Zurich Insurance : Reinsurance Company Ltd Financial Condition Report 2023

Financial

Condition

Report 2023

Zurich Reinsurance Company Ltd

Zurich Reinsurance Company Ltd	2
Financial Condition Report 2023

Zurich Reinsurance Company Ltd

Contents

Acronyms	4
Introduction	5
A. Business activities	7
A.1 Legal structure and major subsidiaries
and branches	7
A.2 Information about the company's
strategy, objectives and key business
segments	8
A.3 Information about the company's
external auditors as per
Article 28 ISA 8	8
A.4 Significant unusual events	8
B. Performance	9
B.1 Underwriting performance	9
B.2 Investment performance	9
B.3 Intragroup events and transactions	10
C. Corporate governance and
risk management	11
C.1 Corporate governance	11
C.2 Risk management	12
C.3 Internal control system	13
C.4 Compliance	13
C.5 Internal audit	14

D. Risk profile	15
D.1 Insurance risk	15
D.2 Market risk including
investment credit risk	16
D.3 Other credit risk	19
D.4 Operational risk	19
D.5 Liquidity risk	19
D.6 Other material risks	20
E. Valuation	21
E.1 Overarching market-consistent
valuation principle	21
E.2 Market-consistent balance sheet
following SST principles	21
F. Capital management	25
G. Solvency	27
Appendix 1: Quantitative templates	30
Appendix 2: Report of the statutory
auditor on the ZRe financial statements	34

The information published in this report is consistent with the information in the Annual Report 2022 and 2023 of Zurich Reinsurance Company Ltd and the regulatory reporting of Zurich Reinsurance Company Ltd, including the regulatory reporting to the Swiss Financial Market Supervisory Authority (FINMA) on the Swiss Solvency Test, in accordance with Art.

25 ISA and Art. 53 ISO. While the financial statements and the information therein were subject to audit by the statutory auditor of Zurich Reinsurance Company Ltd, Ernst & Young Ltd (see Appendix 2), there was no external audit or review of this report.

Please further note that while this report has been filed with FINMA, FINMA has not reviewed this report.

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Financial Condition Report 2023

Zurich Reinsurance Company Ltd (continued)

Overview

Business profile

Zurich Reinsurance Company Ltd (ZRe or the company) is a reinsurance company domiciled in Zurich, Switzerland. The company is a stand-alone legal entity that has both a reinsurance and a direct non-life insurance license issued by Swiss Financial Market Supervision Authority FINMA (FINMA). The company belongs to the Zurich Insurance Group (Group). ZRe's focus is on providing reinsurance solutions primarily to affiliated companies of the Group, in particular to branches of Zurich Insurance Company Ltd (ZIC).

ZRe has a direct book, which has been in run-off for over 35 years. ZRe does not write any new direct business.

System of governance

Good corporate governance enables ZRe to create sustainable value for its shareholder, customers, employees and other stakeholders.

ZRe's enterprise risk management (ERM) framework supports achievement of the Group's strategy and helps protect capital, liquidity, earnings and reputation.

Risk profile

ZRe is fully integrated into Zurich's Group-wide risk process. For more information on ZRe's approach to risk management, please refer to the risk review section in the Zurich Insurance Group Annual Report 2023, which describes the Group's risk management framework and risk governance.

ZRe uses two sources for the identification and assessment of risks. One is the risk and capital model as required by Swiss Solvency Test (SST). This model quantifies financial risks which threaten the capital of the company over a one-year time horizon. The significant risks for ZRe, as measured by capital metrics, are premium and reserve risk, credit risk and market risk. The other source is the Total Risk Profiling™ process (TRP), which identifies all risks that threaten capital, earnings, and reputation over a three- year planning horizon. The TRP process is applied

to identify, evaluate, control, and monitor these risks. Mitigation actions are defined for key risks. The TRP is completed annually with management's participation. Critical key risks identified and assessed during the TRP conducted in 2023 included: regulatory scrutiny and upcoming regulatory changes, dependency on counterparties, adequacy of assumed reserves and currency risk.

An own risk and solvency assessment (ORSA) for ZRe is completed annually. The ZRe ORSA was submitted to FINMA at the beginning of 2024. To ensure the Board is adequately involved in the ORSA process, ZRe's Chief Risk Officer provides regular update, thus allowing the Board to challenge findings and consider its views in its decision-making process.

Financial condition

ZRe reported a net loss after taxes of CHF -17 million for the twelve months to December 31, 2023, compared to a net income after taxes of

CHF 32 million for 2022. The loss is mainly driven by the adverse FX-development of the U.S. dollar compared to the Swiss Franc (presentation currency). The underwriting result has mainly developed as planned.

To align ZRe's shareholder's capital to an economical reasonable level, the Board proposed and the Annual General Meeting approved to appropriate part of the capital contribution reserve to pay a dividend of CHF 420 million in April 2024.

Net loss after taxes 2023

CHF -16.7m

Shareholder's equity as of December 31, 2023

CHF 590m

Swiss Solvency Test (SST) ratio as of January 1, 2024

148%

.

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Financial Condition Report 2023

Acronyms

ARC	Audit and Risk Committee of the ZRe Board
AER	administration expense ratio
AFR	Available Financial Resources
AG	Aktiengesellschaft (stock company)
AGM	Annual General Meeting
ALV	Arbeitslosenversicherung (Swiss unemployment insurance)
BEL	best estimate liabilities
Board	Board of Directors
CAD	Canadian Doller
CEO	Chief Executive Officer
CFO	Chief Financial Officer
CHF	Swiss franc
CO	Swiss Code of Obligations
company	Zurich Reinsurance Company Ltd
CRO	Chief Risk Officer
DAC	deferred acquisition costs
DF	discount factor
EMEA	Europe, Middle East & Africa
ERM	enterprise risk management
EUR	euro
EY	Ernst & Young Ltd
FCR	financial condition report
FINMA	Swiss Financial Market Supervisory Authority FINMA
FOMC	U.S. Federal Open Markets Committee
GA	Group Audit
GBP	Great Britain pound
Group	Zurich Insurance Group Ltd and its subsidiaries
GWP	gross written premiums and policy fees
HKD	Hong Kong Dollar
ICS	internal control system
IFRS	International Financial Reporting Standards
IIA	Institute of Internal Auditors
IPZ	International Programs Zurich
ISA	Swiss Insurance Supervision Act
ISO	Swiss Insurance Supervision Ordinance
m	million
MVM	market value margin
MCBS	market-consistent balance sheet
nat cat	natural catastrophe
LAE	loss adjustment expenses
ORSA	own risk and solvency assessment
Q	quarter
RBC	Risk-Bearing Capital
SFCR	Solvency and Financial Condition Report
SST	Swiss Solvency Test
TRP	Total Risk Profiling™
UK	United Kingdom
UPR	unearned premium reserves
U.S.	United States of America
USD	United States dollar
WAQS	Whole Account Quota Share
ZAIC	Zurich American Insurance Company
ZGL	Zurich Global Ltd
ZIC	Zurich Insurance Company Ltd
ZIG	Zurich Insurance Group Ltd (holding company)
ZRe	Zurich Reinsurance Company Ltd
Zurich	Zurich Insurance Group Ltd and its subsidiaries

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Financial Condition Report 2023

Introduction

1. How to read the report

Zurich Reinsurance Company Ltd (ZRe or the company)'s financial condition report is prepared in compliance with the Swiss Insurance Supervision Act (ISA) Article 25, the Insurance Supervision Ordinance (ISO) Article 111a and FINMA's Circular 2016/2 'Disclosure - insurers'. The report focuses on the 2023 financial year and should be read in conjunction with ZRe's annual report 2023 (available on www.zurich.com/en/investor-relations/results-and-reports/other-statutory-filings). Wherever applicable, this report refers to the Group's financial condition report or the Group's Annual Report for more information.

The report presents information following the structure provided in FINMA's circular. It covers ZRe's business activities, performance, corporate governance and risk management, risk profile, valuation, capital management and solvency. Quantitative information refers to different frameworks applicable or mandatory to the company:

• 'Business activities'-related and 'Performance' results are presented based on the Swiss statutory reporting standards applicable to ZRe (Swiss Code of Obligations (CO) and relevant insurance supervisory law).
• The 'Risk profile' section presents information based on the Swiss statutory reporting standards for insurance risk, and a net economic asset value-based analysis of the market and credit risk.
• 'Valuation' presents the market-consistent balance sheet (MCBS) of ZRe following the Swiss Solvency Test (SST) principles. The SST MCBS is compared with the balance sheet based on the Swiss statutory reporting standards of ZRe as of December 31, 2023.
• The 'Solvency' section shows the regulatory capital adequacy of the company based on SST.

Risk and capital are managed at ZRe according to the Group's risk and capital management framework. The principles of the Group's enterprise risk management described in the 'Corporate governance and risk management section' and in the 'Risk profile' section are applicable to ZRe as well as a subsidiary of the Group.

FINMA mandates the disclosure of quantitative templates for insurance entities that are presented in Appendix 1.

All amounts, unless otherwise stated, are shown in CHF, rounded to the nearest million, with the consequence that the rounded amounts may not add up to the rounded total in all cases. All variances are calculated using the actual figures rather than the rounded amounts.

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Financial Condition Report 2023

Introduction (continued)

2. Executive summary

Business activities

ZRe is a reinsurance company domiciled in Zurich, Switzerland. The company was licensed in Switzerland on December 15, 2016. The company is a standalone legal entity that has both a reinsurance and a direct non-life insurance license issued by FINMA. The company belongs to the Zurich Insurance Group (Group) and is 100% owned by ZIC. ZRe's focus is on providing reinsurance solutions primarily to affiliated companies of the Group, in particular to branches of ZIC. To date, the retained business is predominantly from ZIC's operations in Asia Pacific and the United Kingdom (UK). During 2023, ZRe's geographical diversification has grown into the United States of America (U.S.) as ZRe has started to assume a small portion of a Whole Account Quota Share (WAQS) treaty with a Group entity in the U.S., which is fully retained. ZRe has a direct book, which has been in run-off for over 35 years.

Company results

ZRe reported a net loss after taxes of CHF 17 million for the twelve months to December 31, 2023. The loss is mainly driven by net FX-losses of CHF 37 million following the weaker U.S. dollar exchange rate in 2023 compared to 2022. From an underwriting perspective, the active business performed mainly as expected in the twelve months ending December 31, 2023.

Corporate governance and risk management

ZRe is a member of the Zurich Insurance Group (Zurich or the Group). The Group is committed to effective corporate governance for the benefit of its shareholder, customers, employees and other stakeholders based on the principles of fairness, transparency and accountability. Structures, rules and processes are designed to provide proper organization and conduct of business within Zurich and to define the powers and responsibilities of its corporate bodies and employees. These principles are also applied to ZRe.

Taking risk is inherent to the insurance business, but such risk-taking needs to be made in an informed and disciplined way, and within a pre-determined risk appetite and tolerance. This is the primary objective of ZRe's risk management.

Risk profile

ZRe uses the Total Risk Profiling™ process to monitor both external and internal risks to its strategy and financial plan. Among the risks identified in 2023 were regulatory scrutiny and upcoming regulatory changes, dependency on counterparties, adequacy of assumed reserves and currency risk as well as monitoring the performance of the new UK and U.S. portfolio.

In 2023, ZRe produced an own risk and solvency assessment (ORSA), as required by the Swiss regulator FINMA, which was submitted at the beginning of 2024.

Valuation

ZRe's market-consistent assets and liabilities are derived and valued in accordance with FINMA guidelines and are used to calculate the risk-bearing capital from ZRe's market-consistent balance sheet MCBS.

Solvency

The Swiss Solvency Test (SST) adopts a risk-based and total balance sheet approach. Insurance companies are required to provide a market-consistent assessment of the value of their assets and liabilities. Potential changes to these balance sheet positions are modelled over a one-year period to arrive at the total required capital.

Under SST, insurance companies and insurance groups can apply to use company-specific internal models to calculate risk-bearing and target capital, as well as the SST ratio. The SST ratio must be calculated as per January 1 and submitted to the Swiss Financial Market Supervisory Authority (FINMA).

For the SST 2024 calculation, ZRe uses an internal model approved by FINMA following an internal model approval process (IMAP) in 2020.

The SST ratio as of January 1, 2024, stands at 148 percent (unaudited). It is filed with FINMA at the end of April 2024 and is subject to review by FINMA. ZRe met the regulatory solvency requirements in Switzerland throughout 2023.

3. Approval of the Financial Condition Report

This report was reviewed and signed off by the Board of ZRe on April 19, 2024.

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Financial Condition Report 2023

A. Business activities

A.1 Legal structure and major subsidiaries and branches

ZRe is part of the Zurich Insurance Group (Group), a leading multi-line insurer that serves its customers in global and local markets.

Public reporting on solvency and financial condition within Zurich Insurance Group

FCR

Zurich Insurance

Group Ltd

Allied Zurich

Holdings Limited

		Allied Zurich				Zurich Insurance
		Limited			FCR	Company Ltd
Farmers			Zurich Holding
Group, Inc.			Company
					of America, Inc.

Other

subsidiaries worldwide

Zurich Financial

Services

EUB Holdings Limited

Subsidiaries

Switzerland

Zurich Life

Insurance

Company Ltd

FCR

	Zurich				Orion Legal
	Reinsurance				Expenses
	Company Ltd				Insurance Ltd.
FCR				FCR

United Kingdom

Germany

Italy

Spain

Austria

Ireland

Portugal

Luxembourg

Zurich

Assurance Ltd

SFCR

Zurich

Deutscher

Herold Lebens-

versicherung

Aktiengesellschaft

Zurich Life Legacy

Versicherung AG

Deutschland2

Deutsche

Allgemeine

Versicherung

Aktiengesellschaft

Real Garant

Versicherung

Aktiengesellschaft

Zurich

Investments

Life S.p.A.

Zurich

Vida Compañía

de Seguros y

Reaseguros S.A.

Bansabadell

Vida SA de

Seguros y

Reaseguros

Bansabadell

Seguros

Generales S.A.

Zürich

Versicherungs-

Aktien-

gesellschaft

Zurich Insurance plc1

Zurich Life Assurance plc

Zurich

Companhia

de Seguros

Vida S.A.

Zurich

Eurolife S.A.

SFCR: Solvency and Financial Condition Report (local regulation based on Solvency II; from 2016)

FCR: Financial Condition Report (Swiss regulation; from 2017)

Subsidiary

Group of subsidiaries

Current disclosure

Note: The purpose of the chart above is to provide a simplified overview of the Group's major subsidiaries (as of December 31, 2023), with special focus on the

public reporting of their solvency and financial condition. Please note that this is a simplified representation showing entities that must publish such a report and therefore it may not comprehensively reflect the detailed legal ownership structure of the entities included in the overview. The ordering of the legal entities under each country is not indicative of ownership; these are independent legal entities.

1 Effective January 2, 2024, the registered head office of Zurich Insurance plc (ZIP) was moved from Dublin, Ireland, to Frankfurt, Germany, by means of a cross-border conversion under the European Directive on cross-border conversions, mergers and divisions. While ZIP has converted to a German AG known as Zurich Insurance Europe AG (ZIE), it has preserved its legal personality in the conversion (i.e., no transfer of assets, dissolution or winding up were involved in this move).

2 Life insurance business as from October 2023.

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Financial Condition Report 2023

A. Business activities (continued)

ZRe is a 100 percent subsidiary of ZIC, which in turn is fully owned by Zurich Insurance Group Ltd, the ultimate holding company of the Group.

A.2 Information about the company's strategy, objectives and key business segments

ZRe's strategy is to actively facilitate an optimal capital and risk management strategy through intragroup reinsurance. It aims to provide capacity for customers while protecting the balance sheet, managing earnings volatility and achieving capital efficiency.

ZRe's main activity is assuming property and casualty risks from affiliated companies of the Group. ZRe retains partially or entirely a certain number of treaties.

ZRe's strategy is tailored to customers and product propositions as follows:

• Provides risk and solvency relief to Zurich branches and subsidiaries by way of treaty reinsurance.
• Supports the Group's international program business by assuming reinsurance from mostly local Zurich branch offices issuing local policies and retroceding such business to the Zurich 'producing company' or to a central Zurich balance sheet (the 'clearing house').
• Participates in the Group's own insurance programs.
• Manages the run-off of a clearly identified book of businesses that is no longer written by ZRe.

Outsourcing of services

As of December 15, 2016, ZRe and ZIC entered into an employment services agreement ('Personalleihvertrag'), under which ZIC committed to provide defined services. The key roles and responsibilities subject to this employment services agreement are the ZRe Management Board Members, the Appointed Actuary, the head of Risk Management and the head of Compliance. ZRe draws on ZIC and other affiliated Zurich companies to provide all other services not subject to the employment services agreement based on outsourcing agreements between ZRe, ZIC and ZIC affiliates.

A.3 Information about the company's external auditors as per Article 28 ISA 8

Ernst & Young Ltd (EY), Maagplatz 1, in 8005 Zurich, were re-elected as ZRe's external auditors for the financial year 2023 by the AGM on April 13, 2023.

EY assumes all auditing functions which are required by law and the Articles of Association. EY is responsible for auditing ZRe's financial statements and for auditing its compliance with specific regulatory requirements. The external auditors are appointed by the shareholder of ZRe annually.

A.4 Significant unusual events

There have been no significant unusual events in 2022 and 2023.

The Company has no direct exposure to the armed conflict in Israel and the Gaza Strip and does not anticipate any material effects on its financial position or performance. While the direct exposure is very limited, conflicts of this nature can contribute to uncertainty in the financial markets, potentially affecting monetary policies, oil prices and inflation.

As reported earlier, the company's exposure to Russia and Ukraine continues to be immaterial.

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Financial Condition Report 2023

B. Performance

ZRe reported a net loss after taxes of CHF 17 million for 2023 and a net income after taxes of CHF 32 million for 2022. The loss is mainly driven by the adverse FX-development of the U.S. dollar compared to the Swiss Franc (presentation currency). The underwriting result has mainly developed as planned.

The investment income result was driven by a combination of third-party invested assets and Group-internal loans and developed in line with expectations.

B.1 Underwriting performance

From an underwriting perspective, the active business, despite the increased inflation, performed mainly as planned in the twelve months ending December 31, 2023. The run-off business continues to be managed carefully consistent with previous years. During 2023, the company, based on updated market information, decided to keep conservative approach to reserve this portfolio.

Business stemmed primarily from four sources:

• Reinsurance of the Group's entities in Asia Pacific, mainly business assumed from ZIC's Japan branch, which primarily originated from quota share reinsurance for the motor and personal accident business.
• Reinsurance of the Group's United Kingdom portfolio where ZRe retains a 10% share out of the Whole Account Quota Share business, starting with accident year 2023.
• International program business, through which ZRe supports the Group's international program business propositions for its corporate and commercial clients. This insurance risk is retroceded to ZIC and not retained in ZRe.
• The run-off business continued to be managed carefully.

Key markets

Gross written premiums and policy fees totaled CHF 4,216 million. United Kingdom (UK) and the Asia Pacific region account for 72 percent and 17 percent, respectively, of the company's gross written premiums and policy fees. The remaining 11 percent is with the rest of the world. Gross written premiums and policy fees are generated through non-International Programs Zurich (non-IPZ) business (58 percent) and International Programs Zurich (IPZ)-processed business (42 percent). The IPZ assumed business from ZIC branches is retroceded to ZIC and the non-IPZ assumed business is substantially retained by ZRe. The non-IPZ business is mainly comprised of quota share reinsurance from ZIC branches, in Japan (motor and personal accident (PA) business), in UK (Whole Account Quota Share (WAQS)) and in Hong Kong (WAQS). It grew mainly due to the new UK contracts.

B.2 Investment performance

Investment income	in CHF millions, for the years		Current income	Realized capital gains		Write-ups		Totals
ended December 31	2022	2023	2022	2023	2022	2023	2022	2023
by category
	Debt securities	10	19	-	1	-	-	10	21
	Other loans	2	2	-	-	-	-	2	2
	Investment income	12	21	-	1	-	-	13	22
Investment	in CHF millions, for the years ended		Realized capital losses		Write-downs		Total
December 31		2022	2023	2022		2023	2022	2023
expenses
by category	Debt securities		(5)	(2)	-		-	(5)	(2)
	Other loans		-	-	-		-	-	-
	Subtotal investment expenses		-	-	-		-	(5)	(2)
	Investment general expenses		n.a.	n.a.	n.a.		n.a.	-	-
	Investment expenses		(5)	(2)	-		-	(5)	(2)

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Financial Condition Report 2023

B. Performance (continued)

ZRe's net investment result for the period January 1, 2023, to December 31, 2023, was CHF 20.1 million and it developed in line with management's expectations. The result is the aggregation of six portfolios of assets denominated in Canadian Dollar (CAD), U.S. dollar (USD), Hong Kong Dollar (HKD) and British Pound (GBP). The result was underpinned by volatile but high level of interest rates globally, the US 10-year bond ended the year 2023 unchanged at 3.9 percent compared to the beginning of the year while reaching highs of 4.9 percent end October and lows of 3.4 percent in March. Within the CAD portfolios, interest rate dynamics on the sovereign curve were similar to those of the USD curve with the 10-year CAD bond ending the year at 3.1 percent. GBP 10-year bonds slightly declined towards end of 2023, from 3.7 percent in January to 3.5 percent. Similarly for the HKD portfolio, the reference yield (Hong Kong sovereign curve) observed with the 7-year bond declined; from 3.7 percent at the beginning of the year to a yield of 2.9 percent at the end of 2023.

In the aggregate, realized capital losses amounted to CHF 2.0 million, mainly due to the sale of Canadian government bonds in order to reposition the portfolios and reinvest at the higher market interest rate. As in prior years, the management of the invested assets remained outsourced to external asset managers.

B.3 Intragroup events and transactions

Transactions in 2023

ZRe entered successfully into a broad novation and reinsurance treaty relationship with ZIC's branch in UK with effective date January 1, 2023, and further entered into a novation with Zurich Global Ltd (ZGL) to assume a minor co-reinsurance share from Zurich American Insurance Company (ZAIC)'s WAQS, effective date November 1, 2023. There were no other material intragroup events and transactions not mentioned otherwise in this report in 2023. The current outlook to these transactions is so far as expected, however, will be closely monitored by management in order to take action during renewals, if required.