarises the maturity profile of the financial assets and financial liabilities of the Group based on remaining undiscounted contractual obligations, including interest payable and receivable. For insurance contracts liabilities and reinsurance contract assets, maturity profiles are determined based on estimated timing of net cash outflows from the recognised insurance liabilities. Unearned premiums and the reinsurer’s share of unearned premiums have been excluded from the analysis as they are not contractual obligations.

31 December 2017

Financial assets: Non derivatives Available-for-sale investments – Debt securities Qatari public shareholding companies Private equities Held for trading investments – Managed Funds Insurance and other receivables Reinsurance contract assets Cash and cash equivalents Financial liabilities: Non derivatives Reinsurance and other payables Short-term borrowings Due to related parties Reinsurance contract liabilities

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Up to a year USD (’000)

1 to 5 years USD (’000)

Over 5 years USD (’000)

Total USD (’000)

112,960 33,105 6,280 12,009 772,187 364,987 963,697 2,265,225

256,512 – – – 352,758 854,154 – 1,463,424

721,041 1,090,513 – 33,105 – 6,280 – 12,009 – 1,124,945 858 1,219,999 – 963,697 721,899 4,450,548

22,638 319,379 776,265 498,332 1,616,614

– – 211,065 1,197,612 1,408,677

– 22,638 – 319,379 – 987,330 1,214 1,697,158 1,214 3,026,505

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management continued 31 December 2016

Financial assets: Non derivatives Available-for-sale investments – Debt securities Qatari public shareholding companies Quoted shares – International Held for trading investments – Managed Funds Insurance premiums and other receivables Reinsurance contract assets Cash and cash equivalents Financial liabilities: Non derivatives Reinsurance and other payables Short-term borrowings Due to related parties Reinsurance contract liabilities

Up to a year USD (’000)

1 to 5 years USD (’000)

Over 5 years USD (’000)

Total USD (’000)

266,834 38,165 11,276 11,293 205,551 45,242 717,698 1,296,059

44,893 – – – 721,889 555,746 – 1,322,528

342,134 653,861 – 38,165 – 11,276 – 11,293 958 928,398 74,280 675,268 – 717,698 417,372 3,035,959

45,530 384,392 124,989 245,388 800,299

– – 601,157 627,422 1,228,579

– – 855 89,494 90,349

45,530 384,392 727,001 962,304 2,119,227

(h) Concentration risk Concentration risk can arise when the investment portfolio is not appropriately diversified across counterparties, geographical regions and industries. Concentration risk is measured with reference to the Group’s risk appetite and tolerance statements, which limit the concentration of asset holdings on a regional, country and counterparty level, ensuring the investment portfolio is appropriately diversified. (i) Credit risk Credit risk arises from both the underwriting and investment activities of the Group. This represents the risk of counterparties defaulting and not being able to make payments resulting in losses to Qatar Re. A credit risk event can occur due to the failure of reinsurers to settle claims in full, failure of a broker to pass on premiums or failure of a bank or invested party to return cash.

To monitor the Group’s credit risk, the outwards reinsurance team actively monitors exposure to single reinsurance counterparties.

The technical accounting department prepare and monitor aged debt reports, establishing provisions for amounts which are not expected to be recovered due to default. Exposure to brokers is captured within a dashboard by the underwriting department.

The security rating of all banking and custodian counterparties is actively monitored. For all classes of financial assets held by the Group, other than those relating to reinsurance contracts, the maximum credit risk exposure to the Group is the carrying value as disclosed in the consolidated financial statements at the reporting date.

To minimise our exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsures. At each reporting date, management performs an assessment of creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment. Minimum security ratings or collateral requirements are in place for reinsurance counterparties. An approval process is in place for accepting all new reinsurers and banking counterparties, with minimum security ratings also in place for all banking and investment counterparties. All brokers are subject to due diligence procedures.

At each reporting date, management performs an assessment of creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment.

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Age analysis of financial assets as at the year end is as follows:

31 December 2017

Cash and cash equivalents Insurance premiums and other receivables

31 December 2016

Cash and cash equivalents Insurance premiums and other receivables

< 30 days USD (’000)

165,412 1,312,339 1,477,751

31 to 60 days USD (’000)

344,164 (733) 343,431

61 to 90 days USD (’000)

91 to 120 days USD (’000)

444,121 4,078 448,199

– 4,009 4,009

Above 120 days USD (’000)

Total USD (’000)

10,000 963,697 276 1,319,969 10,276 2,283,666

< 30 days USD (’000)

31 to 60 days USD (’000)

61 to 90 days USD (’000)

91 to 120 days USD (’000)

Above 120 days USD (’000)

Total USD (’000)

438,792 866,784 1,305,576

278,906 7,474 286,380

– 3,111 3,111

– 3,097 3,097

– 40,960 40,960

717,698 921,426 1,639,124

Credit exposure by credit rating The table below provides information regarding the credit risk exposure of the Group by classifying the invested assets according to the credit ratings of external rating agencies.

31 December 2017

Cash and cash equivalents Debt securities 31 December 2016

Cash and cash equivalents Debt securities

AAA USD (’000)

AA USD (’000)

A USD (’000)

BBB & Below USD (’000)

Unrated USD (’000)

Total USD (’000)

– 8,927

– 132,769

963,697 402,594

– 510,417

– 35,806

963,697 1,090,513

AAA USD (’000)

AA USD (’000)

A USD (’000)

BBB & Below USD (’000)

Unrated USD (’000)

Total USD (’000)

– –

– 138,035

717,698 376,026

– 137,229

– 2,571

717,698 653,861

Impaired financial assets At 31 December 2017 there are impaired insurance and other receivables of USD 355,000 (2016: USD 355,000). For assets to be classified as ‘past–due and impaired’ contractual payments must be in arrears for more than 90 days. No collateral is held as security for any past due or impaired assets.

The Group records all impairment allowances for loans and receivables in a separate impairment allowance account. A reconciliation of the allowance for impairment losses for loans and receivables is as follows:

At 1 January Charged during the year At 31 December (Note 6)

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2017 USD (’000)

2016 USD (’000)

355 – 355

355 – 355

Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

Notes to the consolidated financial statements For the year ended 31 December 2017 continued 26. Risk management continued (j) Operational and systems risk Operational risk arises from the failure of or inadequate processes, people or systems or from external events that impact the operational capability of the Group. The Group monitors operational risk exposures through its risk register and emerging risk processes which are overseen by the Risk & Capital Committee of the Board. This risk register and emerging risk process also cover strategic risks, reputational risks and legal and litigation risks.

The Group seeks to manage operational risk exposure through the implementation of a robust internal control framework and an effective governance framework. The Group has detailed systems and procedures manuals with effective segregation of duties, access controls, authorisation and reconciliation procedures, staff training and assessment processes etc. with a compliance and internal audit framework. Business risks such as changes in environment, technology and the industry are monitored through the Group’s strategic planning and budgeting process. The Group has established business continuity and disaster recovery plans. (k) Group risk Group risk represents the risk arising as a result of being part of an insurance group, including exposures resulting from intra-group transactions. It arises from the relationship that the Group has with the parent group, including the reinsurance cover provided by QIC and the dependence on the QIC Group credit rating and parental guarantee. Operational dependency is limited to only one material intra-group outsourcing contract relating to investment advisory services. (l) Strategic risk The Group has identified a number of strategic risks within the risk register, covering risks to the planning, communication and execution of the business plan, and risks associated with the management and availability of capital. The risk of business strategy failure is mitigated through the review and sign off of the Group’s business plan by the Board and alignment of the business plan, risk appetite, capital requirements and underwriting guidelines. Stress and scenario testing helps to identify and assess the risks to the business plan. All Board members and Officers of the Group are subject to requirements to confirm that they are fit and proper to discharge their responsibilities, which includes providing the necessary strategic direction. (m) Reputational risk Reputational risk arises as a result of adverse publicity regarding business practices or associations. The risk is mitigated through the Group’s corporate governance framework and Board oversight of its strategies, policies and risk appetite. The Group is committed to complying with sound business practices and compliance with applicable laws and regulations. (n) Capital management At any given time, the Group’s capital management policy is to maintain a strong capital base to support the business plan based on its own view of the capital required, based on the principles applicable to operating in a Solvency 2 equivalent jurisdiction, while also meeting prescribed regulatory capital requirements.

Qatar Re has formally documented a Capital Management Action Plan which identifies various thresholds of capital depletion and the associated remedial action that the Group anticipates it would undertake in the defined scenarios.

Solvency self-assessment procedures are in place which enable the Group to identify, assess, monitor, manage, and report on the current and emerging risks faced, and to determine the capital necessary to ensure that overall solvency needs are met at all times.

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27. Contingencies, guarantees and commitments The Group, like most other insurance and reinsurance companies, is continuously involved in legal proceedings, claims and litigation in the normal course of business. As at 31 December 2017 there are no additional contingent liabilities to establish in relation to any of these legal proceedings.

The Group is also subject to insurance solvency regulations in all of the territories in which it issues insurance contracts. There are no contingencies associated with the Group’s compliance or lack of compliance with these regulations.

Letters of Credit: The Company provides letters of credit to clients as additional security for outstanding recoverables from the Company. The majority of these clients represent US insurance companies. As the Company is not an admitted reinsurer in the US, the terms of certain US reinsurance contracts require Qatar Re to provide letters of credit or other terms of collateral to clients in order that such clients may include any recoverable balances from Qatar Re as an admitted asset in their US statutory financial statements. The Company has in place unsecured letter of credit facilities with various highly rated banking institutions that are for the provision of a letter of credit mostly in favour of US ceding companies, as well as ceding companies from other jurisdictions. These banking institutions are all included on the NAIC List of Qualified US Financial Institutions. Letters of Credit under these facilities totalling USD 182,323,000 were issued as at 31 December 2017 (2016: USD 47,320,000).

Guarantee: The Company has provided a guarantee to QEL, an affiliated company, whereby the Company guarantees certain amounts payable to QEL by specified third parties. The intent of the guarantee is to transfer credit risk to the Company as a part of a capital management strategy. The maximum amount payable under the guarantee as at 31 December 2017 was USD 53 million.

Operating leases: The Group has entered into commercial operating leases on certain properties in relation to its various offices in Bermuda, London, Zurich, Singapore and Dubai. The future aggregated minimum lease payments required by the Group under the non-cancellable operating leases over the expected lease terms are as follows:

Within one year After one year but not more than five years More than five years

2017 USD (’000)

2016 USD (’000)

4,598 9,585 1,503 15,686

3,773 13,294 1,384 18,451

28. Comparative figures and restatement of prior years’ financial information Certain comparative figures for the year ended 31 December 2016 have been reclassified to conform to current year presentation and have no impact on the previously reported profit or equity position of the Group.

29. Subsequent events Markerstudy Group acquisition: The Company has signed a sales purchase agreement to buy Markerstudy’s Gibraltar-based insurance companies, namely Markerstudy Insurance Company Limited, Zenith Insurance PLC, St. Julians Insurance Company Limited and Ultimate Insurance Company Limited. The Markerstudy group underwrites more than 5% of the UK motor insurance market, generating premiums of about GBP 750 million per year. The transaction is subject to regulatory approvals and, if approved, is anticipated to be completed in the first half of 2018.

QIC Group reorganisation – Contribution of QEL: In the fourth quarter of 2017, relevant companies within the QIC Group notified the Maltese Financial Services Authority of the intention to make QEL a subsidiary of the Company. This move is subject to regulatory approvals and is expected to be completed during the first half of 2018. In 2017 QEL generated gross premium of USD 411 million and had capital and surplus of USD 54.8 million.

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Overview

Strategy and performance

Financial condition report

Corporate governance

Financial condition report

Financial statements

69 1.

Executive summary

70 70 71 72 73 75 75

Business and performance The Company Ownership structure Group structure Underwriting performance Investment performance Other material income and expenses

2.

2.1 2.2 2.3 2.4 2.5 2.6

Additional information

76 3. Governance structure 76 3.1 Board and Senior Executives 78 3.2 Fitness and proprietary requirements 83 3.3 Risk management and solvency self-assessment 86 3.4 Compliance function 86 3.5 Internal control framework 86 3.6 Internal audit function 86 3.7 Actuarial function 87 3.8 Outsourcing 88 88 91 92 92

4. Risk profile 4.1 Material risk exposures and risk mitigation 4.2 Monitoring the external risk environment 4.3 Material risk concentrations 4.4 Investment of assets in accordance with the prudent person principle 92 4.5 Stress testing and sensitivity analysis 93 5. Solvency valuation 93 5.1 Valuation of assets for solvency purposes 93 5.2 Valuation of liabilities for solvency purposes 95 6. Capital management 95 6.1 Eligible Capital 97 6.2 Capital requirements 98 7. Subsequent events 98 7.1 Group reorganisation 98 7.2 Acquisition of Gibraltar based insurance entities of the Markerstudy Group 98 8. Declaration

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1. Executive summary

Qatar Re remains a well capitalised company with a diversified underwriting portfolio.

Qatar Reinsurance Company Limited (‘Qatar Re’ or ’the Company‘) is a well-capitalised reinsurer with over 400% coverage of the Bermuda Solvency Capital Requirement. It has an eligible regulatory capital base of USD 1.2 billion, and total invested assets in excess of USD 2 billion.

The key factors which affected the financial condition of the Company during 2017 were: –– issuance of Tier 2 capital in March, which increased the eligible capital base by USD 450 million and provided diversification of the investor base; –– the occurrence of several catastrophe events in North America; –– an increased retention of risk; –– the strengthening of reserves following the change in the Ogden discount rate and other developments; and –– premium growth.

The key elements underlying the Company’s financial condition include: –– a strong capital base; –– a diversified reinsurance portfolio over half of which consists of low volatility business; –– a high quality investment portfolio; –– our use of well rated or fully collateralised providers of outwards reinsurance; –– careful management of high severity exposures; and –– our comprehensive risk management framework.

To support the ongoing sustainable development of the Company during 2017 and to strengthen our senior management team, we brought in Richard Sutlow, an experienced Chief Financial Officer, from our sister company Antares. We also restructured our Chief Underwriting Office, promoting Luke Roden and Michael van der Straaten to the post of Chief Underwriting Officer with senior actuarial recruits William Mulcahy and Pantelis Koulovasilopoulos as their deputies.

Other major developments during 2017 included the establishment of a branch office in London and the implementation of a new policy administration system, which leverages prior technology investments made by Antares.

We also made the transition of the modelling platform used for Qatar Re’s internal capital model from the existing platform to Tyche, which is used to calculate our own view of the required capital, through the Commercial Insurer’s Solvency SelfAssessment (‘CISSA’) processes.

As the year closed, Qatar Re announced the proposed acquisition of three Gibraltar-based insurers from the Markerstudy Group and the change in ownership of QIC Europe Limited (‘QEL’) to become a wholly owned subsidiary of the Company. These important changes reflect the importance of access to low volatility business given challenging market conditions in the speciality reinsurance markets and position the Company well, via subsidiaries, to access both EU and UK business in a post Brexit environment.

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Overview

Strategy and performance

Corporate governance

2. Business and performance

Despite a challenging environment progress against key value drivers was maintained.

Financial statements

Financial condition report

Additional information

2.1 The Company Qatar Re is licensed as a Class 4 insurer by the Bermuda Monetary Authority (‘BMA’) and is a global multi-line reinsurer writing all major property, casualty and specialty lines of business. The Company operates from its headquarters in Bermuda and through its branches in the Dubai International Financial Centre (‘DIFC’), Singapore, Switzerland and the United Kingdom, and a service company in the Qatar Financial Centre (‘QFC’) in Doha, Qatar.

The Company has been built around what we believe are the essential value drivers: –– proximity to our clients and brokers; –– commitment to excellent financial security; –– market leading data capture and integration; –– development of knowledge intensive products and services; and –– focus on innovation.

We aim to become a leading global reinsurer recognised for the quality of our security and claims payments. It is our firm belief that a respected and successful reinsurance business can be built to suit today’s world, and remain sufficiently nimble and flexible to meet the evolving challenges ahead.

We work closely with our clients to understand their business and to help improve the overall quality of their portfolio and risk profile. We actively seek to support insurance entrepreneurs.

We build relationships with clients who possess a superior access to and knowledge of their preferred areas of business.

We seek to add value to our clients by providing meaningful line sizes and often bespoke technical support.

In deploying our capacity in a risk managed way, the concepts of risk tolerance and risk appetite are central to our approach.

Qatar Re defines risk appetite as the total level of risk that the Company is prepared to seek in the pursuit of its strategic objectives. The risk appetite and tolerance statements cover the full range of material risks to which the Company is exposed and are set by the Board of Directors (‘Board’). In addition to the Board-approved risk appetite and tolerance limits, there are a number of different managerial level limits that are used across functions to manage risk exposures within the approved risk appetites.

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The contact details of our insurance supervisor and approved auditors are as follows: Insurance Supervisor Bermuda Monetary Authority BMA House 43 Victoria Street Hamilton Bermuda

Approved Auditors – Bermuda Statutory Reporting Ernst & Young Ltd 3 Bermudiana Road Hamilton Bermuda Approved Auditors – IFRS Accounts Ernst & Young – Qatar Branch Al Gassar Tower Majlis Al Taswon Street West Bay, 164 Doha Qatar Our ultimate parent company is regulated by the Qatar Central Bank (‘QCB’) and aspects of this take into account the consolidated position of the Group, which includes Qatar Re. This is not akin to Group supervision in a Solvency II context.

Qatar Re Annual Report 2017

2.2 Ownership structure Qatar Re is a wholly-owned subsidiary of QIC Capital LLC, which in turn is a 95.74% majority-owned subsidiary of Qatar Insurance Company S.A.Q (‘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. QIC was the first domestic insurer in Qatar and is currently the largest insurance company in the Middle East and North Africa (‘MENA’) with total shareholders’ equity of USD 2.2 billion (as of 31 December 2017). There are no single shareholders whose ownership percentage exceeds 10%, with two separate Qatari government employee pension funds managed by pension fund trustees holding a combined 13.8% of shares, 12.0% owned by members of the Board of Directors of QIC, 11.0% owned by various members and associates of the Qatari royal family, 9.7% owned by foreign institutional investors, with the remainder of shares being free float.

QIC is among the highest rated insurers in the Gulf region with a rating of A/Stable from S&P Global Ratings and A/Excellent from A.M. Best. Qatar Re is backed by a parental guarantee from QIC and is also currently rated A/Stable by S&P Global Ratings and A (Excellent) by A.M. Best.

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Overview

Strategy and performance

Corporate governance

Financial condition report

Financial statements

Additional information

2. Business and performance continued Figure 2.3: Group structure

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

QIC Capital LLC (Qatar Financial Centre)

QIC Europe Limited (Malta)

Branch Office (Singapore)

Qatar Reinsurance Company Limited (Bermuda)

Qatar Re Underwriting Limited (UK)

Branch Office (Switzerland)

Branch Office (DIFC)

Branch Office (UK)

Antares Group Holdings Limited (UK)

Qatar Reinsurance Services LLC (QFC)

Note: This structure chart shows only the key international subsidiary companies. It does not show the subsidiaries/branches of companies other than Qatar Re.

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2.4 Underwriting performance 2.4.1 Underwriting strategy Qatar Re is committed to encouraging innovation in insurance, supporting insurance entrepreneurs by offering tailored reinsurance solutions to our clients through our flexibility and efficiency. We underwrite a low volatility, international portfolio of treaty and facultative reinsurance, and have limited risk appetite for catastrophe risk retention. A significant proportion of our portfolio is quota share business which has a similar risk profile to primary business. We have built out our infrastructure and have extended our reach, which enables us to diversify geographically. We write the following nine dedicated lines of business, protecting us from the volatility which can be experienced in a less diverse or catastrophe risk heavy portfolio: –– Property Catastrophe –– North American Property –– Property per Risk (outside North America) –– Casualty (including Motor) –– Marine, Aviation and Energy –– Agriculture –– Credit and Financial Risks –– Property Facultative –– Non-traditional We also write a significant whole account quota share reinsurance contract for our sister company, QIC Europe Limited (‘QEL’)(1). The quota share primarily comprises business written in the UK and EU via QEL’s MGA and coverholder arrangements such as household property, motor, pet, marine, residual value insurance and other classes that would not usually be ceded to reinsurance markets.

The projected ultimate gross premiums as per the 2018 business plan for Qatar Re on a standalone basis are shown in Figure 2.4.1. This does not reflect the additional business we expect to write through QEL and the Markerstudy companies after the completion of each transaction. Depending on the completion date, it is expected that the consolidation of these entities into Qatar Re will mean that Casualty (including Motor) gross premiums will increase by approximately USD 275 million for the 2018 underwriting year, from the amount shown in Figure 2.4.1.

(1) QEL is domiciled in Malta and is a wholly-owned subsidiary of QIC. It was established in 2014 and is authorised to write all non-life classes of insurance and reinsurance business throughout the European Economic Area (‘EEA’).

Qatar Re Annual Report 2017

Figure 2.4.1: Split of gross premium by underwriting year – 2014 to 2018 USD million 506 17%

1,093 4% 4% 5% 4%

8%

6% 11%

8%

1,426 3% 3% 4% 5% 8% 7%

1,757 4% 3% 2% 8% 4% 6%

1,493 1% 4% 3% 10%

2% 4% 8%

4% 5%

6%

2% 9%

12%

12%

57%

56%

2017†

2018*

12%

5% 14%

55%

53%

2% 9%

31%

2014†

2015†

Casualty (including Motor) Property N. America Marine and Aviation Credit and Financial Risks Lloyd’s Capacity † *

2016†

Property (outside N. America) Agriculture Facultative Property Catastrophe

Ultimate as at December 2017.

Projected Ultimate Result as per 2018 Business Plan.

Qatar Re’s general philosophy is to strictly manage our underwriting risk through rigorous underwriting techniques based around high quality modelling and exposure management. Our expectations of underwriting performance are explicit for each risk we assume. Where we write significant or whole account quota share reinsurance contracts, such as those at QEL and selected US insurers, we carefully set and monitor underwriting parameters.

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Overview

Strategy and performance

Corporate governance

Financial statements

Financial condition report

Additional information

2. Business and performance continued 2.4.2 Underwriting results 2017 presented challenging underwriting conditions, which reflected an industry with substantial excess capital. We reacted to soft market conditions by continuing to reduce our exposure or withdraw from certain ‘volatility’ lines, increasing the proportionate focus on structured reinsurance and those lines which continue to offer superior returns. The CUO office undertook a comprehensive review of our portfolio during 2017, with a view to optimising the existing business and identifying areas of future growth, while reducing exposure in lines of business which were not performing. We have continued to underwrite a well-diversified portfolio, with greater emphasis on areas of the market where we see greatest value. Gross written premiums increased by 30% to USD 1.63 billion, compared with USD 1.25 billion in 2016. Net earned premiums grew by 53.9% to USD 540.7 million, compared with USD 351.2 million in 2016.

The net underwriting result decreased from an underwriting profit of USD 54.0 million in 2016 to an underwriting loss of USD 66.8 million in 2017. The loss ratio on the Company’s net earned premiums increased from 72.9% in 2016 to 95.7% in 2017. Our underwriting result reflects a number of notable events, including a significant change to the UK’s Ogden discount rate used to value lump sum bodily injury awards affecting prior year reserves, and several catastrophe events including hurricanes Harvey, Irma and Maria as well as the California wildfires.

Figure 2.4.2a: Underwriting performance by business segment Gross premium written by business segment for the reporting period Line of business

Property Catastrophe North American Property(2) Property (outside North America) Casualty (including Motor)(2) Marine and Aviation Agriculture Credit and Financial Risks Facultative Non-traditional Total

2017 USD (’000)

2016 USD (’000)

51,191 28,587 183,232 989,927 53,618 91,863 44,969 119,289 62,873 1,625,549

46,055 10,476 157,011 728,207 94,709 66,670 56,974 59,755 29,515 1,249,371

(2) North American Casualty business was previously included in the North American Property line of business. This was amended during 2017, and we have adjusted the split of 2016 to reflect the North American Casualty business within the Casualty (including Motor) business segment.

Figure 2.4.2b: Underwriting performance by geographical region Gross premium written by domicile of reinsured for the reporting period Territory

Africa Americas Asia Europe Oceania Total

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2017 USD (’000)

2016 USD (’000)

13,341 271,391 146,287 1,185,485 9,045 1,625,549

11,681 159,789 207,223 861,997 8,682 1,249,371

2.5 Investment performance Net investment income grew significantly over the year, increasing from USD 32.7 million in 2016 to USD 62.6 million in 2017.

Our investment strategy is heavily weighted towards fixed income and cash deposits, with concentration limits in place. We invest in a combination of sovereign and high investment grade fixed income securities. The balance of the portfolio is invested in equities and mutual funds. The return on investments for the reporting period was as follows: Figure 2.5: Investment performance 2017 Investment Class

Market value USD (’000)

Fixed Income Bonds Equities and Alternatives Cash* Total

1,090,513 51,394 963,697 2,105,605

2016 % return

4.1% (0.6)% 3.4% 3.6%

Market value USD (’000)

653,861 60,734 717,698 1,432,294

% return

4.9% (3.7)% 2.1% 4.8%

Net investment income for 2017 of USD 62.6 million is net of finance costs of USD 6.0 million. Net investment income for 2016 of USD 32.7 million is net of finance costs of USD 4.1 million. The main driver for the increase in our investment income was due to the increase in average invested assets following the Tier 2 capital raise of USD 450 million in the first quarter of 2017, and the additional capital contribution from QIC of USD 200 million in the fourth quarter of 2016. We have also benefited from an increase in term deposit rates on our cash and cash equivalent balances.

While our primary investment manager remains an affiliate, Qatar Economic Advisors O.P.C. (‘QEA’), as part of a strategy to diversify investment risk, a second investment manager, HSBC Global Asset Management (UK) Limited (‘HSBC’), was appointed during the year to manage a portfolio of approximately USD 300 million.

We have reduced our proportion of fixed income and equity exposure to the Middle East and North Africa (‘MENA’) Region during 2017, with 42% of the fixed income portfolio currently invested in the MENA region (73% in 2016).

2.6 Other material income and expenses The main expenses outside of our underwriting and investment expenses relate to employee compensation. Our headcount remained stable over the year, increasing marginally from 161 staff at the end of 2016 to 162 staff at the end of 2017. The below table shows a breakdown of our operating and administrative expenses: Figure 2.6: Expenses Expense

Employee related costs Rental expenses Maintenance and IT expenses Other expenses* Total *

2017 USD (’000)

2016 USD (’000)

33,418 4,981 3,280 9,082 50,761

33,434 3,411 3,180 7,701 47,726

Includes professional fees, travel expenses, Board remuneration and certain costs relating to foreign exchange.

The increase in the operating expenses from USD 47.7 million to USD 50.8 million is as expected, with an increase in accommodation costs driven by new office space, and stable employee related costs in line with minimal increase to our headcount.

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Overview

Strategy and performance

Corporate governance

3. Governance structure

Qatar Re has established a sound and effective corporate governance framework that is appropriate to the size, nature, complexity and risk profile of the Company.

Financial statements

Financial condition report

Additional information

3.1 Board and Senior Executives 3.1.1 Structure, roles and responsibilities The Board is responsible for ensuring that proper systems and oversight of risk management are in place and standards for compliance are being adhered to. The Board consists of three independent Non-Executive Directors, two non-independent Non-Executive Directors and one Executive Director. Together, they provide an appropriate balance of skills, experience, knowledge and independent challenge. At the beginning of the reporting period there were two Executive Directors on the Board (Gunther Saacke and Alastair Speare-Cole).

Alastair Speare-Cole resigned from his role as Chief Underwriting Officer on 31 January 2017 and from the Board on 6 February 2017.

The Board has appointed an Investment Committee, a Risk and Capital Committee and an Audit Committee to assist it in the effective discharge of its duties, although it continues to retain ultimate responsibility.

In addition to the Committees of the Board, the Company has also established an Executive Management Committee, a Reserving Committee and an Underwriting and Portfolio Management Committee to assist the Chief Executive Officer and Senior Executives in discharging their duties and responsibilities in relation to the prudent management and oversight of the Company’s activities.

The Board’s oversight responsibilities include: –– ensuring that the Company is effectively directed and managed; –– ensuring that its activities are conducted with due care, skill and integrity; –– confirming that corporate governance policies and practices are developed and applied in a sound and prudent manner; –– developing high-level strategy and objectives; –– reviewing and approving business plans and budgets; –– ensuring sufficient capital is held to maintain the Company’s ongoing solvency; –– overseeing the Risk Management Framework, including setting the Company’s risk appetite and tolerances; –– appointing senior executives; –– approving the financial statements; –– setting and overseeing the effectiveness of the Company’s Governance Structure and Internal Control System; and –– reviewing and approving significant policies and procedures.

The Board meets at least quarterly and at other times as required, and carries out its duties within established terms of reference. The Board is provided with accurate, appropriate, and timely information to enable it to monitor and review key areas, including the performance of the Company and the key risks to which it is exposed.

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Figure 3.1.1: Board and Committee structure

Board of Directors

Purpose: The Board is responsible for setting corporate strategy, reviewing and monitoring managerial performance at an acceptable level of risk. The Board will direct and govern Qatar Re’s activities and protect the interests of stakeholders.

Investment Committee

Audit Committee

Purpose: To assist the Board in the coordination and oversight of Qatar Re’s investment portfolio.

Purpose: To assist the Board in its oversight of the integrity of the financial statements, effectiveness of internal control and oversight of internal and external auditors.

Risk and Capital Committee

Purpose: To assist the Board in overseeing and challenging the risk management and capital management activities.

Executive Management Committee

Reserving Committee

Purpose: To assist the CEO in the oversight and management of technical reserves in Qatar Re’s financial balance sheet.

Qatar Re Annual Report 2017

Chief Executive Officer

Purpose: To assist the CEO in ensuring the effective management of the organisation in accordance with its objectives and values.

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Underwriting/ Portfolio Management Committee Purpose: To assist the CEO in developing and setting the underwriting policies and strategy and providing oversight of the overall portfolio.

Overview

Strategy and performance

Corporate governance

3. Governance structure continued Qatar Re has adopted a ’Three Lines of Defence‘ model to ensure appropriate segregation of roles and responsibilities across the Company. The segregation of responsibilities applies across all business functions and various layers of review exist within each business function and between Committees and the Board of Qatar Re. These controls are audited on a regular basis by the Company’s internal and external auditors.

The Board Committees’ responsibilities are segregated as follows: –– Risk and Capital Committee (‘RCC‘) provides oversight of the Company’s risk management, capital management and exposure management activities. The Committee’s key responsibilities include: oversight of current and future potential risk exposures, including the determination and monitoring of actual exposures against risk appetite and tolerance; providing guidance on the implementation of the risk management framework; ensuring the maintenance of sufficient economic and regulatory capital and allocation of capital; and promoting a risk aware culture.

–– Investment Committee (‘IC‘) provides oversight of the performance and management of the Company’s investment portfolio. The Committee’s key responsibilities include: development and maintenance of an appropriate investment strategy; monitoring the implementation of the investment strategy, asset allocation and value of invested assets; and monitoring the performance of the investment manager and investment advisers.

–– Audit Committee (‘AC‘) provides oversight of the effectiveness of internal controls and the performance of the internal and external audit functions. The Committee’s key responsibilities include providing assurance on the integrity and/or activities of: financial reports and statements; the risk management and wider internal control system; and internal and external audit functions. The Audit Committee also assumes the duties and responsibilities of a Remuneration Committee.

3.1.2 Remuneration Policy The Company’s Remuneration Policy sets out the principles and practices for the development, implementation and application of the employee remuneration framework. This policy is aimed at promoting sound and effective risk management and does not encourage excessive risk taking activities. The policy applies to all staff of the Company, including Board members, the Executive Committee members and key internal control function holders. The 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.

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Financial statements

Financial condition report

Additional information

3.1.3 Pension and early retirement schemes Members of staff in some of our locations benefit from a standard default percentage of annual salary for pension (or pension benefit equivalent). As the company does not operate any defined benefit pension schemes, it is not exposed to funding issues associated with such defined benefit pension liabilities.

3.1.4 Material transactions with shareholder controllers, persons who exercise significant influence, the Board or Senior Executives Qatar Re entered into a quota share reinsurance agreement with its ultimate parent company, QIC, whereby 50% of the net business written by Qatar Re during 2017 was ceded to QIC (70% in 2016). QIC has some limited participation in other reinsurance agreements, and also acts as a fronting insurer for Qatar Re in certain jurisdictions.

Qatar Re has an inward variable quota share agreement with QEL, a wholly owned subsidiary of QIC. Four of the Directors of Qatar Re are also Directors of QEL (Gunther Saacke, Sunil Talwar, Ali Saleh N Al Fadala and George Prescott). In the fourth quarter of 2017, relevant regulators were notified of the intent to make QEL a subsidiary of the Company (see section 7.1 for more information).

3.2 Fitness and proprietary requirements 3.2.1 Fit and proper processes for assessing the Board and Senior Executives Staff resourcing within the Company is managed by the Human Resources function, which sets the minimum standards for the appointment and promotion of individuals throughout the organisation. The Company ensures that Board members and senior executives are fit and proper to discharge their responsibilities in accordance with the following definitions: –– Fit is used to analyse whether their professional qualifications, knowledge and experience are adequate to enable sound and prudent management of the Company’s activities. An assessment of whether an individual is ‘Fit’ involves an evaluation of the person’s professional qualifications, knowledge and experience to ensure they are appropriate to the role. The assessment shall also demonstrate whether the person has exercised due skill, care, diligence, integrity and compliance with relevant standards that apply to the area or sector in which the individual has worked.

–– Proper defines whether a person is of good repute and integrity. An assessment of whether a person is ‘Proper’ includes an evaluation of a person’s honesty, reputation and financial soundness. This will include, if relevant, criminal convictions or disciplinary offences.

The Fit and Proper Policy covers the initial and ongoing procedures to be applied in order to confirm that the relevant individuals meet the specified ‘Fit and Proper’ requirements, together with relevant regulatory notification and reporting responsibilities.

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Figure 3: Governance framework Committee of the Board Management Committee

Business Operational Function Key Control Function

* Outsourcing arrangement ‘approved’ by the Bermuda Monetary Authority

Board of Directors Gunther Saacke Executive Director

Ali Saleh N. Al Fadala Non-Executive Director

Sunil Talwar Non-Executive Director & Chairman

George Prescott Independent Non-Executive Director

Risk and Capital Committee

Investment Committee

– Sunil Talwar (Chairman) – George Prescott – David Sykes – Gunther Saacke

David Forcey Independent Non-Executive Director

David Sykes Independent Non-Executive Director

Audit Committee

– George Prescott (Chairman) – David Forcey – Sunil Talwar – Gunther Saacke

– George Prescott (Chairman) – David Forcey – David Sykes

Executive Management Committee

Risk Management (Andrew Smith)

Internal Audit (Outsourced to PwC*)

Underwriting/Portfolio Management Committee

Compliance (Adam Young)

Reserving Committee

Actuarial – loss reserve specialist (Claude Perret)

Investments

Legal

Finance

IT

Underwriting

HR

Claims First Line of Defence

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Second Line of Defence

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Third Line of Defence

Overview

Strategy and performance

Corporate governance

3. Governance structure continued

The current Board includes three independent Non-Executive Directors, two Non-Executive Directors (non-independent) and one Executive Director, providing an appropriate balance of skills, experience, knowledge and independent challenge.

Financial statements

Financial condition report

Board of Directors Executive Director

Non-Executive Directors

Gunther Saacke Executive Director and Chief Executive Officer

Sunil K. Talwar Non-Executive Director and Chairman

Gunther Saacke joined the Company in 2013 and is the CEO of Qatar Re, a post which he has held since he joined. After joining the industry more than 25 years ago, Mr Saacke established a track record of successfully building and integrating high-profile teams of industry specialists across all major property and casualty classes as well as specialty lines. His expertise also includes risk management and portfolio efficiency and optimisation.

Sunil Talwar is Group CEO – International Operations at QIC Group. He is currently Chairman of Qatar Re’s Board, Chairman of the Investment Committee and a member of the Risk and Capital Committee.

Prior to joining Qatar Re in 2013, he served as founding Chief Executive and Chief Underwriting Officer of Novae Re, a multi-line reinsurance operation in the Lloyd’s market.

Previously, he was Head of Reinsurance at Endurance Worldwide.

Mr Saacke studied Philosophy and Mathematics at the Sorbonne (Paris I) in France and holds a Magister Artium in Philosophy from the University of Hamburg.

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Additional information

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Mr Talwar joined QIC in 1986, as part of the management team and is credited with elevating QIC Group to its position as one of the leading insurance groups in the region. Apart from his overall financial and general management responsibilities, Mr Talwar is directly responsible for managing the investment strategy of QIC, which involves the management of assets (investments and cash) in excess of USD 4 billion. Mr Talwar has been instrumental in driving the Group’s international growth and in implementing its strategy of diversifying its revenue base.

Mr Talwar is a qualified Chartered Accountant and a member of the Institute of Chartered Accountants of India.

Ali Saleh N. Al Fadala Non-Executive Director

George Andrew Prescott Independent Non-Executive Director

David John Forcey Independent Non-Executive Director

David Sykes Independent Non-Executive Director

Ali Saleh N. Al Fadala joined QIC in 1986 and worked in various departments and was subsequently appointed as the Head of Technical Department, handling claims and reinsurance.

In 2010, Mr Fadala was appointed as CEO of Damaan Islamic Insurance Company (Beema), an entity of the QIC Group and assumed responsibility to further grow and raise the profile of Takaful and the newly founded establishment. In 2013, he was appointed as the Senior Deputy Group President and CEO of the QIC Group and was elected as a board member for various entities within the QIC Group.

More recently, he has been appointed as a board member of the Commercial Bank of Qatar (CBQ) representing QIC.

George Prescott joined the Board of Qatar Re in 2013 and is currently Chairman of the Audit and the Risk and Capital Committees and a member of the Investment Committee.

Mr Prescott began his career over five decades ago and he has significant experience in investment management, accountancy, corporate finance activities, internal audit and compliance. From 1997 until his retirement in 2009, Mr Prescott was Deputy Group Chief Executive of Ecclesiastical Insurance Group (‘EIG‘) with responsibility for the Group’s investment, finance, internal audit and compliance functions.

Prior to joining EIG in 1980, Mr Prescott worked as an investment manager at Henry Schroder Wagg & Company Limited (now Schroders plc).

He began his career in 1967 at Harmood Banner & Company (now PriceWaterhouseCoopers ‘PwC’). For a number of years, Mr Prescott was a member of the Investment Committee of the Association of British Insurers (ABI) and currently holds a number of non-executive appointments.

David Forcey joined Qatar Re’s Board in 2013 and is a member of its Investment and Audit Committees.

David Sykes joined Qatar Re’s Board in 2015 and is a member of its Investment and Audit Committees.

Most recently, Mr Forcey was Deputy Chairman of Aon Re UK, Chairman of Re Global at Aon Limited, Joint Chairman of Non-Marine Re for Aon Group Limited and a Director of Aon Re International until his retirement in 2008. He began his broking career in 1968 with Jardine Thompson & Graham Limited and later joined Steel Burrell Jones Group plc where he was a director and Meacock Samuelson & Devitt plc of which he was chairman.

Mr Sykes joined Strategic Risk Solutions (‘SRS‘) in 2010 as Managing Director. Before this, he had a 20-year career with Marsh IAS Management Services in Bermuda, where he was most recently Senior Vice President focusing on formation services for Bermuda captives, medium to large insurance and reinsurance companies, sidecars and a number of Lloyd’s syndicates who required a Bermuda presence.

During his five decades in the industry, Mr Forcey has been a leading market producer in non-marine liability business.

His specialism was motor excess of loss where, with his colleagues, he grew the account at MS&D and later at Aon to be the largest in the industry.

Mr Forcey is an Associate of the Chartered Insurance Institute.

Mr Prescott received a Bachelor of Arts degree in Spanish and French from Queen Mary College at the University of London.

He qualified as a Chartered Accountant and is a Fellow of the Institute of Chartered Accountants in England and Wales.

During his three decades in business, Mr Sykes has worked with a variety of insurance companies including those in the professional sports, healthcare, energy and marine industries.

He has also been instrumental in providing formation and management services to several new insurance and reinsurance companies in Bermuda including sidecars, Lloyds’ syndicates and Bermuda reinsurance groups.

Mr Sykes holds a Bachelor of Science degree in Applied Mathematics from the University of Warwick. He is also a qualified Chartered Accountant and a member of the Institute of Chartered Accountants of England and Wales and an Associate of the Chartered Insurance Institute.

Correct at time of publishing and reflects Alastair Speare-Cole’s resignation from the Board of Directors with effect 6 February 2017.

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3. Governance structure continued 3.2.2 Professional qualifications, skills and expertise of the Board and Senior Executives Board of Directors Gunther Saacke Executive Director and Chief Executive Officer See biography in Directors’ section page 80.

Sunil Talwar Non-Executive Director and Chairman See biography in Directors’ section page 80.

Ali Saleh N. Al Fadala Non-Executive Director See biography in Directors’ section page 81.

George Andrew Prescott Independent Non-Executive Director See biography in Directors’ section page 81.

David John Forcey Independent Non-Executive Director See biography in Directors’ section page 81.

David Sykes Independent Non-Executive Director See biography in Directors’ section page 81.

Alastair Speare-Cole Director (until 6 February 2017) Alastair Speare-Cole resigned in early 2017.

Senior Executives Gunther Saacke Chief Executive Officer See biography in Directors’ section page 80.

Luke Roden Chief Underwriting Officer – Short Tail Classes Luke Roden has a track record of developing and maintaining large, profitable portfolios of treaty reinsurance business over the last 25 years and has been central to the development of the Company since his appointment in 2012. Mr Roden has lived and worked in North America, Europe, Bermuda and the Middle East during his career. Mr Roden formerly held the position of Deputy Chief Underwriter but was promoted following a decision of the Board on 14 February 2017. Mr Roden is now responsible for all short tail classes of business underwritten by the Company. He is also Head of Ceded Reinsurance and the regulatory Principal Representative of Qatar Re in Bermuda.

Qatar Re Annual Report 2017

Financial statements

Financial condition report

Additional information

Michael van der Straaten Chief Underwriting Officer – Long Tail and Specialty Classes Michael van der Straaten began his career at Lloyd’s as a box manager and non-marine property treaty underwriter.

Mr van der Straaten joined Qatar Re in December 2016 from Chubb Tempest Re where he held the role of Deputy Head of London and Head of Casualty, overseeing the development of the international casualty and motor portfolios. Prior to this, Mr van der Straaten held various underwriting positions with a primary focus on casualty lines alongside wider management responsibilities.

Mr van der Straaten was initially appointed as Deputy Chief Underwriter but was promoted on 14 March 2017 following a decision of the Board on 14 February 2017.

Richard Sutlow Chief Financial Officer (from 1 March 2017) Mr Sutlow was appointed Chief Financial Officer on 1 March 2017. Before joining Qatar Re, Mr Sutlow was Chief Financial Officer at our sister company Antares Managing Agency Limited. In conjunction with Stephen Redmond, he was responsible for raising the capital and establishing the group structure for the Antares venture. This included establishing Syndicate 1274 at Lloyd’s in 2008 and, subsequently, the Antares Managing Agency in 2010. Mr Sutlow is also Chief Financial Officer of QIC Capital, the parent company of both Antares and Qatar Re. Prior to Antares, Mr Sutlow was Chief Financial Officer for Württembergische’s UK operations, where his responsibilities also extended to underwriting services, IT, risk management and compliance. Mr Sutlow’s early career was with Eagle Star Re, where he covered a broad range of finance roles and technical insurance. He is an associate of the Chartered Institute of Management Accountants and a Chartered Insurer.

Andrew Smith Chief Risk Officer Andrew Smith joined Qatar Re in May 2016 having worked as a consultant with the Company on its re-domiciliation to Bermuda. Prior to joining the Company, Mr Smith led the financial services risk management and actuarial teams at EY Bermuda where he advised and supported commercial clients and industry associations on the changing risk and capital agenda. Prior to moving to Bermuda in 2011, Mr Smith was with PwC, based in London, working in the London market and internationally with clients across Europe, Asia and the Americas. While Mr Smith has focused on risk management for most of his career, he is a Chartered Accountant by training and is a Fellow of the Association of Chartered Certified Accountants and a member of the Institute of Chartered Accountants in England and Wales.

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Stephen Tidd Chief Operating Officer Stephen Tidd joined Qatar Re in October 2015 as Head of Operations and was appointed Chief Operating Officer on 1 July 2016. Mr Tidd has over 25 years’ experience in the insurance industry, including business leadership, general and operations management, and as a technical specialist. Mr Tidd’s experience extends across both the retail and reinsurance sectors, with a particular emphasis on UK motor insurance. Prior to joining Qatar Re, Mr Tidd served as Managing Director of Service Underwriting Agency Ltd. Mark Cockroft Chief Actuary Mark Cockroft has more than 20 years’ experience in general insurance actuarial work, with expertise in pricing, reserving and capital modelling for a variety of lines of business and firms.

Mr Cockroft started his career in the London market and international reinsurance operations such as GE Frankona and Endurance. Prior to joining Qatar Re, he chaired the Institute of Actuaries working party researching the effects of periodic payment orders in the United Kingdom. Mr Cockroft is a Fellow of the Institute and Faculty of Actuaries, founding member of the committee for the Zurich and Gulf Actuarial Societies, and a member of International Actuarial Association’s Section for Actuarial Studies in Non-life Insurance.

Alastair Speare-Cole Chief Underwriting Officer (until 31 January 2017) Alastair Speare-Cole resigned in early 2017.

Parvez Siddiqui Chief Financial Officer (until 1 March 2017) Parvez Siddiqui was Chief Financial Officer of Qatar Re until the end of February 2017. He remains with the Company but now reports to Richard Sutlow.

Sandeep Nanda In the Qatar Re FCR for the period ending 31 December 2016, it was noted that there was an intention to appoint Sandeep Nanda as Chief Investment Officer of Qatar Re during 2017. Following the appointment of Richard Sutlow as Chief Financial Officer, it was determined that oversight of investment activities could be addressed by him. As a result, Sandeep Nanda did not join Qatar Re and remains Group Chief Investment Officer of QIC.

3.3 Risk management and solvency self-assessment 3.3.1 Risk management processes and procedures Qatar Re has designed, established and maintains a robust and effective risk management framework. The risk management framework is embedded in the implementation of the strategic objectives and business plan of the Company. It allows for an appropriate understanding of the nature and significance of the enterprise-wide risks to which the Company is exposed, including understanding the 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 management framework and provides clear roles and responsibilities for the oversight and management of risk. It also provides a framework for the reporting and escalation of risk and control issues across the Company. Qatar Re adopts a three lines of defence approach to managing and controlling risk: Risk management processes and procedures First Line of Defence

Second Line of Defence

Third 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 the first line of defence activities.

Reporting typically involves bringing independent perspective or challenge.

Independently provide assurance over the process.

The enterprise risk management (‘ERM‘) framework is underpinned by three distinct yet interrelated pillars: capital management; exposure management; and risk management.

This allows for an integrated approach to the management of all identified material risk categories.

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3. Governance structure continued This section provides an overview of the key aspects of the overall ERM framework in place within Qatar Re, including the processes and procedures that are used to identify, assess, control and mitigate risks.

Risk Register The Risk Register provides the overall risk profile of Qatar Re and includes the following risk categories: –– insurance underwriting risk; –– investment, liquidity and concentration risk; –– market risk; –– credit risk; –– operational and systems risk; –– group risk; –– strategic risk –– reputational risk; and –– legal/litigation risk.

Risk owners are required to assess the inherent and residual risk position using standardised assessment ratings. As part of the risk and control self-assessment, the risk owners have responsibility for identifying and assessing the design and performance of the key controls in place to mitigate the impact and probability of each risk event occurring. The key controls and their ratings are documented in the Risk Register, discussed with the control owners quarterly and updated by the Risk Function which also provides challenge to the assessment.

Output from the assessment and key changes to the risk profile are reported to and reviewed by the Risk and Capital Committee with escalation to the full Board as appropriate.

Capital model Qatar Re has developed its own internal stochastic risk model, which we use to calculate our own view of the economic capital required to support the Company’s business plan and meet our strategic objectives. The model is a critical component of the overall risk management framework and feeds into a number of the other risk assessment processes. The model is calibrated at the 1 in 100-year or 99% tail value at risk (‘TVaR‘) confidence level over a one year time horizon, which corresponds to the average of the largest 1% of modelled losses. The model is used to assess the Company’s solvency by analysing its one year profit and loss distribution, including cash flows projected to ultimate.

During the period, the Company transitioned from its existing modelling platform to RPC Consulting’s Tyche. The move has allowed for a number of model enhancements and revisions to be delivered alongside improved run-time performance.

Qatar Re Annual Report 2017

Financial statements

Financial condition report

Additional information

Exposure management The main risk faced by the Company is insurance risk, and the largest component of that risk arises as a result of natural and certain man-made perils. To measure and monitor its exposure, Qatar Re has built its own database and reporting tool, Mercator, which is an evolution and rebranding of our original Exposure Management Tool. Mercator is under constant development and refinement. The output from Mercator is used in various applications such as planning and aggregation management. Exposure data (severity and frequency) is recorded in Mercator, which is directly linked to our repository of underwriting and reporting data to ensure the latest information is used in decision making.

Different approaches are taken to natural catastrophe and non-natural catastrophe exposure management: –– Natural peril catastrophe exposure is monitored at least quarterly through accumulation monitoring of our 1-in-250 year event loss to key peril scenarios in key peril regions.

We also recognise that the 1-in-250 year event loss does not capture the whole distribution of possible losses and we therefore also monitor the full Exceedance Probability curve for a variety of return periods, assessing the loss severity around the 1-in-250 year loss.

–– Non-natural peril catastrophe exposure is measured primarily with reference to line of business specific Realistic Disaster Scenarios (‘RDS‘), where the methodologies used and scenarios run depend on the nature of the business underwritten. The RDS cover treaty and facultative underwriting of all lines of business. Other aggregations, notably cyber risk, for which the Company has a limited appetite, are monitored using a bespoke aggregation methodology.

Emerging risks Emerging risks are risks that have not yet been fully understood or classified. Emerging risks are evaluated through the lens of the broader risk appetite and risk tolerance statements. The Chief Risk Officer (‘CRO‘), with input from the wider management team, identifies and prioritises emerging risks for assessment.

An Emerging Risk Register is maintained which: –– describes the potential risk impact; –– provides justification of why it is not yet a material or emerged risk; –– gives early warning that the risk is becoming material; and –– identifies a regime for monitoring early warning signs.

The Emerging Risk Register is reviewed quarterly by the Risk Management Working Group to ensure appropriate coverage of risks. The emerging risk process and results from the emerging risk assessments are reported to the Risk and Capital Committee for discussion.

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Risk reporting The Risk and Capital Committee receives a quarterly risk report that covers the following core risk information: –– exposures against risk appetite and tolerances; –– results of quarterly self-assessment on Risk Register control activities; –– emerging risks; –– material operational risk events (and near misses); –– solvency position against a variety of measures; and –– any proposed changes to the risk management framework.

The CRO also provides a quarterly written report to the Executive Management Committee and the full Board, which provides a summary of the main risk reporting pack and describes key activities and topical matters.

Management information framework A management information framework has been established that allows for the monitoring of the following key areas: –– achievement of strategic objectives; –– business performance; –– investment performance and liquidity; –– concentration exposures; –– reserving adequacy; –– capital requirements; –– material risks faced by the business; –– risk appetite and tolerance; –– effectiveness of the control environment; –– material outsourced functions; and –– compliance with laws and regulations.

3.3.2 Implementation and integration of risk management and solvency self-assessment systems The Risk Function is responsible for developing, implementing and maintaining the risk management framework and associated policies across the Company. The risk management framework is implemented and integrated through the various committees, processes and procedures described under section 3.3.1. These processes contribute towards our solvency self-assessment, supporting the identification and measurement of all material risks to which the Company is exposed and informing the decision-making process. The solvency self-assessment processes are ongoing and operate throughout the year. The CISSA report summarises the outcome for the Board and Management on an annual basis, and more frequently if our self-assessment changes materially. Evidence that the existing CISSA report is being validated continually is provided to the Board quarterly. The 2018 CISSA processes are currently being documented within a revised CISSA report, which will be presented to the Board for approval at the next sitting. Some of the key processes that form part of the overall solvency selfassessment process include:

Qatar Re Annual Report 2017

–– risk appetite and tolerance statements (and their ongoing monitoring); –– business planning processes (and ongoing monitoring of the implementation of the plan); –– stress and scenario testing (including reverse scenarios and exposure management analysis); –– risk and control assessment processes that are documented in the Risk Register; –– capital calculations (using both the internal model and BMA standard formula); –– model validation activities; and –– emerging risk assessment processes.

The RCC of the Board and/or full Board are involved in a number of activities that contribute to the CISSA. This involvement includes: –– business planning; –– setting of risk appetite and tolerance statements; –– approval of major changes to the internal capital model; and –– review of risk management reporting, including exposure management, risk and control self-assessment, risk events and emerging risks.

3.3.3 Relationship between solvency self-assessment, solvency needs and capital and risk management systems Each element of the Company’s risk management framework contributes to the solvency self-assessment. The solvency self-assessment process is used by Qatar Re directors and management to inform them of the adequacy of the Company’s risk management, economic and regulatory capital and current solvency position. It is used extensively to support the decisionmaking process, in business planning, outwards retrocession analysis, portfolio management, development of appropriate contingency arrangements and plans and in order to prioritise risk mitigation actions. The self-assessment process helps us to identify the key risk drivers of our required capital and facilitates comparisons of alternative strategies to optimise the return on capital.

The business plan is prepared over a one-year planning horizon and we also maintain a view on a three-year horizon based on our view of market fundamentals. The business plan is aligned with the risk appetite statements, which define the type and amount of risks we are willing to accept and manage, along with the types of risks to avoid. Our own view of the associated capital requirements is considered.

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3. Governance structure continued 3.3.4 Solvency self-assessment approval process The CISSA report is prepared by the Risk Function with contributions from the relevant functions throughout the Company. It is signed by the CRO and reviewed and approved by the Risk and Capital Committee. The approval process is consistent with the three lines of defence approach to risk management. It is managed by the second line (Risk Function) and reviewed by other second line functions prior to approval, with input from the first line through the risk and control assessment process, and a review by the third line (Internal Audit) on a periodic basis.

3.4 Internal control framework The internal control framework seeks to mitigate risks, protect 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. Controls can take a variety of different forms, including but not limited to the following: –– approvals and authorisations; –– policies and procedures; –– reconciliations and verifications; –– authority limits; –– management reporting; and –– peer reviews.

Key controls are captured within the Risk Register and assessed as part of the risk and control assessment process described under section 3.3.1. The specific responsibilities of the Company’s internal control functions are documented in the Governance and Internal Control Policy, and are comprised of the following: –– Compliance Function; –– Risk Management Function; –– Actuarial Function; and –– Finance Function.

Internal and external auditors play a key role in the oversight and assessment of the overall control environment. Findings from audits are shared with and discussed by the Audit Committee and also contribute to risk assessment and solvency self-assessment processes.

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Financial condition report

Additional information

3.5 Compliance Function The Compliance Function acts in an advisory, oversight and assurance capacity to ensure the Company has the necessary systems and controls to enable it to adhere, on an ongoing basis, to regulatory and legislative requirements. The Compliance Function develops company-wide compliance policies and procedures, and provides guidance and support on regulatory and legislative requirements. It ensures all staff receive adequate training on various compliance-related matters (e.g. anti-money laundering), and that business is written in accordance with applicable licensing requirements.

The Global Head of Compliance maintains an open and cooperative relationship with our regulators and is responsible for promoting and embedding a culture of compliance and integrity throughout the Company. A compliance report is prepared quarterly for the Board.

3.6 Actuarial Function Mark Cockroft is the Chief Actuary and provides oversight of all actuarial activity within the Company, ensuring that all relevant standards are met. He also supports strategic projects and provides counsel to the Chief Executive Officer, other senior executives and the Board. He is Chairman of the Reserving Committee, a member of the Executive Management Committee, and a regular attendee at meetings of the Board and the Risk and Capital Committee.

Claude Perret is the Deputy Chief Actuary, Head of Reserving and Loss Reserve Specialist for the Company. He has a direct reporting line to the Board in respect of his Loss Reserve Specialist responsibilities. He is a qualified actuary and a Fellow of the UK Institute and Faculty of Actuaries (FIA 1999) and of the French Institut des Actuaires (ISFA 1992). He has more than 20 years of experience working in general insurance and reinsurance.

3.7 Internal Audit Function The Internal Audit Function is independent of all operational functions and provides assurance on the effectiveness of the risk management, internal control and governance frameworks.

It has unrestricted access to all areas of the organisation so it can conduct effective internal audits. The Internal Audit Function is overseen by the Audit Committee who approve the annual internal audit plan. Findings, action points, weaknesses and failures arising from each review are discussed with the relevant business areas, and reported to the Audit Committee.

Internal Audit is outsourced to PwC, an arrangement that has been approved by the BMA.

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3.8 Outsourcing 3.8.1 Outsourcing Policy We have developed a Board approved Outsourcing Policy which applies to all internal and external outsourcing arrangements. The policy describes how all outsourcing arrangements are arranged, overseen, monitored and managed.

The Chief Operating Officer is responsible for the policy.

Outsourcing is used to complement the Company’s overall business strategy, objectives and risk appetite. We only consider and enter into outsourcing arrangements where they offer improved business performance, both operationally and financially. We do not enter into outsourcing arrangements that will result in an increased level of risk exposure that breaches our risk appetite and tolerance.

Investment manager – HSBC The investment management arm of HSBC was appointed as investment manager with a specific mandate to invest a portfolio of roughly USD 300 million in fixed income investments.

Day-to-day oversight of the relationship with QEA and HSBC rests with the Chief Financial Officer, with quarterly reporting provided to the Investment Committee.

Qatar Re continues to be responsible and held accountable for the performance and output of any outsourced activities. We recognise the inherent risks associated with outsourcing and understand the importance of implementing robust controls.

3.8.2 Outsourced functions The material outsourced activities are detailed below.

Internal Audit – PwC We currently outsource our internal audit activities to PwC. The Internal Audit function reports directly to the Audit Committee and administratively to the Global Head of Compliance. Where the Global Head of Compliance may be conflicted, the CRO assumes this role.

Investment manager and advisor – QEA QEA, the wholly-owned investment advisory services subsidiary of QIC, are appointed as Investment Advisors for Qatar Re. QEA provides a range of investment advisory services to the Company under an Investment Advisory Agreement, which outlines the authorities granted, together with an Investment Mandate which provides more specific policy guidance.

The asset mix is closely managed in line with the Investment Mandate to meet liquidity needs and investment return targets.

Sufficient funds are held in cash and term deposits to meet shortterm liquidity needs. These are held with a variety of financial institutions in multiple locations across the global banking system. Individual limits are established for each institution to provide diversification and management of credit risk. Qatar Re’s principal clearing bank is a major UK listed international banking group, who provide clearing facilities in all the jurisdictions in which Qatar Re operates. Fixed income securities are held with a number of global custodians, principally based in Switzerland. Qatar Re’s small equity portfolio is comprised largely of exchange traded equities.

These are held in custody directly on the local exchange.

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Corporate governance

4. Risk profile

Risk appetite and profile remained largely unchanged though the external risk environment presented increased uncertainty.

Financial statements

Financial condition report

Additional information

4.1 Material risk exposures and risk mitigation We have adopted the following material risk types in order to explain the potential sources of risk and our philosophy surrounding those risks. This sets the scene for the calibration of our risk appetite and risk tolerances: –– insurance risk; –– market, investment, liquidity and concentration risk; –– credit risk; –– operational and systems risk; –– group risk; –– strategic risk; –– reputational risk; and –– legal/litigation risk.

We have established a defined framework of internal controls which 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 controls are rated according to their effectiveness of both design and performance, with independent challenge provided by the Risk Function. Internal Audit provides independent assurance on the performance of the controls.

If a new risk is identified, we ensure that it is assessed, measured, and managed through the establishment of internal controls, and conduct regular monitoring through the risk management framework. We assess the various risk mitigation techniques and ensure that they are appropriate to the nature of the risks assumed.

The Risk Register captures the key controls for each risk and records the assessment of the effectiveness of each control as determined by the risk and control owners. Controls are rated on a red/amber/green basis.

The Company’s material risk categories are outlined below.

4.1.1 Insurance risk Insurance risk is our most significant risk. The principal risk faced under our insurance contracts is that the actual claim payments or the timing thereof differ from expectations. This is influenced by the frequency and severity of claims and subsequent development of long tail claims. We balance our book between low frequency and high severity lines of business, and other lines of business which experience more attritional losses. We limit our exposures through defined underwriting limits and by purchasing reinsurance. Our high severity, low frequency exposure mostly relates to natural catastrophe perils in the United States. Our largest exposure to attritional losses is through the proportional UK motor portfolio, which is protected through the purchase of excess of loss reinsurance.

Insurance risk can be broken down into underwriting, catastrophe and reserve risk.

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Our main underwriting and reserving objectives are to ensure that: –– risks are sufficiently identified and understood on policies prior to accepting business; –– policies are sufficiently priced so as to cover any future losses; –– sufficient reserves are available to cover these liabilities during run-off post-inception.

We purchase both treaty and facultative reinsurance to reduce the risk of excessive claims volatility. We enter into reinsurance arrangements within defined limits to ensure the exposure to counterparty credit risk arising out of reinsurance arrangements does not exceed our defined risk appetite and tolerance statements. We ensure the reinsurance provides adequate security by partnering with strongly-rated reinsurers and ensuring that full collateralisation is in place for non-rated reinsurers. The outwards reinsurance team, also referred to as Ceded Re, maintains a list of approved reinsurers which is continually monitored. The Outwards Reinsurance Guidelines document the procedure for the purchase of reinsurance.

Underwriting risk Underwriting risk relates to the unexpired risk on business already incepted or bound and reflects the risk that premiums are not sufficient to cover future losses. Underwriting risk arises as a result of differences in the frequency and severity of claims compared to our expectations. We monitor and measure exposures to underwriting risk through a range of RDS as part of our exposure management framework.

We mitigate our exposure to underwriting risk through a robust suite of underwriting controls which include defined limits, pricing models, peer review processes and oversight from the Underwriting and Portfolio Management Committee (‘UPMC‘). A number of controls which mitigate against the risk of inadequate pricing and risk selection are in operation. These controls are assessed and documented within the Risk Register, including: –– the underwriting business plan approval process; –– UPMC portfolio review and performance monitoring; –– underwriting authority letters; –– the loss watch list which acts as an early warning system to identify potential losses; –– documentation and challenge of the pricing rationale; –– pricing model governance and controls; and –– pricing data quality checks.

Catastrophe risk Catastrophe risk arises primarily from our Property Catastrophe and other Property business lines. Our largest exposures are to US perils. We also have material exposures to non-US perils. Catastrophe risk exposure is managed through our exposure management framework which is monitored on a monthly basis using analysis from Mercator, with oversight from the UPMC. The exposure management framework provides for real time aggregate monitoring (both frequency and severity) to reduce the risk of unforeseen accumulations arising. Event limits are set by peril and region within the Underwriting Guidelines for all countries where business is written, and the risk function signals to the underwriters when exposure is approaching the allocated limit.

Qatar Re Annual Report 2017

Reserve risk Reserve risk arises from the inherent uncertainty surrounding the adequacy of the reserves or technical provisions set aside to cover our insurance liabilities. The risk is that the current reserves (including incurred but not reported reserves) are not sufficient to cover the run off of the claims which have already occurred. The main contributor to reserve risk is our nonproportional casualty business, which is longer tailed than other lines of business.

Reserve risk exposure is managed within our actuarial function and through defined reserving best practices which are overseen and approved by the Reserving Committee. A number of controls are in place to ensure that reserving processes are adequate and that reserving data is complete and appropriate.

These controls are assessed and documented within the risk register, including: –– Reserving Policy outlining standards and target reserve strength; –– Reserving Committee review, challenge and determination of management best estimate; –– underwriter review and challenge of reserves; and –– independent opinion on reserves.

In addition to the measurement of insurance risks through the exposure management framework, we also measure and monitor these risks through the quarterly assessment against our risk appetite and tolerance statements and quarterly self-assessment on risk register and control activities. We analyse the output from the internal model to understand the relative capital requirements and modelled uncertainty surrounding our portfolio by line of business.

4.1.2 Market, investment, liquidity and concentration risk Market risk Market risk can cause the Company to suffer losses due to unfavourable developments in the financial markets. Market risk arises as a result of our foreign currency exposures, interest rate and default risk on the fixed income portfolio, and equity price risk as a result of the equities we hold within our investment portfolio. As at 31 December 2017, 50% of the fixed income portfolio is invested in entities rated ‘A’ or better. Our allocation to equities/alternatives is less than 5% of the overall investment portfolio.

Investment risk Investment risk can arise as a result of implementing an inappropriate investment strategy. The investment strategy is tailored to meet the Company’s business needs, objectives and regulatory requirements. The investment mandates we provide managers are intended to limit our exposures to market risk and volatility, and adherence to these guidelines and their continued suitability are overseen by the Investment Committee. In particular, we limit our exposure to assets such as private equity, real estate, hedge funds and other (non-fixed income/ non-equity) managed funds. The investment portfolio is heavily weighted towards fixed income and cash deposits.

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4. Risk profile continued The Investment Committee approves and monitors the implementation of the investment mandates by the investment advisors. An update on the investment portfolio is included in the Investment Committee meeting materials. Asset allocations are compared to minimum and maximum allocations and constraints per the investment mandate and risk appetite and tolerance statements to ensure compliance.

As described in sections 2.5 and 3.8, our primary investment mandate is with an affiliate (QEA) who helps us diversify our investment portfolio and better manage our asset and liability matching strategy. However, during 2017 we appointed HSBC as a second investment manager.

Liquidity risk Liquidity risk arises when we are unable to meet our payment obligations as and when they fall due. We measure this risk by assessing the appropriateness of the controls in place to monitor and manage liquidity risk exposure, and we supplement this with cash flow analysis arising from stress testing exercises such as those conducted as part of the exposure management framework. Liquidity risk is managed through our overall investment strategy which is focused on allocations to more liquid instruments and wider monitoring of the overall liquidity profile of the investment portfolio. Our overall investment portfolio is considered to be very liquid. The Actuarial Function also provide information to the investment advisors on a quarterly basis, relating to the maturity profile of the insurance liabilities in order to facilitate appropriate asset allocations.

We use hedging arrangements to mitigate against unfavourable foreign exchange and interest rate movements.

Concentration risk Concentration risk can arise when the investment portfolio is not appropriately diversified across counterparties, geographical regions and industries. Concentration risk is measured with reference to our risk appetite and tolerance statements, which limit the concentration of asset holdings on a regional, country and counterparty level. To mitigate against concentration risk, our risk appetite limits the concentration of asset holdings on a regional, country and counterparty level, ensuring that our investment portfolio is appropriately diversified. Following the issue of USD 450 million of subordinated Tier 2 notes in March 2017, the Board approved a temporary relaxation of geographic and institutional concentration risk limits in relation to cash deposits.

4.1.3â&#x20AC;&#x201A; Credit risk Credit risk arises from both our underwriting and investment activities. This represents the risk of counterparties defaulting and not being able to make payments resulting in losses to Qatar Re. A credit risk event can occur due to the failure of reinsurers to settle claims in full, failure of a broker to pass on premiums or failure of a bank to return cash.

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Additional information

The outwards reinsurance team actively monitors exposure to single reinsurance counterparties. To minimise our exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its outwards reinsurance counterparties, and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the outwards reinsurance counterparties.

At each reporting date, management performs an assessment of the creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment. Minimum security ratings or collateral requirements are in place for reinsurance counterparties. An approval process is in place for accepting all new reinsurers and banking counterparties, with minimum security ratings also in place for all banking counterparties. All brokers are subject to due diligence procedures.

The Technical Accounting department prepare and monitor aged debt reports, establishing provisions for amounts which are not expected to be recovered due to default. Exposure to brokers is captured within a dashboard by the Underwriting department.

The security rating of all banking and custodian counterparties is monitored frequently.

4.1.4â&#x20AC;&#x201A; Operational risk Operational risk arises from inadequate or failure of processes, people or systems or from external events that impact the operational capability of the Company. We monitor operational risk exposures through our Risk Register and emerging risk processes which are overseen by the Risk Management Working Group and the Risk and Capital Committee. This Risk Register and emerging risk process also cover strategic risks, reputational risks and legal and litigation risks.

We seek to manage operational risk exposure through the implementation of a robust internal control framework and an effective governance framework, as described in detail in section 3. We have established effective business continuity and disaster recovery plans.

4.1.5â&#x20AC;&#x201A; Group risk Group risk represents the risk arising as a result of being part of an insurance group, including exposures resulting from intra-group transactions. It includes the reinsurance cover provided by QIC and the dependence on the Group credit rating and parental guarantee. These risks are managed by the CEO and the Executive Management Committee. Operational dependency has reduced significantly since our redomicile to Bermuda, and is limited to only one material intra-group outsourcing contract relating to investment advisory services.

We have an excellent relationship with QIC, and ensure that we establish strong governance around our agreements, including certain arms-length contractual arrangements. Given our dependence on the QIC Group credit rating, we have significantly increased our involvement in the rating process.

We now engage in more active participation and in separate meetings with the rating agencies.

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Qatar Re is a key part of the QIC Group, with QIC’s international operations (including Qatar Re and our affiliates Antares and QEL) together generating approximately 75% of the QIC Group’s gross written premium. The proposed acquisition of the Markerstudy insurance companies will further augment the QIC Group’s international business, increasing its contribution to approximately 80% of the QIC Group’s gross written premium.

In line with the QIC Group’s strategy, financial dependency on the QIC Group is reducing. Notably, at the time of redomiciling to Bermuda in 2015, we ceded 70% of our net retention to QIC through an intra-group quota share. We reduced the Group quota share to 50% for 2017, and 30% for 2018. In March 2017, we successfully raised an additional USD 450 million of third party capital, further reducing our financial dependency on the QIC Group.

4.1.6 Strategic risk The risk of business strategy failure is mitigated as the Board reviews and approves the business plan, and the business plan, risk appetite, capital requirements and underwriting guidelines are aligned. Formal communication of the business plan is given to our underwriters. As outlined in section 3.2, the Company ensures that Board members and Senior Executives are fit and proper to discharge their responsibilities, which include providing the necessary strategic direction. Stress and scenario testing helps to identify and assess the risks to the business plan.

4.1.7 Reputational risk The risk of adverse publicity is mitigated through our effective corporate governance framework and Board oversight of our strategies, policies and risk appetite. Risk management is fully integrated into the business planning process, and there is a strong positive culture of compliance with laws and regulations and risk awareness throughout the Company.

4.1.8 Legal/litigation risk As described under section 3.4, the Compliance Function provides expert guidance on current and proposed regulatory requirements in the jurisdictions in which we operate. The Legal department performs ongoing monitoring of material changes in laws and regulations to ensure the impact of any changes on Qatar Re is communicated to the relevant parties. It also plays a significant role across a number of activities, including the drafting and review of Company policies, management of claims disputes and review of external retrocession transactions.

4.2 Monitoring the external risk environment We continuously monitor the external risk environment, which includes emerging risks identified through the emerging risk process, as outlined in section 4.3.

Qatar Re Annual Report 2017

The following risks have been identified as having the potential to impact the business, and have led to the implementation of associated mitigation and contingency planning: –– Brexit: We balance our exposure to property catastrophe risks with lower volatility business, notably quota share contracts relating to UK motor. Due to the structure of the UK motor market, Brexit is a relevant issue to many of our cedents, including QEL. Qatar Re, alongside our parent company and affiliates implemented a risk mitigation plan during 2017. As a result, and for other commercial reasons, we entered into a sale and purchase agreement for three Gibraltar based insurers from the Markerstudy Group.

Together with QEL, these companies will mitigate many aspects of the Brexit risk that the Company is exposed to in relation to continued business from both the EU and UK. –– The change in the Ogden discount rate: Noting Qatar Re’s involvement with the UK motor market, the Ogden discount rate change was also a relevant risk event to which Qatar Re had some exposure. Qatar Re has a modest portfolio of excess of loss motor business and the change in rate led to a relatively moderate strengthening of reserves. This reflected our relatively immature portfolio of reserves relating to the motor excess of loss portfolio and limited appetite for excess of loss risk, with our preference being for more stable quota share arrangements whereby exposures are well protected.

The USD 9.3 million net movement in reserves at the end of Q1 2017 was within the range of reserve risk volatility expectations of our internal capital model.

–– Tax reform: Tax reform is affecting the Bermuda reinsurance market in two main areas: US tax reform and the EU Blacklist.

US tax reform is a topic we have monitored closely but ultimately the changes legislated have negligible impact on us. While Qatar Re does write certain US business, it does so primarily from Bermuda (with some also written from our branch offices) with no affiliated presence in the US. The, so called, EU tax Blacklist was another matter monitored closely.

The United Arab Emirates, home to our Dubai International Financial Centre branch office, was on the initial tax blacklist.

We also have a presence in three of the jurisdictions which appeared on the ‘grey list’: Bermuda, Switzerland and Qatar.

Each of these countries have stated their commitment to tax transparency. We continue to monitor the situation, though note that post the anticipated 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 certain neighbours led to a local embargo and international attention.

Qatar Re is a Bermuda headquartered company with a very limited presence in Qatar, and we took action to remind cedents and brokers of our strong capital base in Bermuda and our investment portfolio held mainly by a Swiss custodian bank which is part of a major international banking group.

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4. Risk profile continued 4.3 Material risk concentrations The Company’s Board approved risk appetite and tolerance statements govern the concentration limits in relation to counterparties, credit quality, and geographical locations in order to avoid any material risk concentration. The Risk Function, in liaison with the business areas and risk owners, performs a qualitative and quantitative assessment of exposures against the defined appetite and tolerances on a quarterly basis.

In addition to the appetite and tolerance limits there are a number of different managerial level limits that are used across functions to manage risk exposures within the approved risk appetites. For example, investments are managed within the scope of the approved investment mandates. Regular reporting of asset positions against the mandates are reported and monitored by the Investment Committee.

Similarly, for underwriting risk, catastrophe capacity is allocated across key perils/regions. Usage of these allocated limits is then monitored on a quarterly basis and overseen by the UPMC. Mercator, our exposure management tool provides monitoring of aggregate risk exposures by peril and region.

4.4 Investment of assets in accordance with the prudent person principle The investment strategy is heavily weighted towards fixed income and cash deposits. An investment mandate is approved by the Board and includes details of permitted investments (including limits), minimum credit ratings and maximum concentrations. The Investment Committee provides oversight of Qatar Re’s investment strategy and performance. The investment strategy ensures we only invest in instruments that any reasonable individual with objectives of capital preservation and return on investment would own and that are in the best interests of our policyholders. The guidelines only allow for us to assume investment risks that we can properly identify, measure, respond to, monitor, control, and report. The guidelines are set so as to ensure we have appropriate and adequate capital, liquidity and ability to meet our policyholder obligations.

Financial statements

Additional information

4.5 Stress testing and sensitivity analysis The use of stress and scenario analysis is a key element of risk management practice within Qatar Re. A range of stress and scenario tests are performed on an ongoing basis to assess material risks and ensure that we have sufficient capital and liquidity to meet our policyholder obligations as they fall due.

Natural catastrophe exposure is monitored using both a stochastic approach (measuring the 1 in 250-year Occurrence Exceedance Probability (‘OEP‘) Value at Risk (‘VaR‘) to determine the probable maximum loss (‘PML’). We use probabilistic vendor models for most important peril region scenarios. Actuarial methods are used to determine loss frequency and severity for peril regions where no vendor model is available. For perils/ regions where we have limited exposure, we use statistical software to increase the number of loss events analysed by Monte Carlo simulation. The outcome of this assessment shows that our largest exposures are to US North East Coast windstorms.

Non-natural peril catastrophe exposure is monitored through RDS which are defined for each line of business. A suite of scenarios with different frequency and severity assumptions have been defined in order to make assessments on the tail risk.

The return period associated with each scenario is determined by expert judgement and, where available, by considering relevant historical observation points. We also conduct prescribed stress and scenario testing and analysis as part of our Capital and Solvency Return to the BMA, which helps determine our financial capacity to absorb shocks to both financial market and underwriting conditions.

Our reverse stress test scenarios consider the impact of certain extreme events that could cause significant strain on the Company and outline the mitigating factors in place to protect against these. We consider scenarios which would cause both severe financial stress and severe operational stress.

Cash and term deposits are held with a variety of financial institutions in multiple locations across the global banking system, with individual limits in place for each institution. Fixed income securities are held with a number of global custodians, principally based in Switzerland. Equities are held in custody directly on the local exchange.

The CFO has executive responsibility for the oversight of the Company’s investment portfolio and for the outsourcing arrangements with our investment managers, who are appointed as investment advisors for Qatar Re and provide a range of investment advisory services to the Company, in accordance with our investment guidelines and investment mandate.

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5. Solvency valuation

The assessment of available and required regulatory capital is made by taking an economic view of our assets and liabilities.

The assessment of available and required regulatory capital is made by taking an economic view of our assets and liabilities, in accordance with the BMA’s Economic Balance Sheet (‘EBS’) framework. The EBS is produced on a consolidated basis in line with generally accepted accounting principles (‘GAAP’) (which in our case means International Financial Reporting Standards (‘IFRS’)) subject to certain regulatory filters and adjustments as prescribed by the BMA. If GAAP principles permit both a fair value model and a non-economic valuation model for valuing an asset or liability, a fair value model is used. All contractual liabilities or contingent liabilities arising from off-balance sheet arrangements are recognised on the EBS. 5.1 Valuation of assets for solvency purposes Cash and cash equivalents, fixed income securities, equities, other investments and all other assets on the EBS are recorded at fair value in line with IFRS, with both changes in fair value and realised gains/losses netted off Statutory Economic Capital and Surplus. In cases where the IFRS principles do not require fair value, we value investments using the EBS Valuation hierarchy, as defined in the BMA’s ‘Guidance Note for Statutory Reporting Regime’ for the reporting period’s statutory filing.

Receivable balances which are due in more than one year are discounted using the risk-free discount curve.

5.2 Valuation of liabilities for solvency purposes The main liabilities on the EBS are the technical provisions, net of reinsurance recoverables, which consist of liabilities for claims outstanding and premium provisions. Other liabilities include insurance and reinsurance balances payable, loans and notes payable and lease arrangements.

5.2.1 Valuation of technical provisions Technical provisions comprise the sum of the best estimate cash flows and a risk margin and are calculated using the BMAs ‘Guidance Note for Statutory Reporting Regime’. The gross and net technical provisions are shown separately.

The best estimate liability aims to represent the probabilityweighted average of future cash flows required to settle the insurance obligations attributable to the lifetime of our policies.

The best estimate cash flows include future best-estimate premium payments, claim payments, expenses expected to be incurred in servicing our policies over their lifetime, investment costs and any payments to and from reinsurers. The best estimate liability is discounted using the currency specific standard rate yield curves as published by the BMA, which are derived from the risk-free interest rate term structure with an illiquidity adjustment.

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5. Solvency valuation continued The best estimate is shown separately for outstanding claims provisions (in respect of claims incurred whether reported or not) and premium provisions (in respect of expected future claims events). Premium provisions include an allowance for business which has been bound but not incepted (‘BBNI’) at the valuation date.

The risk margin is added to the best estimate to reflect the uncertainty associated with the probability-weighted cash flows. The risk margin is calculated using a cost of capital approach with reference to the insurance risk, counterparty credit risk and operational risk components of the BSCR formula.

A cost of capital rate of 6% is applied to the cost of capital to cover the full period needed to run off the insurance liabilities.

The cost of capital in each future year is discounted using the risk-free discount curve.

In December 2017, the Reserving Committee decided that an independent review of the reserves, including technical provisions, as at 2017 year end and the reserving process should be undertaken. The exercise was put out to tender in the first quarter of 2018 and is expected to be completed in the second quarter of 2018.

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Additional information

5.2.2 Recoverables from reinsurance contracts The best estimate of the amounts recoverable from reinsurance 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 standard rate yield curve. The cash flows include reinstatement premiums and any expenses in relation to the management and administration of reinsurance claims. The cash flows take account of timing differences between payment of the gross claims and receipt of the related reinsurance recoverables.

An adjustment is made to reflect the expected losses on reinsurance recoverables due to counterparty default. The adjustment is based on an assessment of the probability of default of the counterparty and the average loss resulting from the default and also the ability to offset premium liabilities owing from Qatar Re in the event of a default.

5.2.3 Valuation of other liabilities Other liabilities appearing on the EBS are recorded at fair value in line with IFRS. Amounts payable in more than one year are discounted at the relevant risk free rate.

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6. Capital management

A capital raise in March 2017 took the company beyond USD 1 billion of total equity, an important benchmark, while also providing for future growth and diversifying the investor base.

Qatar Re is required by the BMA to hold available statutory capital and surplus of an amount that is equal to or exceeds the Enhanced Capital Requirement (‘ECR’). The ECR is the higher of the BSCR, which is the BMA standard formula capital requirement, and the Minimum Margin of Solvency (‘MSM’).

The BSCR forms part of the regulatory regime that has achieved equivalence with Europe’s Solvency II. The MSM is calculated based on the higher of various metrics from the statutory accounts with a floor set at 25% of the BSCR. Qatar Re’s capital base has been substantially strengthened during 2017. Shareholders’ equity rose to USD 1.149 billion at year-end 2017 on an IFRS basis (2016: USD 772 million) following the successful issue of USD 450 million of perpetual non-call 5.5 year subordinated notes, which qualifies as Tier 2 capital under the Eligible Capital Rules.

6.1 Eligible Capital 6.1.1 Capital management Capital adequacy is maintained with reference to our risk appetite and tolerance statements, which we have defined in terms of our regulatory and internal model solvency ratios.

Our risk appetite defines what we seek to achieve based on normal commercial situations. At any given time, our capital management policy is to maintain a strong capital base to enable us to support the business plan based on our own view of the capital required, and meeting regulatory capital requirements on an ongoing basis.

The risk management framework is embedded in strategic planning, decision-making and budgeting. As part of this framework, we assess the level of capital needed to maintain solvency at the thresholds targeted within our risk appetite and tolerance statements, given our risk profile. The CISSA procedures enable us to identify, assess, monitor, manage, and report on the current and emerging risks that the Company faces, and to determine the capital necessary to ensure that overall solvency needs are met at all times.

Our Capital Management Action Plan identifies the various thresholds below which available capital may be depleted, and the actions we will adopt to maintain capital adequacy in line with our risk appetite and tolerance statements. We can manage our capital position by either increasing the amount of available capital or by taking action which reduces the required capital.

The approach taken is dependent on the specific circumstances of the event giving rise to the depletion of available capital.

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6. Capital management continued 6.1.2 Tiers of Eligible Capital The BMA have introduced a three-tiered capital system which is designed to assess the quality of capital resources held by authorised insurers. The tiered capital system (Tiers 1, 2, and 3) classifies 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 on a going concern, run-off, wind-up, and insolvency. Tier 2, while providing full protection to policyholders in a wind-up or insolvency, has moderate loss absorbency on a going concern basis. Tier 3 meets, on a limited basis, some of the characteristics exhibited in Tiers 1 and 2.

Eligibility limits are applied to each tier in determining the amounts eligible to cover regulatory capital requirement levels.

Only Tier 1 and Tier 2 capital are eligible to cover the MSM (a minimum of 80% Tier 1 capital and a maximum of 20% of Tier 2 capital). A minimum of 60% of Tier 1 capital and a maximum of 15% of Tier 3 capital must be available to cover the ECR. Our eligible capital consists of paid in share capital, perpetual non-call 5.5 year subordinated Tier 2 notes and retained earnings. We confirm that we meet the eligibility limits applied to each tier to cover the MSM and ECR. At the end of the reporting period, the Company’s Eligible Capital was categorised as follows (USD millions): Tier

Tier 1 Tier 2(3) Total

Eligible Capital USD million

768.1 443.8 1,211.9

(3) USD 443.5 million represents the USD 450 million Tier 2 capital raise, net of issuance costs.

6.1.3 Eligible Capital subject to transitional arrangements At the end of the reporting period, we do not hold any Eligible Capital which is subject to transitional arrangements.

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6.1.4 Factors affecting encumbrances affecting the availability and transferability of capital to meet the ECR We have entered into certain contracts of reinsurance with cedents that require us to fully collateralise or pledge assets equal to the estimated policyholder obligations. Pledged assets are held in trust accounts for the benefit of the cedent. These assets are released to us upon the settlement of the policyholder obligations. We benefit from an investment income received on these assets.

6.1.5 Ancillary capital instruments approved by the BMA On 14 March 2017, we successfully issued USD 450 million Regulation S Perpetual non-call 5.5 year subordinated Tier 2 notes, increasing our capital base beyond USD 1.2 billion. The notes are guaranteed on a subordinated basis by QIC and represent the Company’s first debt issuance in the international debt capital markets. The issue attracted over 290 orders of more than USD 6.5 billion and achieved a balanced global distribution of investors comprising 30% Asia, 29% UK, 20% Middle East, 19% Continental Europe and 2% from other regions, thus successfully diversifying our capital base. The initial coupon has been set at 4.95% per annum. It will be fixed until the first call date in September 2022 when it will be reset to the 5 year mid-swap rate plus the initial margin, and will be reset every five years thereafter. The notes have been assigned an issue rating of ’BBB+’ by S&P Global Ratings and provide eligible Tier 2 capital to further enhance Qatar Re’s financial strength.

6.1.6 Differences in shareholder’s equity as stated in the financial statements versus the available capital and surplus The key differences between the shareholder’s equity as stated in the IFRS financial statements and the available capital and surplus as stated in the Economic Balance Sheet are as follows: –– The reinsurance contract liabilities and reinsurance contract assets in the IFRS financial statements are replaced by the technical provisions in the EBS. The technical provisions are calculated in accordance with the Insurance (Prudential Standards) (Class 4, Class 3B Solvency Requirement) Rules 2008 as amended. This calculation basis is described under section 5.2.

–– A fair value is calculated on future lease commitments which are not included on the IFRS balance sheet of the Company.

The fair value is calculated by taking the total future cash flows associated with the leases and discounting these flows using the relevant risk free discount rates. The resulting fair value is included as a liability on the EBS.

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6.2 Capital requirements Our Board approved risk appetite statements as they relate to the minimum capital and solvency levels require us to hold available statutory capital and surplus so that the solvency ratio as determined by the BSCR should not fall below 140%, the solvency ratio as determined by the MSM should not fall below 120%, and the solvency ratio as determined by the internal capital model should not fall below 110%. In addition, we must, at all times, have the ability to raise adequate liquidity to fund two independent 1 in 250 events on a gross basis requiring liquidity within 12 months. Throughout 2017, we remained in compliance with our risk appetite statements as they relate to capital and solvency.

6.2.1 BSCR, MSM and ECR at the end of the reporting period At the end of the reporting period, the Company’s regulatory capital requirements were as follows: Requirement

Minimum Margin of Solvency Bermuda Solvency Capital Requirement Enhanced Capital Requirement

Amount USD million

609.6 302.1 609.6

6.2.3 Company specific parameters Following the trial run relating to changes contemplated in the consultation paper ’Bermuda Solvency Capital Requirement Update Proposal‘, which was released in November 2016, the BMA advised of some future changes to the currency risk module of the BSCR whereby certain currencies, pegged to the US Dollar or Euro would qualify for a reduced currency factor charge if the pegged currency complies with the criteria set out in the BMA’s guidance. In January of 2016, Qatar Re applied to the BMA to early adopt the proposed treatment of the Qatari Riyal and the BMA approved the application under Section 6D of the Insurance Act 1978.

The impact of applying this early adoption of the proposed BSCR treatment change improves the Company’s BSCR coverage from 379% to 401%.

6.2.4 Approved internal model This section is not applicable as we do not use an approved internal model for the calculation of our regulatory capital requirements.

As a Class 4 insurer the MSM calculation limits the credit for outwards reinsurance to 25% of gross written premium. This results in the MSM (rather than the BSCR) being the driver of our ECR. We expect this position to change gradually as the earnings from the business subject to the reduced QIC quota share cession percentage are recognised.

6.2.2 Compliance with the BSCR, MSM and ECR At the end of the reporting period, the Company had total available statutory capital and surplus of USD 1,211.9 million (USD 810.0 million at the end of 2016) exceeding the MSM and ECR by USD 602.3 million and resulting in an ECR ratio of 199% (173% at the end of 2016). Our BSCR coverage ratio was 401% (436% at the end of 2016).

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7. Subsequent events

The year closed with exciting news of acquisitions that bring greater certainty over the volume of adequately priced lower volatility business in our portfolio.

8. Declaration

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7.1 Group reorganisation In the fourth quarter of 2017, relevant regulators were informed of our intention to make QEL a subsidiary of the Company. This move is expected to reach completion during the first half of 2018. This reorganisation is part of a wider plan initiated in 2015, and reflects the strategic alignment of the non-Middle East components of the QIC Group.

In 2017, QEL generated net written premium of USD 33.5 million and has a Solvency II capital and surplus of USD 54.5 million versus a Solvency II Solvency Capital Requirement of USD 39.4 million.

7.2 Acquisition of Gibraltar-based insurance entities of the Markerstudy Group On 4 January 2018, the Company announced that it had signed a sale and purchase agreement to buy the Markerstudy Group’s Gibraltar-based insurance companies, namely Markerstudy Insurance Company Limited, Zenith Insurance PLC, and St Julians Insurance Company Limited, and certain related non-insurance companies, subject to regulatory approval.

The transaction is expected to reach completion in the first half of 2018. Markerstudy underwrites more than 5% of the UK motor insurance market, generating premiums of approximately GBP 750 million. Qatar Re, together with QEL, has an existing substantial relationship with the Markerstudy Group. The transaction is expected to provide Qatar Re with a greater share of lower volatility business, balancing its specialty and catastrophe books. It also serves as a mitigant for many of the risks associated with Brexit.

This FCR fairly represents the financial condition of the Company in all material aspects during the reporting period.

Signed and dated: Andrew Smith Chief Risk Officer 30 April 2018

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Gunther Saacke Chief Executive Officer 30 April 2018

Glossary of selected insurance and other terms

Assumed reinsurance That portion of a risk that a reinsurer accepts from an insurer or another reinsurer in return for a stated premium.

Attachment point The cumulative dollar amount of loss at which point an excess of loss reinsurance policy becomes applicable. Any losses below this point are not covered by the policy or treaty and are funded by other parties.

Attritional losses Losses expected to be incurred under the normal course of business; losses other than major losses.

Broker An intermediary who negotiates contracts of insurance or reinsurance, receiving a commission for placement and other services rendered, between (1) a policy holder and a primary insurer, on behalf of the insured party, (2) a primary insurer and reinsurer, on behalf of the primary insurer, or (3) a reinsurer and a retrocessionaire, on behalf of the reinsurer.

Capacity The maximum amount of exposure that a reinsurer is willing or able to place at risk. The amount of capacity is commonly driven by legal standards, regulatory restrictions, rating agencies requirements and/or internal guidelines.

Casualty reinsurance Reinsurance that is primarily concerned with losses due to injuries to persons and legal liability imposed on the insured for such injury or for damage to the property of others.

Catastrophe loss A severe loss, typically involving multiple claimants. Common perils include earthquakes, hurricanes, tsunamis, hailstorms, severe winter weather, floods, fires, tornadoes, explosions and other natural or man-made disasters. Catastrophe losses may also arise from acts of war, acts of terrorism or political instability.

Cede, cedent When an insurer transfers some or all of its risk to a reinsurer, it ‘cedes’ business and is referred to as the ‘cedent.’

Claims incurred The total losses and loss adjustment expenses paid, plus the change in loss and loss adjustment expense reserves, including IBNR, sustained by an insurance or reinsurance company under its insurance policies or other insurance or reinsurance contracts typically quoted over a particular period.

Claims incurred but not reported (‘IBNR’) Reserves established by an insurer for claims on losses that have occurred but have not yet been reported to the insurer.

Claims ratio Calculated by dividing ‘Net Claims Incurred’ by ‘Net Earned Premiums’.

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Exclusions Provisions in an insurance or reinsurance policy excluding certain risks or otherwise limiting the scope of coverage.

Claims reported unsettled Loss reserves based on specific claims reported by reinsureds.

Expense ratio Calculated by dividing the sum of the ‘Operating Expenses’ and the ‘Net Foreign Exchange Costs’ by ‘Net Earned Premiums’.

Class 4 Insurer A Class 4 Insurer is an Insurer or Reinsurer licensed by the Bermuda Monetary Authority (‘BMA’) to underwrite direct liability insurance and/or property catastrophe reinsurance risks. The company must have at the time of its registration with the BMA a total statutory capital and surplus of no less than USD 100 million.

Exposure The possibility of loss. A unit of measure of the amount of risk a company takes on.

Combined ratio Calculated as the sum of the ‘Claims Ratio’, the ‘Commission Ratio’ and the ‘Expense Ratio’.

Fixed income securities An investment that pays regular income in the form of a coupon payment, interest payment or preferred dividend on a predetermined basis until a set date (maturity date).

Commercial lines Insurance products that are sold to entities and individuals in their business or professional capacity, and which are not intended for the insured’s personal or household use.

Facultative reinsurance The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated.

Frequency The number of claims occurring during a specified period of time.

Commission ratio Calculated by dividing ‘Net Commission’ by ‘Net Earned Premiums’.

Gross claims paid Claim amounts paid to insureds or ceding companies before deducting any reinsurance recoveries.

Deductible The amount of exposure an insured retains on any one risk or group of risks. The term may apply to an insurance policy, where the insured is an individual or business, or a reinsurance contract, where the insured is an insurance company.

See ‘Retention.’

Gross written premiums The total consideration or price for reinsurance protection written for a specific period of time.

Directors’ and officers’ liability Insurance that covers liability for corporate directors and officers for wrongful acts, subject to applicable exclusions, terms and conditions of the policy.

Duration Measures the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates, and is expressed as a number of years. The bigger the duration number, the greater the interest rate risk.

Earned premiums That portion of written premium that applies to the expired portion of the policy term. Earned premiums are recognised as revenues under both statutory accounting practice and IFRS. Excess layer Insurance to cover losses in one or more layers above a certain amount with losses below that amount usually covered by the insured’s primary policy and its self-insured retention.

Excess of loss reinsurance Reinsurance that indemnifies the insured against all or a specified portion of losses over a specified amount of losses, or the ‘retention.’

Qatar Re Annual Report 2017

In-force Policies that have not expired or been terminated and for which the insurer remains on risk as of a given date.

Insurance-linked Securities or ILS Insurance-linked Securities or ILS are derivative or financial instruments which are sold to investors and whose value is linked to insurance risks.

Limits The maximum amount that an insurer or reinsurer will insure or reinsure for a specified risk, a portfolio of risks or on a single insured entity. The term also refers to the maximum amount of benefit payable for a given claim or occurrence.

Lloyd’s Depending on the context, this term may refer to (a) the society of individual and corporate underwriting members that insure and reinsure risks as members of one or more syndicates (i.e., Lloyd’s is not an insurance company); (b) the underwriting room in the Lloyd’s building in which managing agents underwrite insurance and reinsurance on behalf of their syndicate members (in this sense Lloyd’s should be understood as a market place); or (c) the Corporation of Lloyd’s which regulates and provides support services to the Lloyd’s market.

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Long tail Insurance or reinsurance where claims are likely to be made or where claim amounts are likely to be revisited many years after the period of insurance has expired. Liability reinsurance is an example of long tail business.

Loss development The difference between the original loss or claim as initially reserved by an insurer or reinsurer and its subsequent evaluation at a later date or at the time of its closure. Loss development occurs because of inflation and time lags between the occurrence of claims and the time they are actually reported to an insurer or reinsurer. Loss development also occurs as a result of the ongoing developments of disputes and uncertainties between the time of reporting and settlement. To account for these increases, a ‘loss development factor’ or multiplier is usually applied to a claim or group of claims in an effort to more accurately project the ultimate amount that will be paid.

Loss year The calendar year to which a claim is attributed based upon the terms in the underlying policy or contract.

Losses and loss expenses ‘Losses’ are an occurrence that is the basis for submission or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the insurance policy or other insurance or reinsurance contracts. ‘Loss expenses’ are the expenses incurred by an insurance or reinsurance company in settling a loss.

MGA ‘MGA’ or Managing General Agent is an individual or business entity appointed by an insurer/reinsurer to solicit applications from agents for insurance or reinsurance contracts, or to negotiate contracts on behalf of the insurer/reinsurer. If authorised by the insurer/reinsurer, the MGA may effectuate and countersign contracts on behalf of the insurer/reinsurer, thereby binding the insurer/reinsurer.

Net claims incurred The sum of ‘Gross claims paid’, ‘Reinsurance recoverables’ and ‘Movement in net outstanding claims’.

Net commission Comprised of commissions, brokerage fees and insurance taxes.

Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the market and line of business. Acquisition costs are reported after (1) deducting commissions received on ceded reinsurance, (2) deducting costs relating to the successful acquisition of new and renewal insurance and reinsurance contracts and (3) including the amortisation of previously deferred acquisition costs.

Net earned premiums The portion of net written premiums during or prior to a given period that was recognised as income during such period.

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Net (written) premiums Gross written premiums, less premiums ceded to reinsurers.

Net underwriting results or net technical results The pre-tax profit or loss experienced by an insurance or reinsurance company that is calculated by deducting net losses and loss expenses and net commissions from net earned premiums. This profit or loss calculation includes reinsurance assumed and ceded but excludes investment income and operating and administrative expenses.

Non-proportional reinsurance Reinsurance or insurance that indemnifies the reinsured or insured against all or a specified portion of losses on underlying insurance policies in excess of a specified amount, which is called a ‘level’ or ‘retention.’ Also known as Excess of loss reinsurance, non-proportional reinsurance is written in layers.

A reinsurer or group of reinsurers accepts a layer of coverage up to a specified amount. The total coverage purchased by the cedant is referred to as a ‘program’ and will typically be placed with predetermined reinsurers in pre-negotiated layers. Any liability exceeding the outer limit of the program reverts to the ceding company, which also bears the credit risk of a reinsurer’s insolvency or default.

Ogden discount rates Rates used in court cases in the United Kingdom to calculate the present value lump sum payment that an insurance company should pay to claimants who have suffered life-changing injuries, in order to cover all of their predicted future losses due to the injury.

Outstanding claims Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay. Reserves are established for losses and for loss expenses, and consist of claims reported unsettled and IBNR reserves. ‘Outstanding Claims’ includes reserves for both losses and for loss expenses.

Per occurrence limitations The maximum amount recoverable under an insurance or reinsurance policy as a result of any one event, regardless of the number of claims.

Peril A harmful event or danger which may be covered under an insurance or reinsurance contract as an insured peril or excluded from it.

Product liability Insurance that provides coverage to manufacturers and/or distributors of tangible goods against liability for personal injury caused if such products are found to be unsafe or defective.

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Residual value insurance Guarantees the owner of leased property, or a third party, a particular value at a specified future date, usually the termination date of the lease.

Professional indemnity Insurance that provides liability coverage to directors and officers, attorneys, doctors, accountants and other professionals who offer services to the general public and claim expertise in a particular area greater than the ordinary layperson for their negligence or act that may be deemed unlawful, harmful or contrary to law.

Retention The amount of exposure an insured retains on any one risk or group of risks. The term may apply to an insurance policy, where the insured is an individual or business, or a reinsurance contract, where the insured is an insurance company.

See ‘Deductible.’

Property reinsurance Reinsurance that provides coverage to a party with an insurable interest in tangible property for that party’s property loss, damage or loss of use.

Property catastrophe reinsurance Reinsurance that protects the ceding company against accumulated losses in excess of a stipulated sum that arise from a catastrophic event such as an earthquake, fire or windstorm.

‘Catastrophe loss’ generally refers to the total loss of an insurer arising out of a single catastrophic event.

Proportional reinsurance Reinsurance in which the reinsurer shares a proportional part of the original premiums and losses of the reinsured.

(Also known as pro rata reinsurance, quota share reinsurance or participating reinsurance.) In proportional reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (including commissions, premium taxes, assessments and miscellaneous administrative expense) and also may include a profit factor. See also ‘Quota Share Reinsurance’.

Quota share reinsurance A proportional reinsurance treaty in which the ceding company cedes an agreed-on percentage of every risk it insures that falls within a class or classes of business subject to the treaty.

Reinsurance The practice whereby one insurer, called the reinsurer, in consideration of a premium paid to that reinsurer, agrees to indemnify another insurer or reinsurer, called the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of insurance that it has issued.

Reserves Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay. Reserves are established for losses and for loss expenses, and consist of claims reported and unsettled and IBNR reserves.

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Retrocessional coverage A transaction whereby a reinsurer cedes to another reinsurer, the retrocessionaire, all or part of the reinsurance that the first reinsurer has assumed. Retrocessional reinsurance does not legally discharge the ceding reinsurer from its liability with respect to its obligations to the reinsured. Reinsurance companies cede risks to retrocessionaires for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual risks, to protect against catastrophic losses, to stabilise financial ratios and to obtain additional underwriting capacity.

Short tail Insurance or reinsurance where claims are usually made during the term of the policy/treaty or shortly after the policy/ treaty has expired. Property reinsurance is an example of short tail business.

Specialty lines A term used in the insurance and reinsurance industry to describe types of insurance or classes of business that require specialised expertise to underwrite. Insurance and reinsurance for these classes of business is not widely available and is typically purchased from the specialty lines divisions of larger insurance companies or from small specialty lines insurers.

Structured finance Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally a simple loan would not suffice for the borrower so the more complex and risky finance instruments are implemented.

Structured finance products include derivatives, securitised and collateralised debt instruments, credit default swaps and hybrid securities.

Shareholders equity (surplus or statutory surplus) As determined under accounting principles, the amount remaining after all recognised liabilities, including loss reserves, are subtracted from all of the recognised assets on the balance sheet. Shareholders equity is also referred to as surplus. As determined under statutory accounting principles, it is also referred to as ‘statutory surplus’ or ‘surplus as regards policyholders’ for statutory accounting purposes.

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Tail value at risk A Risk measure associated with the more general ‘Value at Risk’.

It quantifies the expected value of the loss given that an event outside a given probability level has occurred.

Treaty reinsurance Reinsurance contracts under which the ceding company agrees to cede and the reinsurer agrees to assume a defined set of risks of a particular class or classes of business.

Treaty or underwriting year The year in which the reinsurance contract incepts. Exposure from contracts incepting during the current treaty year will potentially affect both the current loss year as well as future loss years.

Ultimate loss The total of all expected settlement amounts, whether paid or reserved, together with any associated loss adjustment expenses. Ultimate loss is also the estimated total amount of loss at the measurement date. For purposes of the IFRS statements, ultimate loss is the sum of the inception to date paid claims, claims reported unsettled and IBNR. Underwriter An employee of an insurance or reinsurance company who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. The underwriter is expected to select business that will produce an average risk of loss no greater than that anticipated for the class of business.

Underwriting The insurer’s or reinsurer’s process of reviewing applications submitted for reinsurance coverage, assessing the risks included in the requested coverage, determining whether or not to accept a part or all of the coverage and determining the applicable premiums.

Unearned premium The portion of premiums written that is allocable to the unexpired portion of the policy term or underlying risk.

Value at risk Estimates how much a set of policies might lose, given normal market conditions and expected losses within a set period of time.

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Head office Bermuda Qatar Reinsurance Company Limited 71 Pitts Bay Road Pembroke, HM08 Bermuda T +1 441 400 5000 Branch offices Dubai Qatar Reinsurance Company Limited Office 211â&#x20AC;&#x201C;212, Level 2 Gate Village 4, DIFC P.O. Box 506752 Dubai, UAE T +971 4 302 3444 Singapore Qatar Reinsurance Company Limited 138 Market Street CapitaGreen #24-04A Singapore 048946 T +65 6813 0888 Zurich Qatar Reinsurance Company Limited Pembroke (Bermuda), Zurich Branch Bleicherweg 72 8002 Zurich Switzerland T +41 44 207 8585 London Qatar Reinsurance Company Limited 9th Floor, 71 Fenchurch Street London EC3M 4BS United Kingdom T +44 203 598 8700 Service company Doha Qatar Reinsurance Services LLC 8th Floor, QIC Building Tamin Street, West Bay Area P.O. Box 24938 Doha, Qatar T +974 4033 7777

www.qatarreinsurance.com

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Bermuda Qatar Reinsurance Company Limited 71 Pitts Bay Road Pembroke, HM08 Bermuda